<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the
registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
RULE INDUSTRIES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share ("Common Stock") of Rule Industries, Inc.
(the "Company"), and various options and warrants to purchase shares of such
Common Stock.
(2) Aggregate number of securities to which transactions applies: 3,067,095
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
The filing fee has been calculated as follows: 1/50 of 1% of the sum of (a) the
aggregate cash merger consideration of $45,728,303.50 and (b) $520,000, which is
the Company's estimate of the value of its rights under agreements relating to
certain currently pending arbitration proceedings to be transferred to a
liquidating trust for the benefit of stockholders of the Company as of the
effective time of the merger. The aggregate cash merger consideration referred
to above has been calculated as follows: each of 2,955,970 shares of Common
Stock will be converted into $15.30 in cash (for a total of $45,226,341); each
of 53,125 warrants to purchase Common Stock at an exercise price of $10.00 per
share will be cancelled in return for $5.30 (for a total of $281,562.50); and
each of 58,000 options to purchase Common Stock at an exercise price of $11.50
per share will be cancelled in return for $3.80 (for a total of $220,400).
(4) Proposed maximum aggregate value of transaction: $46,250,303.50
(5) Total fee paid: $9,250.00
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
December 15, 1995
Dear Stockholder:
You are cordially invited to attend the important Special Meeting of Rule
Industries, Inc. stockholders to be held at 10:00 a.m. on January 12, 1996 at
the Burlington Marriott Hotel, One Mall Road, Burlington, Massachusetts.
At the Special Meeting, you will be asked to consider and approve an
agreement and plan of merger between the Company and Greenfield Industries, Inc.
The merger agreement provides that and each outstanding share of common stock of
the Company will be converted into the right to receive $15.30 in cash and a
beneficial interest in a liquidating trust, all as more particularly described
in the accompanying Proxy Statement, which you are encouraged to review.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE MERGER PROPOSAL.
SINCE APPROVAL OF THE MERGER PROPOSAL REQUIRES AN AFFIRMATIVE VOTE OF TWO-THIRDS
OF THE OUTSTANDING SHARES, IT IS CRITICALLY IMPORTANT THAT YOUR SHARES BE
REPRESENTED AT THE MEETING.
Please sign, date and mail the enclosed proxy in the postage paid envelope
provided, even if you plan to attend the Special Meeting. If you do attend, you
may retrieve the proxy and then vote in person.
We appreciate your prompt attention to this matter. Considering the holiday
mails, we ask that you take a moment at your earliest convenience to vote your
shares. Thank you.
On Behalf of the Board of Directors
Sincerely,
/s/ Gary M. Sable
Gary M. Sable
Executive Vice President
<PAGE> 3
RULE INDUSTRIES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 12, 1996
A special meeting (the "Special Meeting") of Stockholders of Rule
Industries, Inc., a Massachusetts corporation (the "Company"), will be held on
January 12, 1996 at 10:00 a.m. local time, at the Burlington Marriott Hotel, One
Mall Road, Burlington, Massachusetts 01803, for the purposes of considering and
voting on the following:
1. The approval and adoption of an Agreement and Plan of Merger dated as of
August 11, 1995, as amended (the "Merger Agreement"), among the Company,
Greenfield Industries, Inc. ("Greenfield") and Rule Acquisition
Corporation, a wholly owned subsidiary of Greenfield ("Acquisition"),
providing for a merger (the "Merger") of Acquisition with and into the
Company in which the Company will become a wholly owned subsidiary of
Greenfield and each issued and outstanding share of common stock, $.01 par
value per share ("Common Stock"), of the Company (other than (i) shares as
to which appraisal rights are perfected ("Dissenting Shares") and (ii)
shares then owned by Greenfield, Acquisition or any other direct or
indirect subsidiary of Greenfield ("Greenfield Shares")) will be converted
automatically into the right to receive $15.30 in cash and (except for
Dissenting Shares, Greenfield Shares and shares of Common Stock owned by
Henry G. Libby) a beneficial interest in a liquidating trust, all as more
particularly described in the accompanying Proxy Statement.
2. The approval of one or more adjournments of the Special Meeting, if
necessary, to allow time for further solicitation of proxies in the event
the inspectors of election advise the Company's Board of Directors that
there may not be sufficient votes at the time of the Special Meeting to
approve and adopt the Merger Agreement.
3. Such other business as may properly come before the Special Meeting or any
adjournment or adjournments thereof.
The Board of Directors of the Company (the "Board") has fixed the close of
business on November 24, 1995 as the record date for determining the
stockholders having the right to receive notice of and to vote at the Special
Meeting. The Board (with one member dissenting) has determined that the terms of
the Merger are fair to and in the best interests of the Company and its
stockholders, has approved the Merger Agreement and recommends that stockholders
vote in favor of approval and adoption of the Merger Agreement.
Section 85 of the Massachusetts Business Corporation Law (the "MBCL")
provides that a stockholder in any Massachusetts corporation which has voted to
consolidate or merge with another corporation is entitled, pursuant to Sections
86 to 98, inclusive, of the MBCL, to certain rights to demand payment for, and
an appraisal of, the "fair value" of such stockholder's shares. Accordingly,
please be advised as follows:
If the Merger Agreement is approved by the stockholders at the Special
Meeting and the Merger is effected by the Company, any stockholder (i) who files
with the Company, before the taking of the vote on the approval of such matter,
written objection to the proposed action stating that such stockholder intends
to demand payment for such stockholder's shares if such action is taken and (ii)
whose shares are not voted in favor of such action, has or may have the right to
demand in writing from the Company, within 20 days after the date of mailing to
such stockholder of notice in writing that the Merger has become effective,
payment for such stockholder's shares and an appraisal of the value thereof. The
Company and any such stockholder shall in such cases have the rights and duties
and shall follow the procedures set forth in Sections 88 to 98, inclusive, of
Chapter 156B of the General Laws of Massachusetts.
<PAGE> 4
The business matters enumerated above are discussed more fully in the
accompanying Proxy Statement. Whether or not you expect to be present at the
Special Meeting, in order to assure that your shares of Common Stock will be
voted at the Special Meeting, you are requested to sign and mail promptly the
enclosed Proxy which is being solicited on behalf of the Board. A return
envelope, which requires no postage if mailed in the United States, is enclosed
for that purpose. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL
MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN
IF SUCH STOCKHOLDER HAS RETURNED A PROXY.
December 13, 1995
Burlington, Massachusetts
By Order of the Board of Directors
John A. Geishecker, Jr., Clerk
<PAGE> 5
------------------------------------
PROXY STATEMENT
------------------------------------
RULE INDUSTRIES, INC.
70 BLANCHARD ROAD
BURLINGTON, MASSACHUSETTS 01803
------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 12, 1996
------------------------------------
INTRODUCTION
This Proxy Statement is being furnished to stockholders of Rule Industries,
Inc., a Massachusetts corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company (the "Board") of proxies
for use at a Special Meeting of Stockholders to be held on January 12, 1996 (the
"Special Meeting"), to consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of August 11, 1995, as amended (the
"Merger Agreement"), among Greenfield Industries, Inc., a Delaware corporation
("Greenfield"), Rule Acquisition Corporation, a Massachusetts corporation and a
wholly owned subsidiary of Greenfield ("Acquisition"), and the Company, pursuant
to which Acquisition will be merged (the "Merger") with and into the Company,
and the Company, which will be the corporation surviving the Merger, will be
acquired by, and become a wholly owned subsidiary of, Greenfield upon the terms
described in this Proxy Statement.
If the Merger is consummated, stockholders of the Company (other than
Greenfield) will thereafter possess no equity interest in, or any of the rights
of stockholders of, the Company or Greenfield, and each share of common stock,
par value $.01 per share ("Common Stock"), of the Company, issued and
outstanding at the time the Merger is consummated (other than (i) shares as to
which appraisal rights are perfected ("Dissenting Shares") and (ii) shares then
owned by Greenfield, Acquisition or any other direct or indirect subsidiary of
Greenfield ("Greenfield Shares")), will automatically be converted into the
right to receive $15.30 in cash and (except for Dissenting Shares, Greenfield
Shares and shares of Common Stock owned by Henry G. Libby) a beneficial interest
in a liquidating trust.
In connection with the Merger, stockholders of the Company at the effective
time of the Merger (other than holders of Dissenting Shares, Henry G. Libby
("Libby"), Greenfield and any direct or indirect subsidiary of Greenfield) will
be entitled to receive a non-transferrable beneficial interest in a liquidating
trust (the "Liquidating Trust") formed solely to (i) receive from the Company
all of its right, title and interest in any recoveries to which it may be
entitled under certain agreements relating to the currently pending arbitration
proceedings between The Disston Company and Sandvik, Inc. and (ii) assume and
perform all of the Company's duties and obligations under such agreements. The
Liquidating Trust also will be responsible for certain indemnification
obligations to Greenfield. By approving and adopting the Merger Agreement,
stockholders of the Company will be deemed to have: (i) approved the creation of
the Liquidating Trust and the related trust agreement substantially in the form
attached as Annex IV to this Proxy Statement; (ii) ratified the appointment by
the Board of the initial trustees of the Liquidating Trust; and (iii) authorized
the transfer of certain assets of the Company to the Liquidating Trust.
The date on which this Proxy Statement is first being mailed or given to
stockholders is on or about December 13, 1995. Only stockholders of record at
the close of business on November 24, 1995 are entitled to vote at the Special
Meeting or any adjournment or adjournments thereof.
The information contained herein concerning Greenfield and Acquisition has
been supplied by Greenfield, and the information contained herein concerning the
Company has been supplied by the Company.
------------------------------------
The date of this Proxy Statement is December 13, 1995
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY OF PROXY STATEMENT............................................................. 1
THE SPECIAL MEETING.................................................................... 1
Time, Date and Place of the Special Meeting.......................................... 1
Purpose of the Special Meeting....................................................... 1
Voting Rights, Proxy Information and Required Vote................................... 10
Proxy Solicitation................................................................... 12
THE MERGER............................................................................. 12
General.............................................................................. 12
Background........................................................................... 13
Recommendation of the Board of Directors............................................. 17
Opinion of Financial Advisor......................................................... 18
Interests of Certain Persons in the Merger........................................... 21
The Liquidating Trust................................................................ 23
Accounting Treatment................................................................. 26
Certain Regulatory Matters........................................................... 27
The Greenfield Option................................................................ 27
THE MERGER AGREEMENT................................................................... 28
Effective Time of the Merger......................................................... 28
Effects of the Merger................................................................ 28
Exchange of Certificates and Payment of Cash Merger Consideration.................... 28
Rights of Dissenting Stockholders.................................................... 29
Representations and Warranties....................................................... 29
Non-Survival of Representations and Warranties....................................... 30
Conduct of Business of the Company Prior to the Merger............................... 30
Cooperation Prior to Closing......................................................... 31
Nonsolicitation...................................................................... 31
Conditions to the Merger............................................................. 32
Regulatory Approvals................................................................. 32
Amendments........................................................................... 32
Termination of the Merger Agreement.................................................. 32
Costs and Expenses................................................................... 33
Management of the Company............................................................ 33
Source and Amount of Funds........................................................... 33
APPRAISAL RIGHTS....................................................................... 33
FEDERAL INCOME TAX CONSEQUENCES........................................................ 34
BENEFICIAL OWNERSHIP OF COMMON STOCK................................................... 36
CERTAIN INFORMATION REGARDING GREENFIELD............................................... 37
Description of Greenfield and Acquisition............................................ 37
CERTAIN INFORMATION WITH RESPECT TO THE COMMON STOCK................................... 38
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BUSINESS AND OPERATIONS OF THE COMPANY................................................. 38
General.............................................................................. 38
Industry Segment Information......................................................... 38
Properties........................................................................... 38
SELECTED CONSOLIDATED FINANCIAL DATA................................................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 43
Results of Operations................................................................ 43
Liquidity and Capital Resources...................................................... 44
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................ 44
OTHER MATTERS.......................................................................... 45
AVAILABLE INFORMATION.................................................................. 45
STOCKHOLDER PROPOSALS.................................................................. 45
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF RULE INDUSTRIES, INC. AND SUBSIDIARIES... F-1
ANNEXES
I. Agreement and Plan of Merger, as amended
II. Sections 85-98 of the Massachusetts Business Corporation Law
III. Opinion of Shields & Company, Inc.
IV. Liquidating Trust Agreement
</TABLE>
ii
<PAGE> 8
SUMMARY OF PROXY STATEMENT
The following is a summary of certain information contained in this Proxy
Statement. This summary is not intended to be a complete statement of all
material features of the Merger and is qualified in its entirety by reference to
the more detailed information contained elsewhere in this Proxy Statement, the
Annexes hereto and the documents referred to herein. Stockholders are urged to
read this Proxy Statement and the Annexes hereto in their entirety.
THE PARTIES TO THE MERGER
Greenfield and Acquisition. Greenfield, a Delaware corporation, is a
leading world-wide manufacturer of expendable rotary cutting tools and related
products used in a variety of industrial, electronics, oilfield equipment,
mining and wear parts and consumer markets. Acquisition, a Massachusetts
corporation and a wholly owned subsidiary of Greenfield, was recently
incorporated to effect the Merger. The address and telephone number of the
principal executive offices of Greenfield and Acquisition are 470 Old Evans
Road, Evans, Georgia 30809 (706) 883-7708. See "CERTAIN INFORMATION REGARDING
GREENFIELD."
The Company. The Company, a Massachusetts corporation, develops and
manufactures products for industrial and consumer hardware markets and
recreational marine markets. The address and telephone number of the Company's
principal executive offices are 70 Blanchard Road, Burlington, Massachusetts
01803 (617) 272-7400. See "BUSINESS AND OPERATIONS OF THE COMPANY."
TIME, DATE, AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held at the Burlington Marriott Hotel, One Mall
Road, Burlington, Massachusetts 01803 on January 12, 1996, at 10:00 a.m., local
time.
RECORD DATE
Only holders of record of shares of Common Stock of the Company at the
close of business on November 24, 1996 (the "Record Date") will be entitled to
notice of and to vote at the Special Meeting or any adjournment or adjournments
thereof. As of such date, there were 3,586,025 shares of Common Stock
outstanding and entitled to vote, with each share entitled to one vote on any
matter that may properly come before the Special Meeting.
PURPOSE OF THE SPECIAL MEETING; SHARES ENTITLED TO VOTE; REQUIRED VOTE
At the Special Meeting, holders of shares of Common Stock will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement
pursuant to which Acquisition will be merged with and into the Company, and the
Company, which will be the corporation surviving the Merger (the "Surviving
Corporation"), will be acquired by, and become a wholly owned subsidiary of,
Greenfield. See "THE MERGER" and "THE MERGER AGREEMENT."
The affirmative vote of the holders of two-thirds of the outstanding shares
of Common Stock is required to approve and adopt the Merger Agreement. William
N. Anastos, a director of the Company who has been on fully paid leave of
absence as president of the Company since July 21, 1995, voted as a director
against adopting and approving the Merger Agreement. On November 20, 1995, Mr.
Anastos and his affiliates granted Greenfield a proxy with respect to all shares
of Common Stock over which they exercise voting discretion ("Votable Shares").
According to documents filed by Mr. Anastos with the Securities and Exchange
Commission (the "SEC"), and the most recent information available as of the
Record Date, Mr. Anastos and his affiliates had voting discretion over 611,100
shares of Common Stock, constituting approximately 17% of the Common Stock
outstanding and entitled to vote at the Special Meeting. See "THE SPECIAL
MEETING -- Voting Rights, Proxy Information and Appraisal Rights," "THE MERGER
- -- Interests of Certain Persons in the Merger" and "BENEFICIAL OWNERSHIP OF
COMMON STOCK."
1
<PAGE> 9
By approving and adopting the Merger Agreement, stockholders of the Company
shall be deemed to have: (i) approved the creation of the Liquidating Trust and
the related trust agreement substantially in the form attached as Annex IV to
this Proxy Statement; (ii) ratified the appointment by the Board of the initial
trustees of the Liquidating Trust; and (iii) authorized the transfer of certain
assets to the Liquidating Trust. See "-- The Liquidating Trust" and "THE MERGER
- -- The Liquidating Trust."
If the inspectors of election advise the Board that there may not be
sufficient votes to approve and adopt the Merger Agreement at the originally
scheduled time of the Special Meeting, the Board presently expects to seek one
or more adjournments of the Special Meeting to allow time for further
solicitation of proxies. In order to allow proxies that have been received by
the Company at the time of the Special Meeting to be voted for such adjournment,
if necessary, the Company has submitted the question of adjournment under such
circumstances to its stockholders as a separate matter for their consideration.
The vote of a majority of the shares represented and voting at the Special
Meeting is required in order to approve adjournment of the Special Meeting, if
necessary, to permit further solicitation of proxies in favor of adopting and
approving the Merger Agreement.
THE MERGER
Pursuant to the Merger Agreement (a copy of which is attached as Annex I to
this Proxy Statement), Acquisition will be merged with and into the Company, and
the Company, which will be the Surviving Corporation in the Merger, will be
acquired by, and become a wholly owned subsidiary of, Greenfield. As a result of
the Merger, (i) holders of Common Stock (other than Greenfield) will thereafter
possess no equity interest in, or any of the rights of stockholders of, the
Company or Greenfield, and each share of Common Stock issued and outstanding at
the time the Merger is consummated (other than Dissenting Shares and shares then
owned by Greenfield, Acquisition, or any other direct or indirect subsidiary of
Greenfield), will be converted into the right to receive $15.30 in cash and,
under certain circumstances described in this Proxy Statement, a Beneficial
Interest (as defined below) in the Liquidating Trust and (ii) immediately prior
to the Effective Time (as defined below), each option to purchase shares of
Common Stock (individually, a "Rule Stock Option" and collectively, the "Rule
Stock Options"), including all options issued pursuant to the Company's 1987
Incentive Stock Option Plan and its 1987 Non-Statutory Stock Option Plan
(collectively, the "Stock Option Plans") and issued pursuant to the
Non-Qualified Stock Option Agreement between the Company and Libby, a Vice
President of the Company, and each warrant to purchase shares of Common Stock
(individually, a "Rule Warrant" and, collectively, the "Rule Warrants") which is
then outstanding and exercisable in full, will be canceled and the holder
thereof will be entitled to receive an amount in cash equal to the excess, if
any, of (A) $15.30 multiplied by the number of shares of Common Stock subject to
the Rule Stock Option or Rule Warrant over (B) the exercise price of the Rule
Stock Option or Rule Warrant, as the case may be, multiplied by the number of
shares of Common Stock subject thereto. Under the Merger Agreement, Greenfield
is not required to consummate the Merger unless all of the Rule Stock Options
and Rule Warrants either have been exercised or cancelled. On September 21,
1995, the Company accelerated the vesting of all outstanding Rule Stock Options,
except those held by Mr. Anastos. As described under "-- Interests of Certain
Persons in the Merger," on November 20, 1995, with the consent of Greenfield,
the Company accelerated the vesting of all outstanding unvested Rule Stock
Options (87,000) held by Mr. Anastos. At the date of this Proxy Statement, all
holders of Rule Stock Options and holders of Rule Warrants have advised the
Company that they either have exercised or agreed to cancellation of their
respective Rule Stock Options and Rule Warrants, as the case may be. See "THE
MERGER" and "THE MERGER AGREEMENT."
THE LIQUIDATING TRUST
In connection with the Merger, the Liquidating Trust will be established
prior to the Effective Time (as defined below) for the exclusive benefit of the
stockholders of the Company at the Effective Time (other than the Excluded
Stockholders (as defined below)), and each such stockholder (other than the
Excluded Stockholders) of the Company will become a beneficiary (a
"Beneficiary") of the Liquidating Trust with a beneficial interest (a
"Beneficial Interest") in the Liquidating Trust equal to such stockholder's
proportionate
2
<PAGE> 10
interest in the Company (without taking into account shares of Common Stock held
by the Excluded Stockholders). "Excluded Stockholders" shall mean holders of
Dissenting Shares, Libby, Greenfield and any direct or indirect subsidiary of
Greenfield.
The Liquidating Trust will be formed solely to receive from the Company all
of its right, title and interest in any recoveries to which it may be entitled
under certain agreements relating to the currently pending arbitration
proceedings (the "Disston Arbitration Proceedings") between The Disston Company
("Disston") and Sandvik, Inc. ("Sandvik") and to assume and perform all of the
Company's duties and obligations under such agreements. The Liquidating Trust
also will be responsible for certain indemnification obligations of the Company.
Disston, which is owned by Libby, sold certain of its assets and business
operations (other than certain excluded liabilities) to the Company in 1994. The
Disston Arbitration Proceedings relate to an action by Disston and Libby against
Sandvik for, among other things, indemnification for certain environmental
liabilities relating to Disston's Danville, Virginia facility (the "Danville
Facility") resulting from activities prior to the acquisition of the property by
Disston from Sandvik in 1982. The Company is not a party to the Disston
Arbitration Proceedings or the action that gave rise to the Disston Arbitration
Proceedings; however, as part of the purchase of Disston, the Company funded
various costs of Disston related to the Disston Arbitration Proceedings and the
maintenance of the Danville Facility. Disston has agreed that the Company will
be reimbursed for certain of such payments out of any potential award to Disston
under the Disston Arbitration Proceedings. The Liquidating Trust will indemnify
Greenfield for any liability arising out of (i) any violation of federal or
state securities laws or related common law or statutory violations by the
Company prior to the date of this Proxy Statement and arising out of or relating
to the Disston Arbitration Proceedings or the facts underlying the Disston
Arbitration Proceedings, (ii) certain environmental claims, if any, or (iii) any
liability for taxes arising out of payment of any amount awarded to Disston in
the Disston Arbitration Proceedings and paid to the Liquidating Trust
(collectively, the "Claims"). Greenfield will be entitled to recover the amount
of any Claims only out of the amounts held in the Liquidating Trust. Greenfield
has agreed to cause the Surviving Corporation to lend to Disston, as expenses
are incurred, such sums (the "Loans") as Disston shall request in writing to
fund the costs of the Disston Arbitration Proceedings and maintenance of the
Danville Facility. The Loans will bear interest at a rate per annum equal to the
prime rate of interest published from time to time by NationsBank of Delaware,
N.A. Interest will accrue monthly, will not be added to the principal of the
Loans and will be repaid only at such time as the principal amount of the Loans
is repaid. The Company and Disston also have agreed that any amounts awarded to
Disston in connection with a final resolution of the Disston Arbitration
Proceedings will be distributed in the following priority: (i) to fund specified
costs Disston may be required to pay as a result of such final resolution,
including costs of environmental remediation by Disston, if any, and a reserve
for taxes, if any, on any portion of an award that is distributed to the
Liquidating Trust; (ii) to repay all Loans (including interest costs); (iii) to
reimburse the Company for (A) its payments to Disston prior to the Effective
Time (as defined below) for costs and expenses incurred by Disston since May 20,
1994 in connection with the Disston Arbitration Proceedings and (B) 50% of the
amounts paid by the Company to Disston since September 1, 1994 but prior to the
Effective Time for maintenance costs of the Danville Facility incurred by
Disston since September 1, 1994; (iv) to disburse the remaining amounts, up to
$12 million, 50% to Disston and 50% to the Company and; (v) to disburse the
remaining amounts, in excess of $12 million, 80% to Disston and 20% to the
Company. Additionally, the Company and Disston have agreed that Disston will
have the sole right to direct and/or settle the Disston Arbitration Proceedings
and that Disston will submit reports to the trustees of the Liquidating Trust
regarding material developments in the Disston Arbitration Proceedings.
The likelihood of recoveries in the Disston Arbitration Proceedings cannot
be estimated accurately at this time, and any recovery will be dependent on the
favorable resolution of many complex factual and legal issues. Furthermore, the
amounts available for distribution to owners of Beneficial Interests in the
Liquidating Trust may be reduced significantly as a result of certain agreements
between the Company and Greenfield more fully described below. The Company has
valued each stockholder's share of the assets conveyed to the Liquidating Trust
at $0.15 per share although there can be no assurance that such valuation as
determined by the Company will not be challenged by the Internal Revenue
Service. See "THE MERGER -- The Liquidating Trust" and "FEDERAL INCOME TAX
CONSEQUENCES."
3
<PAGE> 11
Beneficial Interests will be non-transferable except for transfers
occurring by operation of law as a result of a Beneficiary's death or (in the
case of a Beneficiary that is not a natural person) as a result of a merger,
consolidation, sale of assets, reorganization or dissolution. No certificates or
other documents evidencing Beneficial Interests will be issued. Title to
Beneficial Interests will be reflected only in the records maintained by the
Liquidating Trust. The Beneficial Interests do not pay any dividends or bear any
stated rate of interest and have no voting or other stockholder rights. The
Beneficial Interests represent only the contingent right to receive the net
assets (if any) of the Liquidating Trust under the circumstances described in
this Proxy Statement. Stockholders should be aware that if the amount of the
Claims described above exceeds the amounts held in the Liquidating Trust,
neither the owners of Beneficial Interests in the Liquidating Trust, the
Liquidating Trust nor the trustees of the Liquidating Trust will be liable for
such difference.
For a further discussion of the Liquidating Trust, see "THE MERGER -- The
Liquidating Trust."
PAYMENT OF MERGER CONSIDERATION
The aggregate cash merger consideration described above under "-- The
Merger" and the Beneficial Interests in the Liquidating Trust are referred to
collectively in this Proxy Statement as the "Merger Consideration."
Payment of the cash Merger Consideration will be made to stockholders of
the Company entitled to receive such cash Merger Consideration promptly after
consummation of the Merger and receipt by First Chicago Trust Company of New
York, the exchange agent (the "Exchange Agent") designated by Greenfield and the
Company, of certificates representing shares of Common Stock and other required
documents which will be furnished to stockholders by the Company. No interest
will be paid or accrue on the Merger Consideration prior to the surrender of the
certificates representing shares of Common Stock and other required documents,
and no dividends will be paid on the shares of Common Stock following the
consummation of the Merger. See "THE MERGER AGREEMENT -- Effective Time of the
Merger," "-- Effects of the Merger," and "-- Exchange of Certificates and
Payment of Merger Consideration."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board (by a vote of three to one) has determined that the terms of the
Merger are fair to and in the best interests of the Company and its
stockholders, has approved the Merger Agreement and recommends that stockholders
vote in favor of approval and adoption of the Merger Agreement. At a Board
meeting on July 20, 1995, the date on which the Board approved a letter of
intent relating to the Merger, the Board appointed an executive committee (the
"Executive Committee"), consisting of John A. Geishecker, Jr. and Gary M. Sable,
to take all further action necessary to effect the merger contemplated by such
letter of intent. As a result of the establishment of the Executive Committee,
Mr. Anastos's authority as chief executive officer of the Company effectively
was terminated. On July 21, 1995, at the request of the Executive Committee, Mr.
Anastos agreed to take a paid leave of absence and not participate in either the
negotiations with Greenfield or the due diligence process in connection with the
Merger Agreement. Mr. Anastos subsequently voted against approval and adoption
of the Merger Agreement. The Board's decision to enter into the Merger Agreement
and to recommend that stockholders vote in favor of its adoption is based upon
its evaluation of a number of factors discussed in detail below, including the
advice and opinion of the Company's financial advisor. See "THE MERGER --
Background," "-- Recommendation of the Board of Directors" and "-- Opinion of
Financial Advisor."
OPINION OF FINANCIAL ADVISOR
Shields & Company, Inc. ("Shields"), the Company's financial advisor, has
rendered an opinion to the Board to the effect that, in its opinion, the cash
consideration to be received by stockholders of the Company in the Merger is
fair to such stockholders from a financial point of view. See "THE MERGER --
Opinion of Financial Advisor."
4
<PAGE> 12
EFFECTIVE TIME
The Merger will become effective upon the filing of Articles of Merger with
the Secretary of State of the Commonwealth of Massachusetts (the "Effective
Time"). The Articles of Merger will be filed with the Secretary of State of the
Commonwealth of Massachusetts at the closing of the Merger. See "THE MERGER
AGREEMENT -- Effective Time of the Merger."
MANAGEMENT AFTER THE MERGER
The Merger Agreement provides that the directors of Acquisition immediately
prior to the Effective Time will become the directors of the Surviving
Corporation and the officers of the Surviving Corporation at the Effective Time
will be the officers of Acquisition in office immediately prior to the Effective
Time. See "THE MERGER -- AGREEMENT -- Management of the Company."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Stock Options and Warrants. At the date of this Proxy Statement, the
officers and directors of the Company beneficially owned an aggregate of
1,098,662 shares of Common Stock, and Mr. Anastos owned options to purchase an
aggregate of 145,000 shares of Common Stock. On September 21, 1995, the Company
accelerated the vesting of all outstanding Rule Stock Options, except those held
by Mr. Anastos. As described under "-- Matters Relating to William N. Anastos,"
on November 20, 1995, with the consent of Greenfield, the Company accelerated
the vesting of all outstanding unvested Rule Stock Options held by Mr. Anastos.
All holders of Rule Stock Options and holders of Rule Warrants have advised the
Company that they either have exercised or agreed to cancellation of their
respective Rule Stock Options and Rule Warrants, as the case may be. See "THE
MERGER -- Interests of Certain Persons in the Merger," "THE MERGER AGREEMENT --
Conditions to the Merger" and "BENEFICIAL OWNERSHIP OF COMMON STOCK."
Indemnification. The Merger Agreement provides that upon consummation of
the Merger and for a period of six years after the Effective Time, to the
fullest extent permitted by law, Greenfield and the Surviving Corporation will,
jointly and severally, indemnify the present and former directors, officers and
employees of the Company and its subsidiaries against all losses, damages,
liabilities and claims made against them arising from their service in such
capacities prior to and including the Effective Time to the fullest extent
permitted by law under the Company's or any subsidiary's articles of
incorporation or by-laws. See "THE MERGER -- Interests of Certain Persons in the
Merger."
Matters Relating to William N. Anastos. Mr. Anastos, a director of the
Company who has been on fully paid leave of absence as president of the Company
since July 21, 1995, voted as a director against adopting and approving the
Merger Agreement. On November 20, 1995, the Company, Greenfield, Messrs.
Geishecker, Sable and Anastos and Libby reached a definitive agreement to
resolve all issues raised by Mr. Anastos in connection with, among other things,
the Merger. Under that agreement, (i) Mr. Anastos will continue to receive his
current compensation and benefits until the Effective Time; (ii) after the
Effective Time, Greenfield will inform Mr. Anastos every other month until
December 1997 of financial, marketing and other information relating to the
Company's marine products division, disclose to Mr. Anastos Greenfield's
intentions, if any, to divest such division or its receipt of an offer for such
division, in each case between the Effective Time and December 31, 1997, and
afford Mr. Anastos an opportunity to submit an offer for the division if
Greenfield decides to divest such division; (iii) the Company will transfer to
Mr. Anastos at no cost two automobiles he currently uses; (iv) the Company will
sell to Mr. Anastos an airplane for approximately $657,800; (v) the Company will
accelerate the vesting of all outstanding unvested Rule Stock Options (87,000)
held by Mr. Anastos; and (vi) the Company will retain the telemarketing
management services of Mr. Anastos' daughter until December 31, 1997 for a
maximum aggregate fee of $240,000. As part of this agreement, Mr. Anastos
agreed, among other things, (i) to grant Greenfield a proxy with respect to the
Votable Shares; (ii) to a continued leave of absence from the Company until the
Effective Time, at which time he will tender his written resignation as
president and a director of the Company; and (iii) to release the Company and
its officers and directors and Greenfield from, among other things, any and all
claims and causes
5
<PAGE> 13
of action relating to the Merger. See "-- Recent Developments" and "THE MERGER
- -- Interests of Certain Persons in the Merger."
Libby Employment Agreement. Pursuant to an Employment and Noncompetition
Agreement to be effective upon consummation of the Merger, Greenfield has agreed
to employ Libby as Senior Vice President -- Consumer Products Group of
Greenfield for a period of five years, unless earlier terminated. Greenfield
also has agreed to pay to Libby and Disston principal and interest due under
subordinated debentures in the aggregate principal amount of $3.6 million. These
subordinated debentures were issued by a subsidiary of the Company to Libby and
Disston in connection with the Company's acquisition of certain assets and
business operations in 1994. See "THE MERGER -- Interests of Certain Persons in
the Merger."
Purchase of Gloucester Facility. The Company currently leases an 87,500
square foot facility located in Gloucester, Massachusetts (the "Gloucester
Facility"), which is the Company's primary manufacturing facility for marine
products, from a Massachusetts general partnership ("RAGS III"), which purchased
the property from the Company in 1985 for $3.6 million. John A. Geishecker, Jr.,
and Gary M. Sable, each an officer and director of the Company, and Mr. Anastos
are general partners of RAGS III. Pursuant to an agreement between the Company
and RAGS III, after the Effective Time, the Surviving Corporation will purchase
from RAGS III the Gloucester Facility, the real property on which the Gloucester
Facility is located, all improvements situated on such real property, all
tangible personal property owned by RAGS III and used at the Gloucester
Facility, all leases, rents and deposits relating to such real or tangible
property and all contracts and/or agreements relating to the foregoing
(collectively, the "Gloucester Assets"). The aggregate purchase price for the
Gloucester Assets is $2.4 million, which represents the fair market value of
such assets at July 7, 1995, as determined by an independent appraiser. See "THE
MERGER -- Interests of Certain Persons in the Merger" and "BUSINESS AND
OPERATIONS OF THE COMPANY -- Properties."
Assumption by Greenfield of Deerfield Lease Obligations. The Company
leases a 275,000-square-foot hardware products manufacturing facility in South
Deerfield, Massachusetts from a general partnership, of which Messrs.
Geishecker, Sable and Anastos are general partners. Under the terms of the
Merger Agreement and by operation of law after the Effective Time, Greenfield
will assume all of the Company's obligations with respect to the lease for the
South Deerfield facility. See "THE MERGER -- Interests of Certain Persons in the
Merger."
Trustees of the Liquidating Trust. Mr. Geishecker and Thomas J. Shields, a
managing director of Shields, have agreed to serve as trustees of the
Liquidating Trust and, in connection therewith, will receive an annual fee for
such services as well as reimbursement of expenses and indemnification for
certain liabilities. See "THE MERGER -- The Liquidating Trust" and "-- Opinion
of Financial Advisor."
Certain Legal Fees. Owen B. Lynch, a Director of the Company, is a partner
in the law firm of Lynch, Brewer, Hoffman & Sands ("Lynch Brewer"). Lynch Brewer
will receive fees for legal services performed on behalf of the Company in
connection with the Merger.
THE GREENFIELD OPTION
On August 11, 1995, pursuant to the Merger Agreement, the Company granted
an option (the "Greenfield Option") to Greenfield to purchase 630,000 shares of
Common Stock at an exercise price of $8.00 per share. On September 11, 1995,
Greenfield exercised the Greenfield Option in full. Pursuant to the Greenfield
Option, the Company used all proceeds received upon exercise of the Greenfield
Option ($5.04 million) to repay indebtedness owed to the Company's senior
institutional lender. The ownership of shares of Common Stock acquired upon
exercise of the Greenfield Option will not entitle Greenfield to receive the
Merger Consideration, but such shares may be voted in favor of adopting and
approving the Merger Agreement. Greenfield has advised the Company that it
intends to vote such shares and the Votable Shares (611,100) as to which Mr.
Anastos and his affiliates have granted Greenfield a proxy in favor of adopting
and approving the Merger Agreement at the Special Meeting. As a result of such
proxy, Greenfield has voting discretion over approximately 35% of the Common
Stock outstanding and entitled to vote at the Special
6
<PAGE> 14
Meeting. See "THE MERGER -- The Greenfield Option" and "BENEFICIAL OWNERSHIP OF
COMMON STOCK."
CONDITIONS TO THE MERGER
The consummation of the Merger is subject to the satisfaction of a number
of conditions, including the approval and adoption of the Merger Agreement by
the holders of two-thirds of the shares of Common Stock outstanding and entitled
to vote and the receipt of certain regulatory approvals. See "THE MERGER
AGREEMENT -- Conditions to the Merger."
TERMINATION
The Merger Agreement may be terminated prior to the Effective Time, whether
before or after approval and adoption by Greenfield and Acquisition and the
Company's stockholders: (i) by Greenfield or the Company if the requisite vote
of the Company's stockholders with respect to the Merger Agreement and the
Merger is not obtained; (ii) by mutual consent of Greenfield and the Company;
(iii) by Greenfield or the Company at any time after the date which is 150 days
from the date of the Merger Agreement if any of the conditions to the
obligations of Greenfield or the Company under the Merger Agreement shall not
have been met or waived prior to such date; (iv) by Greenfield or the Company if
the Merger has been enjoined or otherwise prohibited by the final,
non-appealable order of a governmental entity at any time prior to the Effective
Time or if the Merger shall not have been consummated by January 31, 1996; (v)
by action of the Board, if the Board determines in good faith on the advice of
outside counsel that its fiduciary duties require it to approve an Acquisition
Transaction (other than the Merger); or (vi) by Greenfield at any time prior to
the Effective Time, if (A) the Company enters into a letter of intent or
definitive agreement to enter into an Acquisition Transaction (other than the
Merger), (B) the Board withdraws or materially modifies its approval or
recommendation of the Merger Agreement or the Merger in a manner materially
adverse to Greenfield or Acquisition, (C) the Board recommends to the
stockholders any Acquisition Transaction (other than the Merger) or (D) the
Board resolves to do any of the foregoing.
The Company has agreed to pay the expenses (not to exceed $450,000) of
Greenfield if the Merger Agreement is terminated under certain circumstances.
See "THE MERGER AGREEMENT -- Termination of the Merger Agreement."
SOURCE AND AMOUNTS OF FUNDS
The estimated amount of funds required for the payment by Greenfield of the
aggregate cash Merger Consideration is approximately $45.7 million, which is
expected to be funded from borrowings by Greenfield under its revolving credit
facility. Pursuant to the Merger Agreement, Greenfield is required to deposit
the aggregate cash Merger Consideration with the Exchange Agent on the closing
date of the Merger. See "THE MERGER AGREEMENT -- Source and Amount of Funds."
CERTAIN REGULATORY MATTERS
The Merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules
and regulations thereunder, which provide that certain transactions may not be
consummated until required information and material have been furnished to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission (the "FTC") and certain waiting periods have
expired or been terminated. The Company and Greenfield filed the required
information and material with the Antitrust Division and the FTC on September
12, 1995. The statutory waiting period under the HSR Act was terminated on
September 25, 1995. The Company does not believe any other material regulatory
approvals are required for consummation of the Merger. See "THE MERGER --
Certain Regulatory Matters."
7
<PAGE> 15
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon consummation of the Merger, holders of Common Stock (other than
dissenting stockholders, Greenfield and any direct or indirect subsidiary of
Greenfield) will receive cash and such holders (other than Libby, Greenfield and
any direct or indirect subsidiary of Greenfield) will receive a beneficial
interest in the assets conveyed to the Liquidating Trust in exchange for their
Common Stock. For federal income tax purposes such exchange is a taxable
transaction. Each holder of Common Stock will recognize his entire gain or loss
in the taxable year in which the Merger occurs, and such gain or loss (measured
by the difference between (i) the holder's adjusted tax basis for the Common
Stock and (ii) the sum of the amount of cash received by the holder and the fair
market value of his share of the net assets conveyed to the Liquidating Trust)
will be capital gain or loss if the Common Stock is held as a capital asset. See
"FEDERAL INCOME TAX CONSEQUENCES."
APPRAISAL RIGHTS
Holders of Common Stock who comply with the requirements of Sections 88-98,
inclusive, of the Massachusetts Business Corporation Law (the "MBCL") are
entitled to appraisal rights. Failure to strictly adhere to those statutory
requirements may result in the loss of appraisal rights. Holders of Common Stock
who exercise such rights will not be entitled to receive the Merger
Consideration. See "APPRAISAL RIGHTS" and Annex II to this Proxy Statement.
MARKET PRICES OF AND DIVIDENDS ON THE COMMON STOCK
The Common Stock is quoted on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market System. The closing sale
price of the Common Stock on July 20, 1995 (the last full trading day prior to
the public announcement of the Company's execution of a letter of intent with
respect to the Merger), was $7 7/8 and the closing sale price of the Common
Stock on August 11, 1995 (the last full trading day prior to the public
announcement of the execution of the Merger Agreement), was $13 1/2. On December
8, 1995 (the last full trading day prior to the date of this Proxy Statement),
the closing sale price of the Common Stock was $14 5/8. Stockholders of the
Company are urged to obtain current quotations for the Common Stock. The Company
has never paid any dividends on its Common Stock. See "CERTAIN INFORMATION WITH
RESPECT TO THE COMMON STOCK."
RECENT DEVELOPMENTS
INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP ("D&T") served as the
Company's principal accountants for the fiscal year ended August 31, 1994
("Fiscal 1994"). Mr. Anastos, in his capacity as chief executive officer of the
Company, dismissed D&T as the Company's principal accountants in June 1995, and
agreed on June 7, 1995 to engage KPMG Peat Marwick LLP ("KPMG") as the Company's
principal accountants. On September 1, 1995, the Company terminated the
engagement of KPMG as its principal accountants and engaged Price Waterhouse LLP
("PW") to perform certain audit services in connection with the Merger. It is
not expected that the representatives of either D&T or PW will be present at the
Meeting.
MATTERS RELATED TO WILLIAM N. ANASTOS. On August 4, 1995 and August 8,
1995, William N. Anastos, who has been on leave of absence as president of the
Company since July 21, 1995, raised the possibility of lawsuits by him against
officers and directors of the Company in connection with the approval of and
consummation of the transactions contemplated by the Merger Agreement. Mr.
Anastos' suggestions of possible litigation were made in connection with his
stated objection to the process by which the Board approved the Merger Agreement
and the transactions contemplated by the Merger Agreement. Mr. Anastos
specifically objected to the fact that the Company was not being sold pursuant
to an auction. See "THE MERGER AGREEMENT -- Background of the Merger." Since
August 8, 1995, neither Mr. Anastos nor his counsel have clarified their
intentions with respect to, or again overtly threatened, litigation against
officers and directors of the Company concerning the Merger Agreement or the
transactions contemplated thereby. However, Greenfield has advised the Company
that Greenfield was made aware that Mr. Anastos had made
8
<PAGE> 16
suggestions in early September 1995 of possible litigation with respect to the
Merger. At a Board meeting on August 10, 1995, Mr. Anastos voted against the
adoption and approval of the Merger Agreement.
As described above under "-- Interests of Certain Persons in the Merger,"
on November 20, 1995, Mr. Anastos agreed (i) to grant Greenfield a proxy with
respect to the Votable Shares; (ii) to a continued leave of absence from the
Company until the Effective Time, at which time he will tender his written
resignation as president and a director of the Company; and (iii) to release the
Company and its officers and directors and Greenfield from, among other things,
any and all claims and causes of action relating to the Merger. See "THE MERGER
- -- Background," "-- Recommendation of the Board" and "-- Interests of Certain
Persons in the Merger."
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain consolidated financial information
for the Company and its subsidiaries as of August 31, 1991, 1992, 1993, 1994 and
1995 and for the fiscal years then ended. The selected financial data have been
derived from the Company's audited consolidated financial statements. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere herein. See
"SELECTED CONSOLIDATED FINANCIAL DATA" and the Company's Consolidated Financial
Statements and the Notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Revenues................................ $39,325 $46,286 $48,334 $63,919 $68,458
Income (Loss) from Continuing Operations.... (3,964) (140) (119) 3,180 (529)
Preferred Stock Dividends................... 166 275 289 24
Net Income (Loss) from Continuing Operations
Applicable to Common Stockholders......... (3,280) (306) (394) 2,891 (553)
Earnings (Loss) per Common Share from
Continuing Operations..................... (1.80) (.14) (.18) 1.27 (.20)
Total Assets................................ 54,348 52,428 45,293 66,643 63,885
Long-term Debt.............................. 29,212 26,019 21,185 27,188 29,670
Redeemable Convertible Preferred Stock...... -- 3,110 3,610 3,610 --
Common Stockholders' Equity................. 7,147 6,897 6,455 9,720 12,742
</TABLE>
The Company has never paid cash dividends on its Common Stock. In addition,
the Company's credit agreement with BayBank, the Company's senior institutional
lender ("BayBank"), and the Merger Agreement restrict the payment of dividends.
9
<PAGE> 17
THE SPECIAL MEETING
TIME, DATE AND PLACE OF THE SPECIAL MEETING
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board for use at the Special Meeting to be held on January 12,
1996 at 10:00 a.m., local time, at the Burlington Marriott Hotel, One Mall Road,
Burlington, Massachusetts 01803, and at any adjournment or adjournments thereof.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the holders of shares of Common Stock are being
asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement, pursuant to which Acquisition will be merged with and into the
Company, the Company will be acquired by, and become a wholly owned subsidiary
of, Greenfield, and each issued and outstanding share of Common Stock, other
than Dissenting Shares and Greenfield Shares, will be converted into the right
to receive the Merger Consideration, provided that Libby will not be entitled to
receive Beneficial Interests in the Liquidating Trust. A copy of the Merger
Agreement is attached to this Proxy Statement as Annex I. See "THE MERGER
AGREEMENT," "APPRAISAL RIGHTS" and Annex II to this Proxy Statement.
By approving and adopting the Merger Agreement, stockholders of the Company
shall be deemed to have: (i) approved the creation of the Liquidating Trust and
the related trust agreement substantially in the form attached as Annex IV to
this Proxy Statement; (ii) ratified the Board's appointment of the initial
trustees of the Liquidating Trust; and (iii) authorized the transfer of the
assets to the Liquidating Trust. See "THE MERGER -- The Liquidating Trust."
The Board (by a vote of three to one) approved the Merger Agreement and
recommends its approval and adoption by stockholders. At a Board meeting on
August 10, 1995, Mr. Anastos voted against the adoption and approval of the
Merger Agreement. As described under "THE MERGER -- Interests of Certain Persons
in the Merger," on November 20, 1995, Mr. Anastos agreed (i) to grant Greenfield
a proxy with respect to the Votable Shares; (ii) to a continued leave of absence
from the Company until the Effective Time, at which time he will tender his
written resignation as president and a director of the Company; and (iii) to
release the Company and its officers and directors and Greenfield from, among
other things, any and all claims and causes of action relating to the Merger.
For a statement of the background of and the reasons for the Merger, see "THE
MERGER -- Background" and "-- Recommendation of the Board of Directors."
If the inspectors of election advise the Board that there may not be
sufficient votes to approve and adopt the Merger Agreement at the originally
scheduled time of the Special Meeting, the Board presently expects to seek one
or more adjournments of the Special Meeting to allow time for further
solicitation of proxies. In order to allow proxies that have been received by
the Company at the time of the Special Meeting to be voted for such adjournment,
if necessary, the Company has submitted the question of adjournment under such
circumstances to its stockholders as a separate matter for their consideration.
The Board of Directors of the Company recommends that stockholders vote in favor
of any such adjournment or adjournments. Proxies furnished in response to this
solicitation will be voted in favor of any such adjournment or adjournments
unless the stockholder indicates a contrary intention on the proxy furnished by
the stockholder.
VOTING RIGHTS, PROXY INFORMATION AND REQUIRED VOTE
The Board has fixed the close of business on November 24, 1995, as the
Record Date for the determination of stockholders entitled to notice of and to
vote at the Special Meeting. Accordingly, only holders of record of shares of
Common Stock at the close of business on the Record Date will be entitled to
notice of and to vote at the Special Meeting or at any adjournment or
adjournments thereof. At the close of business on the Record Date, there were
3,586,025 shares of Common Stock issued and outstanding and entitled to vote.
Each holder of record of shares of Common Stock on the Record Date is
entitled to cast one vote per share on the proposals to approve and adopt the
Merger Agreement and to authorize an adjournment of the Special Meeting if the
inspectors of election advise the Board that there may not be sufficient votes
to approve
10
<PAGE> 18
and adopt the Merger Agreement and on any other matter that may properly come
before the Special Meeting, exercisable in person or by properly executed proxy.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote is necessary
to constitute a quorum at the Special Meeting. For these purposes, shares which
are present or represented by proxy at the Special Meeting will be counted for
quorum purposes regardless of whether the holder of the shares or proxy abstains
("abstentions") on either of the proposals being presented or whether a broker
with discretionary authority fails to exercise its discretionary authority to
vote ("broker non-votes") on either of the proposals being presented. Neither
abstentions nor broker non-votes will be counted as voting for adoption in
determining whether the Merger Agreement is adopted by the holders of Common
Stock. As a result, abstentions and broker non-votes will have the same effect
as votes against adoption of the Merger Agreement. Abstentions and broker
non-votes will not have the effect of votes for or against the proposal to
adjourn the Special Meeting, if necessary, to permit further solicitation of
proxies in favor of adopting and approving the Merger Agreement.
The affirmative vote of the holders of two-thirds of the shares of Common
Stock outstanding and entitled to vote, represented in person or by properly
executed proxy, is required to approve and adopt the Merger Agreement. The vote
of a majority of the shares represented and voting at the Special Meeting is
required in order to approve adjournment of the Special Meeting, if necessary,
to permit further solicitation of proxies in favor of adopting and approving the
Merger Agreement. William N. Anastos, a director of the Company who has been on
fully paid leave of absence as president of the Company since July 21, 1995,
voted as a director against adopting and approving the Merger Agreement. As
described under "THE MERGER -- Interests of Certain Persons in the Merger," on
November 20, 1995, Mr. Anastos agreed (i) to grant Greenfield a proxy with
respect to the Votable Shares; (ii) to a continued leave of absence from the
Company until the Effective Time, at which time he will tender his written
resignation as president and a director of the Company; and (iii) to release the
Company and its officers and directors and Greenfield from, among other things,
any and all claims and causes of action relating to the Merger. According to
documents filed by Mr. Anastos with the SEC and the most recent information
available as of the Record Date, Mr. Anastos and his affiliates had voting
discretion over 611,100 shares of Common Stock, constituting approximately 17%
of the Common Stock outstanding and entitled to vote at the Special Meeting. See
"BENEFICIAL OWNERSHIP OF COMMON STOCK."
All shares of Common Stock which are represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, and not
revoked, will be voted at the Special Meeting in accordance with instructions
indicated in such proxies. If no instructions are indicated, such proxies will
be voted FOR (i) the proposal to approve and adopt the Merger Agreement and (ii)
the proposal to authorize an adjournment of the Special Meeting, if necessary,
to permit further solicitation of proxies if there are insufficient votes to
approve and adopt the Merger Agreement, as set forth in this Proxy Statement.
The Board does not know of any matters, other than as described in the Notice of
Special Meeting attached to this Proxy Statement, which are to come before the
Special Meeting. If any other matters are properly presented at the Special
Meeting for action, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment. If the proposal to adjourn the Special Meeting to solicit further
proxies is approved and the adjournment is for a period of less than 30 days, no
notice of the time and place of the adjourned meeting is required to be given to
stockholders other than an announcement of such time and place at the Special
Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Clerk of the Company, at or before the Special Meeting, a written
notice of revocation bearing a later date than the proxy, (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Clerk of
the Company at or before the Special Meeting, or (iii) attending the Special
Meeting and voting in person (although attendance at the Special Meeting will
not in and of itself constitute a revocation of a proxy). Any written notice
revoking a proxy should be sent to: Rule Industries, Inc., 70 Blanchard Road,
Burlington, Massachusetts 01803, Attention: Clerk.
11
<PAGE> 19
PROXY SOLICITATION
Proxies are being solicited by and on behalf of the Board. All expenses of
this solicitation in favor of the Merger Agreement, including the cost of
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition to the solicitation by use of the mails, proxies may be solicited in
favor of adopting the Merger Agreement by directors, officers and employees of
the Company in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated, but
may be reimbursed for out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation material to beneficial owners
of Common Stock held of record by such persons, and the Company may reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. The Company has engaged MacKenzie Partners, Inc. to
solicit proxies on behalf of the Company for an estimated fee of $7,500 plus
reasonable out-of-pocket expenses.
THE MERGER
GENERAL
If the Merger is consummated, the Company will be acquired by Greenfield,
and each share of Common Stock issued and outstanding at the time the Merger is
consummated (other than Dissenting Shares and shares then owned by Greenfield,
Acquisition or any other direct or indirect subsidiary of Greenfield) will be
converted into the right to receive $15.30 in cash per share and, under certain
circumstances described in this Proxy Statement, a Beneficial Interest in the
Liquidating Trust. In addition, holders of exercisable Rule Stock Options and
Rule Warrants will receive in cash an amount equal to the excess, if any, of (i)
$15.30 multiplied by the number of shares subject to their Rule Stock Option or
Rule Warrant over (ii) the aggregate exercise price of such Rule Stock Option or
Rule Warrant, as the case may be, multiplied by the number of shares of Common
Stock subject thereto. The estimated aggregate cash Merger Consideration is
approximately $45.7 million.
Under the Merger Agreement, Greenfield is not required to consummate the
Merger unless all of the Rule Stock Options and Rule Warrants either have been
exercised or cancelled. On September 21, 1995, the Company accelerated the
vesting of all outstanding Rule Stock Options, except those held by Mr. Anastos.
As described under "-- Interests of Certain Persons in the Merger," on November
20, 1995, with the consent of Greenfield, the Company accelerated the vesting of
all outstanding unvested Rule Stock Options (87,000) held by Mr. Anastos. At the
date of this Proxy Statement, all holders of Rule Stock Options and holders of
Rule Warrants have advised the Company that they either have exercised or agreed
to cancellation of their respective Rule Stock Options and Rule Warrants, as the
case may be.
Consummation of the Merger is contingent upon, among other things, approval
of the Merger by the Company's stockholders. After consummation of the Merger,
the current stockholders of the Company will cease to be stockholders of the
Company. Therefore, as a result of the Merger, the entire equity interest in the
Company will be owned by Greenfield and the Company's current stockholders will
no longer have any equity interest in the Company and will no longer share in
future earnings and growth of the Company, the risks associated with achieving
any such earnings and growth, or the potential to realize greater value for
their shares of Common Stock through divestitures, strategic acquisitions, or
other corporate opportunities that may be pursued by the Company in the future.
Instead, each current holder of shares of the Company's Common Stock will have
only the right to receive the Merger Consideration described herein or to seek
appraisal rights as described under "APPRAISAL RIGHTS" below. In addition, it is
anticipated that, if the Merger is consummated, Greenfield will cause the
Company to terminate the registration of its Common Stock under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and its obligations to
file reports, proxy statements, and other information with the SEC.
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<PAGE> 20
BACKGROUND
In September 1994, the Company refinanced its existing senior debt by
entering into a credit agreement (the "Credit Agreement") with BayBank. The
financial covenants contained in the Credit Agreement anticipated that the
Company would raise additional equity capital prior to the end of the third
quarter of fiscal 1995. In the fall of 1994, the Company approached several
investment banking firms regarding a possible public offering of the Company's
equity securities. The Company's efforts to raise equity capital were made more
difficult when, following record operating earnings for the fiscal quarter ended
May 31, 1994, the Company's recurring operating earnings for the quarters ended
August 31 and November 30, 1994 and February 28, 1995, which included the
operations of Disston, were flat as compared to the comparable periods in the
prior year and lower than the Company's projections. The prospective
underwriters subsequently advised the Company that market conditions did not
make a public offering of additional equity securities practicable at that time.
By early 1995, the Company's poorer-than-expected operating results had
caused a substantial reduction in the Company's projected working capital
position and the Company requested BayBank to increase its line of credit. On
March 6, 1995, the Company was advised by BayBank that it would not increase the
Company's revolving credit facility until the Company increased its equity base.
On March 15, 1995, the Company engaged A.G. Edwards & Sons, Inc. ("A.G.
Edwards") to act as financial advisor in connection with a private placement of
up to $13 million of convertible preferred stock. At the end of March, after the
engagement of A.G. Edwards, BayBank approved a $2.5 million increase in the
Company's revolving credit facility.
On April 13, 1995, the Board met for the purpose of, among other things,
reviewing the status of the proposed private placement through A.G. Edwards and
its prospects for success. The Board decided to continue working with A.G.
Edwards while at the same time examining all other strategic alternatives,
including a transaction which might result in a change of control of the Company
through a private placement of equity securities and sales of assets, product
lines or even the entire business of the Company. However, Mr. Anastos did not
agree that the Company should consider a possible change of control of the
Company through a private placement of equity securities or a sale of the entire
business of the Company. Following its determination, the Company, through two
intermediaries, made certain inquiries, on an anonymous basis, of three firms
that the Board thought might be prospective strategic buyers of the Company's
hardware business. None of these firms expressed an interest in purchasing the
Company's hardware business. The Company also approached a leveraged buy-out
firm, which, after several weeks of due diligence, orally expressed preliminary
interest in acquiring the Company's hardware business at a price below book
value. Discussions with this firm subsequently were terminated. During the first
two weeks of May 1995, representatives of the Company met with four
institutional equity investors that had been contacted by A.G. Edwards. Only one
of the investors, a United Kingdom institutional investor, expressed serious
interest in investing in the Company; however, it was not prepared to complete
due diligence on the Company until September 1995.
On June 5, 1995, the Company received an unsolicited letter from Greenfield
that was dated May 31, 1995. This letter briefly described Greenfield's business
and analysts' expectations for Greenfield in 1995. The letter indicated that
Greenfield was interested in "exploring any means of growing in the kinds of
markets that [the Company's] hardware business addresses".
As a result of making required payments of principal and interest on its
publicly traded subordinated debt in late May and early June 1995, the Company
exhausted its borrowing availability under the Credit Agreement and thereby
further reduced its access to working capital. Furthermore, in July of 1995,
BayBank commenced reducing the availability under the Credit Agreement by
$100,000 per week, which further constrained the Company's working capital.
On June 15, 1995, John A. Geishecker, Jr. and Gary Sable, vice presidents
and directors of the Company, met with representatives of Greenfield in Boston,
Massachusetts, to discuss Greenfield's May 31 letter. At this meeting, the
possibility of an acquisition of the Company by Greenfield was discussed. After
this meeting, Greenfield and the Company executed a confidentiality agreement,
and the Company supplied certain financial and operating information to
Greenfield so that Greenfield could consider the possibility of a potential
transaction with the Company. On June 21, 1995, Messrs. Geishecker and Sable met
with
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<PAGE> 21
representatives of Greenfield in Atlanta, Georgia and discussed the Company's
operations and business. The terms of a transaction were not discussed at this
meeting.
On June 22, 1995, an investment banking firm submitted a proposal (the "FCM
Proposal") pursuant to which the Company would retain that firm to seek to
refinance the Company's debt with additional debt and equity. The FCM Proposal
contemplated a private placement of $10 million of senior subordinated
debentures with warrants to purchase 250,000 shares of Common Stock and $15
million of convertible preferred stock. On June 26, 1995, a New York leveraged
buy-out firm submitted a proposal (the "EPC Proposal") to Mr. Anastos to
purchase $17.9 million of convertible subordinated debt of the Company.
On June 27, 1995, Mr. Geishecker and Paul Jones, President of Greenfield,
met in Cleveland, Ohio to discuss further the business of the Company and
Greenfield in light of previous conversations between managements of the two
companies. On June 29, 1995, Henry G. Libby, Vice President of the Company, and
Gary Sable continued discussions about the Company's business with Mr. Jones and
other members of Greenfield management in Augusta, Georgia. The terms of an
acquisition of the Company by Greenfield were not discussed at either of these
meetings.
On June 30, 1995, Greenfield submitted to the Board a written proposal (the
"June 30 Proposal") to acquire all the outstanding shares of Common Stock for
$12.00 per share in cash pursuant to a merger. The June 30 Proposal contemplated
a $3 million break-up fee in the event the Company agreed to the proposal and
subsequently failed to execute a definitive merger agreement with Greenfield
prior to September 30, 1995.
On July 10, 1995, Messrs. Geishecker and Sable met with representatives of
Greenfield in Atlanta, Georgia to discuss the June 30 Proposal. Messrs.
Geishecker and Sable rejected the June 30 Proposal and on July 11, 1995,
submitted a written counter-proposal, subject to approval by the Board, that
called for Greenfield to acquire all the shares of Common Stock of the Company
for a per share price of $14.00 in cash plus 0.1 share of Greenfield common
stock plus a contingent payment of up to 0.7 share of Greenfield common stock if
certain financial goals were attained by the Company in fiscal 1996.
On July 12, 1995, Greenfield submitted a revised written proposal (the
"July 12 Proposal") to acquire all the shares of Common Stock of the Company at
a per share price of $12.50 in cash plus up to an additional $.75 in cash if the
Company attained certain financial goals in fiscal 1996. The July 12 Proposal
also provided that the Company's stockholders would receive participations in
certain contingent recoveries under the Disston Arbitration Proceedings after
five years and was subject to approval by the Greenfield board of directors.
On July 13, 1995, the Board met to discuss the status of the EPC Proposal,
the FCM Proposal and Greenfield's June 30 Proposal. At this meeting, (i) Mr.
Anastos presented a written proposal to the Board that involved the possible
sale of the Company's winch and RemGrit product lines and a rights offering to
raise $5 million; (ii) the Board was advised that BayBank had told the Company
that BayBank would not waive compliance with certain financial covenants in the
Credit Agreement which had taken effect at May 31, 1995 absent an additional
equity infusion; (iii) the Board discussed the stalled efforts of A.G. Edwards
to raise additional equity through a private placement; and (iv) at the request
of Mr. Anastos, the Board deferred taking action on any proposal until after Mr.
Anastos' scheduled meeting with BayBank on July 17 at which he was to discuss
the proposal he had presented to the Board at this meeting and the Company's
inability to comply with certain covenants of the Credit Agreement. At the July
13 Board meeting, Mr. Anastos stated he would not recognize the Board's
authority to pursue any transaction other than the transactions described in his
written proposal.
On July 16, 1995, Messrs. Geishecker and Sable met with members of
Greenfield's management and its legal advisors in Washington, D.C. to discuss
further Greenfield's July 12 Proposal and made an oral counter-proposal (the
"July 16 Proposal"), subject to approval by the Board, that contemplated an
acquisition by Greenfield of all the shares of the Company's Common Stock at a
per share price of $15.30 in cash plus a participation in certain contingent
recoveries under the Disston Arbitration Proceedings.
On July 17, 1995, Greenfield submitted a written offer (the "July 17
Offer") to acquire the Company on substantially the terms of the July 16
Proposal. The July 17 Offer contemplated the execution of a letter of
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<PAGE> 22
intent in which the Company would grant Greenfield an option to purchase 630,000
shares of Common Stock at an exercise price of $8.00 per share (which was $0.25
higher than the last reported sale price of the Common Stock on the preceding
business day), such option to expire upon the earlier of the execution of a
definitive merger agreement or December 31, 1995. The July 17 Offer further
contemplated that in the definitive merger agreement the Company would grant
Greenfield an option to purchase 630,000 shares of Common Stock at an exercise
price of $8.00 per share, such option to expire on or before the earlier of
consummation of the Merger or June 30, 1996, with the proceeds from the exercise
of such option to be used exclusively to reduce senior indebtedness. The Company
understood Greenfield's requests for an option were motivated by a desire to be
compensated if the Company accepted an offer to be acquired by another company
after the Merger Agreement had been executed. Further, the Company believed such
option would provide a means for the infusion of needed equity capital pending
the Merger at a price approximating the market price of the Common Stock prior
to the announcement of the Merger. The July 17 Offer contemplated the transfer
by the Company to a liquidating trust of all of the Company's rights to
recoveries in the Disston Arbitration Proceedings and that the trust would be
responsible for certain expenditures of Greenfield within two years following
the merger. The July 17 Offer did not provide for the cash break-up fee
previously requested by Greenfield. The July 17 Offer was conditioned on an
agreement by the Company to the effect that, subject to the fiduciary duties of
the Company's directors, the Company would not directly or indirectly provide
any person with information, engage in discussions, enter into any agreement or
understanding, afford any person access to the properties or books and records
of the Company or otherwise solicit or encourage or assist anyone in respect of
the sale of stock, assets or the business of the Company until September 30,
1995.
On July 17, 1995, the Company also received a written proposal (the "July
17 Equity Proposal") from a second New York investment group. The July 17 Equity
Proposal contemplated the purchase of $15 million of convertible preferred
stock, a conversion price of $8.00 per share and restructuring of the Company's
debt under the Credit Agreement. The Board also was advised that BayBank (i) did
not endorse Mr. Anastos' proposal with respect to the rights offering and sale
of product lines he had discussed with the Board on July 13 and (ii) had denied
the Company's request for waivers of loan covenants which had taken effect on
May 31, 1995.
At a special meeting on July 18, 1995, at which all directors (other than
Mr. Anastos, who failed to attend after being given notice of the meeting) and
representatives from Rogers & Wells and Shields were present, the Board reviewed
the Company's continuing and severe working capital constraints and its
difficulties in complying with the Credit Agreement, the Company's efforts over
the last six months to raise additional equity capital, including the status of
the efforts of A.G. Edwards, and finally the FCM Proposal, the EPC Proposal and
the July 17 Equity Proposal. The Board concluded with respect to these three
proposals that (i) all of such proposals would result in significant dilution of
the Company's stockholders and (ii) all except one of the proposals involved the
incurrence by the Company of expensive debt. The Board also reviewed various
efforts to approach strategic buyers during the last six months. The Board
formally retained Rogers & Wells as special counsel to the Board and Shields as
financial advisor to the Company. The Board, together with its legal and
financial advisors, also reviewed and discussed Greenfield's July 17 Offer. The
Board noted that the per-share merger consideration contemplated by the July 17
Offer exceeded by 111% the price of the Common Stock on the preceding day and
that the July 17 Offer permitted the Company's stockholders to receive a
participation in certain contingent recoveries in the Disston Arbitration
Proceedings. At this meeting, the Board authorized the Company to enter into a
letter of intent with Greenfield, substantially along the lines of Greenfield's
July 17 Offer. The Board authorized Messrs. Geishecker and Sable to negotiate
the letter of intent with Greenfield.
At a special meeting on July 20, 1995, at which all directors (other than
Mr. Anastos, who failed to attend after being given notice of the meeting) and a
representative of Foley, Hoag & Eliot, counsel to the Company, were present, the
Board reviewed and discussed a revised draft letter of intent (the "Letter of
Intent") with respect to the acquisition of the Company by Greenfield. The
Letter of Intent contained the terms of Greenfield's July 17 Offer. With the
assistance of its financial and legal advisors, the Board evaluated the Letter
of Intent. The Board noted that the proposal contained in the Letter of Intent
included the following improvements as compared to the July 17 Offer: (i)
Greenfield represented that it would have
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<PAGE> 23
sufficient financial resources available to it to complete the Merger in the
contemplated time frame; (ii) the parties agreed to use their best efforts to
sign a definitive Merger Agreement by August 31, 1995; (iii) the Company, Libby
and Disston would enter into an agreement confirming the parties' understanding
as to the prosecution of the Disston Arbitration Proceedings and the rights and
obligations of the Company thereunder; and (iv) the parties agreed to a cap on
expenses due from the Company to Greenfield in certain circumstances. The Board
approved the Letter of Intent and authorized Messrs. Geishecker and Sable to
execute and deliver the Letter of Intent on behalf of the Company. The Board
also appointed the Executive Committee consisting of Messrs. Geishecker and
Sable and authorized the Executive Committee to take all further action
necessary to effect the merger contemplated by the Letter of Intent. As a result
of the establishment of the Executive Committee, Mr. Anastos' authority as chief
executive officer of the Company effectively was terminated. On July 20, 1995,
after further negotiation with Greenfield to address various technical issues
raised by the Board and its financial and legal advisors and issues relating to
reimbursement of Greenfield for certain expenses and to the expiration of the
option to purchase shares of Common Stock that was contained in the Letter of
Intent, the Company and Greenfield executed the Letter of Intent and issued a
joint press release announcing execution of the Letter of Intent. Also on July
20, 1995, on the condition that the Company execute the Letter of Intent,
BayBank granted the Company a waiver of compliance with certain financial
covenants in the Credit Agreement. On July 21, 1995, at the request of the
Executive Committee, Mr. Anastos agreed to take a fully paid leave of absence as
president of the Company and not participate in the negotiations with Greenfield
or the due diligence process in connection with the Merger.
Between July 20 and August 8, 1995, the Company and Greenfield and their
advisors negotiated the terms of the Merger Agreement and the Greenfield Option.
On August 8, 1995, a special meeting of the Board (the "August 8 Board
Meeting") was held, with all members of the Board in attendance, to consider and
discuss a draft Merger Agreement and the Greenfield Option. At this meeting, (i)
the Board met with its legal and financial advisors to discuss and review the
Merger Agreement and the Greenfield Option, (ii) Shields reviewed with the Board
the text of a preliminary draft of the fairness opinion Shields expected to be
in a position to deliver after completing its investigation and analysis of the
Company and reviewing the definitive Merger Agreement (see "-- Opinion of
Financial Advisor") and (iii) the Board received a report from Rogers & Wells
with respect to negotiations on the Merger Agreement. At this meeting, Mr.
Anastos indicated that he did not intend to vote in favor of adopting and
approving the Merger Agreement, but offered no alternative proposals to those
being considered by the Board. Mr. Anastos said he did not disagree with the
Board's decision to sell the Company, but stated he believed the Company should
be sold pursuant to an auction. The other Board members stated they believed an
auction process would jeopardize the Greenfield transaction and was unlikely to
produce a better offer, particularly in light of the Company's earlier lack of
success in finding a buyer for its hardware business and in light of the fact
that no other indication of interest had been received by the Company since the
public announcement on July 20, 1995 of the execution of the Letter of Intent.
The Board concluded the meeting without voting as to whether to adopt and
approve the Merger Agreement and decided to review the draft of the Merger
Agreement presented to the meeting and reconvene on August 10, 1995 for further
discussions about the Merger.
On August 10, 1995, a special meeting of the Board (the "August 10 Board
Meeting") was held, with all members of the Board in attendance, to consider and
discuss the latest draft Merger Agreement. The Board reviewed and discussed the
terms of the draft Merger Agreement and the Greenfield Option. During the course
of this meeting, Shields confirmed to representatives of the Board that Shields
was prepared to deliver (and subsequently did deliver) the fairness opinion
Shields had presented to the Board in draft form at the August 8 Board Meeting.
See "-- Opinion of Financial Advisor." The Board also received a report from its
legal advisors on changes in the Merger Agreement that had been made subsequent
to the August 8 Board Meeting. The Board (by a three to one vote, with Mr.
Anastos voting against) determined that the Merger was fair to, and in the best
interests of, the Company and the Company's stockholders, voted to approve the
Merger Agreement and the Greenfield Option and authorized the Company's officers
to take all necessary actions to consummate the Merger. The Merger Agreement was
executed on August 11, 1995, and the Company and Greenfield issued a joint press
release later that day announcing its execution.
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<PAGE> 24
RECOMMENDATION OF THE BOARD OF DIRECTORS
At the August 10 Board Meeting, the Board (by a three to one vote, with Mr.
Anastos voting against) determined that the Merger is fair to, and in the best
interests of, the Company and the Company's stockholders, approved the Merger
Agreement and recommended that stockholders vote in favor of approval and
adoption of the Merger Agreement.
Prior to reaching its decision at the August 10 Board Meeting, the Board
received presentations from and reviewed the Merger Agreement and the
transactions contemplated thereby with the Company's management, legal and
financial advisors, and received an opinion from Shields as to the fairness,
from a financial point of view, of the cash consideration to be received by
stockholders of the Company in the Merger. See "-- Background" and "-- Opinion
of Financial Advisor." The Board also discussed the terms of the Merger
Agreement, including, among other things, the Company's agreement not to engage
in negotiations or enter into an agreement with any other person concerning an
acquisition of the Company except as may be required by the directors' fiduciary
duty in the event a financially superior offer is received prior to approval of
the Merger Agreement by the stockholders.
In determining to recommend approval of the Merger, the Board considered a
number of factors, including those discussed above and the following:
(i) the continuing constraints on the Company's working capital
position and the need to address those constraints expeditiously;
(ii) possible alternatives to the Merger, including raising additional
equity capital, selling particular assets and/or product lines, seeking a
higher price through a formal auction process and the timing and likelihood
of actually achieving those alternatives;
(iii) all but one of the financing proposals received by the Company
in the previous six months would have involved the incurrence of expensive
debt, and all of the proposals would have substantially diluted existing
stockholders;
(iv) the cash Merger Consideration represents a significant premium
over the average closing prices of the Common Stock during the last 12
months and a premium of 94% over the closing price of the Common Stock on
July 20, 1995, the last day on which the Common Stock traded prior to the
time of the public announcement of the Letter of Intent;
(v) the Merger Agreement would allow the stockholders of the Company
to receive certain possible recoveries (if any) arising from the Disston
Arbitration Proceedings;
(vi) no other offers to acquire the Company, or indications of
interest in acquiring the Company, had been received by the Company during
the 21-day period between the public announcement of the execution of the
Letter of Intent and the August 10 Board Meeting; and
(vii) the presentations by members of the Company's management at the
August 8 Board Meeting regarding the financial condition and results of
operations of the Company, including the probability of continuing chronic
working capital constraints and future debt service requirements, and the
oral and written presentations and opinion of Shields described under "--
Opinion of Financial Advisor."
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its respective determinations. For purposes of the
reviews described above, the Board adopted, as its own, the analyses of Shields
as its financial advisor.
A copy of the written opinion of Shields delivered to the Board, which sets
forth the assumptions made, matters considered and limits of the reviews by
Shields in rendering its opinion, is attached as Annex III to this Proxy
Statement. STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY.
THE BOARD OF DIRECTORS OF THE COMPANY (BY A VOTE OF THREE TO ONE) HAS
DETERMINED THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN THE BEST
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INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAS APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
Shields was retained by the Board on July 18, 1995, and executed an
engagement letter on August 1, 1995, to act as the Company's exclusive financial
advisor in connection with the Merger and to deliver an opinion to the Board as
to the fairness, from a financial point of view, to the stockholders of the
Company of the cash consideration to be received pursuant to the Merger. Shields
is an investment banking and financial advisory firm engaged in the sale of
businesses and securities in connection with mergers and acquisitions, private
placements and valuations for estate, corporate and other purposes. The Board
selected Shields from among several similar firms on the basis of (i) Shields'
expertise in providing investment banking and financial advisory services; (ii)
Shields' reputation in the New England financial community; (iii) the
familiarity with and knowledge of the Company over the last 10 years by Thomas
J. Shields, a principal of Shields; (iv) Shields' in-depth knowledge of consumer
hardware markets, where the Company enjoys customer concentrations, especially
due to the fact that Mr. Shields is a director of the Waban Company, which
controls Home Base, a major West Coast consumer hardware manufacturer; (v)
Shields' commitment to respond immediately if the Board decided to consider an
acquisition of the entire Company; and (vi) the reasonableness of the
compensation requested by Shields in connection with rendering a fairness
opinion.
At the August 8 Board Meeting, at which the Merger was discussed, Shields
orally delivered its preliminary opinion, subject to completion of its
investigation and analysis of the Company and reviewing the definitive Merger
Agreement, that the cash consideration to be received by the Company's
stockholders pursuant to the Merger Agreement is fair, from a financial point of
view, to such stockholders. A copy of the written opinion of Shields dated
August 10, 1995 is attached as Annex III to this Proxy Statement.
The full text of Shields' written opinion, which sets forth assumptions
made, procedures followed, matters considered and limits of the review, is
attached to this Proxy Statement as Annex III and is incorporated herein by
reference. Stockholders are urged to read the Shields opinion in its entirety.
Shields' opinion was prepared for the Board, and is directed only to the
fairness, from a financial point of view as of August 10, 1995, of the cash
consideration to be received by the stockholders pursuant to the Merger
Agreement. In rendering its opinion, Shields did not ascribe any value to the
assets to be conveyed to the Liquidating Trust. Shields' opinion does not
constitute a recommendation to any stockholder to vote in favor of the Merger.
In arriving at its opinion, Shields reviewed, among other things, the final
draft of the Merger Agreement; the Company's Annual Report to Stockholders for
the fiscal year ended August 31, 1994, and Annual Reports on Form 10-K for each
of the five years ended August 31, 1990 through 1994; the Company's Quarterly
Reports on Form 10-Q for the quarters ended November 30, 1994, February 28,
1995, and May 31, 1995; and the Company's preliminary financial results for the
fiscal year ending August 31, 1995. Shields also: (i) reviewed certain financial
and operating information, including financial projections, relating to the
business, earnings, cash flow, assets and prospects of the Company provided to
Shields by the Company's management; (ii) met with senior management to discuss
the Company's financial statements, operations and prospects; (iii) visited
certain of the Company's operating facilities; (iv) reviewed the historical
market prices and trading activity for the Common Stock and compared them with
those of certain publicly traded companies which Shields deemed to be comparable
to the Company; (v) compared the proposed financial terms of the Merger
Agreement with the financial terms of certain other mergers and acquisitions
which Shields deemed to be comparable; and (vi) conducted such other studies,
analyses, inquiries and investigations as Shields deemed appropriate, and
reviewed such other related documents which Shields deemed appropriate.
Shields used four separate methodologies or analyses to determine relative
values of the Company's Common Stock: stock trading history, comparable
transaction analysis, comparable company analysis and discounted cash flow
analysis.
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Stock Trading History. Shields examined the history of the trading prices
and volume for the Common Stock and the relationship between (i) movements in
the prices of the Common Stock and movements in certain stock indices and (ii)
movements in the prices of the Common Stock and public disclosures by the
Company. From 1985 through July 20, 1995 (the last trading day prior to the
public announcement of the execution of the Letter of Intent), the highest
closing price for the Company's stock was $16.75 on October 20, 1994 and the
lowest closing price for the Company's stock was $2.25 during 1991. During the
30-day period preceding the public announcement of the signing of the Letter of
Intent, the Common Stock traded in the $6.25 to $8.00 range. Following the
public announcement of the signing of the Letter of Intent, the Company's stock
price traded as high as $15.25 on July 21, 1995 and as low as $12.25 on August
1, 1995.
Comparable Transaction Analysis. Shields analyzed comparable merger and
acquisition activity within the markets which the Company serves. Shields
reviewed publicly available information for the (i) January 1990 acquisition of
Vermont American Corp., a manufacturer of cutting tools, hand tools and lawn and
garden products, by an investor group; (ii) February 1990 acquisition of Dallas
Corp., a manufacturer of cutting and machine tools and other industrial and
commercial products, including garage doors and broadcast equipment, by DCO
Holdings Corp., and (iii) the June 1990 acquisition of Easco Hand Tools, Inc., a
manufacturer of hand tools and specialized automotive service tools, by Danaher
Corp. Shields analyzed public information with respect to these companies
relating to the value of the transactions and revenues and net income of the
respective companies in order to calculate for each transaction the ratios of
consideration paid to net income and consideration paid to revenues. The ratio
of consideration paid to the net income for the Vermont American and Dallas
Corp. acquisitions described above was 26.35 and 18.68, respectively. The ratio
of consideration paid to the net income in the Easco acquisition is not
meaningful because Easco did not have net income for the period considered in
this analysis. However, in arriving at its opinion, Shields concluded that there
have been no changes in control of comparable companies in the past five years
where there has been adequate disclosure of the transaction terms which would
provide a fair basis on which to value the Company.
Company Analysis. Shields identified eight publicly traded companies which
have lines of business, operations and/or financial conditions that are similar
to those of the Company: Black & Decker Corp., Commercial Intertech Corporation,
Goulds Pumps, Inc., Graco, Inc., IDEX Corporation, Snap-on, Inc., Stanley Works
and The L.S. Starrett Company. In all cases, the comparable companies have other
lines of business. Shields is unaware of any company that is directly comparable
to the Company.
Shields applied a variety of financial tests to the eight companies
mentioned above in order to determine a range of relative values with which to
compare the per-share cash Merger Consideration. Using publicly available
information for each such company, Shields derived the following ratios for each
such company: (i) total market capitalization to revenues; (ii) price to
earnings; (iii) total market capitalization to operating profit; (iv) total
market capitalization to weighted average operating profit; (v) total market
capitalization to average operating profit; and (vi) market to book value.
Shields then applied the medians of each of these ratios to the Company's
revenues, earnings, operating profit, weighted average operating profit, average
operating profit and tangible book value, respectively, using the Company's most
recent twelve-month revenue and earnings estimates for the fiscal year ended,
and the estimated book value as of, August 31, 1995 to obtain the following
respective per share valuations: $9.58, $6.50, $6.36, $3.58, $3.71 and $(11.96).
These valuations were based on an aggregate of 2,641,000 shares of Common Stock
outstanding and are substantially less than the cash Merger Consideration to be
paid by Greenfield under the Merger Agreement. Shields did not perform
discounted cash flow analyses for the companies described above because the
information necessary to perform such an analysis was not publicly available.
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
Shields prepared a matrix of estimates of the net present per share values of
the Company's future cash flows, based on the following: (i) financial
projections for the Company for fiscal 1996 and 1997 prepared by the Company's
management and adjusted by Shields to reflect (A) the absence of additional
capital of approximately $15 million, which was contemplated by, and included in
the projections prepared by, the Company's management and (B) the results of its
own analysis of industry and market conditions; (ii) a review of the Company's
(A) audited financial results through August 31, 1994 and (B) preliminary
financial results for the fiscal year ended
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August 31, 1995; (iii) research and analysis of other sources of information
which Shields deemed appropriate; (iv) Shield's preparation of its own cash flow
estimates for the Company with respect to the fiscal periods 1996 through 2000
using no-growth, moderate-growth (4%), and aggressive-growth (8%) assumptions;
(v) theoretical terminal values of the Company calculated by Shields based on
the perpetuity method, which assumes that the cash flow for the fifth year that
is used in the calculation continues indefinitely. In general, the projections
that Shields used in its analysis were in line with the Company's historical
performance and the Company's expected outlook. Shields also (i) assumed cash
flows would be received by the Company in the middle of each year; and (ii)
established, through its own investigation, after-tax discount rates for the
Company of 12%, 15% and 18% based on a weighted average of the cost of debt and
the cost of equity subject to an appropriate debt/equity ratio for the Company.
Applying an 18% discount rate to Shields' own cash flow estimates for the
Company, Shields' discounted cash flow analysis yielded per share values for the
Company's Common Stock of ($1.48), ($0.70) and $0.16 for the no-growth,
moderate-growth and aggressive-growth scenarios, respectively. Applying a 15%
discount rate to Shields' own cash flow estimates for the Company, Shields'
discounted cash flow analysis yielded per share values for the Company's Common
Stock of $1.67, $2.75 and $3.94 for the no-growth, moderate-growth and
aggressive-growth scenarios, respectively. Applying a 12% discount rate to
Shields' own cash flow estimates for the Company, Shields' discounted cash flow
analysis yielded per share values for the Company's Common Stock of $6.89, $8.49
and $10.24 for the no-growth, moderate-growth and aggressive-growth scenarios,
respectively. As described above, Shields' discounted cash flow analysis yielded
a range of per share values for the Company's Common Stock that were
substantially lower in all cases than the cash Merger Consideration to be paid
by Greenfield under the Merger Agreement.
The preparation of a fairness opinion is a complex process and may not be
fairly represented through partial analysis or summary description. Selecting
portions of the analysis set forth above, without considering the analysis as a
whole, could create an incomplete view of the processes underlying Shields'
opinion. In arriving at its fairness determination, Shields considered the
results of all such analyses and did not attach more importance to the results
of any single analysis than to the results of any other analysis. No company or
transaction used as a comparison in the analyses is identical to the Company or
the contemplated transaction. The analyses were prepared solely for the purpose
of Shields providing its opinion to the Board as to the fairness of the cash
Merger Consideration to holders of Common Stock, and do not purport to be
appraisals or necessarily reflect the prices at which the Company or its
securities actually might be sold in the market place. As described above,
certain of the analyses performed by Shields relied on estimates of future
financial performance provided by the management of the Company, subject to
Shields' own evaluation of such estimates, which is described above. Analyses
based on forecasts of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than suggested
by such analyses. As described above, Shields' opinion and presentation to the
Board was one of the several factors taken into consideration by the Board in
making its determination to approve the Merger. Stockholders are urged to read
Shields' opinion in its entirety.
In rendering its opinion, Shields relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of the
financial and other information that was available to it from public sources and
that was provided to it by the Company or its representatives. With respect to
the financial forecasts reviewed by Shields in rendering its opinion, Shields
assumed that such financial forecasts were reasonably prepared on the basis of
the best currently available estimates and judgments of the management of the
Company as to the future financial performance of the Company. Further, with
regard to the Company's projected financial results, Shields has considered a
variety of factors that could affect the Company's ability to achieve those
results and has developed alternative scenarios reflecting other results that
Shields has considered in connection with arriving at its opinion. Shields did
not undertake an independent evaluation or appraisal of the assets or
liabilities of the Company, nor was it furnished with any such appraisal.
Shields' opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to it as
of, the date of such opinion. Although subsequent developments may affect its
opinion, Shields does not have any obligation to update, revise or reaffirm its
opinion. However, Shields has advised the Board that Shields will, upon the
request of the Board, update its opinion. At the date of this Proxy
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<PAGE> 28
Statement, the Board is not aware of any developments with respect to the
Company that warrant having Shields update its opinion.
Shields received a cash retainer of $25,000 upon formally being retained as
the Company's financial advisor, and the Company has agreed that Shields will
receive an additional fee of $100,000 for its services in connection with the
delivery of its fairness opinion. In addition, the Company has agreed to
reimburse Shields for its reasonable out-of-pocket expenses, including the fees
and disbursements of its attorneys, arising in connection with Shields'
engagement and to indemnify Shields against certain liabilities, including
liabilities arising under the federal securities laws. A representative of
Shields also has agreed to serve as a trustee of the Liquidating Trust and, in
connection therewith, will receive a fee for such services as well as
reimbursement of expenses and indemnification for certain liabilities. See "--
The Liquidating Trust."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the Merger,
stockholders should be aware that certain of the Company's directors and
executive officers have certain interests, referred to below, which may present
them with conflicts of interest in connection with the Merger. See "BENEFICIAL
OWNERSHIP OF COMMON STOCK." The Board was aware of these conflicts and
considered them among the other matters described above in this section under
"-- Recommendation of the Board of Directors."
Stock Options and Warrants. The Merger Agreement provides that,
immediately prior to the Effective Time each Rule Stock Option and each Rule
Warrant, which is then outstanding and exercisable in full, will be canceled and
the holder thereof will be entitled to receive an amount in cash equal to the
excess, if any, of (i) $15.30 multiplied by the number of shares of Common Stock
subject to the Rule Stock Option or Rule Warrant over (ii) the exercise price of
the Rule Stock Option or Rule Warrant, as the case may be, multiplied by the
number of shares of Common Stock subject thereto. The amount to be paid to each
holder of cancelled Rule Stock Options may be reduced in some instances for any
applicable withholding taxes or other amounts required by law to be paid or
withheld, either through reducing the amount paid to or by obtaining a cash
payment from, such holder. Under the Merger Agreement, Greenfield is not
required to consummate the Merger unless all of the Rule Stock Options and Rule
Warrants either have been exercised or cancelled. On September 21, 1995, the
Company accelerated the vesting of all outstanding Rule Stock Options, except
those held by Mr. Anastos. As described below under "-- William N. Anastos
Matters," on November 20, 1995, with the consent of Greenfield, the Company
accelerated the vesting of all outstanding unvested Rule Stock Options (87,000)
held by Mr. Anastos. At the date of the Proxy Statement, all holders of Rule
Stock Options and holders of Rule Warrants have advised the Company that they
either have exercised or agreed to cancellation of their respective Rule Stock
Options and Rule Warrants, as the case may be. See "THE MERGER AGREEMENT --
Conditions to the Merger."
As of the date of this Proxy Statement, William N. Anastos held options to
purchase 145,000 shares of Common Stock at an exercise price of $11.50 per
share. On September 21, 1995, John A. Geishecker, Jr. (Vice President and
Director) exercised options to purchase 39,000 shares of Common Stock at an
exercise price of $11.50 per share, Gary M. Sable (Vice President and Director)
exercised options to purchase 15,000 shares of Common Stock at an exercise price
of $11.50 per share, and Libby (Vice President) exercised options to purchase
100,000 shares of Common Stock at an exercise price of $5.00 per share and
warrants to purchase 100,000 shares of Common Stock at an exercise price of
$10.00 per share.
The Merger Agreement also provides that at the Effective Time, following
the cancellation of Rule Stock Options as described above, all of the Company's
obligations with respect to options granted under its Stock Option Plans shall
be terminated in accordance with such Stock Option Plans.
William N. Anastos Matters. William N. Anastos, a director of the Company
who has been on fully paid leave of absence as president of the Company since
July 21, 1995, voted as a director against adopting and approving the Merger
Agreement. On November 20, 1995, the Company, Greenfield, Messrs. Geishecker,
Sable and Anastos and Libby reached a definitive agreement to resolve all issues
raised by Mr. Anastos in connection with, among other things, the Merger. Under
that agreement, (i) Mr. Anastos will
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continue to receive his current compensation and benefits until the Effective
Time; (ii) after the Effective Time, Greenfield will inform Mr. Anastos every
other month until December 1997 of financial, marketing and other information
relating to the Company's marine products division, disclose to Mr. Anastos
Greenfield's intentions, if any, to divest such division or its receipt of an
offer for such division, in each case between the Effective Time and December
31, 1997, and afford Mr. Anastos an opportunity to submit an offer for the
division if Greenfield decides to divest such division; (iii) the Company will
transfer to Mr. Anastos at no cost two automobiles he currently uses; (iv) the
Company will sell to Mr. Anastos an airplane for approximately $657,839; (v) the
Company will accelerate the vesting of all outstanding unvested Rule Stock
Options (87,000) held by Mr. Anastos; and (vi) the Company will retain the
telemarketing management services of Mr. Anastos' daughter until December 31,
1997 for a maximum aggregate fee of $240,000. As part of this agreement, Mr.
Anastos agreed, among other things, (i) to grant Greenfield a proxy with respect
to the Votable Shares; (ii) to a continued leave of absence from the Company
until the Effective Time, at which time he will tender his written resignation
as president and a director of the Company; and (iii) to release the Company and
its officers and directors and Greenfield from, among other things, any and all
claims and causes of action relating to the Merger.
Indemnification. The Merger Agreement provides that upon consummation of
the Merger and for a period of six years after the Effective Time, to the
fullest extent permitted by law Greenfield and the Surviving Corporation will,
jointly and severally, indemnify the present and former directors, officers and
employees of the Company and its subsidiaries against all losses, damages,
liabilities and claims made against them arising from their service in such
capacities prior to and including the Effective Time of the Merger to the
fullest extent permitted by law under the Company's or any subsidiary's articles
of incorporation or by-laws.
Libby Employment Agreement. In connection with the Merger, Greenfield has
agreed to employ Libby, a Vice President of the Company, pursuant to an
Employment and Noncompetition Agreement to be effective upon consummation of the
Merger (the "Employment Agreement"). Under the terms of the Employment
Agreement, Libby will serve as Senior Vice President -- Consumer Products Group
of Greenfield for a period of five years, unless earlier terminated. As
compensation for his services, he will be entitled to receive a base salary of
$400,000 per year with a guaranteed bonus of not less than $100,000 per year.
Under the terms of the Employment Agreement, Libby also has agreed that he will
not at any time while employed by Greenfield and for one year from and after the
date on which he is no longer entitled to receive base salary and guaranteed
bonus compensation under the terms of the Employment Agreement, compete with
Greenfield or any of its subsidiaries. Greenfield also has agreed to pay to
Libby and Disston principal and interest due under subordinated debentures in
the aggregate principal amount of $3.6 million. These subordinated debentures
were issued by a subsidiary of the Company to Libby and Disston in connection
with the Company's acquisition of certain assets and business operations in
1994.
Purchase of Gloucester Facility. The Company currently leases the 87,500
square foot Gloucester Facility, which is the Company's primary manufacturing
facility for marine products, and the other Gloucester Assets from RAGS III,
which purchased the property from the Company in 1985 for $3.6 million. Messrs.
Geishecker, Sable and Anastos are general partners of RAGS III. The lease
expires on November 25, 1995. Pursuant to an agreement between the Company and
RAGS III, after the Effective Time the Surviving Corporation will purchase from
RAGS III the Gloucester Assets for an aggregate of $2.4 million in cash. The
fair market value of the Gloucester Assets on July 7, 1995, as determined by an
independent appraiser, was $2.4 million.
Assumption by Greenfield of Deerfield Lease Obligations. The Company
leases a 275,000-square-foot hardware products manufacturing facility in South
Deerfield, Massachusetts from a partnership, of which Messrs. Anastos,
Geishecker and Sable are general partners. Under the terms of the Merger
Agreement and by operation of law after the Merger, Greenfield will assume all
of the Company's obligations with respect to the lease for the South Deerfield
facility.
Trustees of the Liquidating Trust. John A. Geishecker, Jr., an officer and
director of the Company, and Thomas J. Shields, a managing director of Shields,
have agreed to serve as trustees of the Liquidating Trust
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and, in connection therewith, will receive a fee for such services as well as
reimbursement of expenses and indemnification for certain liabilities. See "--
The Liquidating Trust" and "-- Opinion of Financial Advisor."
Certain Legal Fees. Owen B. Lynch, a Director of the Company, is a partner
in the law firm of Lynch, Brewer, Hoffman & Sands ("Lynch Brewer"). Lynch Brewer
will receive fees for legal services performed on behalf of the Company in
connection with the Merger.
THE LIQUIDATING TRUST
The Liquidating Trust. The Liquidating Trust will be established prior to
the Effective Time for the exclusive benefit of the stockholders of the Company
at the Effective Time (other than the Excluded Stockholders), and each such
stockholder of the Company (other than the Excluded Stockholders) will become a
Beneficiary of the Liquidating Trust with a Beneficial Interest in the
Liquidating Trust equal to his proportionate interest in the Company (without
taking into account the shares held by the Excluded Stockholders). The
Liquidating Trust will be formed solely to receive from the Company all of its
right, title and interest in any recoveries to which it may be entitled under
certain agreements relating to the currently pending Disston Arbitration
Proceedings and to assume and perform all of the Company's duties and
obligations under such agreements. Additionally, the Company and Disston have
agreed that Disston will have the sole right to direct and/or settle the Disston
Arbitration Proceedings. For further information regarding the Disston
Arbitration Proceedings, see "-- Disston Arbitration." Any recovery under the
Disston Arbitration Proceedings is dependent on the favorable resolution of many
complex factual and legal issues.
Beneficial Interests will be non-transferable except for transfers
occurring by operation of law as a result of a Beneficiary's death or (in the
case of a Beneficiary that is not a natural person) as a result of a merger,
consolidation, sale of assets, reorganization or dissolution. No certificates or
other documents evidencing Beneficial Interests will be issued. Title to
Beneficial Interests will be reflected only in the records maintained by the
Liquidating Trust. The Beneficial Interests do not pay any dividends or bear any
stated rate of interest and have no voting or other stockholder rights. The
Beneficial Interests represent only the contingent right to receive the net
assets (if any) of the Liquidating Trust under the circumstances described in
this Proxy Statement. Stockholders should be aware that if the amount of the
Claims against the Liquidating Trust exceeds the amounts held in the Liquidating
Trust, neither the owners of Beneficial Interests in the Liquidating Trust, the
Liquidating Trust, nor the trustees of the Liquidating Trust will be liable for
such difference.
The initial trustees of the Liquidating Trust will be John A. Geishecker,
Jr., a Vice President and Director of the Company, Thomas J. Shields, a managing
director of Shields & Company, Inc., and Dino Casali, a branch manager at
Fahnestock & Company, Inc., a stock brokerage firm. As compensation for the
performance of his duties as trustee, each of the trustees will be entitled to
receive an annual retainer of up to $5,000 and $250 for each meeting of trustees
that he attends, plus reimbursement for reasonable expenses, including
attorneys' fees, out of the assets of the Liquidating Trust. The trustees and
each employee and agent of the Liquidating Trust will be indemnified out of the
assets of the Liquidating Trust from and against all liabilities and expenses
incurred by them unless they are adjudicated to have acted with willful
misconduct, gross negligence, or fraud in the exercise and performance of their
duties. The Liquidating Trust may also obtain liability insurance for the
benefit of the trustees.
The trustees will issue annual reports to the Beneficiaries showing the
assets and liabilities of the Liquidating Trust at the end of each calendar year
(other than the 1995 calendar year) during any part of which the trustees have
received or held any proceeds from the Company's right to recoveries under the
Disston Arbitration Proceedings (and investment earnings, if any, thereon) with
a value of more than $100,000, and the receipts and disbursements of the
trustees for the period. Such annual reports will also describe material changes
in the assets or liabilities of the Liquidating Trust during the period and
actions taken by the trustees in the performance of their duties during the
period. Additionally, the trustees will issue a similar report upon termination
of the Liquidating Trust. The trustees also may issue interim reports to the
Beneficiaries whenever, in the opinion of the trustees, a material event
relating to the assets of the Liquidating Trust has occurred. As soon as
reasonably practicable after the close of each calendar year, the trustees will
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supply each Beneficiary with the information necessary to determine the amount
of taxable income (or deduction) from the Liquidating Trust for inclusion in the
Beneficiary's federal income tax return for the preceding year.
The Liquidating Trust will terminate automatically on the date that the
last of the assets of the Liquidating Trust is distributed to the Beneficiaries,
but not later than three years from the date of the Liquidating Trust (unless at
such time the trustees are currently engaged in the determination, defense, or
settlement of a claim against the Liquidating Trust or some or all of the
amounts to be received by the Liquidating Trust as a result of the Disston
Arbitration Proceedings have not yet been received by the trustees, in which
event the trustees may extend the date of termination if they reasonably
conclude that no enforcement action will be brought by the SEC due to such
extension). Notwithstanding the foregoing, in the event that additional amounts
resulting from the Disston Arbitration Proceedings may be distributed to the
Liquidating Trust, the trustees will have the authority to evaluate the
likelihood of such distribution and the amount thereof versus the costs and
inconvenience of maintaining the Liquidating Trust and to determine whether to
terminate the Liquidating Trust or to maintain the Liquidating Trust in
anticipation of such distribution.
Until such time as the Liquidating Trust is terminated, cash held in the
Liquidating Trust will be invested in (i) interest-bearing obligations of, or
obligations guaranteed by, the United States of America, or any political
subdivision or instrumentality thereof or any instrumentality of such a
political subdivision, having a maturity not in excess of one year, (ii)
interest-bearing deposits or certificates of deposit of any federally insured
banking institution located in the Commonwealth of Massachusetts having assets
of at least $500 million, or (iii) money market mutual funds or mutual funds
investing in "money market" obligations or obligations of the U.S. Government or
guaranteed by the U.S. Government. Upon receipt by the Liquidating Trust of any
proceeds from the Company's right to recoveries under the Disston Arbitration
Proceedings, the trustees will reimburse Greenfield and the Surviving
Corporation for the amounts, if any, contributed by them to the Liquidating
Trust for administrative expenses. The trustees will hold all other amounts
received as a result of the Disston Arbitration Proceedings until the expiration
of the indemnification period, which is defined as the earlier of (i) the date
180 days following receipt by the trustees, in full, of all amounts to be
received by the Liquidating Trust as a result of the Disston Arbitration
Proceedings and (ii) the second anniversary of the Effective Date, during which
Indemnification Period the trustees will pay any valid Claims made by Greenfield
pursuant to the Indemnification Agreement. Upon the expiration of the
Indemnification Period the trustees will distribute to the Beneficiaries all
amounts held in the Liquidating Trust, except for any amount as to which there
is a dispute as to whether there is a valid claim for such amount under the
Indemnification Agreement. Any amounts received by the trustees thereafter will
be distributed to the Beneficiaries upon receipt of such amounts. All
distributions will be made pro rata according to the Beneficiaries' respective
Beneficial Interests in the Liquidating Trust; provided, however, that no
distribution will be made to Beneficiaries without first satisfying or providing
adequate reserves for (i) all known or contingent liabilities, including any
unsatisfied Claim of Greenfield, and (ii) the reasonable expenses incurred or to
be incurred by the trustees.
It is possible that no awards from the Disston Arbitration Proceedings will
be made to the Liquidating Trust or that all proceeds received will be used to
discharge liabilities of the Liquidating Trust. Consequently, stockholders are
advised to evaluate the Merger without regard to the amount which may be held in
the Liquidating Trust. Stockholders should be aware that the opinion of Shields
with respect to the fairness of the Merger Consideration does not address the
amount, if any, that may be available to holders, or the fairness, from a
financial point of view, of Beneficial Interests in the Liquidating Trust.
THERE ARE MANY UNCERTAINTIES CONCERNING THE OUTCOME OF THE DISSTON
ARBITRATION PROCEEDINGS. THE COMPANY HAS VALUED EACH STOCKHOLDER'S SHARE OF THE
ASSETS CONVEYED TO THE LIQUIDATING TRUST AT $0.15 PER SHARE ALTHOUGH THERE CAN
BE NO ASSURANCE THAT SUCH VALUATION AS DETERMINED BY THE COMPANY WILL NOT BE
CHALLENGED BY THE INTERNAL REVENUE SERVICE. IF IT WERE LATER DETERMINED THAT
THIS VALUATION IS INCORRECT, THE GAIN OR LOSS TO EACH STOCKHOLDER WOULD BE
ALTERED ACCORDINGLY. FOR A DISCUSSION OF THE METHODOLOGY THE COMPANY USED TO
DETERMINE THE VALUATION DESCRIBED ABOVE, SEE "FEDERAL INCOME TAX CONSEQUENCES."
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Disston Arbitration. The Company, with the approval of Greenfield, has
entered into an agreement with Disston confirming their understanding with
respect to the prosecution of the Disston Arbitration Proceedings and the rights
and obligations of the Company thereunder. The Merger Agreement permits the
Company to transfer, prior to the Effective Time, all of its rights and interest
in any recoveries to which it may be entitled as a result of such proceedings to
the Liquidating Trust for the benefit of the Company's stockholders.
The Disston Arbitration Proceedings relate to an action by Disston and
Libby against Sandvik in which Disston and Libby maintain, among other things,
that, pursuant to a Sale of Assets Agreement dated as of November 12, 1982 (the
"Disston/Sandvik Asset Agreement"), between Disston and Sandvik, Sandvik (i) is
responsible for and is required to indemnify Disston for any costs of
environmental cleanup in connection with the disposal of hazardous and
non-hazardous wastes at the Danville Facility prior to the acquisition of the
property by Disston from Sandvik in 1982 and (ii) is responsible for any damages
sustained by Disston as a result of such contamination. Among other actions,
Disston and Libby maintain that Sandvik operated an unlined landfill on the
property in which hazardous and non-hazardous wastes were disposed, operated two
unlined surface impoundments on the property for the treatment of plant
wastewater containing hazardous substances, and buried 55-gallon drums of liquid
waste, including hazardous substances, behind the Danville Facility. Among other
possible defenses, Sandvik argues that the statute of limitations has expired,
that Disston and Libby are estopped from bringing suit because they failed to
properly and timely notify Sandvik of the presence of hazardous wastes, that
Sandvik had no knowledge of any transportation of waste to the site and that the
contamination was caused by factors other than Sandvik's actions.
The Company is not a party to the Disston Arbitration Proceedings or the
action that gave rise to such proceedings. Prior to the acquisition by the
Company of the Disston assets in 1994, the Company owned a note of Disston that
was convertible into two-thirds of the outstanding stock of Disston.
Approximately six months after the Company purchased this note, both Disston and
the Company learned of potential environmental problems at the Danville
Facility, the magnitude of which precluded conversion of the note as a means of
acquiring Disston. Accordingly, the Company negotiated an acquisition structure
in which (i) the Company acquired certain assets (other than real estate) and
assumed certain liabilities other than environmental liabilities and (ii)
Disston retained (A) certain liabilities, including all environmental
liabilities and mortgage liabilities with respect to the Danville Facility, (B)
real estate and certain operating assets and (C) relatively little cash with
which to pay for, among other things, the costs of the Disston Arbitration
Proceedings and maintenance of the Danville Facility. Therefore, in connection
with these negotiations, the Company agreed to continue to fund various costs of
Disston related to the Disston Arbitration Proceedings and the maintenance of
the Danville Facility after the relocation and consolidation of Disston's
manufacturing operations.
Disston and Libby requested arbitration of this dispute in September 1990
pursuant to the Disston/Sandvik Asset Agreement, and have requested, among other
things, that they be awarded compensation for any enforcement and response costs
associated with the release or threatened release of hazardous substances on the
property and damages. Additionally, Disston and Libby have requested that the
arbitration panel find that Sandvik is solely liable under the Comprehensive
Environmental Response, Compensation and Liability Act for any future response
costs. Sandvik has counterclaimed for damages due to nonpayment by Disston and
Libby of a promissory note issued to Sandvik in connection with the
Disston/Sandvik Asset Agreement and for a declaration that Disston and Libby are
responsible for any cleanup costs at the Danville Facility. Disston and Sandvik
are continuing to conduct site assessments with respect to the Danville Facility
to determine what remediation is necessary.
The parties to the Disston Arbitration Proceedings have prepared response
briefs to be submitted to a panel of the New York Regional Office of the
American Arbitration Association. It is anticipated that the matters raised in
the Disston Arbitration Proceedings will be considered formally by the
arbitrators in late November 1995 and that a decision will be rendered by
February of 1996. There can be no assurance as to the outcome of the Disston
Arbitration Proceedings, which will depend on the resolution of many complex
factual and legal issues.
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Indemnification Agreement. Pursuant to the Merger Agreement and an
Indemnification Agreement ("Indemnification Agreement") among the Company,
Greenfield, Acquisition and the trustees of the Liquidating Trust, Greenfield is
entitled to indemnification against any liability arising out of (i) any
violation of federal or state securities laws or related common law or statutory
violations by the Company prior to the date of this Proxy Statement and arising
out of or relating to the Disston Arbitration Proceedings or the facts
underlying the Disston Arbitration Proceedings, (ii) certain environmental
claims, if any, or (iii) any liability for taxes arising out of payment of any
amount awarded to Disston in the Disston Arbitration Proceedings and paid to the
Liquidating Trust (collectively, the "Claims"). Property held in the Liquidating
Trust will be subject to such Claims, and Greenfield will be entitled to recover
for any Claims only out of the amounts held in the Liquidating Trust. Greenfield
may only raise such Claims during the Indemnification Period, which is defined
as the period of time beginning on the effective date of the Indemnification
Agreement and ending on the earlier of (i) the date 180 days following receipt
by the trustees, in full, of all amounts to be received by the Liquidating Trust
as a result of the Disston Arbitration Proceedings and (ii) the second
anniversary of the Effective Date. Upon submission of a Claim the trustees have
the right to either dispute the Claim, and submit such dispute to arbitration,
or pay the Claim out of amounts held in the Liquidating Trust. Greenfield has
agreed to cause the Surviving Corporation to lend to Disston, as expenses are
incurred, such sums (the "Loans") as Disston shall request in writing to fund
the costs of the Disston Arbitration Proceedings and maintenance of the Danville
Facility. The Loans will bear interest at a rate per annum equal to the prime
rate of interest published from time to time by NationsBank of Delaware, N.A.
Interest will accrue monthly, will not be added to the principal of the Loans
and will be repaid only at such time as the principal amount of the Loans is
repaid. Additionally, Greenfield has agreed to cause the Surviving Corporation
to contribute $50,000 to the Liquidating Trust to be used for administrative
costs. Such contribution will be reimbursed out of any amounts received by the
Liquidating Trust as a result of the Disston Arbitration Proceedings prior to
any distributions to Beneficiaries.
Disston Arbitration Agreement. The Company and Disston have entered into
an agreement pursuant to which any amounts awarded to Disston in connection with
a final resolution of the Disston Arbitration Proceedings will be distributed in
the following priority: (i) to fund specified costs Disston may be required to
pay as a result of such final resolution, including costs of environmental
remediation by Disston, if any, and a reserve for taxes, if any, on any portion
of an award that is distributed to the Liquidating Trust; (ii) to repay all
Loans (including interest costs); (iii) to reimburse the Company for (A) its
payments to Disston prior to the Effective Time for costs and expenses incurred
by Disston since May 20, 1994 in connection with the Disston Arbitration
Proceedings and (B) 50% of the amounts paid by the Company to Disston since
September 1, 1994 but prior to the Effective Time for maintenance costs of the
Danville Facility incurred by Disston since September 1, 1994; (v) to disburse
the remaining amounts, up to $12 million, 50% to Disston and 50% to the Company;
and (vi) to disburse the remaining amounts, in excess of $12 million, 80% to
Disston and 20% to the Company. The Company and Disston have released each other
from any liability arising from any and all claims (other than claims (i) under
the Disston Arbitration Agreement, (ii) with respect to principal and interest
payable by the Company to Libby and Disston under the subordinated debentures
dated May 20, 1994 issued by a subsidiary of the Company to Libby and Disston,
or (iii) for accrued salary, bonuses and reimbursable expenses owed to Libby by
the Company), including claims concerning the Danville Facility. Additionally,
the Company and Disston have agreed that Disston will have the sole right to
direct and/or settle the Disston Arbitration Proceedings and that Disston will
submit reports to the trustees of the Liquidating Trust as material developments
occur with regard to the Disston Arbitration Proceedings. If the Merger is not
consummated for any reason, the Disston Arbitration Agreement will become null
and void, and the Company and Disston will negotiate in good faith to reach an
agreement substantially reflecting the intent of the parties under the Disston
Arbitration Agreement.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase of the Company by Greenfield
in accordance with generally accepted accounting principles, whereby the
purchase price will be allocated based upon the fair values of the assets
acquired and the liabilities assumed by Greenfield.
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CERTAIN REGULATORY MATTERS
The Merger is subject to the requirements of the HSR Act, and the rules and
regulations thereunder, which provide that certain transactions may not be
consummated until required information and materials have been furnished to the
Antitrust Division and the FTC and certain waiting periods have expired or been
terminated. The Company and Greenfield filed the required information and
material with the Antitrust Division and the FTC on September 12, 1995. The
statutory waiting period under the HSR Act was terminated on September 25, 1995.
The requirements of the HSR Act will be satisfied if the Merger is consummated
before October 12, 1996. The Company does not believe any other material
regulatory approvals are required for consummation of the Merger.
THE GREENFIELD OPTION
On August 11, 1995, pursuant to the Merger Agreement, the Company granted
Greenfield the Greenfield Option to purchase 630,000 shares of Common Stock at
an exercise price of $8.00 per share. Greenfield had requested the Greenfield
Option as part of the July 17 Offer and in connection with the Letter of Intent.
See "-- Background." At the time of the July 17 Offer, the Company understood
Greenfield's requests for an option were motivated by a desire to be compensated
if the Company accepted an offer to be acquired by another company after the
Merger Agreement had been executed. In addition, the Company believed that the
Greenfield Option would provide a means for the infusion of needed equity
capital pending the Merger at a market price.
The Greenfield Option, which was exercisable by Greenfield or its permitted
assignee, in whole or in part, at any time or from time to time, on or before
the earlier of (i) the Effective Time, (ii) the closing of an Acquisition
Transaction or (iii) June 30, 1996, was exercised in full by Greenfield on
September 11, 1995. The Company has been advised that Greenfield exercised the
Greenfield Option to (i) vote the Greenfield Option shares at the Special
Meeting and (ii) assure sufficient votes at the Special Meeting to obtain the
requisite stockholder approval of the Merger Agreement, especially in light of
uncertainty in early September 1995 as to how Mr. Anastos would vote his Votable
Shares. The effect of the exercise of the Greenfield Option and the use of the
proceeds therefrom was to provide the Company with a necessary capital infusion.
Pursuant to the Greenfield Option, the Company used all proceeds received upon
exercise of the Greenfield Option ($5.04 million) to repay indebtedness owed to
the Company's senior lender. The Greenfield Option proceeds together with
proceeds received by the Company from the exercise of the Rule Stock Options and
Rule Warrants have provided the Company with needed capital during the period
necessary to consummate the Merger. Because the proceeds from the exercise of
the Greenfield Option were used to reduce the Company's senior institutional
indebtedness, the purchase of the Greenfield Option shares should not materially
affect the overall consideration being paid for the Company by Greenfield
(consisting of cash payments to the Company's stockholders plus assumption of
the Company's debt). The ownership of the shares of Common Stock acquired upon
exercise of the Greenfield Option will not entitle Greenfield to receive the
Merger Consideration or participate in or otherwise receive proceeds from the
Liquidating Trust, but such shares may be voted in favor of adopting and
approving the Merger Agreement. Greenfield has advised the Company that it
intends to vote such shares and the Votable Shares (611,100) as to which Mr.
Anastos and his affiliates have granted Greenfield a proxy in favor of adopting
and approving the Merger Agreement at the Special Meeting and in favor of an
adjournment of the Special Meeting to solicit further proxies if the inspectors
of election advise the Board that there may not be sufficient votes to approve
and adopt the Merger Agreement. As a result of such proxy, Greenfield has voting
discretion over approximately 35% of the Common Stock outstanding and entitled
to vote at the Special Meeting.
Except as discussed above under "-- Background of the Merger," the Company
did not solicit or receive bids from other parties concerning a potential merger
or other acquisition. For a discussion of the background of the Merger, the
Board's decision to approve the Merger Agreement and the factors the Board
considered in deciding to approve the Merger Agreement, see "-- Background of
the Merger" and "-- Recommendation of the Board of Directors."
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THE MERGER AGREEMENT
The following is a brief summary of the Merger Agreement. The description
of the terms and conditions of the Merger Agreement set forth below or included
elsewhere in this Proxy Statement are qualified in their entirety by reference
to the Merger Agreement (attached hereto as Appendix I) which is incorporated
herein by reference. Stockholders are advised to read the Merger Agreement in
its entirety prior to voting.
EFFECTIVE TIME OF THE MERGER
The Effective Time will be such time as the articles of merger are filed
with the Secretary of State of the Commonwealth of Massachusetts. Under the
Merger Agreement, Greenfield is required to cause the articles of merger to be
filed at the closing of the Merger.
EFFECTS OF THE MERGER
Pursuant to the Merger Agreement, Acquisition will be merged with and into
the Company at the Effective Time. The separate corporate existence of
Acquisition will thereupon cease and the Company will continue as the Surviving
Corporation in the Merger in accordance with the MBCL and the Merger Agreement.
At the Effective Time, Greenfield will become the sole stockholder of the
Surviving Corporation, and each of the shares of the Company's issued and
outstanding Common Stock, other than Dissenting Shares and shares held in the
Company's treasury or owned beneficially by Greenfield, Acquisition or any
subsidiary of the Company, will automatically be converted into the right to
receive $15.30 in cash per share and (except for Dissenting Shares, Greenfield
Shares and shares of Common Stock owned by Libby) a Beneficial Interest in the
Liquidating Trust. Upon consummation of the Merger, former stockholders of the
Company will cease to be stockholders of the Company.
Immediately prior to the Effective Time, each Rule Stock Option and each
Rule Warrant then outstanding and exercisable in full shall be cancelled, and
the holder thereof will be entitled to receive from Greenfield at the Effective
Time an amount in cash equal to the excess, if any, of (i) $15.30 multiplied by
the number of shares of Common Stock subject to the Rule Stock Option or Rule
Warrant over (ii) the exercise price of the Rule Stock Option or Rule Warrant,
as the case may be, multiplied by the number of shares of Common Stock subject
thereto. Appropriate arrangements will be made for reduction of the amount paid
to or by obtaining a cash payment from, such holder. At the Effective Time,
following the cancellation of Rule Stock Options, all of the Company's
obligations with respect to options granted under its Stock Option Plans shall
be terminated in accordance with such Stock Option Plans.
EXCHANGE OF CERTIFICATES AND PAYMENT OF CASH MERGER CONSIDERATION
Greenfield and the Company have selected First Chicago Trust Company of New
York to act as agent (the "Exchange Agent") for the purpose of exchanging
certificates theretofore representing shares of Common Stock, Rule Stock Options
and Rule Warrants (collectively, the "Certificates"). On the Closing Date,
Greenfield will deposit with the Exchange Agent a cash amount equal to the
aggregate cash Merger Consideration (the "Exchange Fund").
Promptly after the Effective Time, the Surviving Corporation will cause the
Exchange Agent to send to each holder of Certificates a letter of transmittal,
in customary form for use in such exchange and which will specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent, and instruction
for use in effecting the surrender of the Certificates in exchange for the cash
Merger Consideration. Upon surrender to the Exchange Agent of a Certificate,
together with a duly executed and properly completed letter of transmittal, the
holder of such Certificate will be entitled to receive a check representing the
cash Merger Consideration per share of Common Stock, Rule Stock Option or Rule
Warrant, as the case may be, represented thereby. Thereafter, the Certificate so
surrendered shall be cancelled. After the Effective Time, each such Certificate
will, until surrendered, represent only the right to receive the cash Merger
Consideration.
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If any portion of the cash Merger Consideration is to be paid to a person
other than the registered holder of the shares represented by the Certificate or
Certificates surrendered, it will be a condition of such payment that the
Certificate or Certificates so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not applicable.
STOCKHOLDERS SHOULD SURRENDER CERTIFICATES ONLY WITH A LETTER OF
TRANSMITTAL. STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES WITH THE ENCLOSED
PROXY CARD.
After the Effective Time, there will be no transfers on the stock transfer
books of the Company of shares of Common Stock, Rule Stock Options or Rule
Warrants. If, after the Effective Time, Certificates theretofore representing
such shares, options or warrants are presented for transfer to the Exchange
Agent or the Company, they will be cancelled and exchanged for the Merger
Consideration. No interest will be paid to holders of Certificates. Until
surrendered, each Certificate shall be deemed at any time after the Effective
Date to represent only the right to receive upon such surrender the cash Merger
Consideration per share of Common Stock, Rule Stock Option or Rule Warrant, as
the case may be, and, under certain circumstances described in this Proxy
Statement, a Beneficial Interest in the Liquidating Trust.
The funds deposited with the Exchange Agent will be invested by the
Exchange Agent in direct obligations of the United States of America, commercial
paper, or certificates of deposit, and similar securities and any net earnings
with respect thereto shall become part of the Exchange Fund. If for any reason
(including losses) the Exchange Fund is inadequate to pay the cash amounts to
which holders of shares of Common Stock, Rule Stock Options and Rule Warrants
shall be entitled, Greenfield will make available to the Exchange Agent
additional funds for the payment thereof. Any amount remaining in the Exchange
Fund 120 days after the Effective Time will be released and refunded to the
Surviving Corporation, after which time any stockholders of the Company or
holders of Rule Stock Options or Rule Warrants who have not previously
surrendered Certificates in accordance with the Merger Agreement will thereafter
look only to the Surviving Corporation (subject to abandoned property, escheat
and other similar laws) as general creditors for payment of their claims for the
cash Merger Consideration. If outstanding Certificates are not surrendered, or
cash payment therefor not claimed prior to six years after the Effective Time
(or, in any particular case, prior to such earlier date on which such cash
payment would otherwise escheat to or become the property of any governmental
unit or agency), the unclaimed amounts shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
RIGHTS OF DISSENTING STOCKHOLDERS
The Merger Agreement provides that any issued and outstanding shares of
Common Stock held by any Dissenting Stockholder shall not be converted into the
Merger Consideration as contemplated by the Merger Agreement, but instead the
Dissenting Stockholder shall be entitled only to obtain payment of the fair
value of the shares of Common Stock by complying with the terms of Sections 88
through 98, inclusive, of the MBCL. The procedures for exercising rights of
appraisal are set forth below under "APPRAISAL RIGHTS". In addition, a copy of
Section 85 through 98, inclusive, of the MBCL is attached hereto as Annex II.
Shares of Common Stock outstanding immediately prior to the Effective Time and
held by Dissenting Stockholders who, after the Effective Time, withdraw their
demand for appraisal or lose the right of appraisal, in either case pursuant to
the MBCL, shall be deemed to be converted, as of the Effective Time, into the
right to receive the Merger Consideration, as applicable, as specified in the
Merger Agreement, without interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties made
by each of the Company, Greenfield and Acquisition that are customary for a
transaction of this type. The Company, Greenfield and Acquisition have made
representations and warranties as to (i) organization, standing and corporate
power; (ii) authorization of the Merger Agreement and no violation of certain
instruments or laws resulting from execution and performance of the Merger
Agreement; and (iii) consents and approvals. The Company also
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has made representations and warranties as to, among other things, (i) capital
structure; (ii) litigation matters; (iii) matters relating to brokers, fees, and
other expenses; (iv) consents and approvals; (v) insurance; (vi) customers and
vendors; (vii) liens; (viii) employees and employee relations; (ix) subsidiaries
and affiliates; (x) SEC documents, financial statements and undisclosed
liabilities; (xi) absence of certain changes or events; (xii) employee benefit
plans; (xiii) compliance with the Employee Retirement Income Security Act of
1974, as amended; (xiv) taxes; (xv) environmental compliance; (xvi) compliance
with laws; (xvii) contracts and debt instruments; (xviii) title to real and
personal property; and (xix) intellectual property.
NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
None of the representations and warranties included in the Merger Agreement
or in any instrument delivered pursuant to the Merger Agreement will survive the
Effective Time. However, all covenants and agreements of the parties which
contemplate performance after the Effective Time, including disbursement of the
Merger Consideration, will survive the Effective Time.
Although the Company's representation and warranty in the Merger Agreement
with respect to environmental liabilities and compliance does not survive the
Effective Time, stockholders should be aware that the Indemnification Agreement
provides that Greenfield has the right to make claims against the Liquidating
Trust for any liability arising out of (i) any violation of federal or state
securities laws by the Company prior to the Effective Time (excluding any claims
brought by stockholders of the Company as of the Effective Time), (ii) certain
environmental claims, if any, or (iii) any liability for taxes arising out of
payment of any amount awarded to Disston in the Disston Arbitration Proceedings
and paid to the Liquidating Trust. See "THE LIQUIDATING TRUST."
CONDUCT OF BUSINESS OF THE COMPANY PRIOR TO THE MERGER
The Company has agreed to carry on its business in the usual, regular and
ordinary course in substantially the same manner as conducted prior to the date
of the Merger Agreement and to use all reasonable efforts to preserve intact its
present business organizations, keep available the services of its present
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with the Company. In this regard, the
Company has agreed that the Company and its subsidiaries will refrain from
taking certain actions during the period from the date of the Merger Agreement
to the Effective Time of the Merger, unless consented to by Greenfield and
Acquisition.
The Company and its subsidiaries have agreed, with certain exceptions, to
refrain from (i) declaring, setting aside or paying any dividends on, or making
any other distributions in respect of, any of their capital stock, (ii)
splitting, combining or reclassifying any of their capital stock or issuing,
authorizing or proposing the issuance of any securities; (iii) purchasing,
redeeming or otherwise acquiring any shares of their capital stock or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities; (iv) issuing, delivering, selling, pledging or otherwise
encumbering any shares of their capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible securities; (v) amending their
articles of organization, by-laws or other comparable charter or organizational
documents; (vi) acquiring or agreeing to acquire all or part of any business or
any corporation or other entity or the assets thereof, except for purchases of
assets in the ordinary course of business; (vii) mortgaging or otherwise
encumbering or, except in the ordinary course of business consistent with past
practice or as otherwise expressly permitted selling, leasing or otherwise
disposing of any of its material properties or assets; (viii) incurring any
indebtedness except short-term borrowings incurred in the ordinary course of
business consistent with past practice; (ix) making any loans, advances or
capital contributions to, or investments in, any other person, other than to or
in the Company or any direct or indirect wholly owned subsidiary of the Company;
(x) making or agreeing to make any new capital expenditures which in aggregate
are in excess of $250,000; (xi) paying, discharging or satisfying any claims,
liabilities (including federal income tax liabilities) or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or
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contemplated by, the most recent consolidated financial statements of the
Company; (xii) increasing the compensation payable or to become payable to their
officers or employees, consistent with past practice or granting any severance
or termination pay to or entering into any employment or severance agreement
with any of their directors, officers or other employees; (xiii) establishing or
making any new grants or awards under or amending any employee benefit plan or
other arrangement, plan or policy; (xiv) establishing or amending any employee
benefit plan; (xv) settling any material claims or litigation or modifying,
amending or terminating any of their material contracts or waiving, releasing or
assigning any material rights or claims; (xvi) permitting any material insurance
policy to be cancelled or terminated; (xvii) failing to confer on a regular and
frequent basis with Greenfield and Acquisition to report material operational
matters and the general status of ongoing operations; (xviii) breaching any
material contract, agreement, license or instrument to which they are a party or
to which any of their assets may be subject, or violating any applicable law,
regulation, ordinance, order, injunction or decree or any other requirements of
any governmental body or court, relating to their assets or business; (xix)
factoring, discounting, or otherwise accepting less than full payment with
regard to accounts receivable or other amounts due; (xx) delaying payment on, or
otherwise altering the payment terms of, accounts payable or paying the amounts
due thereunder later than the stated date for payment thereof; (xxi) selling any
inventory at less than fair market value or making any bulk sale of such
inventory, or failing to maintain inventory; (xxii) entering into any material
contract or agreement or entering into or amending any material contract,
agreement, commitment or arrangement with respect to certain matters set forth
in the Merger Agreement; (xxiii) making any tax election or settling or
compromising any material federal, state, local or foreign income tax liability;
(xxiv) entering into any employment agreement, sales agency agreement or other
contract for the performance of personal services which is not terminable
without liability upon no more than 30 days' notice; (xxv) failing to maintain
their real and personal properties in as good a state of operating condition and
repair as they are on the date of the Merger Agreement; (xxvi) terminating or
modifying in any material respects any material leases, contracts, governmental
licenses, permits or other authorizations or agreements affecting their real
and/or personal properties or the operation thereof or entering into any
additional lease or contract of any nature affecting such properties or the
operation thereof; (xxvii) failing to timely file public reports with the SEC;
and (xxviii) changing their accounting methods, principles or practices.
The Company also has agreed not to take any action, or permit any action to
be taken, that would result in any of the representations and warranties set
forth in the Merger Agreement becoming untrue (or, with respect to certain
representations and warranties, becoming untrue in any material respect) or any
of the conditions to the Merger not being satisfied.
COOPERATION PRIOR TO CLOSING
The Company and Greenfield have agreed to use their respective best efforts
in good faith to take (or cause to be taken) all actions and to do (or cause to
be done), all things necessary to consummate the Merger.
NONSOLICITATION
The Company has agreed that without the written consent of Greenfield,
prior to the Effective Time, it shall not, and it shall use its best efforts to
cause its directors, officers, employees, agents and representatives and those
of any of its subsidiaries not to, directly or indirectly, solicit, initiate or
encourage (including by way of furnishing non-public information) inquiries or
proposals concerning any merger, consolidation or acquisition or purchase with
or by any third party (other than Greenfield, Acquisition or their affiliates)
of all or any substantial portion of the assets or capital stock of the Company
or any of its subsidiaries (an "Acquisition Transaction") or negotiate, explore
or otherwise engage in substantive discussions with any such third party with
respect to any Acquisition Transaction or enter into any agreement, arrangement
or understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated by the Merger Agreement.
Notwithstanding the foregoing, the Company may engage in discussions or
negotiations with, and may furnish information concerning the Company and its
business, properties and assets to, a third party who makes a written proposal
of an Acquisition Transaction that is reasonably capable of being consummated
and is financially more favorable to the stockholders of the
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Company than the Merger, as determined in each case in good faith by the Board
after consultation with the Company's financial advisors and outside legal
counsel and that failing to take such action would create a reasonable
possibility of a breach of the fiduciary duties of the Board. The Company is
required promptly to advise Greenfield of any inquiries or proposals it receives
or attempts to negotiate relating to an Acquisition Transaction, and any such
notice shall include a description of the terms and conditions of any such
proposal, or the nature of any inquiry or attempts to negotiate.
CONDITIONS TO THE MERGER
The obligations of Greenfield, Acquisition and the Company to effect the
Merger are subject to the following conditions: (i) approval of the Merger
Agreement and the Merger by the requisite vote of the stockholders of the
Company; (ii) expiration of any applicable waiting periods under the HSR Act;
(iii) the absence of any pending or threatened action or proceeding or any order
or other legal prohibition restraining or preventing consummation of the Merger;
(iv) the other party having performed and complied in all material respects with
the agreements required to be performed by it prior to the Effective Time; (v)
the representations and warranties of the other party having been true and
correct in all material respects as of the Effective Time; (vi) the receipt of
certain legal opinions regarding corporate existence, authorization of the
Merger Agreement and similar matters; (vii) all documents incident to corporate
and other proceedings and consents to be obtained in connection with the Merger
being reasonably satisfactory to the other party; (viii) all necessary
government approvals having been obtained; and (ix) receipt of certificates
regarding the authenticity of corporate documents and officers' signatures.
The obligations of Greenfield and Acquisition to effect the Merger are also
contingent upon (i) all of the Rule Stock Options and Rule Warrants having been
exercised or cancelled; (ii) there not having been any change which has a
material adverse effect on the condition (financial or otherwise) or earnings of
the Company; (iii) receipt by Greenfield and Acquisition of the Company's
corporate records, proof of good standing, qualification and payment of taxes,
and letters of resignation from certain directors and officers of the Company
and its subsidiaries; (iv) maintenance of insurance coverage; and (v) tax status
certification. Tax status certification entails the certification by an officer
of the Company that the Company is not a United States real property holding
company within the meaning of the Internal Revenue Code of 1986, as amended.
Generally, this certification depends on whether less than 50% of the Company's
assets consist of real property. At the date of this Proxy Statement, the
Company expects it will be able to satisfy the tax status certification
condition to the Merger. The tax status certification is a condition to the
Merger that can be waived by Greenfield at or prior to the closing of the
Merger.
REGULATORY APPROVALS
No federal or state regulatory approvals are required to be obtained in
connection with the consummation of the Merger by any party to the Merger
Agreement, except for the requirements of the MBCL in connection with
stockholder approval and consummation of the Merger and the expiration of any
waiting periods under the HSR Act.
AMENDMENTS
The Merger Agreement may be amended in writing at any time, before or after
any required approval by the Company's stockholders of the transactions
contemplated by the Merger Agreement, by the mutual agreement of the Company,
Greenfield, and Acquisition; provided, however, that after approval of the
Merger Agreement by the Company's stockholders, no amendment that by law
requires further approval of such stockholders may be made without the further
approval of such stockholders.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated prior to the Effective Time, whether
before or after approval and adoption by Greenfield and Acquisition and the
Company's stockholders: (i) by Greenfield or the Company if the requisite vote
of the Company's stockholders with respect to the Merger Agreement is not
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obtained; (ii) by mutual consent of Greenfield and the Company; (iii) by
Greenfield or the Company at any time after the date which is 150 days from the
date of the Merger Agreement if any of the conditions to the obligations of
Greenfield or the Company under the Merger Agreement shall not have been met or
waived prior to such date; (iv) by Greenfield or the Company if the Merger has
been enjoined or otherwise prohibited by the final, non-appealable order of a
governmental entity at any time prior to the Effective Time; (v) by Greenfield
or the Company if the Merger shall not have been consummated by January 31,
1996; (vi) by the Company if a majority of the Board determines in good faith on
the advice of outside counsel that its fiduciary duties require it to approve an
Acquisition Transaction; or (vii) by Greenfield at any time prior to the
Effective Time, if (A) the Company enters into a letter of intent or definitive
agreement to enter into an Acquisition Transaction (other than the Merger), (B)
the Board withdraws, materially modifies its approval or recommendation of the
Merger Agreement or the Merger in a manner materially adverse to Greenfield or
Acquisition, (C) the Board recommends to the Stockholders any Acquisition
Transaction (other than the Merger) or (D) the Board resolves to do any of the
foregoing.
In the event the Merger Agreement is terminated as described in clause (i)
(except if the failure to obtain the required vote resulted directly from the
failure by Greenfield to vote the shares of Common Stock acquired upon exercise
of the Greenfield Option in favor of the Merger), (iii) (except if the Company
terminates the Merger Agreement), (vi) or (vii) of the preceding paragraph, the
Company is required to reimburse Greenfield and Acquisition for all of their
out-of-pocket expenses (not to exceed $450,000) reasonably incurred in
connection with the transactions contemplated by the Merger Agreement within 15
business days after Greenfield provides the Company with a listing of its
out-of-pocket expenses.
COSTS AND EXPENSES
All fees and expenses incurred in connection with the Merger, the Merger
Agreement, and the transactions contemplated thereby, will be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
Expenses associated with this proxy solicitation will be borne by the Company.
MANAGEMENT OF THE COMPANY
The Merger Agreement provides that the directors of Acquisition immediately
prior to the Effective Time will become the directors of the Surviving
Corporation and the officers of the Surviving Corporation at the Effective Time
will be the officers of Acquisition in office immediately prior to the Effective
Time.
SOURCE AND AMOUNT OF FUNDS
The estimated amount of funds required for the payment by Greenfield of the
aggregate cash Merger Consideration is approximately $45.7 million, which is
expected to be funded from borrowings by Greenfield under its revolving credit
facility.
APPRAISAL RIGHTS
Pursuant to Massachusetts law, stockholders of record have the right to
object to the Merger and, if the merger is consummated, to be paid the "fair
value" of their shares of Common Stock determined as of the day preceding the
date of the vote of the stockholders approving the Merger (without taking into
account any element of value arising from the expectation or accomplishment of
the Merger). The Company and any stockholders desiring to exercise such
dissenters' rights will have the respective rights and duties and must follow
the procedures set forth in Sections 85 to 98, inclusive, of the MBCL in order
to perfect such rights. A brief summary of Sections 85 to 98, inclusive, of the
MBCL is set forth below. The following summary does not purport to be a complete
statement of the procedures to be followed by stockholders desiring to exercise
their appraisal rights and is qualified in its entirety by express reference to
those sections, the full text of which is included as Annex II to this Proxy
Statement. STOCKHOLDERS ARE URGED TO READ ANNEX II IN ITS ENTIRETY SINCE FAILURE
TO COMPLY WITH THE PROCEDURES SET FORTH THEREIN MAY RESULT IN THE LOSS OF
APPRAISAL RIGHTS.
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To exercise appraisal rights under Massachusetts law, a stockholder must
(i) deliver to the Company, before the taking of the stockholder vote on the
Merger Agreement at the Special Meeting, a written objection to the Merger
Agreement and the Merger stating that such stockholder intends to demand payment
for his shares through the exercise of his statutory appraisal rights, (ii) not
vote in favor of or consent to the approval of the Merger Agreement and (iii)
within 20 days after the date of mailing to such stockholder of a written notice
that the Merger has become effective, make written demand upon the Company for
payment of his shares and an appraisal of the value thereof. A stockholder who
fails to satisfy all of the conditions set forth above will acquire no right to
payment for such stockholder's shares under Massachusetts law other than the
Merger Consideration to be paid in the Merger as described in this Proxy
Statement. Signed proxies returned to the Company but left blank will be voted
for the proposed transaction. Therefore, in order to be assured that shares are
not voted in favor of the Merger Agreement, a stockholder must either vote in
person or by proxy against the Merger Agreement or abstain from voting. Failure
to vote against the Merger Agreement will not constitute a waiver of appraisal
rights, but abstaining or voting against the Merger Agreement will not by itself
satisfy the obligations of a stockholder described in clauses (i) and (iii)
above. The written objection described in clause (i) above must be sent to the
Company at 70 Blanchard Road, Burlington, Massachusetts 01803, Attention: John
A. Geishecker, Jr., Vice President.
If, following the Merger, a stockholder perfects a demand for payment of
his shares as provided above, and if the Company and such dissenting stockholder
are able to reach agreement on the fair value of the shares, the Company will
pay to the dissenting stockholder the fair value of such shares of Common Stock,
as the case may be, within 30 days after the expiration of the period during
which the demand may be made. If within the 30-day period the parties fail to
agree as to the fair value of such shares, either the Company or the dissenting
stockholder may have the fair value of the stock of all dissenting stockholders
with whom agreements as to the value of their shares have not been reached
determined by judicial proceedings by filing a bill in equity in the
Massachusetts Superior Court for Middlesex County within four months after the
30-day period expires. If (i) no such suit is filed within such four-month
period to determine the value of the stock, (ii) any such suit is dismissed as
to that stockholder or (iii) the stockholder withdraws his objection in writing
with the written approval of the Company, the stockholder will forfeit
dissenters' rights and will have only the rights of a nondissenting stockholder
to receive the Merger Consideration to be paid in the Merger as described in
this Proxy Statement. The costs of such a suit, other than counsel fees and fees
of experts retained by any party, will be determined by the court and
apportioned to the parties in such manner as appears equitable, except that
costs of notices required to be given by the Company will be paid by the
Company. The Company has no obligation to file such a suit and, if it does not,
the failure of a dissenting stockholder to file such a suit could nullify all
written demands for appraisal. After the Special Meeting, a dissenting
stockholder will not be entitled to notices of meetings of stockholders, to vote
at any such meeting or to receive dividends.
Under Massachusetts statutory law, the enforcement by a dissenting
stockholder of such stockholder's right to receive payment for his shares in the
manner provided by Sections 85 through 98, inclusive, of the MBCL is stated to
be the exclusive remedy of a stockholder objecting to the Merger Agreement,
except upon the grounds that consummation of the Merger will be or is illegal or
fraudulent as to that stockholder. The Massachusetts Supreme Judicial Court,
however, has held that dissenting stockholders are not limited to the statutory
remedy of judicial appraisal in cases where violations of fiduciary duty are
found.
Stockholders who receive cash for their shares of Common Stock upon
exercise of dissenters' rights will realize taxable gain or loss. See "FEDERAL
INCOME TAX CONSEQUENCES."
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS ONLY A GENERAL DISCUSSION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED MERGER, WITHOUT CONSIDERATION OF ANY TAX
CONSEQUENCES UNDER ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, AND WITHOUT
CONSIDERATION OF A SHAREHOLDER'S PARTICULAR CIRCUMSTANCES. EACH SHAREHOLDER IS
URGED TO CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
HIM OR HER OF THE MERGER (AND DISTRIBUTION OF
34
<PAGE> 42
INTERESTS IN THE LIQUIDATING TRUST), INCLUDING THE EFFECTS OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND OF POSSIBLE CHANGES IN THE TAX LAW.
Under the federal income tax laws, a holder of Common Stock who receives
cash and a Beneficial Interest in the Liquidating Trust in exchange for Common
Stock pursuant to the Merger will be considered as selling a portion of his
shares of Common Stock in exchange for cash, and as receiving the Beneficial
Interest in redemption of the remaining portion of his shares of Common Stock.
Such a holder of Common Stock will recognize gain or loss in the taxable year in
which the Merger occurs measured by the difference between (i) the cash plus the
fair market value of the Beneficial Interest received by such holder and (ii)
such holder's adjusted basis for his shares of Common Stock. See Zenz v.
Quinlivan, 213 F.2d 914 (6th Cir. 1954).
The Company has valued each stockholder's share of the assets conveyed to
the Liquidating Trust at $0.15 per share using a methodology for valuing
contingent distributions. The Company's methodology included assessing and
quantifying the likelihood of a favorable outcome of the Disston Arbitration
Proceedings and assumed that the amount awarded in the Disston Arbitration
Proceedings would exceed the amounts payable to parties other than the Company,
which are described under "The Merger -- The Liquidating Trust -- Disston
Arbitration Agreement." Applying this valuation methodology, the Company has
estimated that the present value of the amount distributable to holders of
Beneficial Interests in the Liquidating Trust is $443,000 or, based on 2,954,095
shares of Common Stock entitled to participate in the Liquidating Trust, $0.15
per share. The Company's valuation methodology is not based on any valuation
methodology publicly endorsed by the Internal Revenue Service. The Company is
not aware of any methodology that is used by the Internal Revenue Service with
respect to valuing contingent distributions. However, the Company believes that
the methodology it used to value the assets conveyed to the Liquidating Trust is
a reasonable one. Stockholders should note that there can be no assurance that
(i) the amount, if any, distributable to the holders of Beneficial Interests in
the Liquidating Trust will not be higher or lower than the Company's estimate or
(ii) the valuation as determined by the Company will not be challenged by the
Internal Revenue Service. If it were later determined that this valuation is
incorrect, the gain or loss to each stockholder would be altered accordingly.
If the shares of Common Stock are a capital asset in the hands of the
stockholder, the gain or loss realized will be a capital gain or loss and will
be long-term capital gain or loss if the stockholder has held the Common Stock
for more than one year. The same consequences will apply to a stockholder who
exercises such stockholder's right to dissent and receives the "fair value" of
such stockholder's shares solely in cash (other than with respect to amounts
which are, or are deemed to be, interest for federal income tax purposes when
received by dissenting stockholders). See "APPRAISAL RIGHTS." Taxpayers
generally may deduct capital losses only to the extent of capital gains plus, in
the case of non-corporate taxpayers, $3,000 ($1,500 in the case of a married
individual filing a separate return).
The Company has been advised by Foley, Hoag & Eliot, special counsel to the
Company, that the Liquidating Trust will qualify, for federal income tax
purposes, as a trust and not as an association taxable as a corporation, so long
as the Liquidating Trust continues to be operated in accordance with the
requirements of applicable rulings of the Internal Revenue Service. Accordingly,
the Liquidating Trust will not be subject to federal income tax. Rather, each
Beneficiary of the Liquidating Trust will be treated as owning a proportionate
share of the assets held by the Liquidating Trust. Each Beneficiary will have an
adjusted tax basis in his share of the assets conveyed by the Company to the
Liquidating Trust equal to the fair market value of such assets at the Effective
Time. Any gain, loss, credits, or income from the sale or exchange (including a
liquidation) or investment of the assets held by the Liquidating Trust
(including receipt of awards from the Disston Arbitration Proceedings) will be
taxed to, or deducted by, as the case may be, the Beneficiaries, regardless of
whether the Liquidating Trust makes any distributions to the Beneficiaries. The
determination as to whether any such receipts will be taxed as capital gain or
ordinary income will depend upon the circumstances at the time. The Trustees of
the Liquidating Trust will provide the Beneficiaries with the requisite
information regarding the receipts and expenditures of the Liquidating Trust.
The Beneficiaries will not be subject to federal income taxation upon receipt of
distributions from the Liquidating Trust.
35
<PAGE> 43
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth the ownership of the Company's Common Stock
as of the date indicated by persons (other than officers and Directors of the
Company), who are known to the Company to be the beneficial owner of more than
5% of the Company's Common Stock. The information shown is derived from
information set forth in the latest statements filed by such persons with the
SEC with respect to their ownership of the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED AS OF PERCENTAGE
NAME AND ADDRESS NOVEMBER 24, 1995 OF CLASS
- ---------------- ------------------ ----------
<S> <C> <C>
Greenfield Industries, Inc..................................... 1,241,100(1) 34.6%
470 Old Evans Road
Evans, Georgia 30809
Wellington Management Company.................................. 158,200 4.4%
75 Federal Street
Boston, Massachusetts 02110
</TABLE>
- ---------------
(1) Includes 630,000 shares that Greenfield acquired upon exercise of the
Greenfield Option and 611,100 shares as to which William N. Anastos and his
affiliates have granted Greenfield a proxy. See "THE MERGER -- Interests of
Certain Persons in the Merger" and "-- The Greenfield Option."
The following table sets forth the ownership of the Company's Common Stock
as of the date indicated by its Directors and executive officers, individually
and as a group. Each of the persons named in the following table, other than
William N. Anastos, has furnished the respective information shown. Information
with respect to Mr. Anastos is based on documents filed by Mr. Anastos with the
SEC and the most recent information available as of the Record Date.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY
OWNED AS OF PERCENTAGE
NAME AND ADDRESS NOVEMBER 24, 1995 OF CLASS
- ---------------- ------------------ ----------
<S> <C> <C>
William N. Anastos*............................................ 756,100(2) 21.1%
President and Director(1)
John A. Geishecker, Jr.**...................................... 163,932(3) 4.6%
Vice President, Treasurer,
Clerk and Director
Gary M. Sable**................................................ 59,115(4) 1.6%
Executive Vice President and Director
Owen B. Lynch***............................................... 4,515 ****%
Director
Henry G. Libby**............................................... 202,000 5.6%
Vice President
Directors and Executive Officers, as a Group (Five)............ 1,185,662(2) 33.1%
</TABLE>
- ---------------
* 28 Longmeadow Road, Belmont, Massachusetts 02178
** c/o Rule Industries, Inc., 70 Blanchard Road, Burlington, Massachusetts
01803
*** c/o Lynch, Brewer, Hoffman & Sands, 101 Federal Street, Boston,
Massachusetts 02110
**** Less than one percent
36
<PAGE> 44
(1) Mr. Anastos has been on an indefinite paid leave of absence as the
Company's president since July 21, 1995.
(2) Includes (i) 426,100 shares held by Mr. Anastos, as co-trustee of a
revocable trust for the benefit of Mr. Anastos' family, (ii) 150,500 shares
held by Industrials, Inc., a corporation in which said trust is the sole
stockholder, (iii) 2,500 shares held by members of his family or (iv)
32,000 shares owned of record by Mr. Anastos directly, as to all of which
Mr. Anastos and his affiliates have granted Greenfield a proxy. See "THE
MERGER -- Interests of Certain Persons in the Merger" and "-- The
Greenfield Option." Includes 145,000 shares with respect to which Mr.
Anastos has the right to acquire beneficial ownership within 60 days
through the exercise of stock options, all of which Mr. Anastos has agreed
to surrender to the Company for cancellation prior to the Effective Date.
See "THE MERGER -- Interests of Certain Persons in the Merger -- Stock
Options and Warrants."
(3) Includes 33,445 shares (1.0%) held by The Krew Team, Inc., a corporation in
which Mr. Geishecker is a principal stockholder, beneficial ownership of
which shares is disclaimed by Mr. Geishecker.
(4) Includes 500 shares held by Mr. Sable's wife as custodian for their son,
beneficial ownership of which shares is disclaimed by Mr. Sable.
CERTAIN INFORMATION REGARDING GREENFIELD
DESCRIPTION OF GREENFIELD AND ACQUISITION
Greenfield is a leading manufacturer of expendable cutting tools and
related products used primarily in industrial applications. Greenfield's
products are consumed during use and are replaced by purchasers on a periodic
basis. Greenfield believes it is the leading North American producer of rotary
cutting tools, which constitute the majority of its sales.
Greenfield's products are used in a variety of industrial, electronics, oil
field equipment, mining and wear parts and consumer markets. Greenfield's
industrial products are used to cut metal and other industrial materials by
manufacturers in a broad cross-section of industries. Greenfield is also a
leading manufacturer of small diameter drills and routers used in the
manufacture of circuit boards, carbide products used in oil field equipment and
wear parts applications and consumer drill bits marketed under private label and
proprietary brands.
Greenfield has grown through complementary acquisitions and operating
efficiencies achieved through consolidations of operations and rationalization
of excess capacity. Since its founding in 1986, approximately 20 acquisitions
have been completed by Greenfield. The acquisition of the Company is part of
Greenfield's long-term strategy to expand upon its position as the leading
supplier of rotary cutting tools in North America and to increase its
penetration of markets throughout the world. Greenfield believes economies of
scale can continue to be achieved in acquisitions through improved raw material
pricing, automation of manual operations, reduction of factory overhead through
plant rationalization and consolidation, combination of existing sales forces
and improved management systems. Since its founding, Greenfield has successfully
consolidated or restructured operations at more than a dozen plants.
Acquisition is a wholly owned subsidiary of Greenfield. Acquisition was
formed for the purpose of effecting the Merger and has not engaged in any
business except in connection with the Merger and the transactions contemplated
thereby.
37
<PAGE> 45
CERTAIN INFORMATION WITH RESPECT TO THE COMMON STOCK
The principal market for the Common Stock is the over-the-counter market
and the Common Stock is included in The Nasdaq Stock Market's National Market
(the "Nasdaq National Market"). The following table sets forth, for the periods
indicated, the range of high and low sale prices for the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR ENDED AUGUST 31, 1994
1st Quarter................................................................ $ 9 1/4 $ 6 3/4
2nd Quarter................................................................ 11 1/4 8 1/4
3rd Quarter................................................................ 11 8 1/4
4th Quarter................................................................ 14 8 1/2
FISCAL YEAR ENDED AUGUST 31, 1995
1st Quarter................................................................ $16 3/4 $11 3/4
2nd Quarter................................................................ 14 10 1/4
3rd Quarter................................................................ 11 5/8 7
4th Quarter................................................................ 15 1/4 6 1/4
FISCAL YEAR ENDED AUGUST 31, 1996
1st Quarter................................................................ $ $
</TABLE>
On December 12, 1995, the last reported sale price of the Common Stock on
the Nasdaq National Market was $14 5/8 per share, and there were approximately
488 holders of record of the Common Stock.
The Company has never paid cash dividends on its Common Stock. In addition,
the Company's Credit Agreement and the Merger Agreement restrict the payment of
dividends.
BUSINESS AND OPERATIONS OF THE COMPANY
GENERAL
The Company is a diversified manufacturer of products for industrial and
consumer hardware markets and for recreational and commercial marine markets.
On May 20, 1994, the Company completed its acquisition of certain assets of
Disston. The Disston product lines consist of a broad range of consumer hardware
products, primarily power tool accessories, handsaws and hand tools and lawn and
garden products. During the last half of fiscal 1994, the Disston manufacturing
operations were integrated into the Company's South Deerfield, Massachusetts
facility.
The Company's 650 employees are responsible for the manufacture and
marketing of over 9,000 products, fabricated in two Massachusetts production
facilities. The 87,500 square foot Gloucester Facility produces the Company's
diversified lines of marine accessory products, including pumps, magnetic
compasses, winches, paints and chemicals, except lightweight anchors that are
manufactured for the Company in Atlanta, Georgia. The 275,000 square foot
production facility in South Deerfield, Massachusetts houses the extensive
machinery and equipment that manufactures broad lines of hardware products,
including stationary and portable power tool accessories, handsaws and hand
tools and lawn and garden products.
INDUSTRY SEGMENT INFORMATION
The business and operations of the Company are categorized into the
following industry segments: hardware products, marine products and other
revenues.
38
<PAGE> 46
Hardware Products. 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 products are
marketed under the tradestyles Capewell(R), Aggressor(R), Fit-Al(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) trade name. Handsaws consist of a variety of
products for cutting primarily wood, including traditional handsaws, coping
saws, hacksaws, keyhole saws and specialty saws and hand tools including masonry
products and files. The Company's lawn and garden products include cordless
grass shears, 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 center, retail chains and buying
cooperatives. Products marketed under other tradestyles are marketed primarily
to industrial users, tradesmen and private label customers.
Marine Products. The Company's marine products include submersible pumps
(automatic and nonautomatic), activating switches and related accessory items
(e.g., hose and fittings) for recreational and small commercial boats. Pumps
range in capacity from 360 to 8,000 gallons per hour and are sold under the
Rule(R) trademark.
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
electric winches and accessories primarily for use on boat trailers. Lightweight
marine anchors are sold under the Danforth(R) and Hooker(R) trade names.
Magnetic compasses are marketed under the Danforth(R), Freedom(R) and Aqua
Meter(R) trade names. In addition, the Company markets various electronic
instruments, primarily gas detection devices, and gauges under the Aqua Meter(R)
trade name.
Other Revenues. The Company produces a line of winches for the utility,
farm and off-road vehicle markets sold under the Rule(R) trade name. The line
consists of various models, both electric 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.
39
<PAGE> 47
Information with respect to the Company's business segments is set forth
below for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Revenues Hardware..................... $45,194,000 $41,284,000 $26,701,000
Marine....................... 20,772,000 20,448,000 19,245,000
Other........................ 2,492,000 2,187,000 2,388,000
----------- ----------- -----------
Total Net Revenues........... $68,458,000 $63,919,000 $48,334,000
=========== =========== ===========
Segment Profit Hardware..................... $ (547,000) $ 2,574,000 $ 812,000
Marine....................... 4,721,000 3,959,000 3,258,000
Other........................ 578,000 324,000 417,000
----------- ----------- -----------
Total Segment Profit......... 4,752,000 6,857,000 4,487,000
General Corporate Expenses... (1,323,000) (1,746,000) (1,533,000)
U.S. Anchor Litigation....... 2,463,000
----------- ----------- -----------
Operating Income....................................... $ 3,429,000 $ 7,574,000 $ 2,954,000
=========== =========== ===========
Identifiable Assets Hardware..................... $53,073,000 $53,796,000 $29,198,000
Marine....................... 8,362,000 9,724,000 10,904,000
Other........................ 1,280,000 1,143,000 1,486,000
Total Identifiable Assets.... 62,715,000 64,663,000 41,588,000
Corporate Assets....................................... 1,170,000 1,980,000 3,705,000
----------- ----------- -----------
Total Assets................. $63,885,000 $66,643,000 $45,293,000
=========== =========== ===========
</TABLE>
- ---------------
(1) 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 identified to the Company's industry
segments. Intersegment sales are accounted for at prices which are
comparable to prices charged to unaffiliated customers. Corporate assets
consist of cash and certain other assets which cannot be identified by
industry segment.
PROPERTIES
The Company's general and executive offices are located in Burlington,
Massachusetts. The offices consist of approximately 22,500 square feet and are
leased until 1999.
The Company leases the 87,500 square foot Gloucester Facility from RAGS
III, an affiliated party, under a lease agreement which expires on November 25,
1995. The Gloucester Facility is the primary manufacturing facility for marine
and other products. Pursuant to an agreement between the Company and RAGS III,
after the Effective Time the Surviving Corporation will purchase from RAGS III
the Gloucester Facility and the other Gloucester Assets for an aggregate price
of $2.4 million, which represents the fair market value of such assets at July
7, 1995, as determined by an independent appraiser. See "THE MERGER -- Interests
of Certain Persons in the Merger."
The Company leases a facility in South Deerfield, Massachusetts from an
affiliated party, under a lease agreement 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 lease 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 building on approximately two acres
of land in Gloucester, Massachusetts. This facility had been used by the Company
exclusively for the manufacture of marine products until September 1986, at
which time such operations were relocated to the Company's primary
40
<PAGE> 48
manufacturing facility in Gloucester. During 1994, the Company completed the
process of registering its title to this property. This property is currently
for sale.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain consolidated financial information
for the Company and its subsidiaries as of August 31, 1991, 1992, 1993, 1994 and
1995 and for the fiscal years then ended. This information should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included elsewhere herein. See the Company's Consolidated Financial
Statements and the Notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Revenues................................ $39,325 $46,286 $48,334 $63,919 $68,458
Income (Loss) from Continuing Operations.... (3,964) (140) (119) 3,180 (529)
Preferred Stock Dividends................... 166 275 289 24
Net Income (Loss) from Continuing Operations
Applicable to Common Stockholders......... (3,280) (306) (394) 2,891 (553)
Earnings (Loss) per Common Share from
Continuing Operations..................... (1.80) (.14) (.18) 1.27 (.20)
Total Assets................................ 54,348 52,428 45,293 66,643 63,885
Long-term Debt.............................. 29,212 26,019 21,185 27,188 29,670
Redeemable Convertible Preferred Stock...... -- 3,110 3,610 3,610 --
Common Stockholders' Equity................. 7,147 6,897 6,455 9,720 12,742
</TABLE>
41
<PAGE> 49
The following table sets forth unaudited quarterly financial information
for 1995, 1994 and 1993.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
-----------------------------------------------------
NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31
----------- ----------- ------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 1995
Operating income................................ $ 1,536 $ 1,024 $ 1,538 $ (669)
Income before income taxes...................... 1,391 61 482 (2,166)
Income before extraordinary items............... 929 43 337 (1,225)
Extraordinary item:
Early retirement of debt less applicable
income..................................... (588) (25)
Net income...................................... 341 43 337 (1,250)
Primary earnings per Common Share............... .12 .02 .12 (.46)
Income before extraordinary item.............. .35 .02 .12 (.46)
Extraordinary item............................ (.23)
FISCAL 1994
Operating income................................ $ 3,126 $ 857 $ 2,694 $ 897
Income (loss) before income taxes............... 2,461 58 1,673 (116)
Net income (loss)............................... 2,125 35 1,049 (29)
Primary earnings (loss) per Common Share........ .93 (.02) .44 (.08)
FISCAL 1993
Operating income (loss)......................... $ 939 $ 1,181 $ 1,005 $ (171)
Income (loss) before income taxes............... 111 238 140 (921)
Income (loss) before extraordinary items........ 111 238 92 (560)
Extraordinary item:
Loss from discontinued operations (net of
income taxes).............................. (97) (90)
Loss on sale of Silver Metal (net of income
taxes)..................................... (1,500) 40
Gain on sale of Phillips Screw (net of income
taxes)..................................... 1,573
Net income (loss)............................... 111 238 (1,505) 963
Earnings (loss) per Common Share................ .02 .08 (.71) .40
</TABLE>
The Company has never paid cash dividends on its Common Stock. In addition,
the Company's Credit Agreement and the Merger Agreement restrict the payment of
dividends.
42
<PAGE> 50
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, net
consolidated revenues for the 12 months ended August 31, 1995 ("Fiscal 1995")
increased 7% to $68,458,000. Hardware products 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
Operations for the 12 months ended August 31, 1994 ("Fiscal 1994") 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 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.
43
<PAGE> 51
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 $862,000 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 ongoing
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 accommodate 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 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC (File No. 0-8740)
pursuant to the Exchange Act are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended August 31, 1995; and
2. the following Current Reports of the Company on Form 8-K:
(a) Form 8-K dated January 20, 1994, as amended by Forms 8-K/A
dated March 4, 1994, December 15, 1994 and February 17, 1995;
(b) Form 8-K dated September 26, 1994;
(c) Form 8-K dated June 12, 1995, as amended by Forms 8-K/A dated
June 21, 1995 and June 27, 1995;
(d) Form 8-K dated September 1, 1995, as amended by Forms 8-K/A
dated September 5, 1995 and September 19, 1995; and
(e) Form 8-K dated September 6, 1995.
Any statement contained in a report or other document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed report or other document,
which also is or
44
<PAGE> 52
is deemed to be incorporated herein by reference, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
The information relating to the Company contained in this Proxy Statement
summarizes, is based upon, or refers to, information and financial statements
contained in one or more of the reports or other documents incorporated by
reference herein; accordingly such information contained herein is qualified in
its entirety by reference to such documents and should be read in conjunction
therewith.
The Company will furnish without charge to each person to whom a copy of
this Proxy Statement is delivered, on the written or oral request of any such
person, a copy of any or all of the reports or other documents incorporated
herein by reference (other than exhibits thereto, unless such exhibits are
specifically incorporated by reference into the information that this Proxy
Statement incorporates). Requests for such copies should be directed to Rule
Industries, Inc., 70 Blanchard Road, Burlington, Massachusetts 01803, Attention:
Chief Financial Officer (telephone number (617) 272-7400).
OTHER MATTERS
The Board knows of no business which will be presented for consideration at
the Special Meeting other than that shown above. However, if any such other
business should come before the Special Meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the Proxies with respect to
any such business in accordance with their best judgment.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements, and other
information with the SEC, which may be inspected and copied, upon payment of the
prescribed fees, at the Public Reference Section of the SEC at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C., 20549; and at the SEC's Regional
Offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and at 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 upon
payment of the prescribed fees. After the Merger, registration of the Common
Stock under the Exchange Act will be terminated by the Company and information
concerning the Company's future operations will not be available to the public.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, any stockholder proposal intended to be
presented at the next Annual Meeting of the Company's stockholders, expected to
be held in early 1996, must have been received by the Company by September 10,
1995, if such proposal is to be considered for inclusion in the Company's Proxy
Statement and form of proxy for that meeting.
Dated: December 13, 1995
By Order of the Board of Directors,
John A. Geishecker, Jr.
Director
PLEASE MARK, SIGN, AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY. NO
POSTAGE STAMP IS NECESSARY IF MAILED IN THE UNITED STATES.
45
<PAGE> 53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
RULE INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.................................................... F-2
Independent Auditors' Report......................................................... F-3
Consolidated Statement of Operations -- Years Ended August 31, 1995, 1994 and 1993... F-4
Consolidated Balance Sheet -- August 31, 1995 and 1994............................... F-5
Consolidated Statement of Stockholders' Equity -- Years Ended August 31, 1995, 1994,
1993 and 1992...................................................................... F-6
Consolidated Statement of Cash Flows -- Years Ended August 31, 1995, 1994 and 1993... F-7
Notes to Consolidated Financial Statements -- Years Ended August 31, 1994, 1993 and
1992............................................................................... F-8
</TABLE>
F-1
<PAGE> 54
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 respects, the financial position of
Rule Industries, Inc. and its subsidiaries at August 31, 1995, and the results
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 audit. 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 management, and
evaluating the overall financial statement presentation. We believe that our
audit 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.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
October 27, 1995, except for Note 5 which is as of November 30, 1995
F-2
<PAGE> 55
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.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 12, 1994
F-3
<PAGE> 56
RULE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
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 financial statements.
F-4
<PAGE> 57
RULE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
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 (Note 1).............................................. 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
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
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 financial statements.
F-5
<PAGE> 58
RULE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL INVESTMENT
------------------- 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> 59
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> 60
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-8
<PAGE> 61
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
F-9
<PAGE> 62
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-10
<PAGE> 63
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
noncompetition 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).
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.
F-11
<PAGE> 64
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
------- -------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
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>
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>
F-12
<PAGE> 65
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
6,125 7,551
------- -------
Less amount currently payable.................................... $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 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.
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
F-13
<PAGE> 66
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(e) In December, 1991 the Company entered into an installment note agreement
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 long-term debt during the next five years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING (IN
AUGUST 31 THOUSANDS)
------------- -----------
<S> <C> <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.
F-14
<PAGE> 67
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1995, senior indebtedness was reduced by approximately
$5,040,000 with funds received from the exercise of a stock option held by
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).
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
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................. $ 79 $ 600 $ 73
State.................................................... 74 171 34
------
--
------ ------
--- ---
Total Current......................................... 153 771 107
------
--
------ ------
--- ---
Deferred:
Federal.................................................. (606) 45 (375)
State.................................................... (179) 80 (63)
------
--
------ ------
--- ---
Total Deferred........................................ (785) 125 (420)
------
--
----- ------
--- ---
Total provision (benefit) for income taxes................. $(632) $ 896 $(313)
====== ===== ======
</TABLE>
F-15
<PAGE> 68
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax asset and liabilities
consisted of the following as of August 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
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>
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.
F-16
<PAGE> 69
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In connection with the Disston acquisition (Note 2), the Company granted
the president of Disston a nonqualified 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.
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.
F-17
<PAGE> 70
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
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>
F-18
<PAGE> 71
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
------- ----- ------------ ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
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.
Information pertaining to each industry segment and geographic area
information for the years ended August 31, 1995, 1994 and 1993 are summarized as
follows:
Operations
<TABLE>
<CAPTION>
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 are accounted for at prices which are comparable to prices
charged to unaffiliated customers.
F-19
<PAGE> 72
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Financial Information
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable Assets:
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>
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
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
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
F-20
<PAGE> 73
RULE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-21
<PAGE> 74
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-1 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.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
St. Louis, Missouri
October 27, 1995
F-22
<PAGE> 75
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 CHARGED TO END OF
OF PERIOD EXPENSE DEDUCTIONS OTHER PERIOD
---------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
VALUATION ALLOWANCE FOR 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-23
<PAGE> 76
ANNEX I
I-1
<PAGE> 77
ANNEX I
AGREEMENT AND PLAN OF MERGER
by and among
Greenfield Industries, Inc.,
Rule Acquisition Corporation
and
Rule Industries, Inc.
August 11, 1995
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS......................................................... 4
ARTICLE I--DEFINITIONS........................................... 4
Section 1.1 Definitions.................................... 4
Section 1.2 Interpretive Rules............................. 8
ARTICLE II--THE MERGER........................................... 8
Section 2.1 The Merger..................................... 8
Section 2.2 Effective Time of the Merger................... 8
Section 2.3 Effect of Merger............................... 8
Section 2.4 Articles of Organization....................... 8
Section 2.5 By-laws........................................ 9
Section 2.6 Directors and Officers......................... 9
Section 2.7 Purpose........................................ 9
Section 2.8 Authorized Shares.............................. 9
Section 2.9 Conversion of Shares........................... 9
Section 2.10 Cancelation of Stock Options
and Warrants................................... 9
Section 2.11 Dissenters' Rights............................. 10
Section 2.12 Closing of Rule Transfer Books................. 10
Section 2.13 Supplementary Action........................... 10
ARTICLE III--MERGER CONSIDERATION; CLOSING....................... 11
Section 3.1 Merger Consideration........................... 11
Section 3.2 Payment of Merger Consideration................ 11
Section 3.3 Closing........................................ 12
ARTICLES IV--OTHER AGREEMENTS.................................... 12
Section 4.1 Grant of Parent Option......................... 12
Section 4.2 Disston Arbitration............................ 12
ARTICLEV--REPRESENTATIONS AND WARRANTIES OF RULE................. 13
Section 5.1 Corporate Organization......................... 13
Section 5.2 Valid and Binding Agreement.................... 14
Section 5.3 No Violation................................... 14
Section 5.4 Consents and Approvals......................... 14
</TABLE>
<PAGE> 78
<TABLE>
<S> <C>
Section 5.5 Capitalization................................. 14
Section 5.6 Subsidiaries and Affiliates.................... 15
Section 5.7 Financial Statements........................... 15
Section 5.8 Absence of Undisclosed Liabilities............. 15
Section 5.9 Interim Operations and
Absence of Certain Changes..................... 15
Section 5.10 Taxes.......................................... 16
Section 5.11 Employee Benefit Plans......................... 18
Section 5.12 Compliance with Law............................ 20
Section 5.13 Litigation; Claims............................. 20
Section 5.14 Contracts and Commitments...................... 20
Section 5.15 Intellectual Property Rights................... 21
Section 5.16 Liens.......................................... 21
Section 5.17 Insurance...................................... 22
Section 5.18 Tangible Personal Property..................... 22
Section 5.19 Real Property.................................. 22
Section 5.20 Environmental Matters.......................... 23
Section 5.21 Employees...................................... 24
Section 5.22 Employee Relations............................. 25
Section 5.23 Customers and Vendors.......................... 25
Section 5.24 Governmental Authorizations.................... 25
Section 5.25 Broker's or Finder's Fees...................... 26
Section 5.26 Certain Transactions........................... 26
Section 5.27 Absence of Questionable Payments............... 26
Section 5.28 SEC Documents.................................. 26
Section 5.29 Proxy Statement................................ 26
ARTICLE VI--REPRESENTATIONS AND WARRANTIES OF PARENT
AND SUB............................................. 27
Section 6.1 Corporate Organization......................... 27
Section 6.2 Valid and Binding Agreement.................... 27
Section 6.3 No Violation................................... 27
Section 6.4 Consents and Approvals......................... 27
ARTICLE VII--COVENANTS........................................... 28
Section 7.1 Compliance with Law............................ 28
Section 7.2 Operation of Business Prior to Closing......... 28
Section 7.3 Access......................................... 30
Section 7.4 No Solicitation................................ 31
Section 7.5 Stockholders' Meeting.......................... 31
Section 7.6 Proxy Statement................................ 32
Section 7.7 Best Efforts................................... 32
Section 7.8 Press Releases................................. 32
Section 7.9 HSR Act........................................ 32
Section 7.10 Solicitation of Employees...................... 32
Section 7.11 Vote of Parent and Sub......................... 32
ARTICLE VIII--CONDITIONS PRECEDENT TO OBLIGATIONS OF
PARENT AND SUB....................................... 32
Section 8.1 Representations and Warranties................. 33
Section 8.2 Covenants, Agreements and Conditions........... 33
Section 8.3 No Material Adverse Effect..................... 33
Section 8.4 Corporate Proceedings.......................... 33
Section 8.5 Opinion of Counsel............................. 33
Section 8.6 Proceedings.................................... 33
Section 8.7 Governmental Approvals......................... 33
Section 8.8 HSR Act Requirements........................... 34
Section 8.9 Deliveries..................................... 34
Section 8.10 Insurance...................................... 34
Section 8.11 Tax Status Certification....................... 34
Section 8.12 Stockholder Approval........................... 34
</TABLE>
2
<PAGE> 79
<TABLE>
<S> <C>
Section 8.13 Status of Stock Options and Warrants........... 34
ARTICLE IX--CONDITIONS PRECEDENT TO OBLIGATIONS
OF RULE................................................ 34
Section 9.1 Representations and Warranties................. 35
Section 9.2 Covenants, Agreements and Conditions........... 35
Section 9.3 Corporate Proceedings.......................... 35
Section 9.4 Opinion of Counsel............................. 35
Section 9.5 Proceedings.................................... 35
Section 9.6 Governmental Approvals......................... 35
Section 9.7 HSR Act Requirements........................... 36
Section 9.8 Deliveries..................................... 36
ARTICLE X--OTHER MATTERS......................................... 36
Section 10.1 Confidentiality............................... 36
Section 10.2 Further Assurances............................ 36
Section 10.3 Indemnification of Directors and Officers..... 36
Section 10.4 Continuation of Comparable Benefit Plans...... 37
ARTICLE XI--TERMINATION.......................................... 37
Section 11.1 Methods of Termination........................ 37
Section 11.2 Termination Based on Environmental Site
Assessments................................... 38
Section 11.3 Procedure Upon Termination.................... 39
ARTICLE XII--MISCELLANEOUS....................................... 39
Section 12.1 Survival of Representations and
Warranties.................................... 39
Section 12.2 Service of Process............................ 40
Section 12.3 Notices....................................... 40
Section 12.4 Governing Law................................. 40
Section 12.5 Modification; Waiver.......................... 40
Section 12.6 Entire Agreement.............................. 41
Section 12.7 Assignment; Successors and
Assigns....................................... 41
Section 12.8 Severability.................................. 41
Section 12.9 No Third Party Beneficiary.................... 41
Section 12.10 Expenses...................................... 41
Section 12.11 Execution in Counterpart...................... 41
</TABLE>
EXHIBITS AND SCHEDULES
Exhibit A -- Senior Executives
Exhibit B -- Form of Parent Option Agreement
Exhibit C -- Form of Opinion of Foley, Hoag & Eliot
Exhibit D -- Form of Opinion of Dickstein, Shapiro & Morin,
L.L.P.
Schedule 5.1 Foreign Qualifications
Schedule 5.3 Conflicts; Defaults
Schedule 5.5 Capitalization
Schedule 5.6 Subsidiaries and Affiliates
Schedule 5.8 Liabilities and Obligations
Schedule 5.9 Changes During Interim Operations
3
<PAGE> 80
Schedule 5.10 Tax Matters
Schedule 5.11 Employee Benefit Plans
Schedule 5.13 Litigation; Claims
Schedule 5.14 Contracts and Commitments
Schedule 5.15 Intellectual Property
Schedule 5.16 Liens
Schedule 5.17 Insurance
Schedule 5.18 Leased Tangible Personal Property
Schedule 5.19 Real Property
Schedule 5.19A Leased Real Property
Schedule 5.20 Environmental Matters
Schedule 5.21 Employees
Schedule 5.22 Employee Relations
Schedule 5.23 Customers and Vendors
Schedule 5.24 Governmental Authorizations
Schedule 5.25 Broker's or Finder's Fees
Schedule 5.26 Certain Transactions
Schedule 7.2 Operation of Business Prior to Closing
Schedule 8.6 Threatened Proceedings
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of August
11, 1995, by and among Greenfield Industries, Inc., a Delaware corporation (the
"Parent"), Rule Acquisition Corporation, a Massachusetts corporation and wholly
owned subsidiary of Parent (the "Sub"), and Rule Industries, Inc., a
Massachusetts corporation ("Rule").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Sub and Rule have
approved the merger of Sub with and into Rule (the "Merger"), pursuant to and
subject to the conditions set forth herein; and
WHEREAS, Parent, Sub and Rule desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants which are to be made and performed by
the respective parties, it is hereby agreed as follows:
ARTICLE I--DEFINITIONS
Section 1.1 Definitions.
The following terms when used in this Agreement have the meanings set
forth below:
(a) "Acquisition Transaction" shall have the meaning set forth in
Section 7.4
(b) "Affiliate" shall mean any Person now or hereinafter controlling,
4
<PAGE> 81
controlled by or under common control with another Person.
(c) "Articles of Merger" shall have the meaning set forth in Section
2.2.
(d) "CERCLA" shall have the meaning set forth in Section 5.20(a).
(e) "CERCLIS" shall have the meaning set forth in Section 5.20(f).
(f) "Certificate" shall have the meaning set forth in Section 3.2.
(g) "Closing" shall have the meaning set forth in Section 3.3.
(h) "Closing Date" shall mean the date specified pursuant to Section
3.3 hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Commission" shall mean the Securities and Exchange Commission.
(k) "Constituent Corporations" shall mean Sub and Rule.
(l) "Dissenting Stock" shall have the meaning set forth in Section
2.11.
(m) "Disston" shall mean The Disston Company, a North Carolina
corporation.
(n) "Disston Arbitration" shall have the meaning set forth in Section
4.2.
(o) "Effective Time" shall have the meaning set forth in Section 2.2.
(p) "ENSR" shall have the meaning set forth in Section 11.2.
(q) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(r) "Environmental Laws" shall have the meaning set forth in Section
5.20(c).
(s) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(t) "Exchange Agent" shall have the meaning set forth in Section 3.2.
(u) "Exchange Fund" shall have the meaning set forth in Section 3.2.
(v) "GAAP" shall mean generally accepted accounting principles of the
United States applied in a manner consistent with past practice of Rule.
(w) "Hazardous Materials" has the meaning set forth in Section
5.20(a).
5
<PAGE> 82
(x) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
(y) "Intellectual Property" means any and all inventions, Marks
(including trademarks, service marks, certification marks, collective marks, and
collective membership marks whether word, logo, or other forms of Marks, all of
the foregoing collectively referred to as "Marks"), trade names, copyrights,
applications therefor, patents thereon, registrations thereof and licenses
thereof, royalty rights, any and all goodwill associated with the business or
represented by the assets of Rule and the Subsidiaries, trade secrets, secret
processes and procedures, engineering, production, assembly design and
installation encompassed in any and all embodiments including, but not limited
to technical drawings and specifications, working notes and memos, market
studies, consultants' reports, technical and laboratory data, competitive
samples, engineering prototypes, and confidential information, know-how, and all
similar property of any nature, tangible or intangible, including, but not
limited to, all property listed or described on Schedule 5.15.
(z) "IRS" shall mean the Internal Revenue Service.
(aa) "Improvements" shall have the meaning set forth in Section
5.19(a).
(ab) "Knowledge" shall mean the actual knowledge of the senior
executives of Rule listed on Exhibit A.
(ac) "Leased Improvements" shall have the meaning set forth in Section
5.19(b).
(ad) "Leased Property" shall have the meaning set forth in Section
5.19(b).
(ae) "Libby" shall mean Henry G. Libby.
(af) "Material Adverse Effect" shall mean, with respect to any Person,
any event, fact, condition, occurrence or effect which is materially adverse to
the business, properties, assets, liabilities, capitalization, stockholders
equity, financial condition, operations, licenses or other franchises, results
of operations or prospects of such Person.
(ag) "MBCL" shall mean the Business Corporation Law of the Commonwealth
of Massachusetts, as amended.
(ah) "Merger Consideration" shall have the meaning set forth in Section
3.1.
(ai) "Operating Agreements" shall have the meaning set forth in Section
5.14.
(aj) "Parent Option" shall have the meaning set forth in Section 4.1.
(ak) "Pension Plans" shall have the meaning set forth in Section
5.11(c)(i).
(al) "Person" shall mean and include an individual, a partnership, a
joint venture, a corporation or trust, an unincorporated organization, a group
or a government or other department or agency thereof.
(am) "Plans" shall have the meaning set forth in Section 5.11(a).
(an) "Proxy Statement" shall mean the proxy statement of Rule together
with any supplements thereto sent to the Stockholders to solicit their votes in
connection with this Agreement.
6
<PAGE> 83
(ao) "Real Property" shall have the meaning set forth in Section
5.19(a).
(ap) "Rights" shall mean warrants, options, rights, convertible
securities and other arrangements or commitments, including pre-emptive rights,
which obligate an entity to issue or dispose of any of its capital stock.
(aq) "Rule Financial Statements" shall mean the consolidated balance
sheets of Rule at each of August 31, 1994 and 1993 and the related consolidated
statements of income, cash flows and changes in stockholders' equity (including
related notes thereto) for each of the three fiscal years ended August 31, 1994,
1993 and 1992 as filed by Rule in SEC Documents.
(ar) "Rule Interim Financial Statements" shall mean the consolidated
balance sheets of Rule and related consolidated statements of income, cash flows
and changes in stockholders' equity (including related notes) as filed by Rule
in SEC Documents with respect to periods ended subsequent to August 31, 1994.
(as) "Rule Residual Trust" shall have the meaning set forth in Section
4.2.
(at) "Rule Stock Option" and "Rule Stock Options" shall have the
meaning set forth in Section 2.10(a).
(au) "Rule Warrant" and "Rule Warrants" shall have the meaning set forth
in Section 2.10(a).
(av) "SEC Documents" shall mean all reports, proxy statements and
registration statements filed, or required to be filed, by a party hereto
pursuant to the Securities Laws.
(aw) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(ax) "Securities Laws" shall mean the Securities Act; the Exchange Act;
the Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission.
(ay) "Stock" shall mean the common stock of Rule, par value $0.01 per
share.
(az) "Stockholders" shall mean the stockholders of Rule.
(ba) "Stock Option Plans" shall have the meaning set forth in Section
2.10(a).
(bb) "Subsidiaries" shall mean Rule Cutting Tools, Inc., a
Massachusetts corporation, Rule Manufacturing, Inc., a Massachusetts
corporation, RemGrit Abrasive Tools, Inc., a Massachusetts corporation, Rule
Paint & Chemical, Inc., a Massachusetts corporation, Rule Corporation, a
Delaware corporation, Disston-Canada, Inc., a Canadian corporation, and Rule
International, Inc. (FSC), a U.S. Virgin Islands corporation.
(bc) "Surviving Corporation" shall have the meaning set forth in
Section 2.1.
(bd) "Tax" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, gains, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
7
<PAGE> 84
(be) "Taxing Authority" shall have the meaning set forth in Section
5.10(a).
(bf) "Tax Return" shall mean any return, declaration, report, claim for
refund, information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
Section 1.2 Interpretive Rules.
For purposes of this Agreement, except as otherwise expressly provided
herein or unless the context otherwise requires: (a) defined terms include the
plural as well as the singular and the use of any gender shall be deemed to
include the other genders; (b) references to "Articles," "Sections" and other
subdivisions and to "Schedules" and "Exhibits" without reference to a document,
are to Schedules and Exhibits to this Agreement; (c) the use of the term
"including" means "including but not limited to"; and (d) the words "herein,"
"hereof," "hereunder" and other words of similar import refer to this Agreement
as a whole and not to any particular provision.
ARTICLE II--THE MERGER
Section 2.1 The Merger.
At the Effective Time, Sub shall be merged with and into Rule in
accordance with the applicable provisions of the laws of the Commonwealth of
Massachusetts and the separate existence of Sub shall thereupon cease, and Rule,
as the surviving corporation in the Merger (the "Surviving Corporation"), shall
continue its corporate existence in accordance with the MBCL under the name Rule
Industries, Inc.
Section 2.2 Effective Time of the Merger.
At the Closing, Parent shall cause the Merger to be consummated by
filing with the Secretary of State of the Commonwealth of Massachusetts
appropriate articles of merger (the "Articles of Merger"), duly executed in
accordance with this Agreement and the MBCL. The date and time at which the
Articles of Merger are filed is referred to herein as the "Effective Time."
Section 2.3 Effect of Merger.
The Merger shall have the effect provided therefor by the MBCL,
including, without limitation, all of the estate, property, rights, privileges,
powers and franchises of the Constituent Corporations and all of their property,
real, personal and mixed, and all the debts due on whatever account to any of
them, as well as all stock subscriptions and other choses in action belonging to
any of them, shall be transferred to and vested in the Surviving Corporation,
without further act or deed, and all claims, demands, property and other
interest shall be the property of the Surviving Corporation, and the title to
all real estate vested in either of the Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger, but shall be vested in
the Surviving Corporation.
Section 2.4 Articles of Organization.
The Articles of Organization of Rule as in effect at the Effective Time
shall be the Articles of Organization of the Surviving Corporation.
8
<PAGE> 85
Section 2.5 By-laws.
The By-laws of Sub as in effect at the Effective Time shall be the By-
laws of the Surviving Corporation.
Section 2.6 Directors and Officers.
The directors of the Surviving Corporation at the Effective Time shall
be the directors of Sub in office immediately prior to the Effective Time, to
serve in accordance with the By-laws of the Surviving Corporation. The officers
of the Surviving Corporation at the Effective Time shall be the officers of Sub
in office immediately prior to the Effective Time, to serve in accordance with
the By-laws of the Surviving Corporation.
Section 2.7 Purpose.
The purpose of the Surviving Corporation shall be, as set forth in its
Articles of Organization, to develop, manufacture, process, buy, sell and lease
products of all kinds; to apply for and own patents relating to such products
and their component parts; to hold or grant licenses under patents relating to
such products; and, in general, to carry on any other lawful business permitted
by the laws of the Commonwealth of Massachusetts to a corporation organized
under Chapter 156B of the MBCL.
Section 2.8 Authorized Shares.
The Surviving Corporation, as set forth in its Articles of Organization,
shall be authorized to issue five million (5,000,000) shares of common stock,
par value $0.01 per share, and one hundred thousand (100,000) shares of
preferred stock, par value $100.00 per share.
Section 2.9 Conversion of Shares.
At the Effective Time, by virtue of the Merger and without any action on
the part of the holder of any securities of the Constituent Corporations:
(a) each share of Stock then outstanding, other than Stock that is
Dissenting Stock and Stock to be canceled pursuant to Section 2.9(b), and all
rights with respect thereto shall be converted into and represent the right to
receive $15.30 in cash, payable as provided in Section 3.2;
(b) each share of Stock, if any, held in Rule's treasury or owned
beneficially by Parent or Sub or by any Subsidiary of Rule shall be canceled and
retired without payment of any consideration therefor and shall cease to exist;
and
(c) each issued and outstanding share of common stock, $0.01 par
value per share, of Sub outstanding immediately prior to the Effective Time
shall remain outstanding and unchanged as a share of common stock of the
Surviving Corporation.
Section 2.10 Cancelation of Stock Options and Warrants.
(a) Immediately prior to the Effective Time, each option to purchase
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shares of Stock (individually, a "Rule Stock Option" and collectively, the "Rule
Stock Options") issued pursuant to Rule's 1987 Incentive Stock Option Plan and
its 1987 Non-Statutory Stock Option Plan (collectively, the "Stock Option
Plans") and issued pursuant to the Non-Qualified Stock Option Agreement between
Rule and Libby, and each outstanding warrant to purchase shares of Stock
(individually, a "Rule Warrant" and collectively, the "Rule Warrants"), which
are then outstanding and exercisable in full, shall be canceled and the holder
thereof shall be entitled to receive from Parent at the Effective Time an amount
in cash equal to the excess, if any, of (i) $15.30 multiplied by the number of
shares of Stock subject to the Rule Stock Option or Rule Warrant over (ii) the
exercise price of the Rule Stock Option or Rule Warrant multiplied by the number
of shares of Stock subject thereto. Appropriate arrangements shall be made for
reduction of the amount to be paid to each holder of canceled Rule Stock Options
for any applicable withholding taxes or other amounts required by law to be paid
or withheld, either through reducing the amount paid to or by obtaining a cash
payment from, such holder. Prior to the Effective Time, the Board of Directors
of Rule shall take such action, including without limitation, actions ensuring
that all Rule Stock Options and Rule Warrants outstanding as of the Effective
Date shall be exercisable, as may be required under the Stock Option Plans, the
governing option agreements and warrant agreements or otherwise to effectuate
the foregoing.
(b) At the Effective Time, following the cancelation of Rule Stock
Options pursuant to Section 2.10(a), all of Rule's obligations with respect to
options granted under its Stock Option Plans shall be terminated in accordance
with such Stock Option Plans.
Section 2.11 Dissenters' Rights.
Any issued and outstanding Stock held by a Person who objects to the
Merger and complies with all provisions of the MBCL concerning the right of such
person to dissent from the Merger and demand appraisal of such Stock (the
"Dissenting Stock") shall not be converted as described in Section 2.9(a) but
shall from and after the Effective Time represent only the right to receive such
consideration as may be determined to be due to such holder of Dissenting Stock
pursuant to Sections 86 through 98 of the MBCL; provided, however, that Stock
outstanding immediately prior to the Effective Time and held by a dissenting
holder who shall, after the Effective Time, withdraw the demand for appraisal or
lose the right of appraisal, in either case pursuant to the MBCL, of such shares
shall be deemed to be converted, as of the Effective Time, into the right to
receive the Merger Consideration, as applicable, as specified in Section 2.9(a)
without interest.
Section 2.12 Closing of Rule Transfer Books.
At the Effective Time, the stock transfer books of Rule shall be closed
and there shall be no further registration of transfers of Stock, Rule Stock
Options or Rule Warrants thereafter.
Section 2.13 Supplementary Action.
If at any time after the Effective Time, any further assignments or
assurances in law or any other things are necessary or desirable to vest or to
perfect or confirm of record in the Surviving Corporation the title to any
property or rights of either of the Constituent Corporations, or otherwise to
carry out the provisions of this Agreement, the officers and directors of the
Surviving Corporation are hereby authorized and empowered on behalf of the
respective Constituent Corporations, in the name of and on behalf of the
appropriate Constituent Corporation, to execute and deliver any and all things
necessary or proper to vest or to perfect or confirm title to such property or
rights in the Surviving Corporation, and otherwise carry out the purposes and
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provisions of this Agreement.
ARTICLE III--MERGER CONSIDERATION; CLOSING
Section 3.1 Merger Consideration.
The aggregate merger consideration shall be $15.30 in cash per share of
Stock as set forth in Section 2.9(a) plus amounts payable in cash upon the
cancelation of Rule Stock Options and Rule Warrants pursuant to Section
2.10(a)(the "Merger Consideration").
Section 3.2 Payment of Merger Consideration.
(a) Exchange Agent. On the Closing Date, Parent shall deposit with a
mutually agreeable exchange agent (the "Exchange Agent"), a cash amount equal to
the aggregate Merger Consideration to which holders of shares of Stock, Rule
Stock Options and Rule Warrants shall be entitled upon consummation of the
Merger, to be held for the benefit of and distributed to such holders in
accordance with this Section 3.2. The Exchange Agent shall agree to hold such
funds (such funds, together with earnings thereon, being referred to herein as
the "Exchange Fund") for delivery as contemplated by this Section 3.2 and upon
such additional terms as may be agreed upon by the Exchange Agent, Rule and
Parent before the Closing Date. If for any reason (including losses) the
Exchange Fund is inadequate to pay the cash amounts to which holders of shares
of Stock, Rule Stock Options and Rule Warrants shall be entitled, Parent shall
make available to the Exchange Agent additional funds for the payment thereof.
(b) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each holder of
record of a certificate of certificates which immediately prior to the Effective
Time represented outstanding shares of Stock, Rule Stock Options and Rule
Warrants (collectively, the "Certificates") whose shares, options or warrants
are converted pursuant to Sections 2.9 or 2.10, as the case may be, into the
right to receive the Merger Consideration (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as the Surviving
Corporation may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancelation to the Exchange Agent, together with
such letter of transmittal duly executed and completed in accordance with its
terms, the holder of such Certificate shall be entitled to receive in exchange
therefor a check representing the Merger Consideration per share of Stock, Rule
Stock Option or Rule Warrant, as the case may be, represented thereby which such
holder has the right to receive pursuant to the provision of this Article III,
and the Certificate so surrendered shall forthwith be canceled. In no event
shall the holder of any Certificate be entitled to receive interest on any funds
to be received in the Merger. In the event of a transfer of ownership of Stock,
Rule Stock Option or Rule Warrant which is not registered in the transfer
records of Rule, the Merger Consideration may be issued to a transferee if the
Certificate representing such Stock, Rule Stock Option or Rule Warrant is
presented to the Exchange Agent accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable transfer
taxes have been paid. Until surrendered as contemplated by this Section 3.2,
each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger Consideration
per share of Stock, Rule Stock Option or Rule Warrant, as the case may be,
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represented thereby as contemplated by this Article III.
(c) No Further Ownership Rights in Stock. All cash paid upon the
surrender of shares of Stock, Rule Stock Options or Rule Warrants in accordance
with the terms hereof shall be deemed to have been paid in full satisfaction of
all rights pertaining to such shares of Stock, Rule Stock Options or Rule
Warrants, as the case may be. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Section 3.2.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the stockholders of Rule or holders of Rule Stock
Options or Rule Warrants for one hundred twenty (120) days after the Effective
Time shall be delivered to the Surviving Corporation, upon demand, and any
stockholders of Rule or holders of Rule Stock Options or Rule Warrants who have
not theretofore complied with this Section 3.2 shall thereafter look only to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) as general creditors for payment of their claim for the Merger
Consideration. Neither Parent nor the Surviving Corporation shall be liable to
any holder of shares of Stock or holders of Rule Stock Options or Rule Warrants
for cash representing the Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If
outstanding Certificates are not surrendered, or cash payment therefor not
claimed prior to six years after the Effective Time (or, in any particular case,
prior to such earlier date on which such cash payment would otherwise escheat to
or become the property of any governmental unit or agency), the unclaimed
amounts shall, to the extent permitted by applicable law, become the property of
the Surviving Corporation, free and clear of all claims or interest of any
person previously entitled thereto.
Section 3.3 Closing.
The closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of Foley, Hoag & Eliot, One Post Office Square,
Boston, Massachusetts 02109 no later than the third business day after written
notice from either party to the other of the satisfaction or waiver of all
conditions set forth in Article VIII and Article IX hereof, or at such other
place, time or date as may be agreed upon in writing by the parties hereto (the
"Closing Date").
ARTICLE IV--OTHER AGREEMENTS
Section 4.1 Grant of Option.
On the date hereof, Rule is granting an option to Parent (the "Parent
Option"), in the form attached hereto as Exhibit C, for the purchase of six
hundred thirty thousand (630,000) shares of Stock with an exercise price of
eight dollars ($8.00) per share.
Section 4.2 Disston Arbitration.
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Prior to the Effective Date, Rule may transfer all of its right, title
and interest in any recoveries it may be entitled to as a result of the pending
arbitration proceedings between Disston and Sandvik, Inc. (the "Disston
Arbitration") to a liquidating trust or similar entity (the "Rule Residual
Trust"). Rule shall enter into an agreement, reasonably satisfactory to Parent,
with Disston confirming the understanding with respect to the prosecution of the
Disston Arbitration and the rights and obligations of Rule thereunder. The
instrument or other documentation establishing and governing the Rule Residual
Trust shall contain, among other things, provisions relating to: the
contributions to the Rule Residual Trust to finance the trust's operations; the
reimbursement of any such amounts expended, as well as amounts expended pursuant
to the agreement between Rule and Disston referenced above, prior to
disbursement of any net proceeds to the beneficiaries of the Rule Residual
Trust; and the responsibitlty of the Rule Residual Trust for any (i) costs,
expenses and liabilities arising out of or relating to the Disston Arbitration,
or the facts underlying the Disston Arbitration, including, without limitation,
any costs, expenses or liabilities under federal or state securities laws, (ii)
any liabilities under environmental laws, or (iii) any liabilities of the
Surviving Corporation for taxes related to the Disston Arbitration, in each case
incurred within the earlier of (A) the date six months following receipt of full
and final payment of any amounts arising from the Disston Arbitration and (B)
the date eighteen (18) months from the Effective Date. The form of the Rule
Residual Trust shall be reasonably satisfactory to Parent and Rule.
ARTICLE V--REPRESENTATIONS AND WARRANTIES OF RULE
Rule hereby represents and warrants, as to itself and each of its
Subsidiaries, to each of Parent and Sub as follows, and both Parent and Sub in
agreeing to consummate the transactions contemplated by this Agreement have
relied upon such representations and warranties, that:
Section 5.1 Corporate Organization.
(a) Each of Rule and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite power and authority
(corporate and other) to own, lease and operate its properties and to carry on
its business as now being conducted.
(b) Each of Rule and its Subsidiaries is qualified as a foreign
corporation and is in good standing in each state of the United States and in
each foreign jurisdiction in which the conduct of its business or the ownership
or leasing of its properties requires such qualification and is not required to
be qualified as a foreign corporation in any other jurisdiction, except where
such failure to be qualified would not have a Material Adverse Effect on Rule.
Schedule 5.1 hereto sets forth a true and complete list of all jurisdictions in
which Rule and its Subsidiaries are qualified and licensed to do business as
foreign corporations.
(c) The copies of the articles of incorporation and all amendments
thereto of each of Rule and its Subsidiaries as certified by the appropriate
authorities of its jurisdiction of incorporation, and the by-laws, as amended to
date, of each of Rule and its Subsidiaries, as certified by its secretary, which
have heretofore been delivered to Parent and Sub, are true, complete and correct
copies of the articles of incorporation and by-laws of each of Rule and its
Subsidiaries, as amended and in effect on the date hereof, and will be true,
complete and correct as of the Closing Date.
(d) The minute books and records of each of Rule and its
Subsidiaries, copies of which have been delivered to Parent and Sub prior to the
date hereof, are the original minute books and records of such company; contain
all proceedings of the stockholders, the Board of Directors and any committees
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thereof with respect to such company; are true, correct and complete in all
material respects; and there have been no changes, alterations or additions
thereto which have not been furnished to counsel for Parent and Sub prior to the
date hereof.
Section 5.2 Valid and Binding Agreement.
Rule has the full right, capacity and power to enter into this
Agreement. All necessary action on the part of Rule, other than approval by the
Stockholders, has been taken to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Rule, and will constitute a valid and binding
obligation enforceable against Rule in accordance with its terms, subject to
bankruptcy, insolvency, reorganization or similar laws or equitable principles
relating to creditors' rights generally and the availability of equitable
remedies.
Section 5.3 No Violation.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor compliance by Rule with
any of the provisions hereof will (a) violate or conflict with any provision of
the articles of incorporation or by-laws of Rule or its Subsidiaries, (b)
violate or conflict with any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Rule or its
Subsidiaries, except where such violation or conflict would not have a Material
Adverse Effect on Rule, or (c) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or any event which, with or
without due notice or lapse of time, or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or other
encumbrance upon the Stock or any of the properties or assets of Rule or its
Subsidiaries under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation of Rule or its Subsidiaries, except as set forth in
Schedule 5.3 and except where such violation, conflict or other above stated
event would not have a Material Adverse Effect on Rule.
Section 5.4 Consents and Approvals.
Other than pursuant to the HSR Act, the Securities Laws and Stockholder
approval, and except for permits, consents, approvals or authorizations which,
if not received, or declarations, filings or registrations which, if not made,
would not have a Material Adverse Effect on Rule, no permit, consent, approval
or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority or third party is required to be made or
obtained by Rule or its Subsidiaries in connection with the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby.
Section 5.5 Capitalization.
(a) The authorized capital stock of Rule consists of (i) 5,000,000
shares of common stock, par value $0.01 per share, of which 2,640,532 shares are
issued and outstanding; and (ii) 100,000 shares of preferred stock, par value
$100 per share, of which no shares are issued and outstanding. The issued and
outstanding shares of common stock are duly authorized, validly issued, fully
paid and nonassessable, and none of the issued and outstanding shares of common
stock were issued in violation of the preemptive rights of any present or former
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stockholder of Rule.
(b) Except as set forth in Section 5.5(a) or Schedule 5.5, (i) there
are no shares of capital stock or other equity securities (as the term "equity
security" is defined in the Exchange Act) of Rule or its Subsidiaries
outstanding, (ii) there are no outstanding Rights to purchase or acquire any
equity securities of Rule or its Subsidiaries, (iii) no equity securities of
Rule or its Subsidiaries are reserved for issuance for any purpose, and (iv)
there are no contracts, commitments, agreements, understandings, arrangements or
restrictions to which Rule or its Subsidiaries are a party or by which Rule or
its Subsidiaries are bound relating to any shares of the capital stock or other
equity securities of Rule (including the Stock) or its Subsidiaries, whether or
not outstanding.
Section 5.6 Subsidiaries and Affiliates.
Except as set forth on Schedule 5.6, neither Rule nor any of its
Subsidiaries owns any capital stock or other equity securities of any other
corporation or has any other type of interest (whether ownership or other) in
any other corporation, partnership, joint venture or other business organization
or entity. The interests of Rule in any Person as set forth on Schedule 5.6 are
owned by Rule free and clear of all liens, options, claims or encumbrances
(including without limitation, rights of first refusal or similar rights) with
respect to the ownership thereof. Neither Rule nor any of its Subsidiaries are
subject to any obligation or requirement to provide funds for, or to make any
investment (in the form of a loan, capital contribution or otherwise) to or in,
any Person, except as set forth on Schedule 5.6.
Section 5.7 Financial Statements.
The Rule Financial Statements (i) present fairly the financial position
and results of operations of Rule and its Subsidiaries, as of the statement
dates and for the periods indicated, and (ii) have been prepared in accordance
with GAAP consistently applied throughout and among the periods indicated. The
Rule Interim Financial Statements (i) present fairly the financial position and
results of operations of Rule and its Subsidiaries, as of the statement date(s)
and for the period(s) indicated, and (ii) have been prepared in accordance with
GAAP consistently applied.
Section 5.8 Absence of Undisclosed Liabilities.
Except as set forth on Schedule 5.8, neither Rule nor any of its
Subsidiaries has any liability or obligation (absolute, accrued, contingent or
otherwise), including any guaranty with respect to any obligation, except (a)
such liabilities or obligations as are fully reflected or reserved against in
the Rule Financial Statements or the Rule Interim Financial Statements, (b) such
liabilities or obligations which are identified in any Schedule to this
Agreement or which are not required to be so identified, and (c) such
liabilities or obligations as have been incurred in the ordinary course of
business, consistent with past practice, since May 31, 1995.
Section 5.9 Interim Operations and Absence of Certain Changes.
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Since May 31, 1995, except as set forth on Schedule 5.9, Rule and its
Subsidiaries have conducted their business in the ordinary course and consistent
with past practice and Rule and its Subsidiaries did not:
(a) incur any indebtedness or other liabilities (whether absolute,
accrued, contingent or otherwise) or guarantee any such indebtedness, except in
the usual and ordinary course of their businesses, consistent with past
practice;
(b) (i) suffer any damage, destruction or loss of tangible assets
covered by insurance in excess of $5,000,000 or (ii) through the date hereof,
suffer any damage, destruction or loss of tangible assets not covered by
insurance in excess of $100,000;
(c) suffer any change in their financial condition, assets,
liabilities or business or suffer any other event or condition of any character
which individually or in the aggregate had or has a Material Adverse Effect on
Rule;
(d) pay, discharge or satisfy any claims, liabilities or obligations
in excess of $50,000 (whether absolute, accrued, contingent or otherwise) except
in each case in the ordinary course of business;
(e) cancel any debts in excess of $50,000 or waive any claims or
rights of substantial value, except in each case in the ordinary course of
business;
(f) pledge or permit the imposition of any lien on or sell, assign,
transfer or otherwise dispose of any of their tangible assets, except in the
ordinary course of business;
(g) sell, assign or otherwise transfer any patents, trademarks, trade
names, copyrights, licenses or other intangible assets;
(h) make any change in any method of accounting or accounting
principle or practice;
(i) write up or down the value of inventory or determine as collectible
any notes or accounts receivable that were previously considered to be
uncollectible;
(j) grant any general increase in the compensation payable or to become
payable to their officers or employees (including any such increase pursuant to
any bonus, pension, profit-sharing or other plan or commitment) or any special
increase in the compensation payable or to become payable to any officer or
employee, except for (i) normal merit and cost of living increases in the
ordinary course of business and in accordance with past practice and (ii)
increases pursuant to collective bargaining agreements;
(k) declare, pay or set aside for payment any dividend or other
distribution on any shares of their capital stock;
(l) make any loans which in the aggregate exceed $5,000 to any employee
or make any loans to any stockholder, officer or director;
(m) make capital expenditures or commitments for same in excess of
$250,000 in the aggregate; or
(n) agree, whether in writing or otherwise, to take any action
described in this Section 5.9.
Section 5.10 Taxes
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(a) Each of Rule and its Subsidiaries has duly and timely filed all
Tax Returns required to be filed with any federal, state, local or foreign
governmental entity or other authority ("Taxing Authority"). All such Tax
Returns were true, correct and complete in all material respects. Each of
Rule and its Subsidiaries has paid all material Taxes, which have become due
and payable (whether or not shown on any Tax Return). Adequate reserves and
accruals in accordance with GAAP have been established to provide for the
payment of all Taxes which are not yet due and payable with respect to any of
Rule and its Subsidiaries for taxable periods or portions thereof ending
on or before the Closing Date. There are no liens for Taxes upon any of the
assets of any of Rule and its Subsidiaries except liens for current Taxes not
yet due. Rule has delivered or made available to Parent correct and complete
copies of all Tax Returns filed with respect to any of Rule and its
Subsidiaries for the five (5) most recently completed taxable years, all
examination reports by any Taxing Authority, and any statements of
deficiencies proposed or assessed against or agreed to by any of Rule and
its Subsidiaries. No audit, examination, investigation, proceeding, action
or claim with respect to the Taxes of any of Rule and its Subsidiaries is
pending, proposed or threatened, and, to the Knowledge of Rule, there is no
basis for the assessment or collection of additional Taxes against any of Rule
and its Subsidiaries. Except as set forth on Schedule 5.10, there has never been
an examination or notice of potential examination of the Tax Returns of any of
Rule and its Subsidiaries by any Taxing Authority. No extension is in effect for
any of Rule and its Subsidiaries with respect to the filing of any Tax Return,
the payment of any Taxes, or any limitation period regarding the assessment or
collection of any Taxes.
(b) All material Taxes that are required to have been withheld or
collected by any of Rule and its Subsidiaries have been duly withheld or
collected, and to the extent required, have been properly paid or deposited as
required by applicable laws.
(c) Schedule 5.10 lists each jurisdiction in which any of Rule and
its Subsidiaries either files Tax Returns or pays Taxes with respect to which no
returns are required to be filed. Except as set forth on Schedule 5.10, no claim
has ever been made by any Taxing Authority in a jurisdiction where any of Rule
and its Subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction.
(d) No property of any of Rule and its Subsidiaries is property that
it is or will be required to treat as owned for tax purposes by another person,
or is "tax-exempt use property" as defined in Code section 168(h).
(e) None of Rule and its Subsidiaries has ever agreed to or been
required to make any adjustment pursuant to Code section 481(a) by reason of any
change in accounting method initiated by it; the IRS has not proposed any such
adjustment or change in accounting method; and none of Rule and its Subsidiaries
has any application pending with any Taxing Authority requesting permission for
any change in accounting method.
(f) None of Rule and its Subsidiaries has been a United States real
property holding corporation as defined in Code section 897(c)(2) during the
applicable period specified in Code section 897(c)(1)(A)(ii).
(g) None of Rule and its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code section 280G.
(h) None of Rule and its Subsidiaries has filed any consent under
Code section 341(f).
(i) None of Rule and its Subsidiaries has ever been (i) a member of
an affiliated, consolidated, unitary or combined group filing a consolidated,
unitary or combined Tax Return (other than a group the common parent of which
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was Rule), or (ii) a party to any tax allocation, sharing or reimbursement
agreement or arrangement.
(j) None of Rule and its Subsidiaries has any liability for the Taxes
of any Person (other than any of Rule and its Subsidiaries) under Treas. Reg.
(S) 1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(k) Except as set forth on Schedule 5.10, none of Rule and its
Subsidiaries is an obligor on, and none of its assets has been financed directly
or indirectly by, any tax-exempt bonds.
(l) None of Rule and its Subsidiaries has executed, become subject
to, or entered into any closing agreement pursuant to Code section 7121 or any
predecessor provision thereof or any similar provision of state, local or
foreign law.
(m) None of Rule and its Subsidiaries has pending any ruling requests
with any Taxing Authority.
Section 5.11 Employee Benefit Plans.
(a) Schedule 5.11 is a true and complete list of all annuity, bonus,
cafeteria, stock option, stock purchase, profit sharing, savings, pension,
retirement, incentive, group insurance, disability, employee welfare, prepaid
legal, nonqualified deferred compensation including, without limitation, excess
benefit plans, top-hat plans, deferred bonuses, rabbi trusts, secular trusts,
nonqualified annuity contracts, insurance arrangements, nonqualified stock
options, phantom stock plans or golden parachute payments, or other similar
fringe benefit plans, and all other employee benefit funds or programs (within
the meaning of Section 3(3) of ERISA), covering employees or former employees of
Rule and its Subsidiaries (the "Plans"). Except as set forth on Schedule 5.11,
Rule and its Subsidiaries are not parties to any employee agreement,
understanding, plan, policy, procedure or arrangement, whether written or oral,
which provide compensation or fringe benefits to employees and Rule and its
Subsidiaries are in compliance with their obligations under all such Plans.
Except for changes required by applicable law, there are no negotiations,
demands, commitments or proposals that are pending or that have been made that
concern matters now covered, or that would be covered by the type of agreements
described on Schedule 5.11 or this paragraph.
(b) With respect to each Plan listed on Schedule 5.11, true and
complete copies of (i) all Plan documents (including all amendments and
modifications thereof), and related agreements including, without limitation,
the trust agreement and amendments thereto, insurance contracts and investment
management agreements; (ii) the last three filed Form 5500 series and Schedules
A, B, P and/or SSA, as applicable, and Forms PBGC-1, if any; (iii) summary plan
descriptions; (iv) summary of material modifications, if any; (v) the most
recent auditor's report, and copies of any and all tax qualification
correspondence including, without limitation, private letter rulings,
applications for determination and determination letters issued with respect to
the Plans; and (vi) the most recent annual and periodic accounting of related
Plan assets, have been delivered to Parent and Sub.
(c) With respect to the Plans listed on Schedule 5.11 which are
subject to ERISA:
(i) Except as set forth on Schedule 5.11, the Plans are in
material compliance with the applicable provisions of ERISA and each of the
employee pension benefit plans, within the meaning
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<PAGE> 95
of Section 3(2) of ERISA (the "Pension Plans"), which are intended to be
qualified under Section 401(a) of the Code, have been determined by the IRS to
be so qualified or a request for such determination has been timely filed with
the IRS (and to the Knowledge of Rule, nothing has occurred to cause the IRS to
revoke such determination and the IRS has not indicated any disapproval of any
request for such a determination);
(ii) Except as set forth on Schedule 5.11 and except as would not
have a Material Adverse Effect on Rule, each Plan has been operated in
accordance with its terms and all required filings that are due prior to the
date hereof, including, without limitation, the Forms 5500, for all Plans have
been made;
(iii) Except as set forth on Schedule 5.11 and except as would not
have a Material Adverse Effect on Rule, no prohibited transactions, as defined
by Section 406 of ERISA or Section 4975 of the Code, have occurred with respect
to any of the Plans;
(iv) Except as set forth on Schedule 5.11, neither Rule nor its
Subsidiaries have engaged in any transaction in connection with which Rule or
its Subsidiaries could be subjected to a criminal or civil penalty under ERISA;
(v) Except as set forth on Schedule 5.11, none of the Plans, nor
any trust which serves as a funding medium for any of such Plans, nor any issue
relating thereto is currently under examination by or pending before the IRS,
the Department of Labor, the Pension Benefit Guaranty Corporation or any court,
other than applications for determinations pending before the IRS;
(vi) Except as set forth on Schedule 5.11, none of the Pension
Plans is a defined benefit plan within the meaning of Section 414(j) of the
Code;
(vii) Except as set forth on Schedule 5.11, none of the Plans is a
"multiemployer plan" as that term is defined in Section 3(37) of ERISA and
Section 411(f) of the Code, nor a plan maintained by more than one employer
(hereinafter referred to as an "multiple employer plan"), nor a single employer
plan under a multiple controlled group within the meaning of Section 4063 of
ERISA, and neither Rule nor its Subsidiaries nor any entity required to be
aggregated with Rule under Section 414(b), (c), (m), or (o) of the Code has
incurred any material withdrawal liability with respect to any single,
multiemployer or multiple employer plan, which liability could constitute a
liability of Parent, Sub or the Surviving Corporation;
(viii) Except as set forth on Schedule 5.11, no benefit claims
(except those submitted in the ordinary course of administration of such Plan)
are currently pending against any Plan;
(ix) Except as set forth on Schedule 5.11, no Plan provides for
retiree medical or retiree life insurance benefits for former employees of Rule
or its Subsidiaries, and there is no material liability for taxes with respect
to disqualified benefits under Section 4976 of the Code; and
(x) Except as set forth on Schedule 5.11, no Pension Plan has
been terminated by Rule or its Subsidiaries, and there is no material liability
for taxes with respect to a reversion of qualified plan assets under Section
4980 of the Code.
(d) Except as set forth on Schedule 5.11 and except where such
failure would not have a Material Adverse Effect on Rule, there have been no
failures to comply with the continuation coverage provisions required by
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Sections 601-608 of ERISA and Section 4980B of the Code under any Plan.
(e) Except as set forth on Schedule 5.11, there are no employee
benefit plans which cover employees of Rule or its Subsidiaries which are
required to comply with the provisions of any foreign law.
(f) Except as set forth on Schedule 5.11, all excess contributions,
if any (together with any income allocable thereto), have been distributed (or,
if forfeitable, forfeited) before the close of the first two and one half (2-
1/2) months of the following plan year; and there is no liability for excise tax
under Section 4979 of the Code with respect to such excess contributions, if
any, for any Plan.
(g) There is no material liability for taxes with respect to: (i) an
accumulated fiduciary deficiency under Section 4971 of the Code and/or (ii)
nondeductible contribution under Section 4972 of the Code.
Section 5.12 Compliance with Law.
Rule and its Subsidiaries have been and are in compliance with all
applicable laws (including duties imposed by common law), rules, regulations,
orders, ordinances, judgments and decrees of all governmental authorities
(federal, state, local and foreign), the noncompliance with which would be
likely to have a Material Adverse Effect on Rule.
Section 5.13 Litigation; Claims.
Schedule 5.13 hereto contains a complete and accurate list of (a) all
claims, actions, suits, proceedings or investigations pending or (to the
Knowledge of Rule) threatened by or against Rule or its Subsidiaries, and (b)
all judgments, decrees, arbitration awards or orders binding upon Rule or its
Subsidiaries, in each case which would reasonably be expected to have a value of
at least $50,000. Except as set forth on Schedule 5.13, no material claims,
including, without limitation, product liability claims, have been asserted
against Rule or its Subsidiaries during the past five (5) years, and Rule and
its Subsidiaries are neither aware nor have any reason to be aware of any basis
for any material claim, action, suit, proceeding or investigation involving Rule
or its Subsidiaries, other than as set forth on Schedule 5.13 which would
reasonably be expected to have a Material Adverse Effect on Rule.
Section 5.14 Contracts and Commitments.
Schedule 5.14 contains a complete and accurate list of all contracts,
agreements and commitments (other than the agreements or arrangements set forth
in Schedules 5.11, 5.15, 5.17, 5.18, 5.19A, 5.21, 5.22, 5.23 and 5.26), whether
written or oral, of Rule and its Subsidiaries that involve commitments in excess
of $150,000, have a term of six (6) months or more or that are not in the
ordinary course of business.
The agreements set forth in Schedules 5.11, 5.14, 5.15, 5.17, 5.18,
5.19A, 5.21, 5.22, 5.23 and 5.26 are hereinafter referred to collectively as the
"Operating Agreements." None of the Operating Agreements has been assigned or is
the subject of any security agreement, except as set forth on Schedule 5.14.
Except as otherwise set forth on Schedule 5.14, (a) each of the Operating
Agreements is a valid and binding obligation of Rule or its Subsidiaries and (to
the Knowledge of Rule) the other party or parties thereto, enforceable in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws or equitable principles relating to
creditors' rights generally and the availability of equitable remedies; (b)
except as would not have a Material Adverse Effect on Rule, neither Rule nor its
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Subsidiaries nor (to the Knowledge of Rule) any other party thereto, has
terminated, canceled, modified or waived any material term or condition of any
Operating Agreement; and (c) neither Rule nor its Subsidiaries nor (to the
Knowledge of Rule) any other party to any Operating Agreement is in default or
alleged in writing to be in default in any material respect under any Operating
Agreement and there exists no event, condition or occurrence that, after notice
or lapse of time, or both, would constitute such a default by Rule or its
Subsidiaries or any party to any such Operating Agreement. None of such
Operating Agreements contains any covenant or other restriction preventing or
limiting the consummation of the transactions contemplated hereby. Neither Rule
nor its Subsidiaries have any outstanding powers of attorney except routine
powers of attorney relating to the representation of Rule or its Subsidiaries
before governmental agencies or given in connection with qualification to
conduct business or customs matters. Rule and its Subsidiaries have delivered or
made available to each of Parent and Sub a copy of each of the written Operating
Agreements and a description of the terms and conditions of any oral Operating
Agreements.
Section 5.15 Intellectual Property Rights.
Schedule 5.15 contains a correct and complete list of the following
assets and related matters: (a) all patents and applications for patents, all
Marks and registration of Marks and applications for registration of Marks, all
copyright registrations and applications for copyright registration, and all
trade names, owned or used (pursuant to license agreements or otherwise) by Rule
or its Subsidiaries, and in the case of any such Intellectual Property that is
so owned, the jurisdictions in or by which such assets or any of them have been
registered, filed or issued and (b) to the extent not listed on Schedule 5.14,
all contracts, agreements or understandings pursuant to which Rule or its
Subsidiaries has authorized any Person to use any of the Intellectual Property
which is so owned. Rule and its Subsidiaries own, possess or license and as of
the Closing Date will own, possess or license, all right, title and interest in
and to the items of Intellectual Property that are required to conduct their
businesses as now conducted without conflict with the rights of others, except
where the absence of such ownership, possession or license would not have a
Material Adverse Effect on Rule. Except as set forth in Schedule 5.15: (i) Rule
and its Subsidiaries have the right to use and, to Rule's Knowledge, the sole
and exclusive right to use, the Intellectual Property (including applications
for any of the foregoing) used in connection with the business of Rule and its
Subsidiaries, except where the failure to have such rights would not have a
Material Adverse Effect on Rule, and, to Rule's Knowledge, none of the past or
present employees, officers or directors of Rule and its Subsidiaries, or anyone
else, has any rights with respect thereto; (ii) the consummation of the
transactions contemplated hereby will not alter or impair any such rights,
except where the alteration or impairment of such rights would not have a
Material Adverse Effect on Rule; (iii) none of Rule or its Subsidiaries has
received any notice or claim of infringement or any claim challenging or
questioning the validity or effectiveness of any of the items of Intellectual
Property, except where any such claim would not have a Material Adverse Effect
on Rule or any of its Subsidiaries, and there is no valid basis for any such
claim; and (iv) none of Rule or its Subsidiaries is liable, nor have they made
any material contract or arrangement whereby they may become liable, to any
Person for any royalty or other compensation for use of any of the items of
Intellectual Property.
Section 5.16 Liens.
Except as set forth on Schedule 5.16, none of the properties or assets,
whether real, personal or mixed, or tangible or intangible, owned or leased by
Rule or its Subsidiaries are subject to any mortgage, lien, encumbrance or other
security interest, except for (a) liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good
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faith by appropriate proceedings; (b) liens in respect of pledges or deposits
under workmen's compensation laws or similar legislation, carriers',
warehousemen's, mechanics', laborers' and materialmen's and similar liens, if
the obligations secured by such liens are not then delinquent or are being
contested in good faith by appropriate proceedings; and (c) liens incidental to
the conduct of the business.
Section 5.17 Insurance.
All insurance policies and fidelity bonds relating to the assets of Rule
and its Subsidiaries, including summary descriptions and the termination dates
thereof, are set forth on Schedule 5.17. Except as set forth on Schedule 5.17,
Rule and its Subsidiaries have not been refused any insurance with respect to
their business or any of their assets, nor has coverage been limited by any
insurance carrier to which they have applied for insurance or with which they
have carried insurance, during the last two (2) years.
Section 5.18 Tangible Personal Property.
(a) Except as set forth on Schedule 5.16 and except for the leased
tangible personal property set forth on Schedule 5.18, Rule has good and valid
title to all of its tangible personal property.
(b) Schedule 5.18 lists all tangible personal property leased by Rule
or its Subsidiaries with annual lease payments in excess of $25,000 and the
location thereof. None of such leases contains any covenant or restriction
preventing or limiting the consummation of the transactions contemplated
hereunder.
(c) All of the material tangible personal property owned by Rule and
its Subsidiaries and all of the leased tangible personal property listed in
Schedule 5.18 is in good operating condition, subject to ordinary wear and tear.
Section 5.19 Real Property.
(a) Schedule 5.19 contains a correct and complete list of all the real
property (including a general description of the improvements thereon) that is
owned by Rule or its Subsidiaries or that Rule or its Subsidiaries have agreed
(or have an option) to purchase, sell or lease, or may be obligated to purchase,
sell or lease to a third party in connection with their business and any title
insurance or guarantee policies with respect thereto. Such real property is
hereinafter referred to as the "Real Property," and the improvements and
fixtures thereon are hereinafter referred to as the "Improvements."
(b) Schedule 5.19A identifies all of the real property that Rule or
its Subsidiaries lease, have agreed to lease or have an obligation to lease in
connection with their business (including a general description of the
improvements thereon). Such leased real property is hereinafter referred to as
the "Leased Property," and the improvements and fixtures thereon are hereinafter
referred to as the "Leased Improvements."
(c) Except as set forth on Schedule 5.19, Rule or one of its
Subsidiaries is the sole legal and equitable owner of the Real Property, the
Improvements and all interests therein and possesses good and marketable fee
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simple title to the Real Property and the Improvements, good of record and in
fact, free and clear of all conditions, exceptions, reservations, liens (except
for liens with respect to taxes not yet due and payable), restrictions, rights-
of-way, easements, encumbrances and other matters affecting title.
(d) Except as set forth on Schedule 5.19, there are no adverse or other
parties in possession of the Real Property, the Improvements, the Leased
Property, the Leased Improvements or any portion or portions thereof. On the
Closing Date the Real Property, the Improvements and the leasehold interests in
the Leased Property and the Leased Improvements will be free and clear of any
and all leases, licensees, occupants or tenants except as set forth on Schedule
5.19. To the Knowledge of Rule, there are no pending or threatened condemnation,
eminent domain or similar proceedings, or litigation or other proceedings
affecting the Real Property, the Improvements, the Leased Property, the Leased
Improvements or any portion or portions thereof. To the Knowledge of Rule, there
are no pending or threatened requests, applications or proceedings to alter or
restrict any zoning or other use restrictions applicable to the Real Property,
the Improvements, the Leased Property or the Leased Improvements that would
interfere with the conduct of the business of Rule or its Subsidiaries or the
use of the assets consistent with past practice, which interference would have a
Material Adverse Effect on the business of Rule.
Section 5.20 Environmental Matters.
(a) As used in this Agreement "Hazardous Material" shall mean: (i) any
"hazardous substance" as now defined pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. (S)
9601(14), or any substance listed or identified by any characteristic in any
regulation adopted pursuant to any statute referred to or incorporated into such
definition, all as in effect on the date hereof; (ii) any petroleum, including
crude oil and any fraction thereof; (iii) natural gas, natural gas liquids,
liquefied natural gas, or synthetic gas usable for fuel; (iv) any "hazardous
chemical" as defined pursuant to 29 C.F.R. Part 1910; and (v) any asbestos,
polychlorinated biphenyl ("PCB"), or isomer of dioxin.
(b) Except as indicated in Schedule 5.20 and in the environmental
reports identified in Schedule 5.20, Rule has no knowledge of any Hazardous
Material within, under, originating from or relating to any real property
interest or other location geologically or hydrologically connected to such
properties owned, operated or controlled by Rule or its Subsidiaries or their
predecessors in interest where the presence of such Hazardous Material is likely
to have a Material Adverse Effect on Rule.
(c) Except as indicated on Schedule 5.20, neither Rule nor its
Subsidiaries nor any of their predecessors in interest has any liability,
matured or not matured, absolute or contingent, assessed or unassessed, imposed
or based upon any provision under any foreign, federal, state or local law,
rule, or regulation or common law, or under any code, order, decree, judgment or
injunction applicable to Rule or its predecessors in interest, nor has Rule
received any notice, or request for information issued, promulgated, approved or
entered thereunder, or under the common law, or any tort, nuisance or absolute
liability theory, relating to public health or safety, worker health or safety,
or pollution, damage to or protection of the environment including without
limitation, laws relating to emissions, discharges, releases or threatened
releases of Hazardous Material into the environment (including without
limitation, ambient air, surface water, groundwater, land surface or
subsurface), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, generation, disposal, transport or handling of any
Hazardous Material (hereinafter collectively referred to as "Environmental
Laws") where the resulting liability could have a Material Adverse Effect on
Rule.
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(d) Rule and its Subsidiaries possess and are in compliance in all
material respects with all permits, licenses, certificates, franchises and other
authorizations relating to the Environmental Laws necessary to conduct its
business or required by environmental regulations.
(e) Except as indicated in Schedule 5.20, neither Rule nor its
Subsidiaries have, during the past 5 years, been subject to any civil, criminal
or administrative action, suit, claim, hearing, notice of violation,
investigation, inquiry or proceeding for failure to comply with, or received
notice of any violation or potential liability under the Environmental Laws
where such could have a Material Adverse Effect on Rule, nor is Rule aware of
any information, whether or not confirme d or reported, which could give rise to
any such potential liability.
(f) Except as indicated in Schedule 5.20 and in the environmental
reports identified in Schedule 5.20, no real property, site or facility (as
defined in CERCLA, 42 U.S.C. (S) 9601(9)) owned or operated by Rule or its
Subsidiaries is (i) listed or proposed for listing on the National Priority List
or (ii) listed on the Comprehensive Environmental Response, Compensation,
Liability Information System List ("CERCLIS") promulgated pursuant to CERCLA, or
any comparable list maintained by any foreign, state or local government
authority.
(g) Except as indicated in Schedule 5.20 and in the environmental
reports identified in Schedule 5.20, there are no underground storage tanks
owned or operated by Rule or its Subsidiaries, and Rule further warrants and
represents that any prior use and operation of underground storage tanks owned
or operated by Rule or its Subsidiaries has been in compliance with all
Environmental Laws.
(h) Rule has provided to Parent and Sub an opportunity to inspect its
facilities, review and copy documents, and Rule has delivered to Parent and Sub
true, complete and correct copies of results of any reports, together with
supporting studies, analyses and tests in the possession of or initiated by Rule
or its Subsidiaries pertaining to the existence of Hazardous Material and any
other environmental concerns relating to any of their facilities, or sites or
real property owned, leased, operated, used or controlled by Rule or its
Subsidiaries or any of their predecessors in interest, or concerning compliance
with or liability under the Environmental Laws.
(i) Except as indicated on Schedule 5.20 and in the environmental
reports listed on Schedule 5.20, Rule has no knowledge of any PCBs in or at any
premises owned, leased, operated or controlled by Rule or its Subsidiaries and
their prior use, handling, storage, transport or disposal of PCBs has been in
compliance with all Environmental Laws.
(j) Except as indicated on Schedule 5.20 and in the environmental
reports listed on Schedule 5.20, Rule has no knowledge of any friable asbestos
and asbestos containing materials from the properties and assets owned, leased,
operated or controlled by Rule or its Subsidiaries and the facilities on such
properties comply with the Environmental Laws including but not limited to,
Occupational Safety and Health Act regulations with respect to ambient air
exposure to asbestos.
(k) Except as indicated on Schedule 5.20, neither Rule nor its
Subsidiaries has, by contract, agreed to assume the liability of any other
person or entity pursuant to any of the Environmental Laws.
Section 5.21 Employees.
Schedule 5.21 sets forth a complete and accurate list of all employees
of Rule and its Subsidiaries with an annual salary of $75,000 or greater showing
for each: name, current job title or description, current salary level
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(including any bonus or deferred compensation arrangements) and any bonus,
commission or other remuneration paid during fiscal 1994, and describing any
existing contractual arrangement with such employee.
Section 5.22 Employee Relations.
Except as set forth on Schedule 5.22, within the last five (5) years
Rule and its Subsidiaries have not experienced any material labor disputes or
any work stoppage or slowdowns due to labor disagreements. Except as set forth
on Schedule 5.22, (a) Rule and its Subsidiaries are in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
engaged in any unfair labor practice which could have a Material Adverse Effect
on Rule; (b) there is no unfair labor practice charge or complaint against Rule
or its Subsidiaries, or (to the Knowledge of Rule) threatened before the
National Labor Relations Board or any foreign authority; (c) there is no labor
strike, dispute, request for representation, slowdown or stoppage actually
pending or (to the Knowledge of Rule) threatened against or affecting Rule or
its Subsidiaries; (d) no question concerning representation has been raised or
is (to the Knowledge of Rule) threatened respecting the employees of Rule or its
Subsidiaries; (e) no grievance that might have a Material Adverse Effect on
Rule, nor any arbitration proceeding arising out of or under any collective
bargaining agreement, is pending and no claims therefor exist; and (f) no
collective bargaining agreement that is binding on Rule or its Subsidiaries
restricts any such company from relocating, closing or subcontracting any of its
operations.
Section 5.23 Customers and Vendors.
Schedule 5.23 sets forth correct and complete lists of the twenty-five
(25) largest (by dollar volume) customers and vendors of Rule and its
Subsidiaries during the most recently completed fiscal year, indicating the
existing contractual arrangements, if any, with each such customer or vendor.
Except as set forth in Schedule 5.23, there are no outstanding material disputes
with any customer or vendor listed thereon and no customer or vendor listed
thereon has refused to continue to do business with Rule and its Subsidiaries or
has stated its intention not to continue to do business with Rule and its
Subsidiaries. Since May 31, 1995, there has not been any material shortage or
unavailability of the raw materials necessary to manufacture the products sold
by Rule and its Subsidiaries and, to the Knowledge of Rule, there is no current
shortage or unavailability which may lead to such shortages.
Section 5.24 Governmental Authorizations.
(a) Except for licenses, permits or authorizations the lack of which
would not have a Material Adverse Effect on Rule, Rule and its Subsidiaries have
all licenses, permits or other authorizations from governmental, regulatory or
administrative agencies or authorities required for the production and sale of
its products and the conduct of its business, each of which is now and will be
in full force and effect on the Closing Date.
(b) Except as specified on Schedule 5.24, no registrations, filings,
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applications, notices, transfers, consents, approvals, orders, qualifications,
waivers or other actions of any kind are required by virtue of the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby (i) to avoid the loss of any material license, permit or other
governmental, regulatory or administrative authorization or the violation,
breach or termination of, or any default under, or the creation of encumbrances
on the assets of Rule or its Subsidiaries, pursuant to the terms of, any law,
regulation, order or other requirement of law, or (ii) to enable the Surviving
Corporation to continue the operation of the business of Rule substantially as
presently conducted.
Section 5.25 Broker's or Finder's Fees.
Except as set forth in Schedule 5.25 no agent, broker, investment
banker, Person or firm acting on behalf of Rule or its Subsidiaries or under the
authority of Rule or its Subsidiaries or any Stockholder is or will be entitled
to any broker's or finder's fee or any other commission or similar fee directly
or indirectly from Rule or its Subsidiaries in connection with any of the
transactions contemplated hereby. Schedule 5.25 sets forth a summary of all such
broker's or finder's fees and other commissions or fees payable by Rule or its
Subsidiaries in connection with any of the transactions contemplated hereby.
Section 5.26 Certain Transactions.
Except as set forth on Schedule 5.26, none of the Stockholders or the
directors or officers of Rule is currently a party to any transaction with Rule
(other than for services as employees, directors and officers), including,
without limitation, any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from, any such
Person, or to or from any corporation, partnership, trust or other entity in
which any such Person owns in excess of five percent (5%) of the outstanding
equity interest.
Section 5.27 Absence of Questionable Payments.
To the Knowledge of Rule, neither Rule nor any of its Subsidiaries nor
any director, officer, agent, employee or other Person acting on their behalf
has (i) used any corporate or other funds for unlawful contributions, payments,
gifts or entertainment, or made any unlawful expenditures relating to political
activity to government officials or others or established or maintained any
unlawful or unrecorded funds in violation of Section 30A of the Exchange Act, as
amended, or any other applicable foreign, federal or state law; or (ii) accepted
or received any unlawful contributions, payments, expenditures or gifts.
Section 5.28 SEC Documents.
Rule has timely filed within the last 12 months all SEC Documents
required by the Securities Laws and such SEC Documents complied in all material
respects with the Securities Laws and no such SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements contained therein not misleading.
Section 5.29 Proxy Statement.
The information contained in the Proxy Statement at the time the Proxy
Statement is mailed to Stockholders up to and including the time of Rule's
Stockholders' meeting to vote upon the Merger, (i) shall comply in all material
respects with the applicable provisions of the Securities Laws, and (ii) shall
not contain any untrue statement of a material fact or omit to state a material
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fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE VI--REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to Rule, and Rule in agreeing to
consummate the transactions contemplated by this Agreement has relied upon such
representations and warranties, that:
Section 6.1 Corporate Organization.
(a) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
power and authority (corporate and other) to own, lease and operate its
properties and to carry on its business as now being conducted.
(b) Sub is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and has the
requisite power and authority (corporate and other) to own, lease and operate
its properties and to carry on its business as now being conducted.
Section 6.2 Valid and Binding Agreement.
Each of Parent and Sub has the full right, capacity and power to enter
into this Agreement. All necessary action on the part of each of Parent and Sub
has been taken to authorize the execution and delivery of this Agreement, the
performance of their obligations hereunder and the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Parent and Sub, and will constitute a valid and
binding obligation enforceable against Parent and Sub in accordance with its
terms, subject to bankruptcy, insolvency, reorganization or similar laws or
equitable principles relating to creditors' rights generally and the
availability of equitable remedies.
Section 6.3 No Violation.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor compliance by each of
Parent or Sub with any of the provisions hereof will (a) violate or conflict
with any provision of the certificate of incorporation or by-laws of Parent or
the articles of incorporation or by-laws of Sub or any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Parent or Sub, or (b) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or any event which, with or without due
notice or lapse of time, or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
the creation of any lien, security interest, charge or other encumbrance upon
the stock or any of the properties or assets of Parent or Sub under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation of Parent or
Sub.
Section 6.4 Consents and Approvals.
Except under the HSR Act, and except for permits, consents, approvals or
authorizations which, if not received, or declarations, filings or registrations
which, if not made, would not have a Material Adverse Effect on either Parent or
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Sub, no permit, consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority or third party is
required to be made or obtained by Parent or Sub in connection with the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
ARTICLE VII--COVENANTS
Section 7.1 Compliance with Law.
From the date hereof through the Closing Date, Rule and its Subsidiaries
will promptly comply in all material respects with all laws and regulations
(including without limitation, those relating to the protection of the
environment and employee benefits) applicable to Rule's and its Subsidiaries'
business and all laws and regulations with which compliance is required for the
valid consummation of the transactions contemplated hereby and will promptly
notify each of Parent and Sub of any legal, administrative or other proceedings,
investigations, inquiries, complaints, notices of violation or other asserted
claims, judgments, injunctions or restrictions, pending, outstanding or, to the
Knowledge of Rule, threatened or contemplated, which could have a Material
Adverse Effect on Rule.
Section 7.2 Operation of Business Prior to Closing.
Except as set forth on Schedules 5.9 or 7.2, during the period from the
date hereof through the Closing Date, Rule agrees that (except as expressly
contemplated or permitted by this Agreement or to the extent that Parent and Sub
shall otherwise consent in writing):
(a) Rule and its Subsidiaries shall carry on their business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and shall use all reasonable efforts to preserve intact
their present business organizations, keep available the services of their
present officers and employees and preserve their relationships with customers,
suppliers and others having business dealings with them to the end that their
goodwill and ongoing business shall not be impaired in any material respect at
the Closing Date.
(b) Rule and its Subsidiaries shall not amend or propose to amend
their articles of incorporation or by-laws.
(c) Rule and its Subsidiaries shall not: (i) increase the compensation
payable or to become payable to their officers or employees, except for cash
bonuses consistent with past practice as to the amount and category of
employees, increases in salaries and wages of employees consistent with past
practice, or grant any severance or termination pay to or enter into any
employment or severance agreement with any of their directors, officers or other
employees; (ii) except as otherwise contemplated by this Agreement, establish,
adopt, enter into or make any new grants or awards under or amend any employee
benefit plan or other arrangement, plan or
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policy between Rule or any of its Subsidiaries and one or more of its directors,
officers or employees; or (iii) except as otherwise contemplated by this
Agreement, establish, adopt, enter into or amend any Plan.
(d) Rule and its Subsidiaries shall not settle or compromise any
material claims or litigation or, except in the ordinary and usual course of
business, modify, amend or terminate any of their material contracts or waive,
release or assign any material rights or claims.
(e) Rule and its Subsidiaries shall not permit any material insurance
policy to be canceled or terminated without notice to Parent and Sub, except in
the ordinary and usual course of business.
(f) Rule and its Subsidiaries shall not fail to confer on a regular and
frequent basis with one or more representatives of Parent and Sub to report
material operational matters and the general status of ongoing operations.
(g) Rule and its Subsidiaries shall not commit a breach of, or default
under, any material contract, agreement, license or instrument to which they are
a party or to which any of their assets may be subject, or violate any
applicable law, regulation, ordinance, order, injunction or decree or any other
requirement of any governmental body or court, relating to their assets or
business if such breach, default or violation is reasonably likely to result in
a Material Adverse Effect on Rule.
(h) Rule and its Subsidiaries shall not, except in the ordinary course
of business, (i) factor, discount or otherwise accept less than full payment
with regard to accounts receivable or other amounts due; (ii) delay payment on,
or otherwise alter the payment terms of, accounts payable or pay the amounts due
thereunder later than the stated date for payment thereof; or (iii) sell any
inventory at less than fair market value or make any bulk sale of such
inventory, or fail to maintain inventory at ordinary, customary levels,
consistent with the Rule Financial Statements and the Rule Interim Financial
Statements and past practice.
(i) Rule and its Subsidiaries shall not, except as expressly permitted
by this Agreement, take any action that would or is reasonably likely to result
in any of their representations and warranties set forth in this Agreement being
untrue in any material respect, or in any of the conditions in this Agreement
set forth in Article VIII not being satisfied.
(j) Rule and its Subsidiaries shall not (i) authorize capital
expenditures in excess of $250,000 or make any acquisition of, or investment in,
assets or stock of any other Person; (ii) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof; (iii) assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of any
Person or make any loans or advances; (iv) enter into any material contract or
agreement other than in the ordinary course of business; or (v) enter into or
amend in any respect any material contract, agreement, commitment or arrangement
with respect to any of the matters set forth in this Section 7.2(j).
(k) Rule and its Subsidiaries shall not issue, sell, pledge, lease,
dispose of, encumber, or authorize the issuance, sale, pledge, lease,
disposition or encumbrance of, (i) any shares of capital stock of any class, or
any options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest, or (ii)
any assets that are material, alone or in the aggregate, to Rule except for the
sale of products in the ordinary course of business and consistent with past
practice.
(l) Rule and its Subsidiaries shall not make any tax election or settle
or compromise any material federal, state, local or foreign income tax
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liability.
(m) Neither Rule nor any of its Subsidiaries shall (i) declare or pay
any dividends on or make other distributions in respect of any of its capital
stock, (ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock or (iii) repurchase or
otherwise acquire any shares of its capital stock.
(n) Neither Rule nor any of its Subsidiaries shall incur or assume any
indebtedness or other liabilities (whether absolute, accrued, contingent or
otherwise) or guarantee any indebtedness or commitments for the same, except
liabilities (other than indebtedness or guarantees of indebtedness) in the usual
and ordinary course of its business, and in amounts and on terms consistent with
past practice.
(o) Except in the ordinary course of business, neither Rule nor any of
its Subsidiaries shall pay, loan or advance any amount to, or sell, transfer or
lease any property or asset to, or enter into any agreement or arrangement with,
any of its stockholders, officers, employees or directors.
(p) Neither Rule nor any of its Subsidiaries shall enter into any
employment agreement, sales agency agreement or other contract for the
performance of personal services which is not terminable without liability upon
no more than thirty (30) days' notice or grant any increase in the rate of
compensation or in the benefits payable or to become payable to any officer or
other employee or to any agent or consultant over the levels in effect on the
date hereof other than normal merit increases of officers and employees or
increases required by applicable law.
(q) Rule and its Subsidiaries shall maintain their real and personal
properties in as good a state of operating condition and repair as they are on
the date of this Agreement, except for ordinary wear and tear.
(r) Rule and its Subsidiaries shall not terminate or modify in any
material respects any material leases, contracts, governmental licenses,
permits, or other authorizations or agreements affecting their real and/or
personal properties or the operation thereof or enter into any additional lease
or contract of any nature affecting such properties or the operation thereof.
(s) No liens, encumbrances, obligations or liabilities relating to Rule
or its Subsidiaries, whether absolute or contingent (including litigation
claims), shall be discharged, satisfied or paid, other than liabilities shown on
the Rule Financial Statements or the Rule Interim Financial Statements and
liabilities incurred after the date thereof in the ordinary course of business,
and no such discharge, satisfaction or payment shall be effected other than in
accordance with the ordinary payment terms relating to the liability discharged,
satisfied or paid.
(t) Rule will timely file all SEC Documents and all such documents
shall comply in all material respects with the requirements of the Securities
Laws and none of such documents shall contain an untrue statement of material
fact or omit to state a material fact required, under the circumstances, to make
the statements contained therein not misleading.
(u) Rule and its Subsidiaries shall not make any changes in accounting
methods, principles or practices.
Section 7.3 Access.
Prior to the Closing Date, and upon reasonable advance notice, Rule and
its Subsidiaries shall provide Parent and Sub and their representatives during
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normal business hours with full access to, and will make available for
inspection and review, all properties, personnel, books, records and accounts of
Rule and its Subsidiaries in order that Parent and Sub may have full opportunity
to make such investigation as each shall desire to make of the affairs of Rule
and its Subsidiaries. It is understood that Parent and Sub shall be permitted
to maintain personnel on the premises of Rule and its Subsidiaries during
customary business hours to observe all aspects of the operations of Rule and
its Subsidiaries and to confer with their management, attorneys and other third
parties reasonably requested for verification of any information obtained
pursuant to such observations. Rule also consents to the examination by Price
Waterhouse LLP of workpapers and other records of Deloitte & Touche LLP
pertaining to Rule and its Subsidiaries.
Section 7.4 No Solicitation.
Rule agrees that without the written consent of Parent, prior to the
Effective Time, it shall not, and it shall use its best efforts to cause its
directors, officers, employees, agents and representatives and those of any of
its Subsidiaries not to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing non-public information) inquiries or proposals
concerning any merger, consolidation or acquisition or purchase with or by any
third party (other than Parent, Sub or their Affiliates) of all or any
substantial portion of the assets or capital stock of Rule or any of its
Subsidiaries (an "Acquisition Transaction") or negotiate, explore or otherwise
engage in substantive discussions with any such third party with respect to any
Acquisition Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated by this Agreement; provided,
however, that, notwithstanding any other provision of this Agreement, Rule may
engage in discussions or negotiations with, and may furnish information
concerning Rule and its business, properties and assets to, a third party who
makes a written proposal of an Acquisition Transaction that is reasonably
capable of being consummated and is financially more favorable to the
Stockholders than is the Merger, as determined in each case in good faith by
Rule's board of directors after consultation with Rule's financial advisors and
outside legal counsel and that failing to take such action would create a
reasonable possibility of a breach of the fiduciary duties of the board of
directors. Rule shall promptly advise Parent of any inquiries or proposals it
receives or attempts to negotiate relating to an Acquisition Transaction, and
any such notice shall include a description of the terms and conditions of any
such proposal, or the nature of any inquiry or attempts to negotiate.
Section 7.5 Stockholders' Meeting.
In order to consummate the Merger, Rule, acting through its board of
directors and subject to the fiduciary duties of the board of directors, as
determined in good faith by the board of directors after consultation with
Rule's financial advisors and outside legal counsel, shall in accordance with
its Articles of Organization and By-laws and applicable law:
(a) duly call, give notice of and hold a meeting of its Stockholders
as soon as practicable following the date hereof;
(b) include in the Proxy Statement the recommendation of its board of
directors that the Stockholders vote in favor of the
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Agreement and use its best efforts to solicit votes and proxies in favor of the
adoption and approval of this Agreement; and
(c) obtain and furnish any information, with respect to Rule, required
to be included in the Proxy Statement and cause the Proxy Statement to be mailed
to the Stockholders with reasonable promptness.
Section 7.6 Proxy Statement.
As promptly as practicable after the date hereof, Parent and Rule shall
cooperate in the preparation of the Proxy Statement to be mailed to the
Stockholders of Rule in connection with the Merger.
Section 7.7 Best Efforts.
Parent and Rule shall each use its respective best efforts in good
faith, and each of them shall cause its subsidiaries to use their respective
best efforts in good faith, to take or cause to be taken all actions, and to do
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations so as to permit consummation of the Merger in accordance
with this Agreement as promptly as reasonably practicable.
Section 7.8 Press Releases.
Parent and Rule shall agree with each other as to the form and
substance of any press release related to this Agreement or the transactions
contemplated hereby, and shall consult each other as to the form and substance
of other public disclosures related thereto, provided, however, that nothing
contained herein shall prohibit any party, following notification to the other
parties, from making any disclosure which its counsel deems necessary.
Section 7.9 HSR Act.
Each of Parent and Rule will as promptly as reasonably practicable file
the notification and report form, and any supplemental information requested
thereafter, required pursuant to the HSR Act to consummate the transactions
contemplated hereby. Parent and Rule agree to furnish to the other such
necessary information and reasonable assistance as each may request in
connection with any necessary filings or submissions required pursuant to the
HSR Act.
Section 7.10 Solicitation of Employees.
Prior to the Closing, Parent and Sub shall not, directly or indirectly,
knowingly solicit or encourage to leave the employment of Rule or any
Subsidiary, any employee of Rule or any Subsidiary.
Section 7.11 Vote of Parent and Sub.
Parent and Sub agree to vote all shares of Stock held by them in favor
of the Merger.
ARTICLE VIII--CONDITIONS PRECEDENT TO OBLIGATIONS
OF PARENT AND SUB
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All obligations of each of Parent and Sub that are to be discharged
under this Agreement at the Closing are subject to Rule's fulfillment, at the
Closing or effective as of the Closing Date, of each of the following conditions
(unless expressly waived in writing by Parent and Sub at any time at or prior to
the Closing) and Rule shall use its reasonable efforts to cause each of such
conditions to be satisfied:
Section 8.1 Representations and Warranties.
On the Closing Date, the representations and warranties of Rule set
forth in Article V of this Agreement shall be true and correct in all material
respects as though such representations and warranties had been made by Rule on
and as of the Closing Date, and Parent and Sub shall have received at the
Closing a certificate, dated the Closing Date, signed by the President or a Vice
President of Rule to such effect.
Section 8.2 Covenants, Agreements and Conditions.
Rule shall have performed and complied in all material respects with all
covenants, agreements and conditions contained in this Agreement required to be
performed by or complied with by it on or prior to the Closing Date, and Parent
and Sub shall have received at the Closing a certificate, dated the Closing
Date, signed by the President or a Vice President of Rule to such effect.
Section 8.3 No Material Adverse Effect.
During the period from the date hereof through the Closing Date, there
shall not have been any change which has a Material Adverse Effect on the
condition (financial or otherwise) or earnings of Rule.
Section 8.4 Corporate Proceedings.
All corporate and other proceedings to be taken and all consents to be
obtained by Rule or its Subsidiaries in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance to Parent and Sub and their
counsel, Dickstein, Shapiro & Morin, L.L.P., each of whom shall have received
all such originals or certified or other copies of such documents as either may
reasonably request.
Section 8.5 Opinion of Counsel.
Parent and Sub shall have received a written opinion dated the Closing
Date from Foley, Hoag & Eliot, counsel to Rule, substantially in the form
attached as Exhibit C hereto.
Section 8.6 Proceedings.
Except as set forth in Schedule 8.6, no action or proceeding shall be
pending or threatened, nor shall any statute, rule, regulation, executive order,
decree or injunction have been enacted, entered, promulgated or enforced by any
court or governmental authority, to restrain or prevent the consummation of the
transactions contemplated hereby.
Section 8.7 Governmental Approvals.
Except for the filing and approval of the Proxy Statement, there shall
have been received all necessary governmental consents or authorizations
required in connection with the transactions contemplated hereby.
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Section 8.8 HSR Act Requirements.
Any "waiting periods" (and any extensions thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or shall have
been terminated.
Section 8.9 Deliveries.
Rule shall have delivered to Parent and Sub the following items:
(a) the stock books, stock ledgers, minute books and corporate seals of
Rule and its Subsidiaries and stock certificates evidencing Rule's ownership of
its Subsidiaries;
(b) certificates from appropriate authorities, dated as of or about the
Closing Date, as to the good standing, qualification to do business of, and
payment of taxes by Rule and its Subsidiaries in each jurisdiction where any
such entity is so qualified;
(c) the resignation of each director of Rule and its Subsidiaries and
the officers of Rule and its Subsidiaries for whom Parent has previously
requested in writing such resignations; and
(d) a certificate of the Secretary or Assistant Secretary of Rule,
certifying as to the Articles of Organization, By-Laws, resolutions of the board
of directors, and incumbency and signature of officers of Rule.
Section 8.10 Insurance.
Rule and its Subsidiaries shall have maintained in full force and effect
the insurance coverage described on Schedule 5.17 hereto or policies providing
substantially equivalent coverage.
Section 8.11 Tax Status Certification.
Parent and Sub shall have received a certification, signed by an
authorized officer of Rule and dated within 15 days of Closing, pursuant to
Section 1445(b) of the Code and Treasury Regulation Section 1.897-2 to the
effect that Rule is not a "United States real property holding corporation" as
defined in Section 897 of the Code.
Section 8.12 Stockholder Approval.
This Agreement and the Merger shall have been duly approved and
adopted by an affirmative vote or written consent of the Stockholders to the
extent, and only to the extent, required by the MBCL or Rule's Articles of
Organization.
Section 8.13 Status of Stock Options and Warrants.
All of the Rule Stock Options and Rule Warrants shall have been either
exercised or canceled.
ARTICLE IX--CONDITIONS PRECEDENT TO OBLIGATIONS OF RULE
All obligations of Rule that are to be discharged under this Agreement
at the Closing are subject to Parent's and Sub's fulfillment, at the Closing or
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effective as of the Closing Date, of each of the following conditions (unless
expressly waived in writing by Rule at any time at or prior to the Closing) and
each of Parent and Sub shall use its reasonable efforts to cause each of such
conditions to be satisfied:
Section 9.1 Representations and Warranties.
On the Closing Date, the representations and warranties of each of
Parent and Sub set forth in Article VI of this Agreement shall be true and
correct in all material respects as though such representations and warranties
had been made by Parent and Sub on and as of the Closing Date, and Rule shall
have received at the Closing a certificate, dated the Closing Date, signed by
the President or a Vice President of each of Parent and Sub to such effect.
Section 9.2 Covenants, Agreements and Conditions.
Parent and Sub shall have performed and complied in all material
respects with all covenants, agreements and conditions contained in this
Agreement required to be performed by or complied with by them on or prior to
the Closing Date, and Rule shall have received at the Closing a certificate,
dated the Closing Date, signed by the President or a Vice President of each of
Parent and Sub to such effect.
Section 9.3 Corporate Proceedings.
All corporate and other proceedings to be taken and all consents to be
obtained by Parent or Sub in connection with the transactions contemplated by
this Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to Rule and its counsel, Foley, Hoag & Eliot,
each of whom shall have received all such originals or certified or other copies
of such documents as either may reasonably request.
Section 9.4 Opinion of Counsel.
Rule shall have received a written opinion dated the Closing Date from
Dickstein, Shapiro & Morin, L.L.P., counsel to each of Parent and Sub,
substantially in the form attached as Exhibit D hereto.
Section 9.5 Proceedings.
No action or proceeding shall be pending or threatened, nor shall any
statute, rule, regulation, executive order, decree or injunction have been
enacted, entered, promulgated or enforced by any court or governmental
authority, to restrain or prevent the consummation of the transactions
contemplated hereby.
Section 9.6 Governmental Approvals.
Except for the filing and approval of the Proxy Statement, there shall
have been received all necessary governmental consents or authorizations
required in connection with the transactions
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contemplated hereby.
Section 9.7 HSR Act Requirements.
Any "waiting periods" (and any extensions thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or shall have
been terminated.
Section 9.8 Deliveries.
Each of Parent and Sub shall have delivered to Rule a certificate of the
Secretary or Assistant Secretary, certifying as to the Articles of
Incorporation, By-Laws, resolutions of the board of directors, and incumbency
and signature of officers of such company.
ARTICLE X--OTHER MATTERS
Section 10.1 Confidentiality.
Notwithstanding the termination of this Agreement, each party hereto and
its respective accountants, attorneys, employees and other agents, will keep
confidential all information, oral and written, obtained from any other party
hereto or its Affiliates and refrain from using in any manner all information
set forth above not otherwise publicly available.
Section 10.2 Further Assurances.
Each party hereto shall cooperate with the others, and execute and
deliver, or cause to be executed and delivered, all such other instruments,
including instruments of conveyance, assignment and transfer, and take all such
other actions as may be reasonably requested by the other parties hereto from
time to time, consistent with the terms of this Agreement, to effectuate the
purposes and provisions of this Agreement.
Section 10.3 Indemnification of Directors and Officers.
(a) Upon consummation of the Merger and for a period of six years after
the Effective Time, to the fullest extent permitted by law, Parent and the
Surviving Corporation, jointly and severally, shall indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, a director (whether elected
or appointed), officer or employee of Rule or any Subsidiary or serves or has
served at the request of Rule or any Subsidiary in any capacity with any other
Person (collectively, the "Indemnitees") against any and all claims, damages,
liabilities, losses, costs, charges, expenses (including, without limitation,
reasonable costs of investigation, and the reasonable fees and disbursement of
legal counsel and other advisors and experts as incurred), judgments, fines,
penalties and amounts paid in settlement, asserted against, incurred by or
imposed upon any Indemnitee, (i) in connection with, arising out of or relating
to any threatened, pending or completed claim, action, suit or proceeding
(whether civil, criminal, administrative or investigative), including, without
limitation, any and all claims, actions, suits, proceedings or investigations by
or on behalf of or in the right of or against Rule or of any Subsidiary or their
affiliates, or by any present or former shareholder of Rule or of any Subsidiary
(collectively, "Claims"), including, without limitation, any Claim which is
based upon, arises out of or in any way relates to the Merger, the solicitation
of the approval of the Stockholders contemplated
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by Section 7.5, this Agreement, any of the transactions contemplated by this
Agreement (including, without limitation, any schedule or exhibit hereto), the
Indemnitee's service as a member of Rule's or any Subsidiary's Board of
Directors or any committee of Rule's or any Subsidiary's Board of Directors, the
events leading up to the execution of this Agreement or related thereto and any
breach of any duty in connection with any of the foregoing, and (ii) in
connection with, arising out of or relating to the enforcement of the
obligations of Parent or the Surviving Corporation set forth in this Section
10.3, in each case to the fullest extent permitted by law under such Indemnitee
or Rule's or any Subsidiary's articles of organization or similar document or
by-laws (and shall also advance expenses as incurred to the fullest extent
permitted under any thereof).
(b) Upon consummation of the Merger and from and after the Effective
Time, to the fullest extent permitted by law, Parent and the Surviving
Corporation shall assume and honor any obligation of Rule or any Subsidiary
immediately prior to the Effective Time with respect to the indemnification of
the Indemnitees arising out of Rule's or any Subsidiary's articles of
organization or similar document or by-laws as if such obligations were pursuant
to a contract or arrangement between Parent or the Surviving Corporation and
such Indemnitees.
(c) In the event either Parent or the Surviving Corporation or any of
their respective successors or assigns (i) reorganizes or consolidates with or
merges into or enters into another business combination transaction with any
other person or entity and is not the resulting, continuing or surviving
corporation or entity of such consolidation, merger or transaction, or (ii)
liquidates, dissolves or transfers all or substantially all of its properties
and assets to any person or entity, then, and in each such case, proper
provision shall be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, assume the obligations set forth in
this Section 10.3.
(d) This Section 10.3 shall be construed as an agreement, as to which
the Indemnitees are intended to be third-party beneficiaries, between Parent and
the Surviving Corporation and the Indemnitees, as unaffiliated third parties,
and is not subject to any limitations to which Parent or the Surviving
Corporation may be subject in indemnifying its own directors, officers,
employees, agents and other persons who serve at the request of Parent or the
Surviving Corporation.
Section 10.4 Continuation of Comparable Benefit Plans.
Parent and the Surviving Corporation will maintain for a period of one
year after the Closing Date employee compensation and employee benefit plans or
arrangements that will provide benefits to the employees of the Surviving
Corporation and the Subsidiaries that, in the aggregate, are no less favorable
than those provided pursuant to the employee compensation and employee benefit
plans and arrangements in effect on the date hereof as disclosed on Schedule
5.11. (other than any employee benefit plans and arrangements based on equity
securities or any equivalent thereof).
ARTICLE XI--TERMINATION
Section 11.1 Methods of Termination.
This Agreement may be terminated at any time prior to the Closing,
notwithstanding stockholder approval:
(a) by the mutual consent of Parent and Rule;
(b) by Parent at any time after the date which is one hundred twenty
(120) days from the date of this Agreement if any of the conditions provided for
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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 twenty
(120) 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 December 31, 1995;
(e) by Parent or Rule, if any required approval of the Stockholders
shall not have been obtained by reason of failure to obtain the required vote at
a duly held meeting of Stockholders or at any adjournment thereof;
(f) by either Parent or Rule if any court of competent jurisdiction in
the United States or other governmental body in the United States shall have
issued an order (other than a temporary restraining order), decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger, and such order, decree, ruling or other action shall have become final
and nonappealable; provided that the party seeking to terminate this Agreement
shall have used its best efforts to remove or lift such order, decree or ruling;
(g) at any time prior to the Effective Time, by action of the board of
directors of Rule, if the board of directors of Rule determines in good faith on
the advice of outside counsel that its fiduciary duties require it to approve an
Acquisition Transaction (other than the Merger);
(h) by Parent, at any time prior to the Effective Time, if (i) Rule
enters into a letter of intent or definitive agreement to enter into an
Acquisition Transaction (other than the Merger), (ii) the board of directors of
Rule withdraws, materially modifies its approval or recommendation of this
Agreement or the Merger in a manner materially adverse to Parent or Sub, (iii)
the board of directors of Rule recommends to the Stockholders any Acquisition
Transaction (other than the Merger) or (iv) the board of directors of Rule
resolves to do any of the foregoing; or
(i) by Parent, as set forth in Section 11.2.
Section 11.2 Termination Based on Environmental Site Assessments.
Parent has commissioned ENSR Consulting and Engineering ("ENSR") to
undertake and complete certain environmental site assessments, including soil
and groundwater sampling, at the Cape Ann Industrial Park and South Deerfield
properties of Rule. Rule shall provide access to both properties for the
purpose of allowing ENSR to conduct such sampling. In the event that the
environmental site assessment reports produced by ENSR disclose the existence of
one or more Hazardous Materials at levels above any Applicable Governmental
Standard, the remediation or clean-up of which is, in the opinion of ENSR,
likely to cost at least $4 million, Parent may, by written notice to Rule,
terminate this Agreement without penalty. Rule shall have three (3) days
following its receipt of such notice of termination during which Rule may serve
Parent with written notification of Rule's intent to dispute such termination.
In the event of such a dispute, within three (3) days thereof, the parties
shall, by mutual agreement, select an environmental consultant who shall be
instructed to determine within fourteen (14) days whether ENSR's estimated
remediation and clean-up costs are reasonable in light of the available
information. The determination of such environmental consultant shall be final
and not appealable. As used in this Section 11.2, "Applicable Governmental
Standard" means, with respect to the presence of any Hazardous Materials in any
environmental medium or media, any clean-up or remediation levels that would be
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applied by the Massachusetts Department of Environmental Protection or the U.S.
Environmental Protection Agency. Parent's right to terminate this Agreement
pursuant to this Section 11.2 shall expire on September 8, 1995.
Section 11.3 Procedure Upon Termination.
In the event of termination by Parent, Rule or both, pursuant to this
Article XI, written notice thereof shall promptly be given to the other party or
parties and the obligations of Parent and Sub and Rule under this Agreement
shall terminate without further action. Upon any such termination:
(a) each party will redeliver all documents, workpapers and other
materials of the other party or parties relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party or parties furnishing the same;
(b) all information received by any of the parties shall be kept
confidential in accordance with Section 10.1;
(c) except as provided in Section 11.3(d), no party shall have any
liability or further obligation to any other party, except for such legal and
equitable rights and remedies as any party may have under this Agreement or
otherwise, by reason of any breach or violation of this Agreement by the other
party; and
(d) in the event of termination pursuant to Section 11.1(b), 11.1(e)
(except if the failure to obtain the required vote resulted directly from the
failure of Parent to exercise the Parent Option and to vote the shares of Stock
acquired upon such exercise in favor of the Merger), 11.1(g), 11.1(h) or 11.2,
Rule shall reimburse Parent and Sub for all of their out-of-pocket expenses
reasonably incurred in connection with the transactions contemplated hereby
within fifteen (15) business days after Parent provides Rule with a listing of
its out-of-pocket expenses; provided, however, that Rule shall not be obligated
to reimburse more than $450,000 ($200,000 in the case of termination pursuant to
Section 11.2) in expenses hereunder.
ARTICLE XII--MISCELLANEOUS
Section 12.1 Survival of Representations and Warranties.
All representations and warranties of Parent, Sub and Rule contained in
Articles V and VI herein and in any certificate executed and delivered by either
Parent, Sub or Rule in connection with this Agreement shall terminate and expire
at the Effective Time; provided that no such representations or warranties shall
be deemed to be terminated or extinguished so as to deprive Parent, Sub or Rule
(or any director, officer or controlling person thereof) of any defense in law
or equity which otherwise would be available against the claims of any person,
including without limitation the Stockholders, the aforesaid representations and
warranties being material inducements to the consummation by Parent, Sub and
Rule of the transactions contemplated herein.
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Section 12.2 Service of Process.
Service of process on Rule or Parent or Sub for any claim, legal action
or proceeding under this Agreement may be made in the manner set forth in
Section 12.3.
Section 12.3 Notices.
All notices, requests, consents and other communications hereunder shall
be deemed given if delivered personally (including by courier), telecopied
(confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communication sent by facsimile) or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses or to
other such addresses as may be furnished in writing by one party to the others:
(a) if to Rule (prior to Closing):
Rule Industries, Inc.
70 Blanchard Road
Burlington, Massachusetts 01803
Attention: John A. Geishecker, Jr.
with copies to:
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
Attention: Robert L. Birnbaum, Esquire
and to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: John A. Healy, Esquire
(b) if to Parent, Sub or Surviving Corporation:
Greenfield Industries, Inc.
470 Old Evans Road
Evans, Georgia 30809
Attention: Chief Executive Officer
with a copy to:
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
Attention: Ira H. Polon, Esquire
Section 12.4 Governing Law.
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts, without regard to such
jurisdiction's conflict of laws principles.
Section 12.5 Modification; Waiver.
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This Agreement shall not be altered or otherwise amended except pursuant
to an instrument in writing signed by each of Parent and Sub and Rule. Any
party may waive any misrepresentation by any other party, or any breach of
warranty by, or failure to perform any covenant, obligation or agreement of, any
other party, provided that mere inaction or failure to exercise any right,
remedy or option under this Agreement, or delaying in exercising the same, will
not operate as nor shall be construed as a waiver, and no waiver will be
effective unless set forth in writing and only to the extent specifically stated
therein.
Section 12.6 Entire Agreement.
This Agreement, the Schedules and Exhibits hereto and any other
agreements or certificates delivered pursuant hereto constitute the entire
agreement of the parties hereto with respect to the matters contemplated hereby
and supersede all previous written or oral negotiations, commitments,
representations and agreements.
Section 12.7 Assignment; Successors and Assigns.
This Agreement may not be assigned by Rule without the prior written
consent of each of Parent and Sub. Prior to the Closing Date, this Agreement
may not be assigned by Parent or Sub without the prior written consent of Rule.
After the Closing, each of Parent and the Surviving Corporation may assign this
Agreement; provided, however, no such assignment shall relieve Parent or
Surviving Corporation of its indemnification obligations pursuant to Section
10.3. All covenants, representations, warranties and agreements of the parties
contained herein shall be binding upon and inure to the benefit of their
respective successors and permitted assigns.
Section 12.8 Severability.
The provisions of this Agreement are severable, and in the event that
any one or more provisions are deemed illegal or unenforceable, the remaining
provisions shall remain in full force and effect.
Section 12.9 No Third Party Beneficiary.
This Agreement is intended and agreed to be solely for the benefit of
the parties hereto and Rule Stockholders and holders of Rule Stock Options and
Rule Warrants, and no other party shall accrue any benefit, claim or right of
any kind whatsoever pursuant to, under, by or through this Agreement.
Section 12.10 Expenses.
Except as otherwise expressly provided herein, each party to this
Agreement will pay his, her or its own expenses in connection with the
negotiation of this Agreement, the performance of its obligations hereunder, and
the consummation of the transactions contemplated herein.
Section 12.11 Execution in Counterpart.
This Agreement may be executed in one or more counterparts, each of
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which shall be deemed an original but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan of
Merger as of the date first written above.
GREENFIELD INDUSTRIES, INC.
By: /s/ Paul W. Jones
------------------------
Name: Paul W. Jones
Title: President and Chief
Executive Officer
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/ John A. Geishecker, Jr. By: /s/ Gary M. Sable
------------------------------ ------------------------
Name: John A. Geishecker, Jr. Name: Gary M. Sable
Title: Treasurer Title: Executive Vice President
(SEAL)
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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> 120
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
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
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ANNEX II
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ANNEX II
MASSACHUSETTS BUSINESS CORPORATION LAW
SEC. 85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
SEC. 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SEC. 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section: "If the action proposed is
approved by the stockholders at the meeting and effected by the corporation, any
stockholder (1) who files with the corporation before the taking of the vote on
the approval of such action, written objection to the proposed action stating
that he intends to demand payment for his shares if the action is taken and (2)
whose shares are not voted in favor of such action has or may have the right to
demand in writing from the corporation (or, in the case of a consolidation or
merger, the name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in writing that
the corporate action has become effective, payment for his shares and an
appraisal of the value thereof. Such corporation and any such stockholder shall
in such cases have the rights and duties and shall follow the procedure set
forth in sections 88 to 98, inclusive, of chapter 156B of the General Laws of
Massachusetts."
SEC. 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
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SEC. 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
SEC. 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the Commonwealth.
SEC. 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SEC. 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
SEC. 93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
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SEC. 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SEC. 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SEC. 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless: (1) A
bill shall not be filed within the time provided in section ninety; (2) A bill,
if filed, shall be dismissed as to such stockholder; or (3) Such stockholder
shall with the written approval of the corporation, or in the case of a
consolidation or merger, the resulting or surviving corporation, deliver to it a
written withdrawal of his objections to and an acceptance of such corporate
action. Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SEC. 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
SEC. 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
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ANNEX III
III-1
<PAGE> 126
ANNEX III
[SHIELDS & COMPANY, INC. LETTERHEAD]
August 10, 1995
Board of Directors
Rule Industries, Inc.
70 Blanchard Road
Burlington, Massachusetts 01803
Gentlemen:
We understand that Greenfield Industries, Inc., a Delaware corporation
(the "Acquiring Company"), has offered to acquire pursuant to an Agreement and
Plan of Merger (the "Merger Agreement"), through a wholly-owned subsidiary, Rule
Acquisition Corporation, a Massachusetts corporation ("Sub"), all of the issued
and outstanding shares of common stock of Rule Industries, Inc., a Massachusetts
corporation (the "Company"). The Merger Agreement will provide, among other
things, that each share of common stock and options and warrants exercisable
therefor (the "Common Stock") shall be converted into and represent the right to
receive $15.30 in cash, less, with respect to options and warrants, the
applicable exercise price therefor. The terms and conditions of the proposed
merger (the "Merger") are as set forth in more detail in the Merger Agreement.
You have provided us with a draft of the Merger Agreement in substantially the
form in which it will be executed, and we have assumed for purposes of this
opinion that the Merger Agreement will be in such form.
You have asked us to render our opinion as to whether the consideration
to be received by the holders of common stock pursuant to the Merger Agreement
is fair to such holders from a financial point of view.
In the course of our analysis for rendering this opinion, we have:
(i) reviewed the draft Merger Agreement;
(ii) reviewed the Company's Annual Report to Stockholders for the
fiscal year ended August 31, 1994 and Annual Report on Form
10-K for each of the five fiscal years ended August 31, 1990
through 1994, and the Company's Quarterly Reports on Form 10-Q
for the quarters ended November 30, 1994, February 28, 1995,
and May 31, 1995;
(iii) reviewed the Company's preliminary financial results for the
fiscal year ending August 31, 1995;
<PAGE> 127
(iv) reviewed certain financial and operating information, including
financial projections, relating to the business, earnings, cash
flow, assets and prospects of the Company provided to us by the
Company's management;
(v) met with, and discussed the Company's financial statements,
operations and prospects with, the Company's senior
management;
(vi) visited certain of the Company's operating facilities;
(vii) reviewed the historical market price and trading activity for
the Common Stock and compared them with those of certain
publicly-traded companies which we deemed to be comparable to
the Company;
(viii) compared the proposed financial terms of the Merger Agreement
with the financial terms of certain other mergers and
acquisitions which we deemed to be comparable; and
(ix) conducted such other studies, analyses, inquiries, and
investigations as we deemed appropriate, and reviewed such
other related documents as we deemed appropriate.
In the course of our review and subject to the following sentence, we
have relied upon and assumed, without independent verification, the accuracy,
completeness and fairness of the financial and other information provided to
us, and have assumed that financial forecasts have been reasonably prepared and
reflect the best currently available estimates and judgments of the management
of the Company as to the expected future financial performance of the Company.
With respect to the Company's projected financial results, we have considered a
variety of factors that could affect the Company's ability to achieve those
results and have developed alternative scenarios reflecting other results that
we have considered in connection with arriving at the opinion set forth below.
We have further relied upon the assurances of the Company's management that
they are unaware of any facts that would make the information provided to us
incomplete or misleading. Further, we relied upon the representations of the
Company contained in the Merger Agreement with respect to legal and other
matters. In arriving at our opinion, other than considering the values of
certain assets of the Company in liquidation, we have not undertaken an
independent appraisal or evaluation of the assets or liabilities of the
Company, nor have we been furnished with any such appraisal or valuation. Our
opinion is necessarily based on the economic, market and other conditions in
effect on, and the information that made available to us as of the date hereof.
It should be understood that, although subsequent developments may affect this
opinion, and may alter our opinion rendered hereunder, we do not have any
obligation to update, revise or reaffirm this opinion; provided that, upon the
Company's written request, we will update this opinion should the Company's
Board of Directors determine that subsequent developments warrant such an
update.
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We have acted as a financial advisor to the Company in connection with
the Merger and will receive a fee for our services in rendering this opinion.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Merger and does not
constitute a recommendation to any holder of the Common Stock as to whether to
vote in favor of the Merger. This opinion does not address the relative merits
of the Merger Agreement and any other transactions or business strategies
discussed by the Board of Directors of the Company as alternatives to the
Merger Agreement or the underlying business decision of the Board of Directors
of the Company to proceed with or effect the Merger Agreement.
It is understood that this letter is for the information of the
Company's Board of Directors and is not to be quoted or referred to, in whole or
in part, in any registration statement, prospectus, or proxy statement, or in
any other document used in connection with the offering or sale of securities,
nor shall this letter be used for any other purposes, without the prior written
consent of Shields & Company, Inc.; provided, however, that this letter may be
published in its entirety in any proxy statement or other document distributed
to holders of Common Stock of the Company in connection with the Merger.
Based on and subject to the foregoing, it is our opinion that, as of
the date hereof, the consideration to be received by the holders of Common
Stock pursuant to the Merger Agreement is fair, from a financial point of view,
to the holders of such Common Stock.
Very truly yours,
/s/ SHIELDS & COMPANY, INC.
-----------------------------
SHIELDS & COMPANY, INC.
3
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ANNEX IV
RULE INDUSTRIES, INC.
LIQUIDATING TRUST AGREEMENT
This Liquidating Trust Agreement (the "Agreement"), dated as of ,
1995, is by and among (a) Rule Industries, Inc., a Massachusetts corporation
("Old Rule"), for and on behalf of its stockholders of record as of the
effective date of the Merger (the "Effective Date") other than (i) stockholders
who have elected pursuant to Sections 85 through 98 of the Massachusetts
Business Corporation Law, as amended, to exercise dissenters' rights of
appraisal in connection with the Merger (as defined hereinafter), (ii) Henry G.
Libby and (iii) Greenfield Industries, Inc., a Delaware corporation
("Greenfield"), and its direct and indirect subsidiaries (such stockholders,
after excluding the stockholders described in clauses (i), (ii) and (iii), being
referred to hereinafter as the "Participating Stockholders") and the permitted
successors and assigns of the Participating Stockholders (collectively with the
Participating Stockholders, the "Beneficiaries"), and (b) John A. Geishecker,
Jr., Thomas A. Shields and Dino Casali (each, a "Trustee" and collectively, the
"Trustees").
RECITALS:
1. Old Rule has entered into an Agreement and Plan of Merger, dated as of
August 11, 1995, as amended (the "Merger Agreement"), 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 Old Rule (as the surviving
corporation following the effective time of the Merger, hereinafter referred to
as "New Rule") and each issued and outstanding share of common stock, $.01 par
value ("Common Stock"), of Old Rule (except as otherwise provided in the Merger
Agreement) will automatically be converted into the right to receive $15.30 in
cash.
2. In connection with the Merger, Greenfield has agreed that it will not
acquire Old Rule's interest in certain arbitration proceeds, and Greenfield and
Old Rule have agreed that Old Rule shall divest itself of such interest prior to
the effective time of the Merger.
3. Old Rule has determined to convey, for and on behalf of the
Participating Stockholders, all of its right, title and interest in such
arbitration proceeds to the Trustees of the liquidating trust created hereby
(the "Trust").
4. Greenfield, Old Rule and the Trustees have agreed that the assets of
the Trust will serve as the sole and exclusive source to indemnify New Rule and
Greenfield (together, the "Greenfield Interests") for certain contingent
liabilities that may arise under that certain Indemnification Agreement among
Old Rule, the Greenfield Interests, RAC and the Trustees (the "Indemnification
Agreement").
5. At a Special Meeting of Stockholders of Old Rule held on January 12,
1996, the Merger Agreement was approved and adopted, this Agreement and the
Trust were approved by the stockholders of Old Rule, and the officers of Old
Rule were authorized to transfer Old Rule's right, title and interest in and to
those certain arbitration proceeds to the Trustees, subject, however, to claims
of the Greenfield Interests for indemnification under the Indemnification
Agreement as described above.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, Old Rule, for and on behalf of the
Participating Stockholders, and the Trustees agree as follows:
ARTICLE I
ESTABLISHMENT OF THE TRUST
1.1 Transfer to Trustees. Old Rule and the Trustees hereby establish the
Trust, and Old Rule hereby transfers, assigns, and delivers, for and on behalf
of the Participating Stockholders, to the Trustees, without reservation of any
interest of any nature, Old Rule's entire right, title, and interest in and to
the intangible
IV-1
<PAGE> 130
assets of Old Rule described in Schedule A attached hereto and made a part
hereof (the "Rights") together with all funds received in respect of such Rights
and all proceeds and income from investment and reinvestment of any assets
arising out of such Rights (collectively, the "Proceeds"; together with the
Rights, the "Trust Property"), and the Trustees agree to accept and hold the
same in trust for the Beneficiaries, subject to the terms of this Agreement.
1.2 Intention of Parties. The parties intend and agree that Old Rule has
transferred the Rights directly to the Trustees, for and on behalf of the
Participating Stockholders, and that such transfer in substance constitutes a
transfer from Old Rule to the Participating Stockholders and from them to the
Trustees.
ARTICLE II
BENEFICIARIES
2.1 Identification of Beneficiaries. Within ten days following the
Effective Date, the Clerk of Old Rule will certify to the Trustees the name and
address of each of the Participating Stockholders and the certificate numbers
and the number of shares of Common Stock held of record as of the Effective Date
by each Participating Stockholder. A list of the Participating Stockholders will
be set forth in Schedule B to be attached hereto and made a part hereof. The
Trustees may rely conclusively on the accuracy and completeness of such list of
Participating Stockholders. The Trustees shall maintain a similar list of the
names and addresses of the Beneficiaries until the final distribution of the
Trust Property. The Participating Stockholders shall be the initial
Beneficiaries of the Trust. The beneficial interest (the "Beneficial Interest")
of each Participating Stockholder in the Trust shall be equal to the percentage
determined by dividing the number of shares of Common Stock held of record by
such Participating Stockholder on the Effective Date by the total number of
shares of Common Stock outstanding held of record by all Participating
Stockholders on the Effective Date. For ease of administration, the Trustees
may, if they so elect, express the Beneficial Interest of each Beneficiary in
terms of units. Except as provided in Section 3.2 hereof, each distribution by
the Trustees to the Beneficiaries shall be made pro rata according to the
Beneficiaries' respective Beneficial Interests in the Trust.
2.2 Surrender of Stock Certificates. In accordance with the procedure
described in the instructions and letter of transmittal provided to all
Participating Stockholders in connection with the Merger, each Beneficiary must
surrender to First Chicago Trust Company of New York, the exchange agent for the
Merger (the "Exchange Agent"), his certificates representing ownership of Common
Stock (the "Stock Certificates") as a condition to his entitlement to any
distribution from the Trust. Subject to applicable law and Sections 3.2 and 8
hereof, if and to the extent that a Beneficiary fails so to surrender his Stock
Certificate(s), his share of any distribution will be retained by the Trustees
until any such Beneficiary either surrenders his Stock Certificate(s) to the
Exchange Agent or furnishes an indemnity bond or evidence of loss or destruction
satisfactory to the Exchange Agent and the Trustees in the event of loss or
destruction thereof. Following the termination of the Exchange Fund (as defined
in the Merger Agreement), each reference herein to the Exchange Agent shall be
deemed to mean New Rule.
ARTICLE III
PURPOSE, LIMITATIONS AND DISTRIBUTION TO BENEFICIARIES
3.1 Purpose of Trust. The Trust is established for the sole purpose of
exercising the Rights, receiving any assets arising from the Rights, collecting
income earned by the Trust Property, determining and, to the extent and only to
the extent of the Proceeds and without recourse to the Trustees except as and to
the limited extent provided in Section 5.2(c) hereof, satisfying any and all
liabilities of the Trust, including the liabilities specified in Section 3.2
hereof, distributing Trust Property to the Beneficiaries during the term of the
Trust as provided in Section 3.3 and, upon termination of the Trust,
distributing the remaining Trust Property to the Beneficiaries, and with no
objective to continue or engage in any trade or business.
3.2 Operation of Trust. The Trustees shall accept and hold Proceeds, if
any, received pursuant to the terms of the Disston Arbitration Agreement defined
in Schedule A hereto. The Trustees shall hold all Trust
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Property received prior to the expiration of the Indemnification Period (as
defined in that certain Indemnification Agreement by and among Old Rule,
Greenfield, RAC and the Trustees dated as of the date hereof (the
"Indemnification Agreement")) until the expiration thereof. The Trustees shall
pay "Claims" as defined in and made under the Indemnification Agreement pursuant
to Section 3.3 hereof. Following the expiration of the Indemnification Period
and subject to Section 3.4 hereof, the Trustees (a) shall distribute, as
promptly as reasonably practicable under the circumstances, to the Beneficiaries
all Trust Property held at the end of the Indemnification Period except for any
amount as to which there is a dispute as to whether it is a valid Claim and (b)
shall distribute, as promptly as reasonably practicable under the circumstances,
to the Beneficiaries all Trust Property received thereafter. Such distributions
shall be made pro rata according to the Beneficiaries' respective Beneficial
Interests in the Trust; provided, however, that no distribution shall be made to
the Beneficiaries without first satisfying or providing adequate reserves for
(i) all known or contingent liabilities and (ii) the reasonable expenses
incurred or to be incurred by the Trustees; provided, further, however, that
with respect to the final distribution, such distribution shall be made pro rata
according to the respective Beneficial Interests in the Trust of solely those
Beneficiaries who have surrendered their stock certificates or furnished the
bond or evidence of loss or destruction as provided in Section 2.2 hereof as of
the date one (1) business day prior to such distribution.
3.3 Disbursement of Funds Pursuant to Indemnification Agreement. If a
Claim for indemnification is made by the Greenfield Interests under the
Indemnification Agreement within the Indemnification Period, and the Trustees
receive Proceeds sufficient to pay such Claim, the Trustees shall, to the extent
required by the terms of the Indemnification Agreement, pay the amount of such
Claim to the Greenfield Interests.
3.4 Administrative Expenses. Upon receipt by the Trust of any Proceeds it
may receive from The Disston Company, a North Carolina corporation ("Disston"),
pursuant to Paragraphs THIRD and FOURTH of Section 2.5 of the Disston
Arbitration Agreement as defined in Schedule A hereto, the Trustees shall
reimburse to the Greenfield Interests, as promptly as reasonably practicable
under the circumstances, the amounts, if any, contributed to the Trustees by the
Greenfield Interests for administrative expenses to the extent of such Proceeds.
Such reimbursement shall be made prior to any distributions to the Beneficiaries
of the Trust.
ARTICLE IV
AUTHORITY OF TRUSTEES
4.1 Authority of Trustees. In connection with the administration of the
Trust, except as set forth in Sections 4.2 and 4.3 hereof, the Trustees are
authorized to perform any and all acts necessary and desirable to accomplish the
purpose of the Trust. Without limiting the foregoing, the Trustees shall be
expressly authorized to:
(a) collect, liquidate, or otherwise convert into cash the Trust
Property;
(b) pay all expenses and make all other payments relating to the Trust
Property;
(c) hold legal title to any and all rights of the Beneficiaries in the
Trust Property;
(d) protect and enforce the rights to the Trust Property vested in the
Trustees by this Agreement by any method deemed appropriate, including,
without limitation, by judicial or arbitral proceedings;
(e) employ legal counsel (which may also be counsel to a Trustee in
another capacity or counsel to any affiliate of a Trustee), accountants,
advisors, custodians, and other agents in connection with the
administration or termination of the Trust, delegate to them any powers of
the Trustees, and pay out of the Trust Property to such legal counsel,
accountants, advisors, custodians, and other agents reasonable compensation
for services rendered;
(f) file, if necessary, any and all tax returns in connection with the
Trust and pay any taxes properly payable by the Trust, if any, out of the
Trust Property;
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(g) determine and satisfy, from and to the extent of Trust Property
and without recourse to the Trustees, any and all liabilities of the Trust;
(h) compromise, adjust, arbitrate, sue or defend, abandon, or
otherwise deal with and settle claims in favor of or against the Trust as
the Trustees shall deem advisable;
(i) open, maintain and close bank accounts; and
(j) borrow funds from any banking or lending institution using Trust
Property as collateral for the purpose of administering the Trust.
4.2 Limitation of Trustees' Authority. The Trustees shall not be
authorized to engage in any trade or business with the Trust Property; provided,
however, that the Trustees may take such actions, consistent with the orderly
liquidation of the Trust Property, as are required by applicable law.
4.3 Investment of Trust Property. The Trustees may keep the Trust
Property invested in (i) interest-bearing obligations of, or obligations
guaranteed by, the United States of America, or any political subdivision or
instrumentality thereof or any instrumentality of such a political subdivision,
having a maturity not in excess of one year, (ii) interest-bearing deposits or
certificates of deposit of any federally insured banking institution located in
the Commonwealth of Massachusetts having assets of at least $500,000,000 or
(iii) money market mutual funds or mutual funds investing in "money market"
obligations or obligations of the U.S. Government or guaranteed by the U.S.
Government; provided, however, that under no circumstances shall the Trust
receive transfers of (a) any listed stocks or securities, any readily-marketable
assets or any operating assets of an on-going business or (b) any unlisted stock
of a single issuer that represents 80 percent or more of the stock of such
issuer and/or any general or limited partnership interest unless, in either
case, Trust Property is initially received by the Trustees in such form.
4.4 Books and Records. The Trustees shall maintain in respect of the
Trust and the Beneficiaries books and records relating to the assets and income
of the Trust and the payment of expenses of, and liabilities of and claims
against, the Trust in such detail and for such period of time as may be
reasonably necessary to enable them to make proper accounting in respect thereof
in accordance with Article VII and to comply with applicable provisions of law.
Nothing in this Agreement is intended to require the Trustees to file any
accounting or seek approval of any court with respect to the administration of
the Trust, or as a condition for making any payment or distribution out of the
Trust Property.
ARTICLE V
THE TRUSTEES
5.1 Authority Generally. The Trustees shall act by majority vote of the
total number of Trustees then in office, with each Trustee having one vote. The
Trustees may by majority vote delegate to one or more of them the authority to
act or to refrain from acting with respect to any matters within the Trustees'
authority. The Trustees' powers are exercisable solely in a fiduciary capacity
consistent with, and in furtherance of, the purpose of this Trust and not
otherwise, except that the Trustees may deal with the Trust Property for their
own account as permitted by Sections 5.5 and 5.7.
5.2 Liability of Trustees. In connection with the Trust and with this
Agreement:
(a) Each of the Trustees shall perform his duties hereunder in good
faith and in a manner he reasonably believes to be in or not opposed to the
best interests of the Beneficiaries, and with the care that an ordinarily
prudent person in a like position would use under similar circumstances;
(b) The Trustees shall be liable only for the performance of such
duties and obligations as are specifically set forth in or contemplated by
the Trust and this Agreement; and
(c) The Trustees shall not be liable in damages for any error of
judgment or for any action taken or omitted by them in connection with the
Trust and this Agreement, unless it is proven by clear and
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convincing evidence in a court of competent jurisdiction that such action
or omission was undertaken with deliberate intent to cause injury to the
Beneficiaries or with reckless disregard for the Beneficiaries.
5.3 Reliance by Trustees. Except as otherwise provided in Section 5.2:
(a) Each Trustee may rely, and shall be protected in acting, upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, or other paper or document believed by him to be
genuine and to have been signed or presented by the proper party or
parties;
(b) Each Trustee may consult with legal counsel to be selected by him,
and no Trustee shall be liable for any action taken or omitted to be taken
by him in accordance with the advice of such counsel; and
(c) Persons dealing with the Trustees shall look only to the Trust
Property to satisfy any liability incurred by the Trustees to such person
in carrying out the terms of the Trust, this Agreement and the transactions
contemplated thereby, and the Trustees shall have no personal obligation
under any theory or circumstance to satisfy any such liability.
5.4 Safekeeping of Trust Assets. All moneys and other assets received by
the Trustees shall, until distributed or paid over as herein provided, be held
in trust for the benefit of the Beneficiaries, but need not be segregated from
other trust assets, unless and to the extent required by law. The Trustees shall
be under no liability for interest or for producing income on any moneys
received by them hereunder and held for distribution or payment to the
Beneficiaries, except as such interest shall actually be received by the
Trustees.
5.5 Compensation and Expense Reimbursement. As compensation for the
performance of his duties as Trustee, each Trustee shall be entitled to receive
an annual retainer in an amount to be determined by the Trustees, but not to
exceed $5,000 per annum, and each Trustee shall also be entitled to receive a
payment of $250 for each meeting of the Trustees that he attends in person, plus
reimbursement for reasonable out-of-pocket expenses, including but not limited
to reasonable attorneys' fees, in connection with carrying out his duties
hereunder. Payments made pursuant to the immediately preceding sentence will be
made solely out of the Trust Property.
5.6 No Bond. The Trustees shall serve without bond.
5.7 Indemnification of Trustees. The Trustees shall be entitled to be
indemnified by the Trust out of the Trust Property, against and from any and all
loss, liability, expense or damage that the Trustees may sustain without willful
misconduct, gross negligence or fraud on their part in the exercise and
performance of any of the powers and duties of a Trustee with respect to the
Trust or under this Agreement. The Trust may also obtain liability insurance for
the benefit of the Trustees.
ARTICLE VI
SUCCESSOR TRUSTEES
6.1 Resignation and Appointment of Successor. Any Trustee may resign by
giving not less than 60 days' prior written notice thereof to the other
Trustees, unless he is the sole Trustee, in which case he shall provide such
notice to the Beneficiaries. Such resignation shall become effective on the day
specified in such notice or upon the appointment by the remaining Trustees of a
successor and the acceptance by such successor of such appointment, whichever is
earlier.
6.2 Failure to Appoint Successor. If a Trustee resigns and (a) a
successor Trustee is appointed by the remaining Trustees but does not accept his
appointment, or (b) within 60 days of such resignation, a successor Trustee is
not appointed by the Trustees, then any one of the remaining Trustees shall
promptly petition any court of competent jurisdiction for the appointment of a
successor Trustee.
6.3 Acceptance of Appointment by Successor Trustee. Any successor Trustee
appointed hereunder shall execute an instrument accepting such appointment
hereunder and shall file such acceptance with the Trust records. Thereupon, such
successor Trustee shall, without any further act, become vested with all the
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estates, properties, rights, powers, trusts and duties of his predecessor in the
Trust with like effect as if originally named herein; provided, however, that a
retiring Trustee shall, if requested in writing by the successor Trustee,
execute and deliver an instrument or instruments conveying and transferring to
such successor Trustee under the Trust all the estates, properties, rights,
powers, and trusts of such predecessor Trustee.
ARTICLE VII
REPORTS TO BENEFICIARIES
7.1 Reports to Beneficiaries. As soon as reasonably practicable after the
close of calendar year 1995, Old Rule shall provide to each Beneficiary a Form
1099 with respect to the value of the Rights. As soon as reasonably practicable
after the end of each calendar year other than calendar year 1995 during any
part of which the Trustees have received or held any Proceeds with a value of
more than $100,000 and as soon as reasonably practicable upon termination of the
Trust, the Trustees shall submit to each Beneficiary appearing on their records
as of the end of such calendar year or such date of termination a written report
including (i) a statement of the assets and liabilities of the Trust at the end
of such calendar year or period and the receipts and disbursements of the
Trustees for such period, (ii) any material changes in the assets or liabilities
of the Trust not previously reported, and (iii) any action taken by the Trustees
in the performance of their duties not previously reported that materially
affects the Trust. The Trustees may submit similar reports for such interim
periods as they deem advisable. In addition, as soon as reasonably practicable
after the close of each calendar year, the Trustees shall supply each
Beneficiary with a statement providing information to assist the Beneficiary in
determining the amount of taxable income or deduction from the Trust that the
Beneficiary should include in his federal income tax return for the preceding
year.
ARTICLE VIII
TRANSFER OF BENEFICIAL INTERESTS
8.1 Transfer of Beneficial Interests. The Beneficial Interests shall be
reflected only on the records of the Trust and shall not be negotiable or
transferable. The Beneficial Interests shall be assignable only pursuant to
applicable laws of descent and distribution (in the case of a deceased
individual Beneficiary) or pursuant to a merger, consolidation, sale of all or
substantially all of the assets, reorganization, dissolution, or distribution in
connection with a reorganization (in the case of a Beneficiary in corporate,
partnership, fiduciary, or nominee form), and in any such case only by an
instrument in writing, in form acceptable to the Trustees, signed by the
transferor or his personal representative (or signed by the successor in
interest in the case of any merger, consolidation, sale of all or substantially
all of the assets, reorganization, dissolution, or distribution in connection
with a reorganization), with signature(s) guaranteed by a bank, a member firm of
the New York Stock Exchange or other guarantor satisfactory to the Trustees and
accompanied by such other documents as the Trustees may reasonably require to
determine the identity and authority of the transferor and the identity,
address, and social security number or other identification number for federal
income tax purposes of the transferee. The Trustees shall not be required to
record any assignment in favor of any assignee that, in the sole discretion of
the Trustees, is or might be construed to be ambiguous or to create uncertainty
as to the owner of the Beneficial Interest. Until an assignment of any such
Beneficial Interest is in fact recorded on the books and records maintained by
the Trustees for the purpose of identifying Beneficiaries of the Trust, the
Trustees, whether or not in receipt of documents of transfer or other documents
relating to the assignment, may nevertheless make distributions of income and
principal of the Trust, and send communications to Beneficiaries of the Trust,
as though it had no notice of any such assignment, and in doing so the Trustees
shall be fully protected and incur no liability to any purported assignee or any
other person.
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ARTICLE IX
TERMINATION OF TRUST
9.1 Termination of Trust. The Trust and this Agreement shall terminate
automatically on the date that the last Trust Property is distributed to the
Beneficiaries but not later than the date that is three years from the date of
this Trust (unless at such time the Trustees are currently engaged in the
determination, defense, or settlement of a claim against the Trust or some or
all of the Arbitration Proceeds (as defined in the Disston Arbitration
Agreement) have not yet been received by the Trustees, in which event the
Trustees may extend the date of termination if they receive no-action assurance
from the Securities and Exchange Commission (the "SEC") or can reasonably
conclude on the basis of other authority that such extension will not materially
alter the facts on which a determination that no enforcement action would be
brought by the SEC was previously based). Anything in the immediately preceding
sentence to the contrary notwithstanding, the Trustees shall have authority to
evaluate the likelihood (taking into account the passage of time) of the receipt
of additional Arbitration Proceeds pursuant to the Disston Arbitration Agreement
and the estimated materiality of the amount thereof, as compared with the cost
and inconvenience of maintaining the Trust and such other factors as they deem
relevant, and shall determine whether to terminate the Trust or to maintain the
Trust in anticipation of the receipt of additional material proceeds. The
Trustees are authorized to terminate the Trust even if additional Arbitration
Proceeds may be available, if they nevertheless conclude that the likelihood of
collecting such amounts is remote or the total of such additional Arbitration
Proceeds is not material in comparison to the costs and inconvenience of
maintaining the Trust.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Intention of Parties to Establish Trust. This Agreement is not
intended to create, and shall not be interpreted as creating, an association,
partnership, or joint venture of any kind. The Trust is intended as a
stockholders' grantor trust for United States tax purposes and shall be governed
and construed in all respects as such a trust.
10.2 Laws as to Construction. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts,
without giving effect to rules governing the conflict of laws.
10.3 Amendments and Supplements. This Agreement may be amended, modified
or supplemented by a writing signed by a majority of the Trustees and without
the consent of any of the Beneficiaries in order to (i) cure any ambiguity,
defect or inconsistency, (ii) comply with the requirements of law, or (iii) make
any change that does not adversely affect the rights hereunder of any
Beneficiary. This Agreement may be amended, modified or supplemented in any
respect by a writing signed by a majority of the Trustees or by Beneficiaries
having an aggregate Beneficial Interest of more than 50 percent, provided,
however, that Sections 3.3 and 3.4 may not be amended, modified or supplemented
without the written consent of Greenfield. After an amendment, modification or
supplement under this Section becomes effective, the Trustees shall mail to the
Beneficiaries a notice setting forth the amendment, modification or supplement,
or, in the discretion of the Trustees, briefly describing such amendment,
modification or supplement.
10.4 No Waiver. The failure of any party hereto to enforce at any time
any of the provisions of this Agreement shall in no way be construed to be a
waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party thereafter to enforce
each and every such provision. No waiver of any breach of or non-compliance with
this Agreement shall be held to be a waiver of any other or subsequent breach or
non-compliance.
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10.5 Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered by hand, sent via a reputable
overnight courier service, or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice), and shall be deemed
given on the date on which delivered by hand or courier, or on the third
business day following the date on which so mailed:
<TABLE>
<S> <C>
To the Trustees:
With a copy to:
To Old Rule: Rule Industries, Inc.
70 Blanchard Road
Burlington, MA 01803
With a copy to: Foley, Hoag & Eliot
One Post Office Square
Boston, MA 02109
Attention: Robert L. Birnbaum, Esq.
</TABLE>
Notices to the Beneficiaries shall be sent by first-class mail, postage prepaid,
to the address shown on the records maintained by the Trustees pursuant to
Section 2.1 of this Agreement.
10.6 Entire Agreement. This Agreement constitutes the entire agreement,
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
10.7 Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have either executed this Agreement
or caused it to be executed on their behalf by their duly authorized officers
all as of the date first above written.
RULE INDUSTRIES, INC.
on behalf of the Participating
Stockholders
By:
--------------------------------
Title:
--------------------------------
John A. Geishecker, as Trustee
--------------------------------
Thomas A. Shields, as Trustee
--------------------------------
Dino Casali, as Trustee
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SCHEDULE A
All right, title and interest of Rule Industries, Inc. ("Rule") under that
certain Disston Arbitration Agreement by and between Rule and The Disston
Company, a North Carolina corporation, dated , 1995 (the "Disston
Arbitration Agreement") including but not limited to Paragraphs THIRD and FOURTH
of Section 2.5 thereof.
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PROXY
RULE INDUSTRIES, INC.
The undersigned hereby appoints John A. Geishecker, Jr. and Gary M. Sable, and
each of them, with power of substitution, to represent and to vote on behalf of
the undersigned all of the shares of common stock, par value $.01 per share, of
Rule Industries, Inc. (the "Company"), which the undersigned is entitled to vote
at the Special Meeting of Stockholders to be held on January 12, 1996 at 10:00
a.m., local time, at the Burlington Marriott Hotel, One Mall Road, Burlington,
Massachusetts 01803 and at any adjournment or adjournments or postponement or
postponements thereof, hereby revoking all proxies heretofore given with respect
to such stock, upon the following proposals, which are being proposed by the
Company, more fully described in the notice of and proxy statement for the
Special Meeting (receipt whereof is hereby acknowledged).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. To approve and adopt an Agreement and Plan of Merger dated as of August 11,
1995, as amended, among Greenfield Industries Inc., a Delaware corporation,
Rule Acquisition Corporation, a Massachusetts corporation and a wholly owned
subsidiary of Greenfield Industries, Inc., and the Company.
/ / FOR / / AGAINST / / ABSTAIN
2. To approve an adjournment of the Special Meeting, if necessary, to permit
further solicitation of proxies in the event that the inspectors of election
advise the Company's Board of Directors there may not be sufficient votes at
the originally scheduled time of the Special Meeting to approve and adopt
the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion upon such other matters as may properly come before the
meeting.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE> 139
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
------------------------------------------------
Signature
------------------------------------------------
Signature if held jointly
DATED: , 1995
----------------------------------
Please sign exactly as your name appears on your
stock certificates. When shares are held by
joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or
guardian, please give full title as such. If a
corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Please return in the enclosed postage-paid
envelope.
I will / / will not / / attend the
meeting.
