<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1995 Commission File Number 0-8740
----------------------- -----------
Rule Industries, Inc.
---------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2384630
--------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
70 Blanchard Road, Burlington, Massachusetts 01803
------------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 272-7400
--------------
None
-------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
On April 12, 1994, there were 2,640,532 shares of the Registrant's common stock
outstanding.
-1-
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
Part I - Financial Information
- ------------------------------
Consolidated Condensed Balance Sheets, February 28, 1995 and August 31, 1994.
Consolidated Condensed Statements of Income, Three Months and Six Months Ended
February 28, 1995 and 1994.
Consolidated Condensed Statements of Cash Flow, Six Months Ended February 28,
1995 and 1994.
Notes to Consolidated Condensed Financial Statements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Part II - Other Information
- ---------------------------
Item 1: Legal Proceedings
See Note 4 to the Consolidated Condensed Financial Statements
(Part I).
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
1. First Amendment to Credit Agreement dated March 31, 1995 with
BayBank, the Company's senior institutional lender.
2. Amended and Restated Credit Note dated March 31, 1995 with
BayBank.
B. Reports on Form 8-K
None
-2-
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
Part I - Financial Information
Consolidated Balance Sheets
(In Thousands of Dollars)
Assets
<TABLE>
<CAPTION>
February 28, 1995 August 31, 1994
----------------- ----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 45 $ 56
Trade accounts receivable, net 11,550 11,866
Inventories:
Raw materials 10,151 8,788
Work-in-process 1,836 1,356
Finished goods 10,422 9,032
Prepaid expenses and other current
assets 867 1,180
------ ------
Total Current Assets 34,871 32,278
------ ------
Property, Plant and equipment, net 13,236 12,530
------ ------
Other Assets:
Deferred charges, net 384 758
Goodwill, patents, licenses,
formulas, trademarks,
and other intangibles, net 19,475 20,190
Other 906 887
------ ------
Total Other Assets 20,765 21,835
------ ------
$68,872 $66,643
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(continued)
-3-
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
Part I - Financial Information
Consolidated Balance Sheets
(In Thousands of Dollars)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
February 28, 1995 August 31, 1994
------------------ ----------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current portion of debt $ 6,022 $ 7,551
Accounts payable 9,685 9,293
Accrued expenses 4,976 5,372
Amounts due to Disston and its
Shareholder 316 2,520
------ ------
Total Current Liabilities 20,999 24,736
------ ------
Long-Term Debt 32,724 27,188
------ ------
Deferred Income Taxes (Note 6) 1,528 1,389
------ ------
Redeemable Convertible Preferred Stock:
Series A and B, 8% cumulative. $100 par
value, authorized 100,000 shares,
issued and outstanding 36,100 shares
at August 31, 1994 (Note 9) 3,610
------
Commitments and Contingencies (Note 10)
Common Stockholders' Equity:
Common stock, $.01 par value, authorized
5,000,000 shares, issued 3,316,173 and
2,895,044 shares, respectively 33 29
Additional paid-in capital 4,905 1,335
Retained earnings 11,796 11,432
Less: 675,641 and 672,784 shares,
respectively,
held in treasury, at cost (3,113) (3,076)
------ ------
Total Common Stockholders' Equity 13,621 9,720
------ ------
$68,872 $66,643
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(concluded)
-4-
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(Unaudited)
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $17,206 $11,814 $34,818 $22,439
------ ------ ------ ------
Cost and Expenses:
Cost of revenues 12,460 8,306 24,625 15,674
Selling, general and
administrative expense 3,722 2,651 7,633 5,246
U.S. Anchor litigation credit (2,463)
------ ------ ------ ------
16,182 10,957 32,258 18,457
------ ------ ------ ------
Operating Income 1,024 857 2,560 3,982
Other Expense (Income):
Interest expense 963 743 1,972 1,408
(Gain) Loss on sale of
investment (Note 4) 56 (864) 56
------ ------ ------ ------
963 799 1,108 1,464
------ ------ ------ ------
Income before Income Taxes 61 58 1,452 2,518
Provision for Income Taxes 18 23 480 359
------ ------ ------ ------
Income Before
Extraordinary Item 43 35 972 2,159
Extraordinary Item:
Costs related to early
extinguishment of debt
(net of income tax credit
of $316,000) (Note 8) 588
------ ------ ------ ------
Net Income 43 35 384 2,159
Less Dividends on Preferred Stock 72 24 144
------ ------ ------ ------
Income (Loss) Applicable
to Common Stockholders $ 43 $ (37) $ 360 $ 2,015
====== ====== ====== =======
Weighted Average Number of
Common
Shares Outstanding:
Primary 2,755,895 2,212,839 2,653,730 2,209,856
========= ========= ========= =========
Fully Diluted 2,755,895 2,212,839 2,788,168 2,652,453
========= ========= ========= =========
Primary Earnings (Loss)
Per Common Share:
Before extraordinary item $ .02 $ (.02) $ .36 $ .91
Extraordinary item .22
------ ------ ------ ------
Total Primary Earnings
(Loss) Per Common Share: $ .02 $ (.02) $ .14 $ .91
------ ------ ------ ------
Fully Diluted Earnings
(Loss) Per Common Share:
Before extraordinary item $ .02 $ (.02) $ .35 $ .81
Extraordinary item .21
------ ------ ------ ------
Total Fully Diluted Earnings (Loss)
Per Common Share $ .02 $ (.02) $ .14 $ .81
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flow
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
February 28,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 384 $ 2,159
Depreciation 888 700
Amortization 987 565
Amortization of discount on debt 84
Write off of deferred financing costs 434 29
Deferred income taxes 139 359
Gain on sale of investment in marketable securities (864)
Accrual for estimated litigation costs
related to U.S. Anchor (2,660)
Working capital items (3,125) 814
------- -------
Net Cash Provided by (Used in) Operating Activities (1,073) 1,966
------- -------
Cash Flows from Investing Activities:
Acquisitions of property and equipment (1,594) (725)
Proceeds from sale of investment in
marketable securities 1,397
Goodwill, patents, trademarks and other intangibles (205) (5,874)
Increase in non-current assets (19) (639)
Payments of amounts due Disston and its Shareholder (2,204)
------- -------
Net Cash Used in Investing Activities (2,625) (7,238)
------- -------
Cash Flows from Financing Activities:
Proceeds from revolving line of credit 19,152 28,482
Repayment of revolving line of credit (15,967) (23,009)
Proceeds from long-term borrowings 7,020 500
Repayment of long-term debt (6,299) (542)
Preferred dividends paid (72) (144)
Deferred finance costs (233) 43
Proceeds from issuance of common stock 86 48
------- -------
Net Cash Provided by Financing Activities 3,687 5,378
------- -------
Net Increase (Decrease) in Cash (11) 58
Cash, beginning of period 56 57
------- -------
Cash, end of period $ 45 $ 115
======= =======
Cash payments for interest and income taxes were as
follows:
Interest $ 867 $ 1,531
======= =======
Income taxes $ 53 $ 2
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-6-
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
1. BASIS OF PRESENTATION
---------------------
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring adjustments and the U.S. Anchor litigation credit (Note
10)) necessary to present fairly its financial position as of February 28,
1995 and the results of operations and cash flows for the six month periods
ended February 28, 1995 and 1994. The accounting policies followed by the
Company are set forth in Note 2 to the Company's financial statements in
the 1994 Rule Industries, Inc. Annual Report.
2. RESULTS OF OPERATIONS
---------------------
Because of the seasonality of the Company's business segments, the results
of operations for the six months ended February 28, 1995 and 1994 are not
indicative of the results to be expected for the full fiscal year.
3. EARNINGS PER SHARE
------------------
Primary earnings per share are computed using the weighted average number
of common and common equivalent shares (dilutive options and warrants)
outstanding. In addition, common and common equivalent shares include
401,129 shares of common stock issued upon the November 1994 conversion of
preferred stock. Fully diluted earnings per share assume that the preferred
stock was converted into common stock as of the beginning of the fiscal
year and reflects the elimination of dividends, if such conversion is not
antidilutive.
4. SALE OF INVESTMENT
------------------
In September 1994, the Company sold its investment in 171,983 shares of
common stock of DataMarine International, Inc. (DataMarine) for $1,397,000.
The carrying value of this investment was $533,000 at August 31, 1994,
resulting in a pre-tax gain of $864,000.
5. ENGINEERING AND DEVELOPMENT EXPENSES
------------------------------------
Engineering and development costs 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>
Three Months Ended Six Months Ended
February 28, February 28,
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Selling, general and
administrative expense $ 147 $ 129 $ 287 $ 288
Cost of revenues 172 152 336 303
--- --- --- ---
Total engineering and
development expense $ 319 $ 281 $ 623 $ 561
=== === === ===
</TABLE>
6. INCOME TAXES
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Under SFAS No. 109, deferred tax assets and liabilities are
established for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities using
enacted tax rates in the year(s) in which the differences are expected to
reverse.
-7-
<PAGE>
At February 28, 1995 and August 31, 1994, the Company had a net operating
loss carryforward available for federal income tax purposes of
approximately $355,000 expiring through 2008. In addition, the Company had
state and other tax credit carryforwards of approximately $634,000, which
may be used to offset future income taxes, if any.
The significant differences between statutory and effective income tax
rates are due to the non-taxable earnings of the FSC subsidiary and the
reversal of the U.S. Anchor litigation accrual in the quarter ended
November 30, 1993, a substantial portion of which was non-taxable.
7. ACQUISITION
-----------
In November 1993, the Company's subsidiary, Rule Manufacturing, Inc.,
entered into an agreement to acquire certain assets of The Disston Company
(Disston). Under the terms of the agreement, the assets were acquired at
various dates beginning January 1994. On March 1, 1994, the Company began
selling Disston product and, accordingly, results of operations of Disston
are included from that date. On May 20, 1994, the Company completed the
acquisition and concluded the physical consolidation of Disston's
operations prior to August 31, 1994.
The following unaudited proforma information has been prepared as if the
operations of Disston had been combined at the beginning of the period
presented and are not indicative of the prospective results of operations
had Disston and Rule been a consolidated entity.
<TABLE>
<CAPTION>
(In Thousands of Dollars,
Except Per Share Data)
Six Months Ended
February 28, 1994
------------------------
<S> <C>
Revenues $ 36,462
==========
Net Income $ 2,391
==========
Net Income Applicable to Common Stockholders $ 2,247
==========
Weighted Average Number of Common Shares Outstanding
Primary 2,209,856
==========
Fully Diluted 2,652,453
==========
Earnings Per Common Share:
Primary $ 1.02
==========
Fully Diluted $ .90
==========
</TABLE>
-8-
<PAGE>
8. DEBT
----
Debt consisted of the following at February 28, 1995 and August 31, 1994:
<TABLE>
<CAPTION>
February 28, 1995 August 31, 1994
----------------- ---------------
<S> <C> <C>
Senior Indebtedness:
Term Loans $ 7,325,000 $ 3,075,000
Revolver Debt 15,000,000 11,813,000
Subordinated Notes:
12 1/2% Senior Subordinated Notes 11,073,000 11,039,000
RemGrit Notes 2,000,000 3,399,000
10% Senior Subordinated Notes 2,117,000
6 1/2% Subordinated Debentures 3,348,000 3,296,000
----------- -----------
38,746,000 34,739,000
Less current portion 6,022,000 7,551,000
----------- -----------
$32,724,000 $27,188,000
=========== ===========
</TABLE>
(a) Term Loan and Revolver Debt
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 Senior Subordinated Notes issued in June
1994. The new agreement provides for total borrowings of up to
$23,500,000, (increased to $26,000,000 in March 1995), based upon
eligible assets including inventories, trade accounts receivable, and
machinery and equipment. The facility consists of a $15,000,000
($17,500,000 as of March 31, 1995) three-year revolving loan, a
$6,000,000 term loan, and a $2,500,000 term loan available for new
equipment financing. 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 is
renewable annually thereafter. The term loan with the senior lender
expires on the earlier of December 31, 1999 or the expiration of the
revolving credit facility.
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 and ratios.
(b) RemGrit Notes
In conjunction with the 1991 acquisition of its RemGrit product line,
the Company's RemGrit Abrasive Tools, Inc. subsidiary was indebted to
the seller in the amount of $3,399,000 at August 31, 1994, which was
scheduled to mature in December 1994. In November 1994, the Company
made a $1,149,000 payment to the seller and issued a new note for the
balance outstanding of $2,000,000. The new note, as subsequently
amended, requires quarterly principal payments of $250,000 beginning
June 1, 1995 and matures on February 1, 1996. Interest is payable
monthly at the rate of prime plus 1 1/2%.
(c) 10% Senior Subordinated Notes
In June 1994, the Company's wholly-owned subsidiary, Rule Cutting
Tools, Inc., issued $2,180,000 of Senior Subordinated 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
-9-
<PAGE>
September 1994, the Company repaid these Notes in their entirety from
the proceeds of the sale of DataMarine common stock and the
refinancing of senior indebtedness.
Debt maturities for the period from March 1, 1995 through August 31, 1999
are as follows:
<TABLE>
<CAPTION>
Six Months Ending August 31,
----------------------------
<S> <C>
1995 $ 3,763,000
Year Ending August 31,
---------------------
1996 5,545,000
1997 24,687,000
1987 2,207,000
1999 2,227,000
</TABLE>
During the quarter ended November 30, 1994, the Company charged $904,000
($588,000, net of income taxes) as an extraordinary expense, consisting of
an early termination fee of $470,000 to the Company's previous senior
institutional lender and the write-off of unamortized deferred finance
costs related to refinancings.
9. 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 stock, $100 par
value, for an aggregate price of $3,110,000 in cash. 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 cash. In November 1994, the Company
exercised its conversion option and redeemed all preferred shares
outstanding at a conversion rate of $9 per share in exchange for the
issuance of 401,129 shares of the Company's common stock.
10. COMMITMENTS AND CONTINGENCIES
-----------------------------
In November 1986, U.S. Anchor Manufacturing, Inc. (U.S. Anchor) instituted
a suit 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 for damages of approximately $1,600,000 plus
plaintiff's legal fees of $800,000. In a unanimous opinion dated November
23, 1993, the U.S. Court of Appeals for the Eleventh Circuit reversed the
previous jury verdict for U.S. Anchor, and entered judgement in favor of
the Company on all federal antitrust issues. A petition filed by U.S.
Anchor with the Supreme Court of the United Stated was subsequently denied.
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, have recently been pursued by the plaintiff and are under
consideration by the United States District Court for the Northern District
of Georgia. In addition, the Company has requested the Court to lift the
stay on its claims against U.S. Anchor which has been in place since 1990.
-10-
<PAGE>
RULE INDUSTRIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
- ---------------------
Due primarily to the impact of the Disston consumer hardware business,
consolidated revenues for the six months and three months ended February 28,
1995 increased by 55% and 46% respectively, over the prior year's comparable
periods. Fiscal 1995 revenues of the Company's industrial hardware and marine
businesses increased 5% over the prior year. Export revenues in the current
fiscal periods continue to be ahead of the prior year with a 31% increase in the
first six months of fiscal 1995. In fiscal 1995 consolidated gross margins
declined from the prior comparable quarterly and six month periods due to the
continued effects of integrating the Disston manufacturing operations in the
Company's Deerfield facility and the expansion of capacities. While the Company
has made recent progress towards improving manufacturing efficiencies and
customer service levels, gross margins and revenues in the first half of fiscal
1995 have been adversely affected. Selling, general and administrative expenses
for the quarter and six months ended February 28, 1995 declined to 22% of
consolidated revenues due to higher current revenue levels. Operating income
for the second quarter of fiscal 1995 increased by 19% over the comparable
quarter in fiscal 1994, but decreased to 6% of consolidated revenues.
Interest expense for the fiscal 1995 periods presented increased due to
higher institutional borrowings and subordinated notes issued in connection with
the acquisition of the Disston consumer hardware business. Other income of
$864,000 represents a gain on the sale of the Company's investment in DataMarine
International, Inc. in the first quarter of fiscal 1995. The effective income
tax rate of 33% for the first half of fiscal 1995 is more representative of the
Company's normal effective tax rate than the 14% fiscal 1994 rate in fiscal
1994. The fiscal 1994 rate was favorably impacted by the reversal of a
litigation reserve which was mostly non-taxable.
During the first quarter of fiscal 1995, the Company refinanced its senior
institutional borrowings and repaid the senior subordinated notes issued on June
1, 1994 prior to their scheduled maturities. As a result, the Company incurred
non-recurring costs and expensed unamortized finance charges of $904,000 related
to the refinanced debt. This amount, net of related income taxes of $316,000
was recorded as an extraordinary item during the first quarter of fiscal 1995.
During the first quarter of fiscal 1995, the Company converted its
preferred stock into 410,129 common shares. Accordingly, there are no dividends
on preferred stock in the current fiscal quarter as compared to $72,000 in the
prior period, and the primary weighted shares outstanding increased to 2,755,895
in the second fiscal quarter of 1995.
Liquidity and Capital Resources
- -------------------------------
During the six months ended February 28, 1995, the Company used $1,073,000
from its operating activities to fund the expansion of working capital during
the period. The increase in working capital during the period of $3,125,000
resulted primarily from higher seasonal inventories necessary to service the
consumer hardware and marine businesses. The seasonal expansion of working
capital, in addition to future working capital and debt service requirements,
has created additional cash demands on the Company which requires financing.
This additional financing was partially addressed in March when the Company's
senior institutional lender increased its revolving credit facility by
$2,500,000 to $17,500,000. The Company is presently pursuing various
alternatives to address its on-going funding needs.
-11-
<PAGE>
The Company's scheduled expansion of production capacities at its Deerfield,
Massachusetts hardware facility has resulted in a substantial increase in
capital expenditures during the first half of fiscal 1995. The majority of this
expansion is being financed with the $2,500,000 credit facility provided by the
same institutional lender. The Company expects that the Deerfield expansion
will be completed in its fiscal fourth quarter.
-12-
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rule Industries, Inc.
---------------------
(Registrant)
April 18, 1995 /s/ Gary M. Sable
-------------- -----------------
Gary M. Sable
Vice President
April 18, 1995 /s/ Albert J. Sabbag
-------------- --------------------
Albert J. Sabbag
Corporate Controller
-13-
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$17,500,000.00 Boston, Massachusetts
March 31, 1995
FOR VALUE RECEIVED, the undersigned, Rule Industries, Inc., a Massachusetts
corporation (the "Borrower"), promises to pay to BayBank, a Massachusetts trust
company (the "Lender"), the principal amount of Seventeen Million Five Hundred
Thousand Dollars ($17,500,000.00) or such lesser principal amount as shall
represent the unpaid principal balance of all Revolving Credit Loans made by the
Lender to the Borrower, such payment to be made as hereinafter provided,
together with interest (computed on the basis of the actual number of days
elapsed over a 360-day year) on the unpaid principal amount hereof until paid in
full. The entire unpaid principal of this Note shall bear interest at the rate
or rates from time to time in effect under that certain Credit Agreement among
the Borrower, the Subsidiary Guarantors named therein and the Lender, dated as
of September 21, 1994, as amended by the First Amendment to Credit Agreement,
among the Borrower, the Subsidiary Guarantors named therein and the Lender,
dated as of the date hereof (as amended, the "Credit Agreement"). Accrued
interest on the unpaid principal under this Note shall be payable on the last
day of each month in which this Note is outstanding. This Note amends and
restates that certain Revolving Credit Note, dated as of September 21, 1994.
On September 15, 1996, the date of final maturity of this Note, there shall
become absolutely due and payable by the Borrower hereunder, and the Borrower
hereby promises to pay to the holder hereof, the outstanding principal balance
of this Note plus all accrued but unpaid interest hereon and all (if any) other
amounts payable on or in respect of this Note or the indebtedness evidenced
hereby.
All payments under this Note shall be made to the Lender at 7 New England
Executive Park, Burlington, Massachusetts 01803 (or at such other place as the
Lender may designate from time to time in writing) in lawful money of the United
States of America in immediately available funds. The Borrower may repay this
Note in whole or in part at any time without premium or penalty. Amounts so
paid and other amounts may be borrowed and reborrowed by the Borrower hereunder
from time to time.
This Note is the Amended and Restated Revolving Credit Note referred to in,
and is entitled to the benefits of, the Credit Agreement. Neither the reference
to such Credit Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal of
and interest on this Note as provided herein.
<PAGE>
The obligations of the Borrower under this Note and the other Credit
Documents are secured by the "Collateral" referred to, and as provided, in the
Credit Documents (as defined in the Credit Agreement).
Upon an Event of Default, as defined in the Credit Agreement, the aggregate
unpaid balance of principal plus accrued interest may become or may be declared
due and payable.
The Borrower hereby waives presentment, demand, notice of dishonor, protest
and all demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note and assents to any extension or
postponement of the time of payment or any other indulgence without notice.
This Note shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Massachusetts and is executed as a sealed instrument as
of the first above written.
WITNESS: RULE INDUSTRIES, INC.
/s/ Gary M. Sable BY: [SIGNATURE APPEARS HERE]
- ------------------------- -------------------------
Name:
Its: VP
-2-
<PAGE>
FIRST AMENDMENT TO
CREDIT AGREEMENT AND SECURITY DOCUMENTS
---------------------------------------
THIS FIRST AMENDMENT AGREEMENT is entered into as of this 31st day of
March, 1995, by and among Rule Industries, Inc., a Massachusetts corporation
(the "Borrower"), the Subsidiary Guarantors listed on the signature pages
attached hereto (the "Subsidiary Guarantors") and BayBank, a Massachusetts trust
company (the "Bank"). All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Credit Agreement
(as defined herein).
W I T N E S S E T H :
WHEREAS, the Borrower and the Subsidiary Guarantors have previously enter
into a Credit Agreement with the Bank, dated as of September 21, 1994 (the
"Credit Agreement"), pursuant to the terms of which the Bank has (a) made
available to the Borrower a revolving line of credit of up to $15,000,000; (b)
made a term loan to the Borrower in the original principal amount of $6,000,000;
and (c) made an equipment term loan to the Borrower in the original principal
amount of $2,500,000.
WHEREAS, the Credit Obligations are secured by, among other things (a) a
Security Agreement, dated September 21, 1994, between the Borrower and the Bank;
(b) a Subsidiary Security Agreement, dated September 21, 1994, between the Bank
and Manufacturing; (c) a Subsidiary Agreement, dated September 21, 1994, between
the Bank and Cutting Tools; (d) a Subsidiary Security Agreement, dated
September 21, 1994, between the Bank and International; (e) a Subsidiary
Security Agreement, dated September 21, 1994, between the Bank and Paint; (f) a
Subsidiary Security Agreement, dated September 21, 1994, between the Bank and
RemGrit; (g) a Subsidiary Security Agreement, dated September 21, 1994, between
the Bank and Disston Canada; (h) a Subsidiary Security Agreement, dated
September 21, 1994, between the Bank and RC; (i) a Security
Agreement-Intellectual Property, dated September 21, 1994, between the Borrower
and the Bank; (j) a Subsidiary Security Agreement-Intellectual Property, dated
September 21, 1994, between the Bank and Manufacturing; (k) a Subsidiary
Security Agreement-Intellectual Property, dated September 21, 1994, between the
Bank and Cutting Tools; (l) a subsidiary Security Agreement-Intellectual
Property, dated September 21, 1994, between the Bank and International; (m) a
Subsidiary Security Agreement-Intellectual Property, dated September 21, 1994,
between the Bank and Paint; (n) a Subsidiary Security
<PAGE>
Agreement-Intellectual Property, dated September 21, 1994, between the Bank and
RemGrit; (o) a Subsidiary Security Agreement-Intellectual Property, dated
September 21, 1994, between the Bank and Disston Canada; (p) a Subsidiary
Security Agreement-Intellectual Property, dated September 21, 1994, between the
Bank and RC; (q) a Subsidiary Guaranty, dated September 21, 1994, between the
Bank and Manufacturing; (r) a Subsidiary Guaranty, dated September 21, 1994,
between the Bank and Cutting Tools; (s) a Subsidiary Guaranty, dated September
21, 1994, between the Bank and International; (t) a Subsidiary Guaranty, dated
September 21, 1994, between the Bank and Paint; (u) a Subsidiary Guaranty, dated
September 21, 1994, between the Bank and RemGrit; (v) a Subsidiary Guaranty,
dated September 21, 1994, between the Bank and Disston Canada; (w) a Subsidiary
Guaranty, dated September 21, 1994, between the Bank and RC; and (x) a Pledge
and Security Agreement dated September 21, 1994, between the Borrower and the
Bank (the "Pledge and Security Agreement," with all of the foregoing documents
herein referred to collectively as the "Security Documents");
WHEREAS, the Credit Agreement and the Security Documents and all
amendments, substitutions, rewrites or modifications thereof or thereto shall
be sometimes collectively referred to herein as the "Loan Documents"; and
WHEREAS, the Borrower has requested the Bank to increase the amount
available to the Borrower under its existing revolving line of credit up to
an additional $2,500,000 for a total revolving line of credit of up to
$17,500,000; and
WHEREAS, the Bank has agreed to extend an additional $2,000,000 to the
Borrower on a revolving credit basis for working capital purposes; and
WHEREAS, concurrently herewith the Borrower and the Bank are entering into
an Amended and Restated Revolving Credit Note which shall amend that certain
Revolving Credit Note (the "Revolving Credit Note") dated as of September 21,
1994 executed by the Borrower in favor of the Bank in order to, among other
things, increase the Borrower' revolving credit facility from $15,000,000 to
$17,500,000;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Bank hereby
agree as follows:
I. Amendment to Credit Agreement
-----------------------------
The Credit Agreement is hereby amended as follows:
- 2 -
<PAGE>
Section 1 of the Credit Agreement is hereby amended by deleting the
definition of "Maximum Revolving Credit Amount" in its entirety and replacing it
with the following definition:
"Maximum Revolving Credit Amount" shall mean Seventeen Million Five
-------------------------------
Hundred Thousand and 00/100 Dollars ($17,500,000.00)."
II. Amendments to Security Documents
--------------------------------
Each of the Security Documents is hereby amended such that all references
to the Credit Agreement, any other Security Document or the Revolving Credit
Note contained in any of the Security Documents shall be deemed to refer to the
Credit Agreement and the Security Documents as amended hereby and the Revolving
Credit Note, as amended and restated by the Amended and Restated Revolving
Credit Note of even date, respectively. Each of the Security Documents secures,
without limitation, the Credit Agreement and the Security Documents as amended
hereby and the Revolving Credit Note, as amended and restated by the Amended and
Restated Revolving Credit Note.
III. Representations and Warranties
------------------------------
The Borrower and the Subsidiary Guarantors hereby make the following
representations and warranties to the Bank in connection herewith, upon which
the Bank has relied:
A. Representations in Loan Documents. Each of the representations and
---------------------------------
warranties made by or on behalf of the Borrower and any and all of the
Subsidiary Guarantors to the Bank in any of the Loan Documents, as amended by
and through this Agreement, was true and correct when made and is true and
correct on and as of the date hereof (except for representations and warranties
limited as to time or with respect to a specific event, which representations
and warranties shall continue to be limited as to such time or event), with the
same full force and effect as if each of such representations and warranties had
been made by such Borrower or Subsidiary Guarantor on the date hereof and in
this Agreement. Attached hereto are disclosure Schedules to the Credit
Agreement, updated to show changes to such Schedules since September 21, 1994.
B. Events of Default. No Event of Default exists on the date hereof (after
-----------------
giving effect to all of the arrangements and transactions contemplated by this
Agreement). No condition exists on the date hereof which would, with notice or
the lapse of time, or both, constitute an Event of Default.
-3-
<PAGE>
C. Binding Effect of Documents.
---------------------------
1. This Agreement has been duly executed and delivered to the Bank by
the Borrower and the Subsidiary Guarantors and is in full force and effect as of
the date hereof, and the agreements and obligations of the Borrower and the
Subsidiary Guarantors contained herein constitute legal, valid and binding
obligations of the Borrower and the Subsidiary Guarantors, enforceable against
the Borrower and the Subsidiary Guarantors in accordance with their respective
terms.
2. The obligations of the Borrower to repay the Bank all of the unpaid
principal of each of the Revolving Loan, the Term Loan and the Equipment Loan
made pursuant to the Credit Agreement, to pay the Bank all of the unpaid
interest accrued or to accrue thereon, and to pay the Bank all of the other
obligations of the Borrower are and will continue to be entitled to all of the
benefits and to all of the security created by the Credit Agreement, the other
Loan Documents and the Security Documents.
IV. Provisions of General Application
---------------------------------
A. Fee. A facility fee of $25,000 shall be payable from the Borrower to
---
the Bank upon execution of this Agreement, together with all amounts sufficient
to cover the Bank's expenses, including its reasonable attorneys' fees.
B. No Other Changes. Except as otherwise expressly provided by this
----------------
Agreement, all of the terms, conditions and provisions of the Credit Agreement,
the Revolving Credit Note, the Term Note, the Equipment Note and each of the
other Loan Documents and Security Documents remain unaltered, valid, binding and
in full force and effect in the form existing immediately prior to the execution
and delivery of this Agreement. Nothing herein is intended or shall be construed
so as to: (a) limit, discharge, release, diminish or otherwise modify any
indebtedness, obligations, liabilities or duties of the Borrower or the
Subsidiary Guarantors, or (b) terminate, release, waive, or otherwise modify any
indebtedness, obligations, liabilities or duties of the Borrower or the
Subsidiary Guarantors, or (b) terminate, release, waive, or otherwise modify any
mortgage, security interest, right, power or remedy of the Bank. This Agreement
constitutes an instrument supplemental to the Credit Agreement and the other
Loan Documents, which is to be construed together with and as part of the Loan
Documents.
C. Governing Law. This Agreement is intended to take effect as a sealed
-------------
instrument and shall be deemed to be a contract under the laws of the
Commonwealth of Massachusetts. This Agreement and the rights and obligations of
each of the
-4-
<PAGE>
parties hereto shall be governed by and interpreted and determined in accordance
with the laws (other than the conflict of laws rules) of the Commonwealth of
Massachusetts.
D. Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
E. Counterparts. This Agreement may be executed in any number of
------------
counterparts, but all such counterparts shall together constitute one agreement.
It shall not be necessary to produce or account for more than one counterpart
thereof signed by each of the parties hereto in making proof of this Agreement.
F. Conflict with Other Agreements. If any of the terms of this Agreement
------------------------------
shall conflict in any respect with any of the terms of any of the Loan
Documents, the terms of this Agreement shall be controlling.
G. Ratification and Confirmation. Except as otherwise expressly amended
-----------------------------
and modified and supplemented herein, the Loan Documents are hereby ratified and
confirmed in all respects.
H. Conditions Precedent. This Agreement shall become and be effective as
--------------------
of the date hereof, but shall only become effective upon receipt by the Bank of
each of the following agreements and documents in form and substance
satisfactory to the Bank and duly executed and delivered by the parties hereto:
(1) This Agreement;
(2) An Amended and Restated Revolving Credit Note dated of even date;
(3) A Secretary's Certificate of Vote from the respective Secretaries
of the Borrower and the Subsidiary Guarantors, certifying that the
execution and delivery of this Agreement and the Amended and
Restated Revolving Credit Note has been duly authorized by the
respective Boards of Directors of the Borrower and the Subsidiary
Guarantors;
(4) A Legal Opinion from Lynch, Brewer, Hoffman & Sands, special
counsel for the Borrower, duly authorized and directed by the
Borrower, with respect to the transactions contemplated by this
Agreement, which opinion shall be in form and substance
satisfactory to the Bank; and
-5-
<PAGE>
(5) All other instruments, documents and agreements reasonably
requested by the Bank in order to give effect to this Amendment
Agreement.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
- 6 -
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Subsidiary Guarantors and the Bank
have caused this First Amendment to Credit Agreement and Security Documents to
be executed as a sealed instruments by the duly authorized officers as of the
date first above written.
THE BANK:
BAYBANK
By: /s/ Randall Kutch
---------------------------------
Name: Randall Kutch
Title: Vice President
THE BORROWER:
RULE INDUSTRIES, INC.
By: [signature appears here]
---------------------------------
Name:
Title:
THE SUBSIDIARY GUARANTORS:
RULE MANUFACTURING, INC.
By: /s/ Gary M. Sable
---------------------------------
Name: Gary M. Sable
Title: Vice President
RULE CUTTING TOOLS, INC.
By: /s/ Gary M. Sable
---------------------------------
Name: Gary M. Sable
Title: Vice President
- 7 -
<PAGE>
RULE INTERNATIONAL, INC.
By: /s/ Gary M. Sable
----------------------------------
Name: Gary M. Sable
Title: Vice President
RULE PAINT & CHEMICAL, INC.
By: /s/ Gary M. Sable
----------------------------------
Name: Gary M. Sable
Title: Vice President
REMGRIT ABRASIVE TOOLS, INC.
By: /s/ Gary M. Sable
----------------------------------
Name: Gary M. Sable
Title: Vice President
DISSTON CANADA, INC.
By: /s/ Gary M. Sable
----------------------------------
Name: Gary M. Sable
Title: Vice President
RULE CORPORATION
By: /s/ Gary M. Sable
----------------------------------
Name: Gary M. Sable
Title: Vice President
- 8 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 45
<SECURITIES> 0
<RECEIVABLES> 11,550
<ALLOWANCES> 0
<INVENTORY> 22,409
<CURRENT-ASSETS> 34,871
<PP&E> 13,236
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,872
<CURRENT-LIABILITIES> 20,999
<BONDS> 0
<COMMON> 33
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 68,872
<SALES> 34,818
<TOTAL-REVENUES> 34,818
<CGS> 24,625
<TOTAL-COSTS> 24,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,972
<INCOME-PRETAX> 1,452
<INCOME-TAX> 480
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 588
<CHANGES> 0
<NET-INCOME> 384
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
