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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-5228
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STRATEGIC DISTRIBUTION, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-1849240
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
3220 Tillman Drive, Suite 200, Bensalem, PA 19020
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(Address of principal executive offices) (Zip Code)
215-633-1900
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(Registrant's telephone number, including area code)
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(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 Sections 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
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Number of Common Shares outstanding at May 1, 2000: 30,912,210
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
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PAGE NO.
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ITEM 1
Consolidated Financial Statements:
- Consolidated Balance Sheets - 1
March 31, 2000 (unaudited)
and December 31, 1999
- Consolidated Statements of Operations 2
(unaudited) - Three Months Ended
March 31, 2000 and 1999
- Consolidated Statements of Cash Flows 3
(unaudited) - Three Months Ended
March 31, 2000 and 1999
- Notes to Consolidated Financial Statements 4
(unaudited)
ITEM 2
Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
ITEM 3
Quantitative and Qualitative Disclosures About
Market Risk 10
PART II - OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K 11
Signatures 13
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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(unaudited)
Assets
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Current assets:
Cash and cash equivalents $ 11,468 $ 1,508
Accounts receivable, net 55,799 53,137
Current portion of notes receivable 833 583
Inventories 57,846 46,458
Prepaid expenses and other current assets 563 675
Deferred income taxes 1,466 10,555
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Total current assets 127,975 112,916
Notes receivable 1,174 1,424
Property and equipment, net 15,671 17,273
Intangible assets, net 2,142 6,230
Other assets 843 682
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Total assets $ 147,805 $ 138,525
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Liabilities and Stockholders' Equity
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Current liabilities:
Accounts payable and accrued expenses $ 54,740 $ 40,264
Current portion of long-term debt (related party $1,400 in 1999) 23 1,422
Net liabilities of discontinued operations 2,236 1,230
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Total current liabilities 56,999 42,916
Long-term debt 20 29,926
Deferred income taxes 72 120
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Total liabilities 57,091 72,962
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Stockholders' equity:
Preferred stock, par value $.10 per share
Authorized: 500,000 shares; issued and outstanding: none -- --
Common stock, par value $.10 per share
Authorized: 50,000,000 shares; issued and
outstanding: 31,380,210 shares 3,138 3,138
Additional paid-in capital 95,184 95,184
Accumulated deficit (5,257) (30,516)
Notes receivable from related parties (1,303) (1,374)
Treasury stock, at cost (468,000 and 388,000 shares) (1,048) (869)
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Total stockholders' equity 90,714 65,563
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Total liabilities and stockholders' equity $ 147,805 $ 138,525
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See accompanying notes to consolidated financial statements.
1
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
2000 1999
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Revenues $ 87,309 $ 64,983
Cost and expenses:
Cost of materials 69,568 50,942
Operating wages and benefits 7,013 5,369
Other operating expenses 2,803 1,851
Selling, general and administrative expenses 8,496 6,673
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Total costs and expenses 87,880 64,835
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Operating income (loss) (571) 148
Gain on sale of subsidiary 43,185 --
Interest income (expense):
Interest expense (544) (146)
Interest income 130 73
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Interest expense, net (414) (73)
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Income before income taxes 42,200 75
Income tax expense (16,291) --
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Income from continuing operations 25,909 75
Loss on sale of discontinued operations, net of tax (650) --
============ ============
Net income $ 25,259 $ 75
============ ============
Net income (loss) per common share - basic and diluted:
Income from continuing operations $ 0.84 $ 0.00
Loss from discontinued operations (0.02) --
------------ ------------
Net income $ 0.82 $ 0.00
============ ============
Weighted average number of shares of common
stock outstanding:
Basic 30,988,694 31,243,896
============ ============
Diluted 31,079,617 31,343,169
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
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Three months ended March 31,
-------------------------------
2000 1999
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Cash flows from operating activities:
Income from continuing operations $ 25,909 $ 75
Adjustments to reconcile income from continuing operations to net cash
provided by (used in) continuing operations:
Depreciation and amortization 1,228 897
Gain on sale of subsidiary (43,185) --
Deferred income taxes 9,041 --
Changes in operating assets and liabilities:
Accounts receivable (4,730) (3,213)
Inventories (11,388) (6,505)
Prepaid expenses and other current assets (26) (281)
Accounts payable and accrued expenses 15,137 9,127
Other, net (216) (23)
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Net cash provided by (used in) continuing operations (8,230) 77
Discontinued operations:
Net loss (650) --
Increase in net liabilities 1,006 252
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Net cash provided by (used in) operating activities (7,874) 329
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Cash flows from investing activities:
Proceeds from sale of business, net 50,356 44
Additions of property and equipment (1,108) (2,027)
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Net cash provided by (used in) investing activities 49,248 (1,983)
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Cash flows from financing activities:
Repurchase of common stock (108) (384)
Proceeds from (repayment of) notes payable (29,900) 1,800
Repayment of long-term obligations (1,406) (4)
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Net cash provided by (used in) financing activities (31,414) 1,412
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Increase (decrease) in cash and cash equivalents 9,960 (242)
Cash and cash equivalents, beginning of the period 1,508 1,322
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Cash and cash equivalents, end of the period $ 11,468 $ 1,080
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Supplemental cash flow information:
Taxes paid $ 39 $ 17
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Interest paid $ 922 $ 74
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
1. The accompanying unaudited consolidated financial statements include the
accounts of Strategic Distribution, Inc. and subsidiaries (the "Company"). These
financial statements have been prepared in accordance with the instructions of
Form 10-Q. In the opinion of management, all adjustments (consisting of a normal
and recurring nature) considered necessary for a fair presentation of the
results of operations for the three months ended March 31, 2000 and 1999 have
been included. The statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999. The results for
the three months ended March 31, 2000 are not necessarily indicative of the
results that may be expected for a full fiscal year.
2. On March 2, 2000, the Company completed the sale of its INTERMAT, Inc.
subsidiary ("INTERMAT") to Project Software & Development, Inc. ("PSDI") for
$55,000,000 in cash. The Company realized a net gain after tax of approximately
$26,544,000 on the transaction. The disposition was made pursuant to the terms
of that certain Stock Purchase Agreement between the Company and PSDI, dated as
of January 11, 2000 and as amended by Amendment No. 1 to Stock Purchase
Agreement, dated as of February 29, 2000.
3. During the three months ended March 31, 2000, the Company recorded a charge
to loss on sale of discontinued operations of $650,000, net of income tax
benefit of $350,000, related to contractual obligations from a prior sale of a
business.
4. The Company has a revolving Loan and Security Agreement (the "credit
facility") with its bank, providing maximum borrowings of $50,000,000. Interest
on the borrowings is variable at margins up to 1.0% over the bank's reference
rate (8.75% as of March 31, 2000) and/or a Eurodollar rate, with a commitment
fee of 0.25% per annum on the unused portion of the credit available. The credit
facility expires on May 8, 2001. As of March 31, 2000, there were no borrowings
outstanding under the credit facility.
5. For the three months ended March 31, 2000 and 1999, the weighted average
number of shares used to calculate diluted net income per common share includes
the assumed exercise of stock options equivalent to 90,923 and 99,273 shares
under the treasury stock method. Options to purchase approximately 3,753,000 and
3,462,000 shares at prices ranging from $1.73 to $8.00 per share were
outstanding during the three months ended March 31, 2000 and 1999, but were not
included in the computation of diluted net income per common share because the
market price of the common shares did not exceed the options' exercise prices
for substantially all of the three consecutive months ending on March 31, 2000
and 1999. As of March 31, 2000 and 1999, there were
4
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stock options outstanding for approximately 3,956,000 and 3,640,000 common
shares.
6. The Company operates in one reportable segment and substantially all of
its revenues are derived from the procurement, handling and data management
of maintenance, repair and operating ("MRO") supplies for large industrial
customers. The Company provides inventory management technology and services
("data management services") to In-Plant Store-Registered Trademark-
customers and to industrial users other than In-Plant Store customers. Total
revenues derived from data management services is not determinable because
fees charged to In-Plant Store customers do not differentiate data management
services from other In-Plant Store services. Data management services to
customers other than In-Plant Store customers were provided primarily through
INTERMAT. During the three months ended March 31, 2000 and 1999, revenues
from data management services to customers other than In-Plant Store
customers amounted to $1,463,000 and $1,898,000.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Certain statements in this Form 10-Q constitute forward-looking
statements, which involve risks and uncertainties. The Company's actual results
in the future could differ significantly from the results discussed or implied
in such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those related to the Company's
ability to manage growth, termination of contracts by the Company's customers,
competition in the Company's business, the Company's dependence on key personnel
and the effects of recession on the Company and its customers. In the event of
an economic downturn, the Company could experience reduced volume of business
from its existing customers, as well as lost volume due to plant shutdowns or
consolidations by the Company's customers.
The Company provides MRO supply procurement, handling and data
management solutions to industrial sites, primarily through its In-Plant
Store-Registered Trademark- program. At March 31, 2000, the Company had 177
In-Plant Store facilities, in the United States and Mexico.
SALE OF SUBSIDIARY
On March 2, 2000, the Company completed the sale of INTERMAT for
$55,000,000 in cash. The Company realized a net gain after taxes of
approximately $26,544,000 on the transaction. In conjunction with the sale, the
Company entered into a License and Services Agreement with INTERMAT that allows
the Company to continue to use both current and future INTERMAT technology in
the In-Plant Store operation. A portion of the net proceeds from the INTERMAT
sale transaction was used to repay all outstanding bank borrowings. The balance
of the net proceeds is available to pay federal and state taxes in connection
with the sale and to fund the anticipated expansion of the In-Plant Store
program.
SYSTEMS IMPLEMENTATION
In late 1997, the Company began a planned project to replace its
operating and financial data processing systems, in order to provide better
access to business information, to meet the service requirements of its
customers and to allow for the expansion of its In-Plant Store program. The new
systems are referred to as the In-Site-TM- systems. During 1998, central system
hardware and software was acquired and development of the operating and
financial systems commenced. Financial systems were operational effective
January 1, 1999. Communications installations, establishment of a dedicated
telecommunications network with the Company's data processing center,
6
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acquisition of additional hardware, deployment of the operating systems to the
Company's In-Plant Store sites and integration with the financial systems
commenced in the second quarter of 1999. During the second half of 1999, the
Company experienced unanticipated difficulties with data conversion from
existing systems and in the flow and integration of information into the
financial systems. The Company also extended the deployment schedule into 2000
in order to allow sufficient time and resources to successfully complete the
project. The implementation problems and schedule changes have resulted in
increased overtime, temporary labor, travel and outside consultant expenses. As
of March 31, 2000, the In-Site operating system deployment was approximately 67%
complete and is expected to be fully deployed by the third quarter of 2000.
RESULTS OF OPERATIONS
The following table of revenues and percentages sets forth selected
items of the results of operations.
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
(dollars in thousands)
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Revenues $ 87,309 $ 64,983
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100.0% 100.0%
Cost of materials 79.7 78.4
Operating wages and benefits 8.0 8.3
Other operating expenses 3.2 2.8
Selling, general and administrative expenses 9.7 10.3
Operating income (loss) (0.6) 0.2
Gain on sale of subsidiary 49.4 --
Interest expense, net (0.5) (0.1)
Income from continuing operations
before income taxes 48.3 0.1
Income tax expense (18.7) --
Income from contuning operations 29.6 0.1
Loss on sale of discontinued operations, net
of tax (0.7) --
Net income 28.9 0.1
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues for the three months ended March 31, 2000 increased 34.4% to
$87,309,000 from $64,983,000 for the three months ended March 31, 1999. This
growth resulted primarily from the maturation of In-Plant Store facilities
opened over the last six quarters. The number of In-Plant Store facilities
increased from 145 at March 31, 1999 to
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177 at March 31, 2000. During the three months ended March 31, 2000 and 1999,
three In-Plant Store customers comprised approximately 25% and 18% of the
Company's revenues, although no customer exceeded 10% in 1999. One In-Plant
Store customer represented approximately 13% of revenues for the three months
ended March 31, 2000.
Cost of materials as a percentage of revenues increased to 79.7% for
the three months ended March 31, 2000 from 78.4% in 1999. The increase was
primarily due to lower data management service revenues as a result of the sale
of INTERMAT. Direct material costs associated with data management services were
insignificant; the consolidated percentage increased as a result of the change
in revenue mix. Cost of materials as a percentage of revenues for the In-Plant
Store operations for the three months ended March 31, 2000 was comparable to
1999.
Operating wages and benefits expenses as a percentage of revenues
decreased to 8.0% for the three months ended March 31, 2000 from 8.3% in 1999.
The decrease reflects growth in the Mexican In-Plant Store business, which has
lower wages as a percentage of revenues than the United States business, and the
decline in data management service revenues. Operating wages and benefits
associated with data management services were higher as a percentage of revenues
than those associated with In-Plant Store operations.
Other operating expenses as a percentage of revenues increased to 3.2%
for the three months ended March 31, 2000 from 2.8% in 1999. The increase
reflects higher costs for In-Site systems, including amortization of capitalized
costs, telecommunications network costs and higher temporary labor costs in
connection with the implementation.
Selling, general and administrative expenses as a percentage of
revenues decreased to 9.7% for the three months ended March 31, 2000 from 10.3%
in 1999. The decrease was primarily due to the decline in data management
service revenues as a result of the sale of INTERMAT, which had a significantly
higher percentage of these costs than the In-Plant Store business. In-Plant
Store selling, general and administrative expenses for the three months ended
March 31, 2000, as a percentage of revenues, were comparable to 1999, despite
growth in the business. This reflected higher costs for In-Site infrastructure,
temporary labor and travel in connection with the implementation of In-Site and
changes in the Company's employee benefits.
Loss from discontinued operations was $650,000, net of income tax
benefit of $350,000, for the three months ended March 31, 2000, reflecting a
charge for contractual obligations from a prior sale of a business.
Interest expense, net was $414,000 for the three months ended March 31,
2000 compared to interest expense, net of $73,000 for the three months ended
March 31, 1999. The increase reflects higher average borrowings in 2000 against
the Company's credit facility. On March 2, 2000, the Company used a portion of
the net proceeds from the
8
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sale of INTERMAT to repay all outstanding borrowings under its credit facility.
Net income for the three months ended March 31, 2000 was $25,259,000,
compared to net income of $75,000 in 1999, as a result of the sale of INTERMAT
and the other operating results previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
The Company's credit facility provides maximum borrowings of
$50,000,000. As of March 31, 2000, there were no borrowings outstanding under
the credit facility. Future borrowings under the facility are expected to be
used primarily to fund working capital requirements for the expansion of the
In-Plant Store program.
Income from continuing operations of $25,909,000 for the three months
ended March 31, 2000, included a gain from the sale of INTERMAT, net of taxes,
of approximately $26,544,000. After adjusting for the noncash effect of the
INTERMAT sale, net cash used by operating activities was $7,874,000 for the
three months ended March 31, 2000 compared to net cash provided of $329,000 in
1999. The increase resulted primarily due to an increase in accounts receivable
and inventories, which were partially offset by an increase in accounts payable
and accrued expenses. Accounts receivable and inventories increased primarily
due to the increase in the number of In-Plant Store facilities, as well as the
maturation of facilities opened in the last 3 quarters. Accounts payable and
accrued expenses increased primarily due to higher inventory levels.
The net cash provided by investing activities was $49,248,000 for the
three months ended March 31, 2000 compared to net cash used of $1,983,000 in
1999. Cash was provided from the sale of INTERMAT and was partially offset by
expenditures for computer systems and related equipment, which were lower in
2000 than in 1999.
The net cash used in financing activities was $31,414,000 for the three
months ended March 31, 2000 compared to net cash provided of $1,412,000 in 1999.
The net cash used in 2000 reflected payment of a $1,400,000 note to an officer
of the Company and the payment of all outstanding borrowings under the credit
facility with INTERMAT sale proceeds. In 1999, cash was provided primarily from
the Company's credit facility.
The Company believes that cash on hand, cash generated from future
operations, and cash from the credit facility will generate sufficient funds to
permit the Company to support the anticipated expansion of the In-Plant Store
program and completion of the In-Site project.
9
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk
associated with activities in derivative financial instruments, other financial
instruments and derivative commodity instruments.
10
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PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
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3.1 Second Restated Certificate of Incorporation of the Company filed
June 21, 1996 with the Secretary of State of the State of Delaware
(incorporated by reference to Exhibit 3.2 of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1996).
3.2 Amended and Restated Bylaws of the Company, dated July 24, 1986, as
amended (incorporated by reference to Exhibits 3.2 and 3.2(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
4.1 The instruments defining the rights of holders of the long-term debt
securities of the Company are omitted pursuant to Section
(b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company agrees to
furnish supplementary copies of these instruments to the Commission
upon request.
10.1 Stock Purchase Agreement between Strategic Distribution, Inc. and
Project Software & Development, Inc., dated as of January 11, 2000
(incorporated by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K, filed with the Securities and Exchange
Commission on March 17, 2000 (the "March 17, 2000 Form 8-K")).
10.2 Amendment No. 1, dated as of February 29, 2000 to Stock Purchase
Agreement between Strategic Distribution, Inc. and Project Software
& Development, Inc., dated as of January 11, 2000 (incorporated by
reference to Exhibit 2.2 of the Company's March 17, 2000 Form 8-K.
10.3 Consent and Release, dated February 29, 2000, by and among Bank of
America, N.A., Mellon Bank, N.A., Industrial Systems Associates,
Inc. and INTERMAT, Inc., relating to the Loan and Security
Agreement, dated as of May 8, 1998, among the financial institutions
named therein as the lenders, Bank of America, N.A. (formerly
known as Bank of America National Trust and Savings Association,
successor-in-interest to BankAmerica Business Credit, Inc.) as
the Agent, Industrial Systems Associates, Inc. as a Borrower and
INTERMAT, Inc. as a Borrower.
10.4 Waiver and Amendment No. 1 to Loan and Security Agreement, dated
March 2, 2000, by and among Bank of America, N.A., Mellon Bank,
N.A., Industrial Systems Associates, Inc. and INTERMAT, Inc.,
amending the Loan and Security Agreement, dated as of May 8,
1998, among the financial institutions named therein as the
lenders, Bank of America, N.A. (formerly known as Bank of
America National Trust and Savings Association,
successor-in-interest to BankAmerica Business Credit, Inc.) as the
Agent, Industrial Systems Associates, Inc. as a Borrower and
INTERMAT, Inc. as a Borrower.
27 Financial Data Schedule
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<TABLE>
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(b). Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated March 2, 2000,
during the first quarter of 2000. Pursuant to Item 2 and Item 7 of Form
8-K, the Company reported the sale of its wholly-owned subsidiary,
INTERMAT,INC., to Project Software & Development, Inc. for $55,000,000 in
cash. The following pro forma condensed consolidated financial statements
of the Company were filed as part of the report:
Introduction
Pro Forma Condensed Consolidated Balance Sheet at September 30, 1999
(Unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended December 31, 1998 (Unaudited)
Pro Forma Condensed Consolidated Statement of Operations for the Nine
Months Ended September 30, 1999 (Unaudited)
Notes to Pro Forma Condensed Consolidated Financial Statements
</TABLE>
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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.
Strategic Distribution, Inc.
Date: May 11, 2000 By: /s/ John M. Sergey
-------------------------
John M. Sergey
President and Chief
Executive Officer
Date: May 11, 2000 By: /s/ David L. Courtright
--------------------------
David L. Courtright,
Controller and
Chief Accounting Officer
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CONSENT AND RELEASE
February 29, 2000
Industrial Systems Associates Inc.
INTERMAT, Inc.
3200 Tillman Drive
Suite 200
Bensalem, Pennsylvania 19020
Attention: President and Controller
Ladies/Gentlemen:
Reference is made to that certain Loan and Security Agreement dated as of
May 8, 1998 among the financial institutions named therein, Bank of America,
N.A. (formerly known as Bank of America National Trust and Saving Association,
successor-in-interest to BankAmerica Business Credit, Inc.), as Agent,
Industrial Systems Associates, Inc. ("ISA") and INTERMAT, Inc. ("INTERMAT"), as
amended to date (the "Loan Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to such terms in
the Loan Agreement.
ISA and INTERMAT have requested that Agent and Lenders consent to the sale
(the "Sale") by SDI to Project Software & Development, Inc. (the "Buyer") of all
of the capital stock of INTERMAT and in connection therewith release INTERMAT
from its obligations under the Loan Documents and release their security
interests in the capital stock of INTERMAT and the assets of INTERMAT. Lenders
and Agent have agreed to the foregoing requests, subject to the terms and
conditions set forth below. Therefore, ISA, INTERMAT, Agent and Lenders hereby
agree as follows:
1. PROCEEDS OF SALE. INTERMAT and ISA hereby represent and warrant to
Lenders that the gross proceeds of the Sale and the net amount of such proceeds
remaining after deduction of all fees and expenses ("Net Proceeds") are
identified on Exhibit A.
2. CONSENT. Subject to the provisions of paragraph 4, Agent and Lenders
hereby consent to the consummation of the Sale and further agree that the
consummation of the Sale shall not constitute a breach of the Loan Agreement or
the other Loan Documents. Subject to paragraph 4, Agent and Lenders further
agree that INTERMAT shall no longer be a Borrower under the Loan Agreement and
that INTERMAT is released from all of its obligations under the Loan Documents.
Other than as specifically described herein, the consents contained herein shall
not constitute a consent to any other departure from, or waiver of any other
breach of, the terms of the Loan Agreement or any other Loan Document, whether
now existing or hereafter occurring, or of any rights that Agent or any
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Lender may have under the Loan Agreement, any other Loan Document or applicable
law with respect thereto, all of which rights are expressly reserved hereby.
INTERMAT hereby confirms that the commitments of the Lenders and Agent to
make loans or issue Letters of Credit to INTERMAT under the Loan Agreement are
terminated as of the date hereof, and, as of date hereof, the Lenders and Agent
have no further obligation to make loans to, or to issue Letters of Credit on
behalf of, INTERMAT or to renew, extend or amend any Outstanding Letters of
Credit (as defined below).
3. COLLATERAL RELEASES. Subject to paragraph 4 hereof, Agent and Lenders
hereby release their security interest in the capital stock of INTERMAT and all
of the assets of INTERMAT. Lenders agree to promptly deliver to INTERMAT the
stock certificates evidencing INTERMAT's capital stock and such terminations and
releases as INTERMAT shall reasonably request in connection with the foregoing.
4. EFFECTIVENESS. This Consent and Release shall be effective immediately
upon satisfaction of the following conditions on or before March 24, 2000.
(a) Agent shall have received a copy of this Consent and Release
executed by Lenders, ISA and INTERMAT and accepted by SDI, SDI Canada
Holdings and SDI Canada.
(b) The Sale shall have closed in accordance with the terms of the
Stock Purchase Agreement dated January 11, 2000 among SDI, Buyer and
INTERMAT, as amended by Amendment No. 1 to Stock Purchase Agreement dated
as of February 29, 2000 (the "Stock Purchase Agreement").
(c) Agent shall have received the Net Proceeds of the Sale in an
amount of at least $42,500,000 less the amount needed to repurchase the
shares of Strategic Distribution, Inc. owned by Gregg Enders at the closing
market price on the date of the Sale. Agent is authorized and directed to
apply such proceeds to the outstanding Loans which amount shall not result
in a reduction of Maximum Revolver Amount.
5. MUTUAL RELEASE. Subject to paragraph 4, Agent and each Lender hereby
release and forever discharge INTERMAT from any and all claims, demands, debts,
liabilities, actions, and causes of action of every kind and character based
upon or arising out of the Loan Agreement. Subject to paragraph 4, INTERMAT
hereby releases and forever discharges Agent and each Lender and their
respective representatives, predecessors, assigns, officers, directors, agents,
employees and attorneys from any and all claims, demands, debts, liabilities,
actions, and causes of action of every kind and character based upon or arising
out of the Loan Agreement.
6. ISA LIABLE. ISA confirms that it is primarily liable for all Obligations
including, without limitation, all Obligations of INTERMAT with respect to the
Letters of
-2-
<PAGE>
Credit listed on Exhibit B hereto (the "Outstanding Letters of Credit")
(including the Letter of Credit Fees payable pursuant to Section 3.6 with
respect thereto) and all Obligations of INTERMAT that by the terms of the Loan
Agreement would have survived the termination of the Loan Agreement from which
INTERMAT is being released pursuant to this Consent and Release. ISA confirms a
true and correct copy of the Stock Purchase Agreement has been delivered to
Agent and that the Stock Purchase Agreement contains all of the material terms
of the Sale.
The Outstanding Letters of Credit shall be administered and be accounted
for under the Loan Agreement as if they had been issued for the account of ISA.
7. AMENDED AND RESTATED LOAN AGREEMENT. Within thirty (30) days of the date
of this Consent and Release, ISA will enter into an amendment and restatement of
the Loan Agreement with Agent and Lenders to reflect the deletion of INTERMAT as
a Borrower.
-3-
<PAGE>
IN WITNESS WHEREOF, this Consent and Release has been executed and
delivered as of the day and year first written above.
Very truly yours,
BANK OF AMERICA, N.A.,
as Agent and as a Lender
By /s/ Brian J. Wright
-------------------------------
Its
-------------------------------
MELLON BANK, N.A., as a Lender
By /s/ Daniel Clancy
-------------------------------
Its
-------------------------------
ACKNOWLEDGED AND AGREED TO
this 29th day of February, 2000.
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
By /s/ John M. Sergey
-------------------------------
Its
-------------------------------
INTERMAT, INC.
By /s/ John M. Sergey
-------------------------------
Its
-------------------------------
-4-
<PAGE>
The undersigned, as of this 29th day of February, 2000, hereby
unconditionally reaffirms its obligations under the Guaranty dated May 8, 1998
in favor of the Agent and the Lenders. The undersigned further consents to the
application of the proceeds of the Sale as provided in the foregoing Consent and
Release and agrees such application shall result in capital contribution by the
undersigned to ISA in the amount of such proceeds. The undersigned further
confirms that its rights under the Escrow Agreement relating to the Sale are
included within the Collateral under the SDI Security Agreement
STRATEGIC DISTRIBUTION, INC.
By /s/ John M. Sergey
-----------------------------------
Its
-----------------------------------
The undersigned, as of this 29th day of February, 2000, hereby
unconditionally reaffirms its obligations under the Guaranty dated May 8, 1998
in favor of the Agent and the Lenders.
STRATEGIC DISTRIBUTION (CANADA)
HOLDINGS, INC.
By /s/ John M. Sergey
-----------------------------------
Its
-----------------------------------
The undersigned, as of this 29th day of February, 2000, hereby
unconditionally reaffirms its obligations under the Guaranty dated May 8, 1998
in favor of the Agent and the Lenders.
STRATEGIC DISTRIBUTION (CANADA)
COMPANY
By /s/ John M. Sergey
-----------------------------------
Its
-----------------------------------
[caad 234]E
-5-
<PAGE>
EXHIBIT A
NET PROCEEDS CALCULATION
<TABLE>
<S> <C>
Gross Proceeds $55,000,000
-----------
Estimated Costs:
Broker Fees 1,000,000
Employee Retention Bonus 1,900,000
Legal Fees 900,000
Accounting Fees 100,000
Other 100,000
-----------
4,000,000
-----------
Income Taxes 8,500,000
-----------
Total Estimated Costs 12,500,000
-----------
Net Proceeds $42,500,000
===========
</TABLE>
<PAGE>
EXHIBIT B
LIST OF OUTSTANDING LETTERS OF CREDIT
<TABLE>
<CAPTION>
Number Amount Expiration
------- ---------- ----------
<S> <C> <C>
3010525 $60,116.69 2/15/01
3013550 $35,510.00 4/30/00
3014310 $10,000.00 6/30/00
</TABLE>
<PAGE>
WAIVER AND AMENDMENT NO. 1 TO
LOAN AND SECURITY AGREEMENT
THIS WAIVER AND AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is dated as of March 2, 2000 and is entered into by and among the
financial institutions listed on the signature pages hereof (such financial
institutions being herein referred to collectively as the "Lenders" and
individually as a "Lender"), Bank of America, N.A. (formerly known as Bank of
America National Trust and Savings Association, successor-in-interest to
BankAmerica Business Credit, Inc.), as agent for the Lenders (in its capacity as
agent, the "Agent"), and Industrial Systems Associates, Inc. ("ISA") and
INTERMAT, Inc. ("INTERMAT"; ISA and INTERMAT being herein referred to
collectively as the "Borrowers" and individually as a "Borrower"). All
capitalized terms used herein but not otherwise defined shall have the meanings
ascribed to them in the Agreement (as hereinafter defined).
WITNESSETH:
WHEREAS, the Borrowers, the Lenders and the Agent have entered into
that certain Loan and Security Agreement dated as of May 8, 1998, as heretofore
amended or otherwise modified (the "Agreement");
WHEREAS, a certain Event of Default has occurred under the Agreement;
and
WHEREAS, the Borrowers desire to have such Event of Default waived and
also to amend the Agreement, and the Lenders and the Agent are willing to do so,
subject to the terms and conditions stated herein;
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrowers, the Lenders and the Agent hereby agree as
follows:
SECTION 1. WAIVER OF DEFAULT. Effective as of September 21, 1999, the
Lenders and the Agent hereby waive the Event of Default arising from the
following: After the Closing Date, ISA made additional loans to the Mexican
Subsidiaries such that, from and after September 21, 1999, the aggregate amount
outstanding was in excess of $5,000,000, which amount exceeded the Permitted
Mexican Loan Amount (less the amount of Restricted Investments by SDI under
Section 5.6(ii)(a) of the SDI Security Agreement), in violation of the
provisions of Section 9.10(E) of the Agreement.
The foregoing waiver is only applicable and shall only be effective for
the specific instance and for the specific purpose for which given. Such waiver
is expressly limited to the facts and circumstances referred to herein and shall
not otherwise operate (a) as a waiver of or consent to non-compliance with any
other section of the Agreement or any other Loan Document, (b) as a waiver of,
or a restriction on or prejudice with respect to, any right, power or remedy of
the Agent or any Lender under the Agreement or any other Loan Document, or (c)
as a waiver of or consent to any other Event of Default or Default under the
Agreement or any other Loan Document.
- 1 -
<PAGE>
SECTION 2. AMENDMENT TO THE AGREEMENT. The Lenders, the Agent and the
Borrowers agree that the Agreement shall be amended as follows:
(a) DEFINITION OF "EBITDA". The definition of "EBITDA"
appearing in Section 1.1 of the Agreement is hereby amended and
restated to read in its entirety as follows:
"`EBITDA' means, with respect to any fiscal period of SDI,
Adjusted Net Earnings from Operations for such period; PLUS the sum of
the following to the extent deducted in computing such Adjusted Net
Earnings from Operations: (i) income tax expense, (ii) interest expense
(whether paid or accrued), (iii) amortization, depreciation and other
non-cash charges (including, without limitation, amortization of
goodwill, deferred financing fees and other intangibles), and (iv) with
respect to the Fiscal Quarter ending on September 30, 1999 only, the
amount of $941,000, representing the amount written-off by the Borrower
on December 31, 1998 with respect to inventory and accounts of
McCulloch Corp.; and MINUS non-cash credits to the extent included in
computing such Adjusted Net Earnings from Operations."
(b) DEFINITION OF "ISA AVAILABILITY". The definition of "ISA
Availability" appearing in Section 1.1 of the Agreement is hereby
amended and restated to read in its entirety as follows:
"`ISA AVAILABILITY' means, with respect to ISA, at any
time, (a) the lesser of (i) the Individual Revolver Amount of ISA or
(ii) the result of the following calculation: (A) eighty-five percent
(85%) of the Net Amount of Eligible Accounts of ISA and SDI Canada;
PLUS (B) fifty-five percent (55%) of the value of Eligible Inventory of
ISA and SDI Canada; PROVIDED, that at no time shall the sum of
outstanding Revolving Loans based upon the value of Eligible Inventory
of ISA and SDI Canada exceed $30,000,000 (`Maximum Inventory Loan');
MINUS (C) a reserve in the amount of $5,000,000 pertaining to the loans
made by ISA to the Mexican Subsidiaries; MINUS (b) the sum of (i) the
Aggregate Revolver Outstandings for the account of ISA, (ii) reserves
for accrued interest on the Obligations of ISA, (iii) the Environmental
Compliance Reserve pertaining to ISA and SDI Canada, and (iv) all other
reserves which the Agent deems necessary in the exercise of its
reasonable credit judgment exercised in good faith to maintain with
respect to ISA's account, including, without limitation, reserves for
any amounts which the Agent or any Lender may be obligated to pay in
the future for the account of ISA or SDI Canada. The Availability
attributable to SDI Canada shall not be more than $5,000,000 and shall
be based on the Dollar Equivalent of its Accounts and Inventory."
(c) DEFINITION OF "PERMITTED MEXICAN LOAN AMOUNT". The
definition of "Permitted Mexican Loan Amount" appearing in Section 1.1
of the Agreement is hereby amended and restated to read in its entirety
as follows:
- 2 -
<PAGE>
"`PERMITTED MEXICAN LOAN AMOUNT' means $11,457,000."
(d) AMENDMENT OF SECTION 9.24. Section 9.24 of the Agreement
is hereby amended and restated to read in its entirety as follows:
"9.24. FIXED CHARGE COVERAGE RATIO. Borrowers will maintain
a Fixed Charge Coverage Ratio, calculated as of the last day of
each of the Borrowers' Fiscal Quarters, of not less than (i) as
of March 31, 2000, on a trailing three months' basis, 0.10 to
1.0, (ii) as of June 30, 2000, on a trailing six months' basis,
0.33 to 1.0, (iii) as of September 30, 2000, on a trailing nine
months' basis, 0.71 to 1.0, and (iv) as of the last day of each
Fiscal Quarter thereafter, on a trailing twelve months' basis,
1.10 to 1.0."
SECTION 3. AGREEMENT BY THE BORROWERS. In consideration of the
execution and delivery of this Amendment by the Agent and the Lenders, the
Borrowers hereby agree that, unless the certificate received by the Agent under
Section 7.2(e) of the Agreement with respect to the Fiscal Quarter ending on
December 31, 1999, shall demonstrate that the Senior Funded Debt to EBITDA Ratio
as of December 31, 1999 was less than 3.75 to 1.0, the Borrowers, jointly and
severally, shall, immediately upon demand by the Agent, pay additional interest
on the Obligations with respect to the period during which the Applicable Margin
had been determined and charged based upon the Senior Funded Debt to EBITDA
Ratio as of September 30, 1999. The per annum percentage of such additional
interest shall represent the difference between (x) the Applicable Margins that
would have been determined without giving effect to the provisions of clause
(iv) of the definition of "EBITDA", LESS (y) the Applicable Margins that were
determined after giving effect to the provisions of clause (iv) of the
definition of "EBITDA". In addition, if the audited Financial Statements
received by the Agent under Section 7.2(a) of the Agreement for the Fiscal Year
ending on December 31, 1999 shall indicate that the Senior Funded Debt to EBITDA
Ratio set forth in the certificate delivered to the Agent under SECTION 7.2(e)
for the Fiscal Quarter ending on December 31, 1999 was inaccurate, and (a) if
the Senior Funded Debt to EBITDA Ratio set forth in such audited Financial
Statements as of December 31, 1999 was greater than or equal to 3.75 to 1.0,
while such earlier certificate had indicated that such ratio was less than 3.75
to 1.0, the Borrowers, jointly and severally, shall, immediately upon demand by
the Agent, pay the amount of such additional interest calculated as set forth in
the preceding provisions of this Section 3, and (b) if the Senior Funded Debt to
EBITDA Ratio set forth in such audited Financial Statements as of December 31,
1999 was less than 3.75 to 1.0, while such earlier certificate had indicated
that such ratio was greater than or equal to 3.75 to 1.0, and if the Borrowers
had previously paid to the Agent an additional interest amount under the terms
of this Section 3, the Lenders, severally and not jointly, shall, immediately
upon demand by the Borrowers, return to the Borrowers such Lender's Pro Rata
Share of such additional interest amount (but without interest on said amount).
Any default by either Borrower in the observance or performance of any of its
respective agreements contained in this Section 3 shall constitute an Event of
Default under the Agreement.
SECTION 4. CONDITIONS. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent:
- 3 -
<PAGE>
(a) AMENDMENT. Fully executed copies of this Amendment signed by
the Borrowers, the Lenders and the Agent and ratifications signed by
the Guarantors shall be delivered to the Agent.
(b) RESOLUTIONS. A certificate executed by the Secretary or
Assistant Secretary of each Borrower certifying that such Borrower's
Board of Directors has adopted resolutions authorizing the execution,
delivery and performance by such Borrower of this Amendment shall be
delivered to the Agent.
(c) FEE. The Borrowers shall have paid the Agent, for the
account of the Lenders, a waiver and amendment fee in the amount of
$25,000, which fee shall be earned upon execution of this Amendment and
shall be non-refundable upon such payment to the Agent. The Agent, the
Lenders and the Borrowers agree that such fee shall be financed by the
Lenders as a Revolving Loan.
(d) OTHER DOCUMENTS. The Borrowers shall have executed and
delivered to the Agent such other documents and instruments as the
Agent may require.
SECTION 5. MISCELLANEOUS.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Agreement or any other
document or documents relating thereto, including, without limitation,
any Loan Document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by the Agent or any Lender or any
closing shall affect the representations and warranties or the right of
the Agent or any Lender to rely thereon.
(b) REFERENCE TO AGREEMENT. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments
now or hereafter executed and delivered pursuant to the terms hereof,
or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a
reference to the Agreement as amended hereby.
(c) AGREEMENT REMAINS IN EFFECT. The Agreement and the Loan
Documents remain in full force and effect, and each Borrower ratifies
and confirms its agreements and covenants contained therein. Each
Borrower hereby confirms that, after giving effect to this Amendment,
no Event of Default or Default exists as of such date.
(d) SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of this Amendment and the effect
thereof shall be confined to the provision so held to be invalid or
unenforceable.
(e) APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED
- 4 -
<PAGE>
TO HAVE BEEN MADE AND TO BE PERFORMABLE IN THE STATE OF ILLINOIS AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS.
(f) SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of the Agent, the Lenders and the Borrowers
and their respective successors and assigns; PROVIDED, HOWEVER, that
neither Borrower may assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Agent
and the Lenders.
(g) COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and
the same instrument.
(h) HEADINGS. The headings, captions and arrangements used in
this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
[signatures continued on following page]
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment under seal
on the date first written above.
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
INTERMAT, INC.
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANK OF AMERICA, NATIONAL ASSOCIATION,
as Agent
By: /s/ Brian J. Wright
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANK OF AMERICA, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Brian J. Wright
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MELLON BANK, N.A.,
as a Lender
By: /s/ Daniel Clancy
---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 6 -
<PAGE>
CONSENTS AND REAFFIRMATIONS
Each of the undersigned (individually, a "Guarantor"), (i) consents to
and approves the execution and delivery of this Amendment by the parties hereto,
(ii) agrees that this Amendment does not and shall not limit or diminish in any
manner the obligations of such Guarantor under such Guarantor's Guaranty dated
as of May 8, 1998, executed by such Guarantor and delivered to the Agent and the
Lenders, or under any of the other documents executed and/or delivered by such
Guarantor in connection with such Guarantor's Guaranty, and agrees that such
obligations of such Guarantor would not be limited or diminished in any manner
even if such Guarantor had not executed this Amendment, (iii) agrees that this
Amendment shall not be construed as requiring the consent of such Guarantor in
any other circumstance, (iv) reaffirms its obligations under such Guarantor's
Guaranty and such other related documents, and (v) agrees that such Guarantor's
Guaranty and such other related documents remain in full force and effect and
are each hereby ratified and confirmed in all respects.
Date: March 2, 2000
STRATEGIC DISTRIBUTION, INC.
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
STRATEGIC DISTRIBUTION (CANADA) HOLDINGS, INC.
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
STRATEGIC DISTRIBUTION (CANADA) COMPANY/
STRATEGIC (CANADA) COMPAGNIE DE DISTRIBUTION
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 7 -
<PAGE>
WAIVER AND AMENDMENT NO. 1 TO
LOAN AND SECURITY AGREEMENT
THIS WAIVER AND AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is dated as of March 2, 2000 and is entered into by and among the
financial institutions listed on the signature pages hereof (such financial
institutions being herein referred to collectively as the "Lenders" and
individually as a "Lender"), Bank of America, N.A. (formerly known as Bank of
America National Trust and Savings Association, successor-in-interest to
BankAmerica Business Credit, Inc.), as agent for the Lenders (in its capacity as
agent, the "Agent"), and Industrial Systems Associates, Inc. ("ISA") and
INTERMAT, Inc. ("INTERMAT"; ISA and INTERMAT being herein referred to
collectively as the "Borrowers" and individually as a "Borrower"). All
capitalized terms used herein but not otherwise defined shall have the meanings
ascribed to them in the Agreement (as hereinafter defined).
WITNESSETH:
WHEREAS, the Borrowers, the Lenders and the Agent have entered into
that certain Loan and Security Agreement dated as of May 8, 1998, as heretofore
amended or otherwise modified (the "Agreement");
WHEREAS, a certain Event of Default has occurred under the Agreement;
and
WHEREAS, the Borrowers desire to have such Event of Default waived and
also to amend the Agreement, and the Lenders and the Agent are willing to do so,
subject to the terms and conditions stated herein;
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrowers, the Lenders and the Agent hereby agree as
follows:
SECTION 1. WAIVER OF DEFAULT. Effective as of September 21, 1999, the
Lenders and the Agent hereby waive the Event of Default arising from the
following: After the Closing Date, ISA made additional loans to the Mexican
Subsidiaries such that, from and after September 21, 1999, the aggregate amount
outstanding was in excess of $5,000,000, which amount exceeded the Permitted
Mexican Loan Amount (less the amount of Restricted Investments by SDI under
Section 5.6(ii)(a) of the SDI Security Agreement), in violation of the
provisions of Section 9.10(E) of the Agreement.
The foregoing waiver is only applicable and shall only be effective for
the specific instance and for the specific purpose for which given. Such waiver
is expressly limited to the facts and circumstances referred to herein and shall
not otherwise operate (a) as a waiver of or consent to non-compliance with any
other section of the Agreement or any other Loan Document, (b) as a waiver of,
or a restriction on or prejudice with respect to, any right, power or remedy of
the Agent or any Lender under the Agreement or any other Loan Document, or (c)
as a waiver of or consent to any other Event of Default or Default under the
Agreement or any other Loan Document.
- 1 -
<PAGE>
SECTION 2. AMENDMENT TO THE AGREEMENT. The Lenders, the Agent and the
Borrowers agree that the Agreement shall be amended as follows:
(a) DEFINITION OF "EBITDA". The definition of "EBITDA"
appearing in Section 1.1 of the Agreement is hereby amended and
restated to read in its entirety as follows:
"`EBITDA' means, with respect to any fiscal period of SDI,
Adjusted Net Earnings from Operations for such period; PLUS the sum of
the following to the extent deducted in computing such Adjusted Net
Earnings from Operations: (i) income tax expense, (ii) interest expense
(whether paid or accrued), (iii) amortization, depreciation and other
non-cash charges (including, without limitation, amortization of
goodwill, deferred financing fees and other intangibles), and (iv) with
respect to the Fiscal Quarter ending on September 30, 1999 only, the
amount of $941,000, representing the amount written-off by the Borrower
on December 31, 1998 with respect to inventory and accounts of
McCulloch Corp.; and MINUS non-cash credits to the extent included in
computing such Adjusted Net Earnings from Operations."
(b) DEFINITION OF "ISA AVAILABILITY". The definition of "ISA
Availability" appearing in Section 1.1 of the Agreement is hereby
amended and restated to read in its entirety as follows:
"`ISA AVAILABILITY' means, with respect to ISA, at any
time, (a) the lesser of (i) the Individual Revolver Amount of ISA or
(ii) the result of the following calculation: (A) eighty-five percent
(85%) of the Net Amount of Eligible Accounts of ISA and SDI Canada;
PLUS (B) fifty-five percent (55%) of the value of Eligible Inventory of
ISA and SDI Canada; PROVIDED, that at no time shall the sum of
outstanding Revolving Loans based upon the value of Eligible Inventory
of ISA and SDI Canada exceed $30,000,000 (`Maximum Inventory Loan');
MINUS (C) a reserve in the amount of $5,000,000 pertaining to the loans
made by ISA to the Mexican Subsidiaries; MINUS (b) the sum of (i) the
Aggregate Revolver Outstandings for the account of ISA, (ii) reserves
for accrued interest on the Obligations of ISA, (iii) the Environmental
Compliance Reserve pertaining to ISA and SDI Canada, and (iv) all other
reserves which the Agent deems necessary in the exercise of its
reasonable credit judgment exercised in good faith to maintain with
respect to ISA's account, including, without limitation, reserves for
any amounts which the Agent or any Lender may be obligated to pay in
the future for the account of ISA or SDI Canada. The Availability
attributable to SDI Canada shall not be more than $5,000,000 and shall
be based on the Dollar Equivalent of its Accounts and Inventory."
(c) DEFINITION OF "PERMITTED MEXICAN LOAN AMOUNT". The
definition of "Permitted Mexican Loan Amount" appearing in Section 1.1
of the Agreement is hereby amended and restated to read in its entirety
as follows:
- 2 -
<PAGE>
"`PERMITTED MEXICAN LOAN AMOUNT' means $11,457,000."
(d) AMENDMENT OF SECTION 9.24. Section 9.24 of the Agreement
is hereby amended and restated to read in its entirety as follows:
"9.24. FIXED CHARGE COVERAGE RATIO. Borrowers will maintain
a Fixed Charge Coverage Ratio, calculated as of the last day of
each of the Borrowers' Fiscal Quarters, of not less than (i) as
of March 31, 2000, on a trailing three months' basis, 0.10 to
1.0, (ii) as of June 30, 2000, on a trailing six months' basis,
0.33 to 1.0, (iii) as of September 30, 2000, on a trailing nine
months' basis, 0.71 to 1.0, and (iv) as of the last day of each
Fiscal Quarter thereafter, on a trailing twelve months' basis,
1.10 to 1.0."
SECTION 3. AGREEMENT BY THE BORROWERS. In consideration of the
execution and delivery of this Amendment by the Agent and the Lenders, the
Borrowers hereby agree that, unless the certificate received by the Agent under
Section 7.2(e) of the Agreement with respect to the Fiscal Quarter ending on
December 31, 1999, shall demonstrate that the Senior Funded Debt to EBITDA Ratio
as of December 31, 1999 was less than 3.75 to 1.0, the Borrowers, jointly and
severally, shall, immediately upon demand by the Agent, pay additional interest
on the Obligations with respect to the period during which the Applicable Margin
had been determined and charged based upon the Senior Funded Debt to EBITDA
Ratio as of September 30, 1999. The per annum percentage of such additional
interest shall represent the difference between (x) the Applicable Margins that
would have been determined without giving effect to the provisions of clause
(iv) of the definition of "EBITDA", LESS (y) the Applicable Margins that were
determined after giving effect to the provisions of clause (iv) of the
definition of "EBITDA". In addition, if the audited Financial Statements
received by the Agent under Section 7.2(a) of the Agreement for the Fiscal Year
ending on December 31, 1999 shall indicate that the Senior Funded Debt to EBITDA
Ratio set forth in the certificate delivered to the Agent under SECTION 7.2(e)
for the Fiscal Quarter ending on December 31, 1999 was inaccurate, and (a) if
the Senior Funded Debt to EBITDA Ratio set forth in such audited Financial
Statements as of December 31, 1999 was greater than or equal to 3.75 to 1.0,
while such earlier certificate had indicated that such ratio was less than 3.75
to 1.0, the Borrowers, jointly and severally, shall, immediately upon demand by
the Agent, pay the amount of such additional interest calculated as set forth in
the preceding provisions of this Section 3, and (b) if the Senior Funded Debt to
EBITDA Ratio set forth in such audited Financial Statements as of December 31,
1999 was less than 3.75 to 1.0, while such earlier certificate had indicated
that such ratio was greater than or equal to 3.75 to 1.0, and if the Borrowers
had previously paid to the Agent an additional interest amount under the terms
of this Section 3, the Lenders, severally and not jointly, shall, immediately
upon demand by the Borrowers, return to the Borrowers such Lender's Pro Rata
Share of such additional interest amount (but without interest on said amount).
Any default by either Borrower in the observance or performance of any of its
respective agreements contained in this Section 3 shall constitute an Event of
Default under the Agreement.
SECTION 4. CONDITIONS. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent:
- 3 -
<PAGE>
(a) AMENDMENT. Fully executed copies of this Amendment signed by
the Borrowers, the Lenders and the Agent and ratifications signed by
the Guarantors shall be delivered to the Agent.
(b) RESOLUTIONS. A certificate executed by the Secretary or
Assistant Secretary of each Borrower certifying that such Borrower's
Board of Directors has adopted resolutions authorizing the execution,
delivery and performance by such Borrower of this Amendment shall be
delivered to the Agent.
(c) FEE. The Borrowers shall have paid the Agent, for the
account of the Lenders, a waiver and amendment fee in the amount of
$25,000, which fee shall be earned upon execution of this Amendment and
shall be non-refundable upon such payment to the Agent. The Agent, the
Lenders and the Borrowers agree that such fee shall be financed by the
Lenders as a Revolving Loan.
(d) OTHER DOCUMENTS. The Borrowers shall have executed and
delivered to the Agent such other documents and instruments as the
Agent may require.
SECTION 5. MISCELLANEOUS.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Agreement or any other
document or documents relating thereto, including, without limitation,
any Loan Document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by the Agent or any Lender or any
closing shall affect the representations and warranties or the right of
the Agent or any Lender to rely thereon.
(b) REFERENCE TO AGREEMENT. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments
now or hereafter executed and delivered pursuant to the terms hereof,
or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a
reference to the Agreement as amended hereby.
(c) AGREEMENT REMAINS IN EFFECT. The Agreement and the Loan
Documents remain in full force and effect, and each Borrower ratifies
and confirms its agreements and covenants contained therein. Each
Borrower hereby confirms that, after giving effect to this Amendment,
no Event of Default or Default exists as of such date.
(d) SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of this Amendment and the effect
thereof shall be confined to the provision so held to be invalid or
unenforceable.
(e) APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED
- 4 -
<PAGE>
TO HAVE BEEN MADE AND TO BE PERFORMABLE IN THE STATE OF ILLINOIS AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS.
(f) SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of the Agent, the Lenders and the Borrowers
and their respective successors and assigns; PROVIDED, HOWEVER, that
neither Borrower may assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Agent
and the Lenders.
(g) COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and
the same instrument.
(h) HEADINGS. The headings, captions and arrangements used in
this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
[signatures continued on following page]
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment under seal
on the date first written above.
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
INTERMAT, INC.
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANK OF AMERICA, NATIONAL ASSOCIATION,
as Agent
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
BANK OF AMERICA, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Brian J. Wright
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MELLON BANK, N.A.,
as a Lender
By: /s/ Daniel Clancy
---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 6 -
<PAGE>
CONSENTS AND REAFFIRMATIONS
Each of the undersigned (individually, a "Guarantor"), (i) consents to
and approves the execution and delivery of this Amendment by the parties hereto,
(ii) agrees that this Amendment does not and shall not limit or diminish in any
manner the obligations of such Guarantor under such Guarantor's Guaranty dated
as of May 8, 1998, executed by such Guarantor and delivered to the Agent and the
Lenders, or under any of the other documents executed and/or delivered by such
Guarantor in connection with such Guarantor's Guaranty, and agrees that such
obligations of such Guarantor would not be limited or diminished in any manner
even if such Guarantor had not executed this Amendment, (iii) agrees that this
Amendment shall not be construed as requiring the consent of such Guarantor in
any other circumstance, (iv) reaffirms its obligations under such Guarantor's
Guaranty and such other related documents, and (v) agrees that such Guarantor's
Guaranty and such other related documents remain in full force and effect and
are each hereby ratified and confirmed in all respects.
Date: March 2, 2000
STRATEGIC DISTRIBUTION, INC.
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
STRATEGIC DISTRIBUTION (CANADA) HOLDINGS, INC.
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
STRATEGIC DISTRIBUTION (CANADA) COMPANY/
STRATEGIC (CANADA) COMPAGNIE DE DISTRIBUTION
By: /s/ John M. Sergey
---------------------------------
Name:
-------------------------------
Title:
------------------------------
- 7 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,468
<SECURITIES> 0
<RECEIVABLES> 55,799
<ALLOWANCES> 0
<INVENTORY> 57,846
<CURRENT-ASSETS> 127,975
<PP&E> 15,671
<DEPRECIATION> 0
<TOTAL-ASSETS> 147,805
<CURRENT-LIABILITIES> 56,999
<BONDS> 20
0
0
<COMMON> 3,138
<OTHER-SE> 95,184
<TOTAL-LIABILITY-AND-EQUITY> 147,805
<SALES> 87,309
<TOTAL-REVENUES> 87,309
<CGS> 69,568
<TOTAL-COSTS> 79,384
<OTHER-EXPENSES> 8,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 414
<INCOME-PRETAX> 42,200
<INCOME-TAX> 16,291
<INCOME-CONTINUING> 25,909
<DISCONTINUED> (650)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,259
<EPS-BASIC> 0.82
<EPS-DILUTED> 0.82
</TABLE>
