<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
--------------
Commission file number 1-9375
------
Sun Distributors L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2439550
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2600 One Logan Square
Philadelphia, Pennsylvania 19103
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(215) 665-3650
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed from 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 _____ NO X
-----
<PAGE>
SUN DISTRIBUTORS L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1995
(Unaudited), December 31, 1994, and March 31,
1994 (Unaudited) 3
Consolidated Statements of Income for the three
months ended March 31, 1995 and 1994 (Unaudited) 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1995 and 1994
(Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II. OTHER INFORMATION 12
SIGNATURES 13
2
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
----------------------- MARCH 31, 1995 MARCH 31, 1994
(Unaudited) DECEMBER 31, 1994* (Unaudited)
-------------- ------------------ --------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 11,963 $ 4,903 $ 2,814
Accounts and notes receivable, net 78,495 77,521 90,810
Inventories 86,745 92,653 96,267
Other current assets 6,624 6,703 5,063
-------- -------- --------
Total current assets 183,827 181,780 194,954
Property and equipment, net 21,079 27,514 29,513
Goodwill 44,450 48,458 55,034
Other intangibles 1,873 2,477 3,529
Deferred income taxes 2,348 2,144 1,485
Other assets 735 3,813 766
-------- -------- --------
Total assets $254,312 $266,186 $285,281
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable, trade $48,292 $44,435 $56,288
Notes payable 2,116 2,709 3,208
Current portion of senior notes 4,795 18,970 5,700
Current portion of capitalized lease obligations 40 387 586
Distributions payable to partners 4,901 7,774 1,603
Accrued expenses:
Salaries and wages 3,966 7,131 4,253
Interest on senior notes 2,223 661 2,811
Management fee due the general partner 821 3,330 2,486
Income and other taxes 3,693 3,338 3,376
Other accrued expenses 15,268 16,985 14,508
-------- -------- --------
Total current liabilities 86,115 105,720 94,819
Senior notes 70,330 70,330 89,300
Bank revolving credit --- --- 17,000
Capitalized lease obligations --- 4,451 4,764
Deferred compensation 7,044 6,398 5,855
Other liabilities 52 68 426
Commitments and contingencies
-------- -------- --------
Total liabilities 163,541 186,967 212,164
-------- -------- --------
Partners' capital:
General partner 906 791 732
Limited partners:
Class A interests 67,642 67,642 67,642
Class B interests 23,737 12,300 6,257
Class B interests held in treasury (1,514) (1,514) (1,514)
-------- -------- --------
Total partners capital 90,771 79,219 73,117
-------- -------- --------
Total liabilities and partners capital $254,312 $266,186 $285,281
======== ======== ========
</TABLE>
*Reclassified for comparative purposes
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(dollars in thousands, except for partnership interest amounts)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Net sales $154,792 $175,109
Cost of sales 93,351 107,652
-------- --------
Gross profit 61,441 67,457
-------- --------
Operating expenses:
Selling, general and administrative expenses 53,682 57,689
Management fee to general partner 821 821
Depreciation 913 1,176
Amortization 517 686
-------- --------
Total operating expenses 55,933 60,372
-------- --------
Income from operations 5,508 7,085
Interest income 269 13
Interest expense 2,090 2,472
Other expense, net (207) (385)
Gain on sale of divisions (note 3) 16,500 --
-------- --------
Income before provision for income taxes 19,980 4,241
Provision for income taxes 118 76
-------- --------
Income before extraordinary loss 19,862 4,317
Extraordinary loss from early extinguishment
of debt (note 4) (629) --
-------- --------
Net income $19,233 $4,165
======== ========
Net income allocated to partners:
General partner $192 $42
-------- --------
Class A limited partners $3,052 $3,052
-------- --------
Class B limited partners $15,989 $1,071
-------- --------
Earnings per Limited partnership interest:
Income before extraordinary loss
- Class A interest $.27 $.27
- Class B interest $.77 $.05
Extraordinary loss
- Class A interest -- --
- Class B interest ($.03) --
Net income
- Class A interest $.27 $.27
- Class B interest $.74 $.05
Weighted average number of outstanding
limited partnership interests:
- Class A interests 11,099,573 11,099,573
- Class B interests 21,675,746 21,675,746
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
SUN DISTRIBUTORS L. P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $19,233 $4,165
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,430 1,862
Gain on sale of division (16,500) --
Extraordinary loss 629 --
Provision for deferred compensation 838 492
Deferred income tax benefit (204) (75)
Changes in current operating items:
Increase in accounts and notes receivable (6,337) (10,804)
Increase in inventories (2,626) (650)
Decrease (increase) in other current assets (846) 231
Increase in accounts payable 6,497 5,955
Increase in accrued interest 1,562 2,108
Decrease in other accrued liabilities (7,899) (76)
Other items, net 194 (419)
------- -------
Net cash provided by (used for) operating activities (4,029) 2,789
------- -------
Cash flows from investing activities:
Proceeds from sale of division 37,786 --
Capital expenditures (1,059) (1,189)
Proceeds from sale of property and equipment 449 143
Other, net (44) 156
------- -------
Net cash provided by (used for) investing activities 37,132 (890)
------- -------
Cash flows from financing activities:
Early extinguishment of senior notes (14,175) --
Borrowings under the bank credit agreement -- 7,000
Cash distributions to partners (10,631) (7,055)
Prepayment penalties (629) --
Repayments under other credit facilities, net (593) (203)
Principal payments under capitalized lease obligations (15) (154)
------- -------
Net cash used for financing activities (26,043) (412)
------- -------
Net increase in cash and cash equivalents 7,060 1,487
Cash and cash equivalents at beginning of period 4,903 1,327
------- -------
Cash and cash equivalents at end of period $11,963 $2,814
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Basis of Presentation:
The accompanying financial statements include the consolidated accounts of
Sun Distributors L.P. (the "Company") and its subsidiary partnership, SDI
Operating Partners, L.P. (the "Operating Partnership"). All significant
intercompany balances and transactions have been eliminated. The Operating
Partnership is a wholesale distributor of industrial products comprised of
three product groups with eleven operating divisions and an inventory
management services division. Certain divisions have operations in Canada
and Mexico.
The accompanying consolidated financial statements and related notes are
unaudited, except for the balance sheet as of December 31, 1994; however, in
management's opinion all adjustments (consisting of normal recurring
accruals) considered necessary for the fair presentation of financial
position, income and cash flows for the periods shown have been reflected.
Results for the interim period are not necessarily indicative of those to be
expected for the full year.
Certain information in note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to Form 10-Q requirements
although the Company believes that disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's report on Form 10-K for the year
ended December 31, 1994.
2. Related Party Transaction:
In March 1995, the Operating Partnership paid the 1994 management fee of
$3,330 due the General Partner, SDI Partners I, L.P. (the "GP").
3. Gain on Sale of Division:
On January 3, 1995, the Operating Partnership sold certain assets of Dorman
Product for a cash consideration, net of expenses, of approximately $35,500
(subject to certain post-closing adjustments) and the assumption of certain
liabilities. The Operating Partnership recorded a gain on the sale in the
amount of $16,500 or $.75 per Class B interest included in the consolidated
statement of income for the three months ended March 31, 1995. The aggregate
assets sold, net of liabilities, in connection with the sale of Dorman
Products was approximately $19,000.
4. Extraordinary Loss:
During the first quarter of 1995, the Company recorded an extraordinary loss
of $629 or approximately $.03 per Class B limited partnership interest due to
early extinguishment of a portion of the Company's Series A 9.08% and Series
B 8.44% senior notes. The extraordinary loss consists entirely of prepayment
penalties. (See Note 5, Lines of of Credit and Long-Term Debt).
6
<PAGE>
SUN DISTRIBUTORS L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(dollars in thousands)
5. Lines of Credit and Long-Term Debt:
As of March 31, 1995, the Operating Partnership had $39,774 available under
its $50,000 Bank Credit Agreement which provides revolving credit for working
capital purposes and acquisitions. The Company had no bank borrowings
outstanding at March 31, 1995 under the Bank Credit Agreement. The $10,226
outstanding under the Bank Credit Agreement represented letter of credit
commitments only.
The Operating Partnership has other confirmed credit facilities available in
the amount of $500 for letter of credit commitments. As of March 31, 1995,
there were no letters of credits issued under this facility. In addition, an
indirect, wholly-owned Canadian subsidiary of the Operating Partnership has a
$2,500 Canadian dollar line of credit for working capital purposes of which
$290 USD was outstanding at March 31, 1995.
In connection with the sale of the Electrical Group divisions in December
1994 and the Dorman Products division in January 1995, the Operating
Partnership was required to offer the holders of its senior notes prepayment
in the amount of $14,175 which the noteholders accepted. Prepayment of the
senior notes was made on March 14, 1995, including accrued interest thereon
of $360 and a prepayment penalty of $629. (See Note 4 - Extraordinary Loss.)
6. Contingencies:
Certain legal proceedings are pending which are either in the ordinary course
of business or incidental to the Company's business. Those legal proceedings
incidental to the business of the Company are generally not covered by
insurance or other indemnity. In the opinion of management, the ultimate
resolution of these matters will not have a material effect on the
consolidated financial position, operations or cashflows of the Company.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Results of Operations
Three Months Ended March 31, 1995 and March 31, 1994
----------------------------------------------------
First quarter 1995 net income of $19.2 million included a $16.5 million gain
from the sale of the Company's Dorman Products division on January 3, 1995 and
an extraordinary loss of $.6 million related to the early extinguishment of
debt. Net income increased $.2 million or 5.9% from the amount earned in the
prior year quarter of $4.2 million, excluding these items and first quarter 1994
income from divisions sold (Dorman and the Electrical Group divisions sold in
December 1994).
First quarter sales were $154.8 million compared with $175.1 million recorded in
the prior year period. Excluding $34.6 million in 1994 sales from the
aforementioned divisions sold, net sales increased $14.3 million or 10.2% from
the first quarter of 1994. 1995 sales results reflect internal growth
strategies developed in the early '90's and continued economic expansion across
all of the Company's product markets. The change in sales by product group
excluding divisions sold are as follows:
<TABLE>
<CAPTION>
Sales Increase (Decrease)
-------------------------
Amount %
------ -
<S> <C> <C>
Fluid Power Products Group 7.9 million 12.6%
Maintenance Products Group 5.7 million 13.6%
Sun Inventory Management Company ("SIMCO") .8 million 15.8%
Glass Products Group (.1) million (.5)%
</TABLE>
The sales decline in the Glass Products group is attributable to the
discontinuation of certain product lines and markets served resulting in a sales
reduction of $1.3 million from the prior year quarter. On a comparable basis,
sales increased $1.2 million or 4.0% in the Glass Products group.
Total cost of sales for the first quarter of 1995 decreased $14.3 million or
13.3% from the comparable quarter in 1994 due primarily to the aforementioned
divisions sold. Excluding 1994 cost of sales from divisions sold, cost of goods
sold increased $8.9 million or 10.6% due primarily to increased sales levels in
the comparison period.
Gross margins in the first quarter of 1995 were 39.7% compared with 38.5% in the
1994 period. The increase is due mainly to the divestiture of Dorman and the
Electrical Group divisions which, in the aggregate, earned gross margins lower
than that of the Company on a consolidated basis.
A comparative summary of gross margins by product group, excluding divisions
sold, is as follows:
<TABLE>
<CAPTION>
1st Quarter
------------------
1995 1994
----- -----
<S> <C> <C>
Maintenance Products Group 64.6% 64.6%
Glass Products Group 32.7% 34.1%
Fluid Power Products Group 27.0% 27.3%
SIMCO Division 26.0% 26.7%
</TABLE>
8
<PAGE>
Excluding the divisions sold, gross margins were 39.7% in the first quarter of
1995 compared to 39.9% in the comparable period in 1994. The decrease is due
primarily to changes in sales mix in the Glass Products group.
Total selling, general and administrative ("S,G&A") expenses decreased $4.0
million or 6.9% during the three months ended March 31, 1995, compared with the
first quarter of 1994. Excluding divisions sold, SG&A expenses increased by
$6.0 million or 12.6% from the first quarter of 1994, comprised as follows:
increased selling expenses of $3.2 million or 14.8%, increased warehouse and
delivery expenses of $1.0 million or 10.8% and increased general and
administrative expenses of $1.8 million or 10.8%. The increase in SG&A expenses
supports increased 1995 sales levels and expansion programs by certain operating
units.
S,G&A expenses, excluding divestitures, as a percentage of sales were as follows
in the first quarter of 1995 and 1994:
<TABLE>
<CAPTION>
1st Quarter
---------------
1995 1994
------ -----
<S> <C> <C>
Selling Expenses 16.0% 15.4%
Warehouse and Delivery Expenses 6.3% 6.3%
General and Administrative Expenses 12.4% 12.2%
---- ----
Total S,G&A Expenses 34.7% 33.9%
==== ====
</TABLE>
The increase in S,G&A as a percentage of sales is due mainly to increased sales-
persons support payments, incentive programs and marketing efforts.
As calculated in accordance with the partnership agreement, the management fee
due the General Partner (the "GP") annually amounts to $3.3 million which is
based on 3% of the aggregate initial capital investment ($111 million) of the
limited partners. The management fee is accrued each quarter in the amount of
approximately $.8 million.
Depreciation expense decreased $.3 million in the comparison period due
primarily to a reduction in the depreciable fixed asset base as a result of the
divestiture of Dorman Products and the Electrical Group divisions.
Amortization expense decreased $.2 million in the comparison period due
primarily to a reduction in goodwill and other intangible assets as a result of
the divisions sold.
Interest income increased $.3 million in the comparison period due primarily to
investment of surplus cash generated from the sale of operating divisions
previously mentioned.
Interest expense decreased $.4 million in the comparison period due primarily to
reduced borrowing levels under the Company's revolving credit facility
aggregating $.2 million of interest expense savings and the prepayment of senior
notes on March 14, 1995 in the amount of $14.2 million which resulted in $.2
million of interest expense savings.
Currently, the Company incurs state and local income taxes on its domestic
operations and foreign income taxes on its Canadian and Mexican operations.
Also, the Company provides for deferred income taxes as determined in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which represent state and federal income tax benefits expected to be
realized after December 31, 1997, when the Company will be taxed as a
corporation.
9
<PAGE>
The allocation of net income to the GP is based on the GP's 1% ownership
interest in the profits of the Company. The allocation of net income to the
limited partners for financial statement purposes represents a 99% interest in
the profits of the Company. The net income allocation resulted in $.27 per
Class A limited partnership interest for the quarter ended March 31, 1995 and
March 31, 1994; and $.74 of income per Class B limited partnership interest in
the first quarter of 1995, compared with $.05 of income per Class B limited
partnership interest in 1994. The first quarter 1995 results include the gain
from sale of the Dorman Products division of $.75 per Class B interest and the
extraordinary loss of $.03 per Class B interest.
Excluding the extraordinary loss related to the early extinguishment of debt and
the gain on the sale of Dorman Products division, income per Class B limited
partnership interest amounted to $.01 in the first quarter of 1995 compared with
$.05 in the first quarter of 1994.
Liquidity and Capital Resources
- -------------------------------
Net cash used in operations during the first quarter of 1995 was $4.0 million,
compared with net cash provided by operations in the 1994 first quarter of $2.8
million, a difference of $6.8 million. The change was due primarily to
increased working capital reinvestment in operations in the comparison period of
approximately $6.4 million. The Company's net interest coverage ratio (earnings
before interest, taxes, gain from the sale of Dorman and the extraordinary loss
over net interest expense) improved to 2.91 in the first quarter of 1995 from
2.72 in the comparable prior year period.
The Company's cash position of $12.0 million as of March 31, 1995, increased
$7.1 million from the balance at December 31, 1994. Cash was provided during
this period primarily from proceeds from the sale of Dorman Products in the
amount of $37.8 million. Cash was used during the three months ended March 31,
1995, primarily by operations ($4 million), debt repayment ($14.8 million),
capital expenditures ($1.1 million) and distributions to general and limited
partners ($10.6 million).
The Company's working capital position of $97.7 million at March 31, 1995,
represented an increase of $21.7 million from the December 31, 1994 level of
$76.0 million. The increase is primarily attributable to the increased cash
balance of $7.1 million, reinvestment in working capital of $8.9 million, a
decrease in distributions payable to partners of $2.8 million and repayment of
the current portion of senior notes in the amount of $14.2 million less working
capital related to the sale of Dorman Products aggregating $11.3 million. The
Company's current ratio increased to 2.13 at March 31, 1995 from the December
31, 1994, level of 1.71.
The Company's financial position has strengthened as a result of the sale of its
Dorman Products and Electrical Group divisions. As of March 31, 1995, the
Company's total debt as a percentage of its consolidated capitalization is 46%
compared with 62% at March 31, 1994.
The Company anticipates spending approximately $3.5 million for capital
expenditures for the full year 1995, primarily for machinery and equipment.
10
<PAGE>
As of March 31, 1995, the Operating Partnership had $39.8 million available
under its $50.0 million Bank Credit Agreement which provides revolving credit
for working capital purposes and acquisitions. The Company had no bank
borrowings outstanding at March 31, 1995 under the Bank Credit Agreement. The
$10.2 million outstanding under the Bank Credit Agreement represented letter of
credit commitments only. In addition, an indirect, wholly-owned Canadian
subsidiary of the Operating Partnership has a $2.5 million Canadian dollar line
of credit for working capital purposes of which $.3 million USD was outstanding
at March 31, 1995.
In accordance with its Senior Note and Bank Credit Agreements, the Company was
not permitted to make acquisitions in 1994. Management intends to resume its
acquisition strategy in 1995, with permissible spending up to $15.0 million in
the aggregate to complement internal growth. The acquisition program will be
concentrated on fluid power and glass.
Proceeds from the sale of the operating divisions described previously will be
used to reduce debt and for general Company purposes including acquisitions for
integration with its remaining three product groups and possible repurchase of
limited partnership interests. On March 14, 1995, the Company prepaid a portion
of its senior notes in the amount of $14.2 million, including accrued interest
thereon of $.4 million and a make-whole penalty of $.6 million.
The taxable gain from sale of the Dorman Products division will be allocated
entirely to Class B Interest holders of record on December 30, 1994, which is
currently estimated at approximately $.80 per Class B Interest. Related to the
sale, the Partnership paid a partial tax distribution on April 10, 1995 to Class
B holders of record as of December 30, 1994, in the amount of $.15 per Class B
Interest. The remaining balance of the tax distribution will be paid on March
31, 1996, upon determination of the taxable gain for 1995 federal income tax
purposes.
Certain legal proceedings are pending which are either in the ordinary course of
business or incidental to the Company's business. Those legal proceedings
incidental to the business of the Company are generally not covered by insurance
or other indemnity. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the consolidated financial
position, operations or cashflows of the Company.
11
<PAGE>
PART II
OTHER INFORMATION
Items 1-5 - None
- ----------------
Item 6 - Exhibits and Other Reports on Form 8-K
- -----------------------------------------------
Instruments Defining the Rights of Security Holders,
Including Indentures
4.1 Amendment Nos. 1 and 2 to Note Purchase Agreement
Material Contracts
10.1 Amendment No. 4 to Credit Agreement
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.
SUN DISTRIBUTORS L.P.
BY: /s/ LOUIS J. CISSONE BY: /s/ JOSEPH M. CORVINO
____________________________ ___________________________
Louis J. Cissone Joseph M. Corvino
Senior Vice President and Vice President and Controller
Chief Financial Officer
(Chief Accounting Officer)
DATE: May 12, 1995
13
<PAGE>
AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT
This Amendment No. 1 to Note Purchase Agreement ("Amendment No. 1") is
made this 30th day of March 1994 by and among SDI Operating Partners, L.P. (the
"Company") and the Note Purchasers whose names appear in the acceptance form at
the end hereof.
WHEREAS, the Company and the Note Purchasers entered into a Note Purchase
Agreement dated December 15, 1992, subject to the terms and conditions set forth
therein; and
WHEREAS, the Company and the Noteholders wish to enter into this Amendment
No. 1 to modify certain covenants set forth in the Note Purchase Agreement,
NOW, THEREFORE, in consideration of additional one-time interest of .05%
paid concurrently herewith, and the Agreements herein set forth and intending to
be legally bound hereby, the parties hereto agree as follows:
Paragraph 7.3 of the Note Purchase Agreement is hereby amended and restated
in its entirety as follows:
(S)7.3 Debt. A. The Company will not, and will not permit any
----
Restricted Subsidiary to create, assume, incur or guarantee any
Debt, unless
(1) in the case of the Company, on the date such Debt is
incurred and after giving effect thereto and to the
concurrent retirement of any other Debt,
(i) the ratio of (x) Consolidated Debt to (y) EBITA is
less than the ratio specified below opposite the
period during which such Debt is to be incurred:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From January 1, 1994 through
& including September 30, 1994 4.35 to 1.00
From October 1, 1994 through
& including December 31, 1994 3.70 to 1.00
From January 1, 1995 through
& including September 30, 1995 4.15 to 1.00
From October 1, 1995 through
& including December 31, 1995 3.20 to 1.00
From January 1, 1996 through
& including September 30, 1996 3.65 to 1.00
From October 1, 1996 through
& including December 31, 1996 2.80 to 1.00
From January 1, 1997 through
& including September 30, 1997 3.25 to 1.00
From October 1, 1997 through
& including December 31, 1997 2.45 to 1.00
On and at all times after
January 1, 1998 2.90 to 1.00
</TABLE>
<PAGE>
(ii) The ratio of (x) Consolidated Debt to (y) EBITDA
minus Capital Expenditures is less than the ratio
specified below opposite the period during which
such Debt is to be incurred:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From January 1, 1994 through
& including September 30, 1994 4.23 to 1.00
From October 1, 1994 through
& including December 31, 1994 3.70 to 1.00
From January 1, 1995 through
& including September 30, 1995 4.10 to 1.00
From October 1, 1995 through
& including December 31, 1995 3.25 to 1.00
From January 1, 1996 through
& including September 30, 1996 3.75 to 1.00
From October 1, 1996 through
& including December 31, 1996 2.90 to 1.00
From January 1, 1997 through
& including September 30, 1997 3.40 to 1.00
From October 1, 1997 through
& including December 31, 1997 2.60 to 1.00
On and at all times after
January 1, 1998 3.10 to 1.00
</TABLE>
(2) in the case of a Restricted Subsidiary,
(i) such Debt is owed to the Company or a Wholly-owned
Subsidiary,
(ii) such Debt is Funded Debt which exists at the time a
person becomes a Restricted Subsidiary (and is not
incurred in anticipation thereof), provide that at
the time such person becomes a Restricted
Subsidiary, and after giving effect thereto, the
Company shall be entitled to incur at least $1 of
additional Debt under clause (1) above and shall be
in compliance with Subsection B below, and provided
further that at the time such person becomes a
Restricted Subsidiary, and after giving effect
thereto, the aggregate outstanding amount of Funded
Debt of Restricted Subsidiaries incurred pursuant to
this clause (ii) shall not exceed 8% of Consolidated
Capitalization or
(iii) such Debt is listed on Exhibit C (or any refinancing
of such Debt on substantially similar terms).
<PAGE>
B. The Company will not permit Consolidated Funded Debt (including any
Debt outstanding under the Revolving Credit Facility) during any
period specified below to exceed the percentage of Consolidated
Capitalization set forth opposite such period:
<TABLE>
<CAPTION>
Percentage of
Consolidated
Period Capitalization
------ --------------
<S> <C>
From January 1, 1994 through
& including September 30, 1994 68.3%
From October 1, 1994 through
& including December 31, 1994 65.7%
From January 1, 1995 through
& including September 30, 1995 66.2%
From October 1, 1995 through
& including December 31, 1995 62.9%
From January 1, 1996 through
& including September 30, 1996 64.2%
From October 1, 1996 through
& including December 31, 1996 58.5%
From January 1, 1997 through
& including September 30, 1997 59.5%
From October 1, 1997 through
& including December 31, 1997 56.0%
On and at all times after
January 1, 1998 56.0%
</TABLE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have, by their duly authorized
officers or partners, executed this Amendment No. 1 on the date first above
written.
SDI PARTNERS I, L.P.
by its General Partner
Lehman/SDI, Inc.
By /s/Louis J. Cissone
------------------------
LOUIS J. CISSONE
Senior Vice President
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/William Stuart Shepetin
---------------------------
WM. STUART SHEPETIN
Associate Director
Private Placements
NEW YORK LIFE INSURANCE COMPANY
By
------------------------
TIMOTHY M. REIL
Investment Vice President
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
By
------------------------
TIMOTHY M. REIL
Investment Vice President
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By
------------------------
MICHAEL P. HERMSEN
Second Vice President
<PAGE>
IN WITNESS WHEREOF, the parties hereto have, by their duly authorized
officers or partners, executed this Amendment No. 1 on the date first above
written.
SDI PARTNERS I, L.P.
by its General Partner
Lehman/SDI, Inc.
By /s/LOUIS J. CISSONE
------------------------
LOUIS J. CISSONE
Senior Vice President
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
------------------------
WM. STUART SHEPETIN
Associate Director
Private Placements
NEW YORK LIFE INSURANCE COMPANY
By /s/TIMOTHY M. REIL
------------------------
TIMOTHY M. REIL
Investment Vice President
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
By /s/TIMOTHY M. REIL
------------------------
TIMOTHY M. REIL
Investment Vice President
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By
------------------------
MICHAEL P. HERMSEN
Second Vice President
<PAGE>
IN WITNESS WHEREOF, the parties hereto have, by their duly authorized
officers or partners, executed this Amendment No. 1 on the date first above
written.
SDI PARTNERS I, L.P.
by its General Partner
Lehman/SDI, Inc.
By /s/LOUIS J. CISSONE
------------------------
LOUIS J. CISSONE
Senior Vice President
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
------------------------
WM. STUART SHEPETIN
Associate Director
Private Placements
NEW YORK LIFE INSURANCE COMPANY
By
------------------------
TIMOTHY M. REIL
Investment Vice President
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
By
------------------------
TIMOTHY M. REIL
Investment Vice President
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By /s/MICHAEL P. HERMSEN
------------------------
MICHAEL P. HERMSEN
Second Vice President
<PAGE>
AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT
This Amendment No. 2 to Note Purchase Agreement ("Amendment No. 2") is made
this ______ day of ______ 1995 by and among SDI Operating Partners, L.P. (the
"Company") and the Note Purchasers whose names appear in the acceptance form
at the end hereof.
WHEREAS, the Company and the Note Purchasers entered into a Note Purchase
Agreement dated December 15, 1992 and Amendment No. 1 thereto dated March 30,
1994; and
WHEREAS, the Company and the Noteholders wish to enter into this Amendment
No. 2 to modify certain covenants and definitions relating thereto set forth in
the Note Purchase Agreement;
NOTE, THEREFORE, in consideration of the one-time interest of .05% paid
concurrently herewith, and the agreements herein set forth and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 7.3 A is hereby amended to read as follows (deletions in
[brackets and crossed-out]; additions in bold):
"(S)7.3 Debt. A. The Company will not, and will not permit any
----
Restricted Subsidiary to create, assume, incur or guarantee any Debt, unless
(1) in the case of the Company, on the date such Debt is incurred
and after giving effect thereto and to the concurrent retirement of any
other Debt,
(i) the ratio of (x) Consolidated Debt to (y) EBITA is less
than the ratio specified below opposite the period during which such
Debt is to be incurred:
<PAGE>
Period Ratio
------ -----
From January 1, 1994 through
& including September 30, 1994 4.35 to 1.00
From October 1, 1994 through
& including December 31, 1994 3.70 to 1.00
From January 1, 1995 through
& including September 30, 1995 4.15 to 1.00
From October 1, 1995 through
& including December 31, 1995 3.20 to 1.00
From January 1, 1996 through
& including September 30, 1996 3.65 to 1.00
From October 1, 1996 through
& including December 31, 1996 2.80 to 1.00
From January 1, 1997 through
& including September 30, 1997 3.25 to 1.00
From October 1, 1997 through
& including December 31, 1997 2.45 to 1.00
On and at all times after
January 1, 1998 [2.90] 2.45 to 1.00
(ii) the ratio of (x) Consolidated Debt to (y) EBITDA minus Capital
Expenditures is less than the ratio specified below opposite the period
during which such Debt is to be incurred:
Period Ratio
------ -----
From January 1, 1994 through
& including September 30, 1994 4.23 to 1.00
From October 1, 1994 through
& including December 31, 1994 3.70 to 1.00
From January 1, 1995 through
& including September 30, 1995 4.10 to 1.00
From October 1, 1995 through
& including December 31, 1995 3.25 to 1.00
From January 1, 1996 through
& including September 30, 1996 3.75 to 1.00
From October 1, 1996 through
& including December 1, 1996 2.90 to 1.00
From January 1, 1997 through
& including September 30, 1997 3.40 to 1.00
From October 1, 1997 through
& including December 31, 1997 2.60 to 1.00
On and at all times after
January 1, 1998 [3.10] 2.60 to 1.00
<PAGE>
(2) in the case of a Restricted Subsidiary,
(i) such Debt is owed to the Company or a Wholly-owned
Subsidiary,
(ii) such debt is Funded Debt which exists at the time a
person becomes a Restricted Subsidiary (and is not incurred in
anticipation thereof), provided that at the time such person
becomes a Restricted Subsidiary, and after giving effect
thereto, the Company shall be entitled to incur at least $1 of
additional Debt under clause (1) above and shall be in
compliance with Subsection B below, and provided further that at
the time such person becomes a Restricted Subsidiary, and after
giving effect thereto, the aggregate outstanding amount of
Funded Debt of Restricted Subsidiaries incurred pursuant to
this clause (ii) shall not exceed 8% of Consolidated
Capitalization or
(iii) such Debt is listed on Exhibit C (or any refinancing
of such Debt on substantially similar terms)."
2. Section 7.5 is hereby amended to read as follows:
"(S)7.5. Maintenance of Consolidated Net Working Capital. The
-----------------------------------------------
Company will maintain at all times Consolidated Net Working Capital in an amount
at least equal to $90,000,000 at December 31, 1994, $70,000,000 in 1995 and
$80,000,000 thereafter."
3. Section 7.6 is hereby amended to read as follows:
"(S)7.6. Maintenance of Consolidated Current Ratio. The Company
-----------------------------------------
will maintain at all times Consolidated Current Assets in an amount at least
equal to [200%] 195% at December 31, 1994, 140% in 1995 and 150% thereafter of
Consolidated Current Liabilities."
4. Section 7.9 is hereby amended to read as follows:
"(S)7.9. Restricted Payments and Restricted Investments. The
----------------------------------------------
Company will not directly or indirectly (i) make any Restricted Payment or (ii)
make or permit any Restricted Subsidiary to make any Restricted Investment,
unless, on the date of payment or distribution in the case of any proposed
Restricted Payment or on the date of the making thereof in the case of any
proposed Restricted Investment (the "Computation Date"), and after giving effect
----------------
thereto,
-3-
<PAGE>
A. the sum of
(1) the aggregate amount of all Restricted Payments during the
period commencing on October 1, 1992 and ending on and including the
Computation Date (the "Computation Period"), plus
------------------
(2) the aggregate amount of all Management Fees paid during the
Computation Period, plus
(3) the aggregate amount of all Restricted Investments of the
Company and its Restricted Subsidiaries existing on the Computation
Date, shall not exceed an amount equal to
(4) $15,000,000 plus,
(5) 75% (or minus 100%, if negative) of the aggregate amount of
Consolidated Net Cash Flow for the Computation Period, plus, but
only in the case of a Restricted Investment or a Restricted Payment
specified in Clause (ii) of the definition of "Restricted Payment",
(6) 100% of the aggregate amount received by the Company as the
net cash proceeds from the simultaneous sale of partnership
interests in the Company (other than to a Subsidiary) during the
Computation Period; and
B. no Event of Default or Default shall have occurred and be
continuing.
Notwithstanding anything to the contrary above, (x) the Company
will not, and will not permit any Subsidiary to, directly or indirectly, make
any payment on account of the purchase, redemption or other retirement of the
Class A or Class B limited partnership interests of the Limited Partner (except
as provided in the definition of Restricted Payment in Section 8.2 hereof) and
(y) if at any time the Company shall reorganize as a corporation (i) the date
referred to in Subsection A(1) above shall be deemed to the first day of the
fiscal quarter in which such reorganization occurs and all Computation Periods
from that time forward will begin as of such first day of such fiscal quarter
and (ii) the amount to be added (or subtracted) pursuant to Subsection A(5)
shall be 50% (or, in the case of a deficit, minus 100%) of the aggregate amount
-----
of Consolidated Net Income for the Computation Period (rather than 75% of
Consolidated Net Cash Flow)."
<PAGE>
5. Section 7.12 is hereby amended to read as follows:
"(S)7.12. Sales of Assets. The Company will not, and will not
---------------
permit any Restricted Subsidiary to, directly or indirectly, sell, lease or
otherwise dispose of any of its assets to any person, except that
A. the Company or any Restricted Subsidiary may engage in a
transaction as permitted by, and pursuant to, (S)7.11, and the Company or
a Restricted Subsidiary may make sales from inventory in the ordinary
course of business; and
B. the Company or any Restricted Subsidiary may dispose of any of
its assets if (x) the aggregate book value of all assets proposed to be
disposed of plus the aggregate book value (at the time of disposition
thereof) of all other assets disposed of by the Company and its
Restricted Subsidiaries under this Subsection in the 12 month period
immediately preceding the date of such proposed disposition, does not
exceed 15% of Consolidated Net Tangible Assets as of the end of the
fiscal year immediately preceding the date of such proposed disposition
and (y) the aggregate book value (at the time of disposition thereof) of
all assets disposed of by the Company and its Restricted Subsidiaries
under this Subsection subsequent to [September 30, 1992] January 4, 1995
(see attached Schedule of Consolidated Net Tangible Assets), plus the
aggregate book value of all the assets then proposed to be disposed of,
does not exceed [25%] 15% of Consolidated Net Tangible Assets as of [the
Closing Date] January 4, 1995 (provided that, if concurrently with any
such sale of assets or within 30 days thereof, substantially all of the
net proceeds of such sale are used by the Company or a Restricted
Subsidiary to acquire other property consisting of equipment or real
property used in the wholesale distribution of industrial products
business, such sale shall be disregarded for purposes of calculations
pursuant to this Subsection B).
Notwithstanding anything to the contrary above, but subject to
(S)7.11, the Company or any Restricted Subsidiary may dispose of assets having
an aggregate book value greater than the amount otherwise permitted by
Subsection B above, if immediately after such disposition and giving effect
thereto no Event of Default or Default shall have occurred and be continuing,
and upon compliance with the following provisions. If the Company or any
Restricted Subsidiary disposes of any of its assets (other than pursuant to
Subsection A above) such that the aggregate book value (at the time of
disposition thereof) of all assets so disposed of shall be greater than the
amount otherwise permitted by Subsection B above (such excess being
hereinafter called the "Excess Amount"), the Company shall promptly (and in
-------------
any event within 10 days) after the effective date of such disposition give
-5-
<PAGE>
written notice thereof (specifying the Excess Amount and the Applicable Share
thereof) to you and any other holder of any of the Notes. Such notice shall
contain an offer of the Company to apply, within 60 (but not less than 40) days
of the date thereof (subject to said offer lapsing as hereinbelow provided), an
amount equal to the Applicable Share of the Excess Amount to the pro rata
repayment of the Notes. Such notice shall specify the date fixed for such
proposed prepayment and the aggregate principal amount of the Notes, and of the
Notes held by each holder, proposed to be prepaid (containing calculations in
reasonable detail showing how such amounts were determined). Any such prepayment
of the Notes shall be at the principal amount so to be prepaid, together with
interest accrued thereon to the date of such prepayment plus an amount equal to
the Make-Whole Amount for each such Note. The Company shall prepay, on the date
specified in such notice, the Notes held by each holder who shall notify the
Company in writing within 30 days after receipt of such notice that such holder
will accept the prepayment proposed to be made to such holder, and said offer to
such holder shall lapse as to any portion of such proposed aggregate prepayment
not so accepted. Any portion of the Excess Amount which is not applied to the
prepayment of the Notes pursuant to the foregoing provisions shall be applied by
the Company to the prepayment of the Debt outstanding under the Revolving Credit
Facility and the permanent reduction of the commitments thereunder (and, if the
amount to be so applied exceeds the amount of Debt outstanding under the
Revolving Credit Facility, such commitments shall be reduced in an amount equal
to such excess).
Notwithstanding anything to the contrary above, [(i) the Excess Amount
resulting from the sale or other disposition of the Electrical Group in excess
of the 15% limitation set forth in clause (x) of Subsection B above (but not in
excess of the 25% limitation set forth in clause (y) of Subsection B above)
shall be deemed to be an amount equal to 50% of the actual Excess Amount so
resulting from such sale or other disposition and (ii)] the Company may sell or
otherwise dispose of all or any portion of the assets constituting, or stock of,
SIMCO on an arms' length basis and for fair market value and the book value of
the assets of SIMCO so disposed of in an amount up to $10,000,000 shall be
disregarded for the purposes of calculations pursuant to Subsection B above,
provided that the proceeds of such sale in respect of the book value so
disregarded shall be applied by the Company to the repayment of the Notes
(pursuant to (S)4.2) or the Debt outstanding under Revolving Credit Facility
(and, in the case of any such application to Debt outstanding under the
Revolving Credit Facility, to the permanent reduction of the commitments
thereunder) or to the acquisition of property used in the wholesale distribution
of industrial products business of the Company and its Restricted Subsidiaries.
-6-
<PAGE>
As used in this (S)7.12, the "Applicable Share" of the Excess Amount shall
----------------
mean the amount which bears the same relationship to such Excess Amount as the
aggregate outstanding principal amount of the Notes bears to the sum of the
aggregate outstanding principal amount of the Notes and the amount of the
commitment under the Revolving Credit Facility on the date of determination."
6. Section 7.13 is hereby amended to read as follows:
"(S)7.13. Acquisitions. The Company will not, and will not permit any
------------
Restricted Subsidiary to, make any Acquisition if the amount of cash and
property (valued at the greater of its fair market value (as determined by a
general partner of the Company or its net book value) to be expended in
connection with the proposed Acquisition together with all other amounts
expended by the Company and its Restricted Subsidiaries in connection with all
other Acquisitions in the calendar year of the proposed Acquisition would exceed
the Permitted Amount for such year. If as of the last day of any calendar year
the Permitted Amount is in excess of the amount actually expended by the Company
and its Restricted Subsidiaries in connection with all Acquisitions in such
calendar year, the lesser of such excess and $5,000,000 (the "Carryover Amount")
may be carried over to the following calendar year and added to the Permitted
Amount for such following calendar year provided that [the sum of (x) the amount
so carried over plus (y) the Acquisition expenditures for such following
calendar year shall be deducted from the Permitted Amount (including therein any
amount so carried over) when determining the amount, if any, which may be
carried from such following calendar year to the next following calendar year
(and, except as so provided in this sentence, Permitted Amounts are available on
a non-cumulative basis).] (x) the total amount of Acquisition expenditures
(Permitted Amount plus Carryover Amount) in any calendar year will not exceed
$20,000,000 and (y) the cumulative Acquisition expenditures will not exceed the
amount equal to (N minus 1994) x $15,000,000, where N is the current calendar
year.
As used in this (S)7.13, the "Permitted Amount" shall be $15,000,000 for
----------------
1995 and any later year. [zero for 1993 and for any later year (the "Acquisition
-----------
Year") shall be an amount determined as follows: If Adjusted Cash Flow for the
- ----
year preceding the Acquisition Year (x) equalled or exceeded the Cash Flow
Target (as determined below) for such year, the Permitted Amount for such
Acquisition Year shall be $5,000,000 plus an amount equal to 75% of any such
excess above such Cash Flow Target (but in no event greater than $7,500,000) if
such Acquisition Year is 1998 or earlier and $7,500,000 if such Acquisition Year
is 1999 or later, (y) was less than the Cash Flow Target for such year but equal
to or greater than 80% of the Cash Flow Target for such year, the Permitted
Amount for such Acquisition Year shall be $4,000,000 if such Acquisition Year
is
-7-
<PAGE>
[1998 or earlier and $5,000,000 if such Acquisition Year is 1999 or later and
(z) was less than 80% of the Cash Flow Target for such Year, the Permitted
Amount for such Acquisition Year shall be $3,000,000.]
[The Cash Flow Target for any year shall be the amount set forth
below opposite such year:
Year Cash Flow Target
---- ----------------
1993 $6,003,000
1994 4,082,000
1995 5,546,000
1996 6,161,000
1997 6,830,000
1998 5,602,000
1999 4,318,000
2000 2,058,000
2001 825,000]"
7. The following definitions in Section 8.2 are hereby amended
to read as follows:
"'Change of Control' shall mean the occurrence of any of the
-----------------
following events:
(i) if during any three year period after the date of this
agreement, any two of Louis J. Cissone, Joseph M. Corvino, Norman V. Edmonson,
[C. Erik Larson,] Donald T. Marshall, John P. McDonnell, Max W. Hillman and
Harold J. Cornelius shall no longer be senior officers of the Company, unless
(x) such event occurs because of the applicable officer's death or disability or
(y) such officer is replaced by an individual who has been identified in writing
to each holder of a Note and not objected to in writing by the holder or holders
of at least a majority of the unpaid principal amount of the Notes within 60
days of such identification (and any individual so approved shall be the subject
of the foregoing provisions of this clause (i) as though named herein),
(ii) so long as [Shearson] Lehman/SDI, Inc. owns the general
partnership interest in the General Partner, a change in the majority of the
board of directors of [Shearson] Lehman/SDI, Inc. (other than the board members
designated by [Shearson] Lehman Brothers, so long as [Shearson] Lehman Brothers
has the right to designate no more than two such directors), other than by
reason of a temporary vacancy resulting from the death or disability of any
board member,
-8-
<PAGE>
(iii) if [Shearson] Lehman/SDI, Inc. shall sell the general
partnership interest in the General Partner, a change in the majority of the
board of directors of the entity owning such general partnership interest shall
at any time within three years following such sale not be directors who also
constituted a majority of the board of directors of [Shearson] Lehman/SDI, Inc.
immediately prior to such sale, other than by reason of a temporary vacancy
resulting from the death or disability of any board member, or
(iv) the failure of the partnership interest in the Company owned by
the General Partner on the date hereof to be owned by an Acceptable Partner.
"'Consolidated Current Liabilities' shall mean the consolidated
current liabilities of the Company and its Restricted Subsidiaries, determined
on a consolidated basis in accordance with GAAP, provided, however, that
Consolidated Current Liabilities shall not include (i) prepayments of debt (and
the Make-Whole Amount thereon) and (ii) tax distributions required to be paid to
the partners of the Company with respect to gain on the sale of a division or
Subsidiary of the Company.
"'Restricted Payment' shall mean (i) any payment or distribution to
or in respect of the partnership interest of any partner in the Company,
provided, however, that Restricted Payments shall not include tax distributions
required to be paid to the partners of the Company with respect to gain on the
sale of a division or Subsidiary of the Company or (ii) any payment on account
of the purchase, redemption or other retirement of any partnership interest in
the Company, provided, however, that Restricted Payments shall not include an
aggregate of up to $15,000,000 which may be paid to purchase Class B limited
partnership interests. For purposes of this Agreement, all payments or
distributions in respect of Management Fees shall be deemed not to be Restricted
Payments. The amount of any Restricted Payment in property shall be the greater
of its fair market value (as determined in good faith by a general partner of
the Company) or its net book value."
IN WITNESS WHEREOF, the parties hereto have, by their duly authorized
officers or partners, executed this Amendment No. 2 on the date first above
written.
SDI OPERATING PARTNERS, L.P.
by its General Partner
SDI PARTNERS I, L.P.
by its General Partner
LEHMAN/SDI, INC.
By /s/ Louis J. Cissone
------------------------
Louis J. Cissone
Senior Vice President
-9-
<PAGE>
SUN DISTRIBUTORS
SCHEDULE OF CONSOLIDATED NET TANGIBLE ASSETS
AS OF JANUARY 31, 1995
(dollars in thousands)
Accounts & Notes Receivable, net $ 73,773
Inventories 84,074
Other Current Assets 4,130
--------
Total Current Assets 161,977
Property & Equipment, net 20,583
Deferred Income Taxes 2,212
Other Assets 738
--------
Total Tangible Assets $185,510
--------
Accounts Payable 40,781
Distributions Payable to Partners 7,774
Accrued Expenses
- Salaries and Wages 7,108
- Management Fee due the General Partner 3,613
- Income and Other Taxes 2,514
- Other Accrued Expenses 14,327
Deferred Compensation 6,731
Other Liabilities 61
--------
Total Liabilities $ 82,909
--------
Net Tangible Assets $102,601
========
<PAGE>
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
---------------------------
NEW YORK LIFE INSURANCE COMPANY
By /s/ Lydia S. Sangree
---------------------------
Lydia S. Sangree
Assistant Vice President
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
By /s/ Lydia S. Sangree
---------------------------
Lydia S. Sangree
Assistant Vice President
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By
---------------------------
<PAGE>
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ William Stuart Shepetin
-------------------------------
WM. STUART SHEPETIN
Director-Private Placements
NEW YORK LIFE INSURANCE COMPANY
By
-------------------------------
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
By
-------------------------------
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By
-------------------------------
<PAGE>
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
-------------------------------
NEW YORK LIFE INSURANCE COMPANY
By
-------------------------------
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
By
-------------------------------
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By /s/ Michael P. Hermsen
-------------------------------
Michael P. Hermsen
Second Vice President
<PAGE>
AMENDMENT NO. 4 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 4 TO CREDIT AGREEMENT ("Amendment No. 4") is made this
31st day of December, 1994 by and among SDI OPERATING PARTNERS, L.P.
("Borrower"), SUN DISTRIBUTORS, L.P., the sole limited partner of Borrower
("Guarantor"), each a Delaware limited partnership with offices at 2600 One
Logan Square, Philadelphia, Pennsylvania 19103-6983, SDI PARTNERS I, L.P., a
Delaware Limited Partnership with offices at 5 Great Valley Parkway, Malvern,
Pennsylvania 19355-1426, the sole general partner of Borrower and Guarantor
("SDIPI"); CORESTATES BANK, N.A., a national banking association with offices at
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19109, for itself and as
Agent for the Banks identified below ("Agent"); and THE BANK OF NOVA SCOTIA and
THE FUJI BANK, LIMITED (together with Agent, collectively, the "Banks").
WITNESSETH:
----------
WHEREAS, Agent and Banks entered into a Credit Agreement dated December
22, 1992, an Amendment No. 1 to Credit Agreement dated April 22, 1993, an
Amendment No. 2 to Credit Agreement dated January 14, 1994 and an Amendment No.
3 to Credit Agreement dated March 2, 1994 (as amended from time to time,
including by this Amendment No. 4, the "Credit Agreement") with Borrower, in
which SDIPI joined for purposes of making certain representations and covenants
and Guarantor joined to guaranty the indebtedness of Borrower thereunder, and
pursuant to which the Banks agreed to provide to Borrower advances and letters
of credit up to an aggregate principal amount outstanding at any time of Fifty
Million Dollars ($50,000,000), subject to the terms and conditions set forth
therein;
WHEREAS, pursuant to asset purchase agreements dated October 4, 1994 and
October 5, 1994, the Borrower has agreed to sell all of the assets of the
Electrical Group and the Dorman Products division; and
WHEREAS, Agent, Banks, Borrower, SDIPI and Guarantor wish to enter into
this Amendment No. 4 to waive certain requirements of the Credit Agreement in
connection with such sales, to extend the Termination Date and to modify certain
covenants set forth in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements herein
set forth and intending to be legally bound hereby, the parties hereto agree as
follows:
<PAGE>
1. Definitions.
-----------
a. Capitalized terms used but not defined in this Amendment No. 4
shall have the meanings given to them in the Credit Agreement.
b. The term "Dispositions" means the sales by the Borrower of the
Electrical Group to Consolidated Electrical Distributors, Inc. pursuant to an
asset purchase agreement dated October 4, 1994 and of the Dorman Products
division to R&B, Inc. pursuant to an asset purchase agreement dated October 5,
1994.
2. Termination Date. The Banks hereby agree to extend the
----------------
Termination Date to December 31, 1996. All procedural requirements of Paragraph
2.1(b) of the Credit Agreement are hereby waived by the Banks in connection with
the foregoing extension, but are not waived in connection with any subsequent
requests of the Borrower for extensions of the Termination Date.
3. Waivers.
-------
a. The Banks hereby waive the provisions of Paragraphs 7.7 and
7.8 of the Credit Agreement to the extent that either such Paragraph would
prohibit the Borrower's consummation of the Dispositions.
b. The Banks hereby waive the provisions of subparagraphs (c) and
(e) of Paragraph 2.8 and subparagraph (b) of Paragraph 7.7 of the Credit
Agreement to the extent that such subparagraphs would require Borrower to use
the proceeds of the Dispositions to reduce the Commitment and repay the Loan.
c. The Banks hereby waive the provisions of Paragraph 7.6 of the
Credit Agreement to the extent that such Paragraph would prohibit the Borrower
from using up to $30,000,000 in the aggregate to: (i) redeem Class A or Class B
interests in Guarantor and (ii) make Distributions in excess of Tax
Distributions.
4. Quick Ratio. Paragraph 6.14 of the Credit Agreement is hereby
-----------
amended and restated in its entirety as follows:
Maintain a ratio of Borrower's (a) Consolidated cash,
marketable securities and net accounts receivable to (b)
Consolidated Current Liabilities of not less than .65 to
1 at all times from the date of Amendment No. 4 through
December 31, 1995, and of not less than .60 to 1 at all
times thereafter.
-2-
<PAGE>
5. Fixed Charge Coverage Ratio. Paragraph 6.17 of the Credit Agreement is
---------------------------
hereby amended and restated in its entirety as follows:
Maintain as of the last day of each fiscal quarter
set forth in the left hand column, for the Rolling Period
ending on such date, a ratio of Borrower's Consolidated
Cash Flow to Borrower's Consolidated Fixed Charges of not
less than the amount set forth in the right hand column:
<TABLE>
<CAPTION>
Period Minimum Ratio
------ -------------
<S> <C>
Date of Credit Agreement
through 12/31/94 1.00 to 1.0
1/1/95 - 12/31/95 .73 to 1.0
1/1/96 and the last day of each 1.01 to 1.0
fiscal quarter thereafter
</TABLE>
6. Tangible Net Worth. Paragraph 6.20 of the Credit Agreement is hereby
------------------
amended and restated in its entirety as follows:
Tangible Net Worth. Maintain, as of the last day of each
------------------
fiscal quarter during the periods or during the times set forth
in the left hand column a ratio of Consolidated Tangible Net
Worth to Consolidated Net Worth, calculated in each case without
taking into account any tax benefits which may be available to
Borrower by operation of the Financial Accounting Standards Board
Release No. 109, of not less than the ratio set forth in the right
hand column:
<TABLE>
<CAPTION>
Periods or Times Minimum Ratio
---------------- -------------
<S> <C>
1/1/94 to 12/31/94 .15 to 1.0
1/1/95 and all times .18 to 1.0
thereafter
</TABLE>
7. Distributions. Paragraph 6.21 of the Credit Agreement is hereby
-------------
amended and restated in its entirety as follows:
Maintain, as of the last day of each fiscal quarter,
a ratio of (a) Distributions paid in each Rolling Period,
to (b) Consolidated EBITDA less Management Fees expensed
in the same Rolling Period, not to exceed .55 to 1.0 for
any such Rolling Period ending on or before December 31,
1994; not to exceed .78 to 1.0 for any such Rolling Period
-3-
<PAGE>
ending on or before December 31, 1995; and not to exceed .60 to 1.0 for
any Rolling Period ending any time thereafter; it being agreed that
nothing in this Paragraph shall permit Borrower to make Distributions if
not otherwise permitted by Paragraph 7.6 hereof.
8. Transfer of Assets. Paragraph 7.7 of the Credit Agreement is hereby
------------------
amended and restated in its entirety as follows:
Sell, lease, transfer or otherwise dispose of all or any portion of
its assets, real or personal, other than such transactions made on an
arm's length basis in the normal and ordinary course of business for value
received; provided, however, that in the absence of a Default or an Event
of Default, and, if a Default or Event of Default would not result
therefrom, Borrower may:
(a) From the effective date of Amendment No. 4 to Credit
Agreement through the Termination Date, sell assets with an aggregate
book value at the time of disposition thereof of up to Ten Million
Dollars ($10,000,000) in transactions which are not in the ordinary
course of business, provided that in connection with any sale of the
stock or assets of SIMCO, up to Ten Million Dollars ($10,000,000) of
the book value thereof shall be excluded from the calculations under
this Paragraph 7.7(a).
(b) Sell assets in excess of the amounts permitted pursuant to
Paragraph 7.7(a) above in transactions in which the total
consideration paid to Borrower therefor is cash, provided that the
Commitment shall be permanently reduced and the Loan shall be repaid
in connection therewith pursuant to Paragraphs 2.8(c) and (e) hereof
by an amount equal to the Banks' Applicable Share of the Net Cash
Proceeds received by Borrower on account of such sales, to the extent
they exceed the amounts Borrower is permitted to sell pursuant to
Paragraph 7.7(a) above.
9. Acquisitions and Investments. Paragraph 7.9 of the Credit Agreement
----------------------------
is hereby amended and restated in its entirety as follows:
(a) Purchase or otherwise acquire any part or amount of the capital
stock or assets of, or make any investments in any other entity or
corporation, except
-4-
<PAGE>
Permitted Investments; (b) enter into any new business activities or
ventures not directly related to its present business; or (c) merge or
consolidate with or into any other entity or corporation, except that a
Subsidiary may be merged into the Borrower if the Borrower is the surviving
entity; provided, however, that in the absence of a Default or an Event of
Default hereunder, and if a Default or Event of Default would not result
therefrom, Borrower may make acquisitions (by merger or purchase) of
substantially all but not less than substantially all of other entities or
corporations in the same or substantially the same business as Borrower if
the consideration (constituting any cash payments plus the amount of any
interest-bearing debt incurred or assumed in connection with such
transaction) payable by Borrower in the aggregate for such acquisition(s)
does not exceed Fifteen Million Dollars ($15,000,000) in any calendar year,
provided, further, however, that up to Five Million Dollars ($5,000,000)
may be carried over to subsequent calendar years to the extent not expended
in any year, but the total amount available to Borrower for acquisitions in
any year shall not exceed Twenty Million Dollars ($20,000,000). Not less
than thirty (30) Business Days prior to the consummation of a single
acquisition the total consideration of which is in excess of Five Million
Dollars ($5,000,000), Borrower shall provide to Agent a twelve month cash
flow projection from the date of the proposed acquisition showing
prospective compliance with this Agreement.
10. Events of Default. Subparagraph (d) of Paragraph 9.1 of the Credit
-----------------
Agreement is hereby amended and restated in its entirety as follows:
If Borrower shall default in or fail to observe at
any test date the covenants set forth in Paragraphs 6.14
through 6.19, 6.21, 6.22 or 7.1 through 7.14 hereof, or
if Borrower shall default in or fail to observe on any two
test dates the covenant set forth in Paragraph 6.20 hereof;
11. Representations and Warranties. Borrower hereby represents and
------------------------------
warrants to Banks as follows:
a. Representations. The representations and warranties set forth in
---------------
Section Four of the Credit Agreement are true and correct in all material
respects as of the date hereof; no Event of Default or Default under the Credit
Agreement is in existence; and there has been no Material Adverse Change since
December 22, 1992.
-5-
<PAGE>
b. Power and Authority; Enforceability. Each of Borrower, SDIPI
-----------------------------------
and Guarantor has the power and authority under the laws of the State of
Delaware and its respective Partnership Agreement to enter into and perform this
Amendment No. 4, and all other agreements and documents required hereunder
(hereinafter collectively referred to as the "Amendment Documents"); and all
actions necessary or appropriate for the execution and performance by each of
Borrower, SDIPI and Guarantor of the Amendment Documents have been taken and
upon their execution, the same will constitute the legal, valid and binding
obligations of Borrower, SDIPI and Guarantor (to the extent that each is a party
thereto) enforceable in accordance with their terms.
c. No Violation of Laws or Agreements. The making and performance
----------------------------------
of the Amendment Documents and actions required of each of Borrower, SDIPI and
Guarantor hereunder and thereunder will not violate any provisions of any
federal, state or local law or regulation or the respective Partnership
Agreements of Borrower, SDIPI or Guarantor or result in any breach or violation
of, or constitute a default under, any agreement by which Borrower, SDIPI or
Guarantor or their respective property may be bound.
12. Conditions. The effectiveness of this Amendment No. 4 is subject to
----------
the conditions that: (i) Borrower, Guarantor, Agent and Banks shall have
executed this Amendment No. 4; (ii) Borrower shall, prior to or simultaneously
with the effectiveness hereof, complete the Dispositions and receive no less
than Sixty-two Million Dollars ($62,000,000) in cash proceeds thereof (including
up to $5,000,000 of such proceeds held in escrow); (iii) Borrower shall have
obtained and delivered to Agent a copy of an amendment to the note purchase
agreement pursuant to which the Senior Notes were issued, containing amendments
thereto and waivers thereunder conforming to the amendments and waivers set
forth in this Amendment No. 4, in form and substance satisfactory to Banks; and
(iv) the Borrower shall have paid an amendment fee of Fifteen Thousand Dollars
($15,000), to be shared among the Banks on the basis of their respective Pro
Rata Shares.
13. Affirmation. Borrower, SDIPI and Guarantor (to the extent
-----------
applicable) hereby affirm all of the provisions of the Credit Agreement, as
amended, including by this Amendment No. 4, and agree that the terms and
conditions of the Credit Agreement shall continue in full force and effect as
supplemented and amended hereby.
-6-
<PAGE>
14. Miscellaneous.
-------------
a. This Amendment No. 4 and any other Amendment Document shall
be governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania.
b. Borrower agrees to reimburse Agent for all reasonable costs
and expenses (including but not limited to, reasonable attorneys' fees and
reasonable disbursements) which Agent may pay or incur in connection with the
preparation of this Amendment No. 4 and the preparation or review of other
documents executed or delivered in connection herewith.
c. All terms and provisions of this Amendment No. 4 shall be
for the benefit of and be binding upon and enforceable by the respective
successors and assigns of the parties hereto.
d. This Amendment No. 4 may be executed in any number of
counterparts with the same effect as if all the signatures on such counterparts
appeared on one document and each such counterpart shall be deemed an original.
e. Except as specifically set forth herein, the execution,
delivery and performance of this Amendment No. 4 shall not effect a waiver of
any right, power or remedy of Banks under applicable law or under the Credit
Agreement and the agreements and documents executed in connection therewith or
constitute a waiver of any provision thereof.
IN WITNESS WHEREOF, the undersigned by their duly authorized
officers, have executed this Amendment No. 4 the day and year first written
above.
SDI OPERATING PARTNERS, L.P.,
By: SDI Partners I, L.P., its
general partner
By: LEHMAN/SDI, Inc., its
general partner
By: /s/ Loius J. Cissone
--------------------------
Title: Sr. V.P. & CFO
[EXECUTIONS CONTINUED]
-7-
<PAGE>
SUN DISTRIBUTORS L.P., as Guarantor
By: SDI Partners I, L.P., its
general partner
By: LEHMAN/SDI, INC., its
general partner
By: /s/ LOUIS J. CISSONE
-----------------------------
Title: Sr. V.P. & CFO
SDI PARTNERS I, L.P., to the extent
it is a party to the Credit Agreement
By: LEHMAN/SDI, INC., its general
partner
By: /s/ LOUIS J. CISSONE
----------------------------------
Title: Sr. V.P. & CFO
CORESTATES BANK, N.A., individually
and in its capacity as Agent
hereunder
By:
----------------------------------
Title:
THE BANK OF NOVA SCOTIA
By:
----------------------------------
Title:
THE FUJI BANK, LIMITED
By:
----------------------------------
Title:
<PAGE>
SUN DISTRIBUTORS L.P., as Guarantor
By: SDI Partners I, L.P., its
general partner
By: LEHMAN/SDI, INC., its
general partner
By:
-----------------------------
Title:
SDI PARTNERS I, L.P., to the extent
it is a party to the Credit Agreement
By: LEHMAN/SDI, INC., its general
partner
By:
----------------------------------
Title:
CORESTATES BANK, N.A., individually
and in its capacity as Agent
hereunder
By: /s/ SHERRI A. WILLIAMS
----------------------------------
Title: Commercial Officer
THE BANK OF NOVA SCOTIA
By:
----------------------------------
Title:
THE FUJI BANK, LIMITED
By:
----------------------------------
Title:
<PAGE>
SUN DISTRIBUTORS L.P., as Guarantor
By: SDI Partners I, L.P., its
general partner
By: LEHMAN/SDI, INC., its
general partner
By:
-----------------------------
Title:
SDI PARTNERS I, L.P., to the extent
it is a party to the Credit Agreement
By: LEHMAN/SDI, INC., its general
partner
By:
----------------------------------
Title:
CORESTATES BANK, N.A., individually
and in its capacity as Agent
hereunder
By:
----------------------------------
Title:
THE BANK OF NOVA SCOTIA
By: /s/ J. ALAN EDWARDS
----------------------------------
J. Alan Edwards
Title: Authorized Signatory
THE FUJI BANK, LIMITED
By:
----------------------------------
Title:
<PAGE>
SUN DISTRIBUTORS L.P., as Guarantor
By: SDI Partners I, L.P., its
general partner
By: LEHMAN/SDI, INC., its
general partner
By:
-----------------------------
Title:
SDI PARTNERS I, L.P., to the extent
it is a party to the Credit Agreement
By: LEHMAN/SDI, INC., its general
partner
By:
----------------------------------
Title:
CORESTATES BANK, N.A., individually
and in its capacity as Agent
hereunder
By:
----------------------------------
Title:
THE BANK OF NOVA SCOTIA
By:
----------------------------------
Title:
THE FUJI BANK, LIMITED
By:/s/ YOSHIHIKO SHIOTSUGU
----------------------------------
Yoshihiko Shiotsugu
Title: Vice President & Manager
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF MARCH 31, 1995 AND RELATED STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 11,963
<SECURITIES> 0
<RECEIVABLES> 81,015
<ALLOWANCES> 2,520
<INVENTORY> 86,745
<CURRENT-ASSETS> 183,827
<PP&E> 48,047
<DEPRECIATION> 26,968
<TOTAL-ASSETS> 254,312
<CURRENT-LIABILITIES> 86,115
<BONDS> 70,330<F1>
<COMMON> 0
0
0
<OTHER-SE> 90,771
<TOTAL-LIABILITY-AND-EQUITY> 254,312
<SALES> 154,792
<TOTAL-REVENUES> 154,792
<CGS> 93,351
<TOTAL-COSTS> 55,933
<OTHER-EXPENSES> 207
<LOSS-PROVISION> 614
<INTEREST-EXPENSE> 2,090
<INCOME-PRETAX> 19,980
<INCOME-TAX> 118
<INCOME-CONTINUING> 19,862
<DISCONTINUED> 0
<EXTRAORDINARY> (629)
<CHANGES> 0
<NET-INCOME> 19,233
<EPS-PRIMARY> .74<F2>
<EPS-DILUTED> .74<F2>
<FN>
<F1> Bonds represents all Long-Term Debt for Senior Notes.
<F2> EPS represents Class B Limited Partnership interests only.
</FN>
</TABLE>
