<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3 to
Schedule 13E-3
Rule 13E-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
SUNSOURCE L.P.
(Name of Issuer)
SunSource L.P.
SDI Partners I, L.P.
Lehman/SDI, Inc.
Lehman Brothers Holdings Inc.
Lehman Brothers Capital Partners I, L.P.
LB I Group Inc.
Lehman Ltd. I Inc.
Norman V. Edmonson
Donald T. Marshall
John P. McDonnell
(Name of Person(s) Filing Statement)
CLASS A LIMITED PARTNERSHIP INTERESTS AND DEPOSITARY RECEIPTS THEREFOR
(Title of Class of Securities)
867942-10-4
(CUSIP Number of Class of Securities)
CLASS B LIMITED PARTNERSHIP INTERESTS AND DEPOSITARY RECEIPTS THEREFOR
(Title of Class of Securities)
867942-20-3
(CUSIP Number of Class of Securities)
Joseph M. Corvino
SunSource L.P.
2600 One Logan Square
Philadelphia, PA 19103
(215) 665-3650
Copies to:
Donald A. Scott, Esquire George R. Krouse, Esquire
Morgan, Lewis & Bockius LLP Simpson Thacher & Bartlett
2000 One Logan Square 425 Lexington Avenue
Philadelphia, PA 19103 New York, NY 10017
(215) 963-5206 (212) 455-2000
(Name, Addresses and Telephone Numbers of Persons Authorized to Receive Notices
and Communications on Behalf of Person Filing Statement)
<PAGE>
INTRODUCTORY NOTE
This Rule 13E-3 Transaction Statement on Schedule 13E-3 (the
"Schedule 13E-3") relates to a proposed merger pursuant to which SunSource L.P.
will be converted to corporate form and holders of limited partnership interests
will receive cash and shares of Trust Preferred Securities or shares of Common
Stock (the "Transaction"). The Transaction is described in the Preliminary Proxy
Statement, a copy of which is attached as Exhibit 17(d)(1) (the "Preliminary
Proxy Statement").
The information contained in the Preliminary Proxy Statement
is incorporated by reference in answer to the items of this Schedule 13E-3, and
the Cross Reference Sheet set forth below shows the location in the Preliminary
Proxy Statement of the information required to be included in response to the
items of this Schedule 13E-3. The information contained in the Preliminary Proxy
Statement, including the exhibits thereto, is hereby expressly incorporated by
reference, and the responses to each item herein are qualified in their entirety
by the provisions of the Preliminary Proxy Statement and the exhibits thereto.
References to "Senior Management" are to Messrs. Edmonson,
Marshall and McDonnell.
References to the "Lehman Entities" are to (i) Lehman Brothers
Capital Partners I, L.P., a Delaware limited partnership ("LBCP"), (ii) LB I
Group Inc., a Delaware corporation ("LB I"), (iii) Lehman Ltd. I Inc., a
Delaware corporation ("Lehman Ltd.") and (iv) Lehman Brothers Holdings Inc., a
Delaware corporation ("Holdings").
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CROSS REFERENCE SHEET
(Pursuant to General Instructions D and F
to Schedule 13E-3)
<TABLE>
<CAPTION>
Item in Location in
Schedule 13E-3 Preliminary Proxy Statement
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<S> <C>
Item 1 (a) SUMMARY - The Partnership, the Corporation and the Trust.
(b) - (d) Cover Page; MARKET PRICES AND DISTRIBUTIONS.
(e) - (f) Not applicable.
Item 2 (a) - (d) MANAGEMENT.
(e) - (f) None.
(g) See item 2(g).
Item 3 (a) Not applicable.
(b) SPECIAL FACTORS - Background of the Conversion; SPECIAL
FACTORS - Determinations of the Special Committee.
Item 4 (a) - (b) SUMMARY - Overview of the Conversion; SUMMARY - Structure of
the Conversion; SPECIAL FACTORS - Terms of the Conversion.
Item 5 (a) - (c) Not applicable.
(d) MARKET PRICES AND DISTRIBUTIONS.
(e) - (g) Not applicable.
Item 6 (a) SPECIAL FACTORS - Source and Amount of Funds.
(b) SPECIAL FACTORS - Fees and Expenses.
(c) SPECIAL FACTORS - Source and Amount of Funds.
(d) Not applicable.
Item 7 (a) - (c) SUMMARY - Reasons to Convert to Corporate Form; SUMMARY -
Alternatives to the Conversion; SPECIAL FACTORS - Background of
the Conversion; SPECIAL FACTORS - Alternatives to the Conversion;
SPECIAL FACTORS - Reasons to Convert to Corporate Form.
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(d) SUMMARY - Structure of the Conversion; SPECIAL FACTORS -
Terms of the Conversion; CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.
Item 8 (a) - (b) SUMMARY - Special Committee; SUMMARY - Recommendation of
General Partner and Fairness Determination; SPECIAL FACTORS -
Background of the Conversion; SPECIAL FACTORS - Reasons to
Convert to Corporate Form; SPECIAL FACTORS - Determinations of
the Special Committee; SPECIAL FACTORS - Opinion of Smith
Barney; SPECIAL FACTORS - Recommendation of the General Partner
and Fairness Determination.
(c) SUMMARY - Conditions to the Conversion; VOTING AND PROXY
INFORMATION - Vote Required; Quorum.
(d) SUMMARY - Risk Factors; RISK FACTORS, CONFLICTS OF
INTEREST AND OTHER IMPORTANT CONSIDERATIONS.
(e) SPECIAL FACTORS - Background of the Conversion.
(f) Not applicable.
Item 9 (a) - (c) SUMMARY - Special Committee; SUMMARY - Recommendation of
General Partner and Fairness Determination; SPECIAL FACTORS -
Background of the Conversion; SPECIAL FACTORS - Determinations
of the Special Committee; SPECIAL FACTORS - Opinion of Smith
Barney; SPECIAL FACTORS - Recommendation of the General Partner
and Fairness Determination; EXHIBIT C - Smith Barney Fairness
Opinion.
Item 10 (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
(b) None.
Item 11 None.
Item 12 (a) SUMMARY - Voting at the Special Meeting; VOTING AND PROXY
INFORMATION - Vote Required; Quorum.
(b) SUMMARY - Recommendation of General Partner
and Fairness Determination; SPECIAL FACTORS
- Recommendation of the General Partner and
Fairness Determination.
Item 13 (a) SUMMARY - No Appraisal Rights; VOTING
AND PROXY INFORMATION - No Appraisal Rights.
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(b) - (c) Not applicable.
Item 14 (a) - (b) INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE;
SUMMARY - Summary Financial Information of the Partnership and
Summary Unaudited Pro Forma Financial Information of the
Corporation; SELECTED HISTORICAL FINANCIAL
INFORMATION; FINANCIAL STATEMENTS.
Item 15 (a) - (b) VOTING AND PROXY INFORMATION - Solicitation of Proxies.
Item 16 Preliminary Proxy Statement.
Item 17 (a) Financing Commitments.
(b) (1) Smith Barney Fairness Opinion (Exhibit C to Preliminary Proxy
Statement.)
(2) Presentation of Smith Barney to the Special Committee dated December
10, 1996.
(3) Presentation of Smith Barney to the Special Committee dated June
19, 1997.
(c) Not applicable.
(d) (1) Preliminary Proxy Statement.
(2) Selected Questions and Answers Booklet.
(e) Not applicable.
(f) Not applicable.
(g) (1) July 1996 Projection.
(2) November 1996 Adjustment.
(3) April 1997 Projection.
(4) Refinancing Projection.
(5) Proxy Statement of Holdings dated February 14, 1997 (which has been
previously filed by Holdings with the Securities and Exchange
Commission).
</TABLE>
Item 1. Issuer and Class of Security Subject to the Transaction
(a) The information under the heading "SUMMARY - The Partnership,
the Corporation and the Trust" in the Preliminary Proxy
Statement is incorporated herein by reference.
(b) - (d) The information on the Cover Page and under the heading
"MARKET PRICES AND DISTRIBUTIONS" in the Preliminary Proxy
Statement is incorporated herein by reference.
(e) - (f) Not applicable.
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Item 2. Identity and Background
SunSource L.P. is the issuer of the securities which
are the subject of the Rule 13E-3 transactions. Information with respect to SDI
Partners I, L.P. and Lehman/SDI, Inc. is set forth under the heading "SUMMARY -
The Partnership, the Corporation and the Trust" and is incorporated herein by
reference. The answer to Items 2(e) and (f) for these entities is "None."
LBCP, a Delaware limited partnership and Lehman Ltd.,
a Delaware corporation, together own approximately 27.2% of the outstanding B
Interests in SunSource L.P. LB I, a Delaware corporation, is the general partner
of LBCP. All of the outstanding capital stock of LB I, Lehman Ltd. and
Lehman/SDI is owned, directly or indirectly, by Holdings. The principal
businesses of the Lehman Entities are investment banking and related businesses.
The principal executive offices of the Lehman Entities are located at 3 World
Financial Center, New York, New York 10285. The answer to Items 2(e) and (f) for
the Lehman Entities is "None."
With respect to the executive officers and directors
of Lehman/SDI, Inc. (which includes Senior Management):
(a) - (d) The information under the heading "MANAGEMENT," in
the Preliminary Proxy Statement is incorporated herein by reference.
(e) - (f) None.
(g) All of the executive officers and directors of
Lehman/SDI, Inc. are U.S. citizens.
With respect to each of the executive officers and
directors of the Lehman Entities:
(a) - (d) The following individuals are the directors and
executive officers of the Lehman Entities:
LB I: Paul Abbott (director and executive officer),
Eliot Fried (director and executive officer), Allan Kaplan (director and
executive officer), Dave Goldfarb (director), Alan Washkowitz (executive
officer) and Joseph M. Corvino (executive officer). Information with
respect to Mr. Corvino, who is an executive officer of SunSource, is set
forth under the heading "Management" in the Preliminary Proxy Statement
and incorporated herein by reference.
Lehman Ltd.: Eliot Fried (sole director and executive
officer) and Joseph M. Corvino (executive officer).
Holdings: Michael L. Ainsle (director), John F. Akers
(director), Roger S. Berlind (director), Thomas H. Cruikshank
(director), Richard S. Fuld, Jr. (Chairman and Chief Executive Officer),
Katsumi Funaki (director), Henry Kaufman (director), Hideichiro
Kobayashi (director), John D. Macomber (director), Dina Merrill
(director), Jeremiah M. Callaghan (Chief of Operations and Technology),
John L. Cecil (Chief Administrative Officer), Charles B. Hintz (Chief
Financial Officer) and Thomas A. Russo (Chief Legal Officer).
Information with respect to each such individual (other than Mr.
Kobayashi) is set forth in Holdings' Proxy Statement dated February 14,
1997, which has been filed with the Securities and Exchange Commission
and such biographical information is incorporated herein by reference.
Mr. Kobayashi is General
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<PAGE>
Manager, International Finance Department of Nippon Life Insurance
Company and has been affiliated with Nippon Life Insurance Company since
1967. Mr. Kobayashi's business address is Nippon Life Insurance Company,
1251 Avenue of the Americas, New York, NY 10020.
Unless otherwise noted above, each such individual's
principal occupation during the last five years was employee of Lehman
Brothers Inc. and business address is the principal executive office of
the Lehman Entities.
(e) - (f) None.
(g) All of the directors and executive officers of the\
Lehman Entities are U.S. citizens, except Messrs. Funaki and Kobayashi who are
Japanese nationals.
Item 3. Past Contacts, Transactions or Negotiations
(a) Not applicable.
(b) The information under the headings "SPECIAL FACTORS - Background of
the Conversion" and "SPECIAL FACTORS--Determinations of the Special Committee"
in the Preliminary Proxy Statement is incorporated herein by reference.
Item 4. Terms of the Transaction
(a) - (b) The information under the headings "SUMMARY - Overview of the
Conversion," "SUMMARY - Structure of the Conversion" and "SPECIAL FACTORS -
Terms of the Conversion" in the Preliminary Proxy Statement is incorporated
herein by reference.
Item 5. Plans or Proposals of the Issuer or Affiliate
(a) - (c) Not applicable.
(d) The information under the heading "MARKET PRICES AND DISTRIBUTIONS"
in the Preliminary Proxy Statement is incorporated herein by reference.
(e) - (g) Not applicable.
Item 6. Source and Amounts of Funds or Other Consideration
(a) The information under the heading "SPECIAL FACTORS - Source and
Amount of Funds" in the Preliminary Proxy Statement is incorporated herein by
reference.
(b) The information under the heading "SPECIAL FACTORS - Fees and
Expenses" in the Preliminary Proxy Statement is incorporated herein by
reference.
(c) The information under the heading "SPECIAL FACTORS - Source and
Amount of Funds" in the Preliminary Proxy Statement is incorporated herein by
reference.
(d) Not applicable.
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Item 7. Purpose(s), Alternatives, Reasons and Effects
(a) - (c) The information under the headings "SUMMARY - Reasons to
Convert to Corporate Form," "SUMMARY - Alternatives to the Conversion," "SPECIAL
FACTORS - Background of the Conversion," "SPECIAL FACTORS - Alternatives to the
Conversion" and "SPECIAL FACTORS - Reasons to Convert to Corporate Form" in the
Preliminary Proxy Statement is incorporated herein by reference.
(d) The information under the headings "SUMMARY - Structure of the
Conversion," "SPECIAL FACTORS - Terms of the Conversion" and "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" in the Preliminary Proxy Statement is incorporated
herein by reference.
Item 8. Fairness of the Transaction
(a) - (b) The information under the headings "SUMMARY - Special
Committee," "SUMMARY - Recommendation of General Partner and Fairness
Determination," "SPECIAL FACTORS - Background of the Conversion," "SPECIAL
FACTORS - Reasons to Convert to Corporate Form," "SPECIAL FACTORS -
Determinations of Special Committee," "SPECIAL FACTORS Opinion of Smith Barney"
and "SPECIAL FACTORS - Recommendation of the General Partner and Fairness
Determination" in the Preliminary Proxy Statement is incorporated herein by
reference.
Each filing person reasonably believes that the Rule 13e-3
transaction is fair to unaffiliated securityholders for the reasons set forth
under the headings "SUMMARY - Special Committee," "SUMMARY - Recommendation of
General Partner and Fairness Determination," "SPECIAL FACTORS - Background of
the Conversion," "SPECIAL FACTORS - Reasons to Convert to Corporate Form,"
"SPECIAL FACTORS - Determinations of Special Committee," "SPECIAL FACTORS -
Opinion of Smith Barney" and "SPECIAL FACTORS Recommendation of the General
Partner and Fairness Determination" in the Preliminary Proxy Statement.
(c) The information under the headings "SUMMARY - Conditions to the
Conversion" and "VOTING AND PROXY INFORMATION - Vote Required; Quorum" in the
Preliminary Proxy Statement is incorporated herein by reference.
(d) The information under the headings "SUMMARY - Risk Factors" and
"RISK FACTORS, CONFLICTS OF INTEREST AND OTHER IMPORTANT CONSIDERATIONS - in the
Preliminary Proxy Statement is incorporated herein by reference.
(e) The information under the heading "SPECIAL FACTORS - Background of
the Conversion" in the Preliminary Proxy Statement is incorporated herein by
reference.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations
(a) - (c) The information under the headings "SUMMARY - Special
Committee," "SUMMARY - Recommendation of General Partner and Fairness
Determination," "SPECIAL FACTORS - Background of the Conversion," "SPECIAL
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<PAGE>
FACTORS - Determinations of the Special Committee, "SPECIAL FACTORS - Opinion of
Smith Barney" and "SPECIAL FACTORS Recommendation of the General Partner and
Fairness Determination" and the information in EXHIBIT C - Smith Barney Fairness
Opinion in the Preliminary Proxy Statement is incorporated herein by reference.
Item 10. Interest in Securities of the Issuer
(a) The information under the heading "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" in the Preliminary Proxy Statement is
incorporated herein by reference.
(b) None.
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities
None.
Item 12. Present Intention and Recommendation of Certain Persons with Regard to
the Transaction
(a) The information under the headings "SUMMARY - Voting at the Special
Meeting" and "VOTING AND PROXY INFORMATION - Vote Required; Quorum" in the
Preliminary Proxy Statement is incorporated herein by reference.
(b) The information under the headings "SUMMARY - Recommendation of
General Partner and Fairness Determination" and "SPECIAL FACTORS -
Recommendation of the General Partner and Fairness Determination" in the
Preliminary Proxy Statement is incorporated herein by reference.
SunSource L.P., SDI Partners I, L.P., Lehman/SDI, Inc., Norman
V. Edmonson, Donald T. Marshall and John P. McDonnell recommend the 13E-3
transaction for the reasons set forth under the headings "SUMMARY -
Recommendation of General Partner and Fairness Determination" and "SPECIAL
FACTORS - Recommendation of the General Partner and Fairness Determination" in
the Preliminary Proxy Statement. Lehman Brothers Holdings Inc., Lehman Brothers
Capital Partners I, L.P., LB I Group Inc. and Lehman Ltd. I Inc. recommend the
13E-3 transaction based on the recommendation of the General Partner for the
reasons set forth under the headings "SUMMARY - Recommendation of the General
Partner and Fairness Determination" and "SPECIAL FACTORS - Recommendation of the
General Partner and Fairness Determination."
Item 13. Other Provisions of the Transaction
(a) The information under the headings "SUMMARY - No Appraisal Rights"
and "VOTING AND PROXY INFORMATION - No Appraisal Rights" in the Preliminary
Proxy Statement is incorporated herein by reference.
(b) - (c) Not applicable.
Item 14. Financial Information
(a) - (b) The information under the headings "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "SUMMARY - Summary Financial Information of the
Partnership and Summary Unaudited Pro Forma Financial Information of the
Corporation," " SELECTED HISTORICAL FINANCIAL INFORMATION" and FINANCIAL
STATEMENTS in the Preliminary Proxy Statement is incorporated herein by
reference.
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Item 15. Persons and Assets Employed, Retained or Utilized
(a) - (b) The information under the heading "VOTING AND PROXY
INFORMATION Solicitation of Proxies" is incorporated herein by reference.
Item 16. Additional Information
The information included in the Preliminary Proxy Statement is
incorporated herein by reference.
Item 17. Material to be Filed as Exhibits
(a) Financing Commitments.
(b) (1) Smith Barney Fairness Opinion, filed as Exhibit C to
the Preliminary Proxy Statement, is incorporated
herein by reference.
(2) Presentation of Smith Barney to the Special Committee
dated December 10, 1996.
(3) Presentation of Smith Barney to the Special Committee
dated June 19, 1997.
(c) Not applicable.
(d) (1) Preliminary Proxy Statement is incorporated herein by
reference.
(2) Selected Questions and Answers Booklet is
incorporated herein by reference to Exhibit 99.2 of
the Registration Statement on Form S-4 of SunSource
Inc. and SunSource Capital Trust (File No.
333-19077).
(e) Not applicable.
(f) Not applicable.
(g) (1) July 1996 Projection.
(2) November 1996 Adjustment.
(3) April 1997 Projection.
(4) Refinancing Projection.
(5) Proxy Statement of Holdings dated February 14, 1997
(which has been previously filed by Holdings with the
Securities and Exchange Commission).
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<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
July 25, 1997
SUNSOURCE L.P.
By SDI Partners I, L.P.
Its General Partner
By Lehman/SDI, Inc.
Its General Partner
By /s/ Joseph M. Corvino
--------------------------------
Joseph M. Corvino
Vice President - Finance
SDI PARTNERS I, L.P.
By Lehman/SDI, Inc.
Its General Partner
By /s/ Joseph M. Corvino
--------------------------------
Joseph M. Corvino
Vice President - Finance
LEHMAN/SDI, INC.
By /s/ Joseph M. Corvino
--------------------------------
Joseph M. Corvino
Vice President - Finance
LEHMAN BROTHERS HOLDINGS INC.
By /s/ Eliot M. Fried
--------------------------------
Eliot M. Fried
LEHMAN BROTHERS CAPITAL PARTNERS I, L.P.
By LB I GROUP INC.
Its General Partner
By /s/ Joseph M. Corvino
--------------------------------
Joseph M. Corvino
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<PAGE>
LB I GROUP INC.
By /s/ Joseph M. Corvino
--------------------------------
Joseph M. Corvino
LEHMAN LTD. I INC.
By /s/ Joseph M. Corvino
--------------------------------
Joseph M. Corvino
/s/ Norman V. Edmonson
--------------------------------
Norman V. Edmonson
/s/ Donald T. Marshall
--------------------------------
Donald T. Marshall
/s/ John P. McDonnell
--------------------------------
John P. McDonnell
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
17(a) Financing Commitments.
17(b) (1) Smith Barney Fairness Opinion, filed as Exhibit C to
the Preliminary Proxy Statement, is incorporated
herein by reference.
(2) Presentation of Smith Barney to the Special Committee
dated December 10, 1996.
(3) Presentation of Smith Barney to the Special Committee
dated June 19, 1997.
17(c) Not applicable.
17(d) (1) Preliminary Proxy Statement is incorporated herein by
reference.
(2) Selected Questions and Answers Booklet is
incorporated herein by reference to Exhibit 99.2 of
the Registration Statement on Form S-4 of SunSource
Inc. and SunSource Capital Trust (File No.
333-19077).
17(e) Not applicable.
17(f) Not applicable.
17(g) (1) July 1996 Projection.
(2) November 1996 Adjustment.
(3) April 1997 Projection.
(4) Refinancing Projection.
(5) Proxy Statement of Holdings dated February 14, 1997
(which has been previously filed by Holdings with the
Securities and Exchange Commission).
<PAGE>
Exhibit 17(a)
February 21, 1997
Mr. Joseph M. Corvino
Vice President-Finance
SDI Operating Partners, L.P.
One Logan Square Suite 2600
Philadelphia, PA 19103
Dear Joe:
We, the undersigned banks, are pleased to commit to provide to SDI
Operating Partners, L.P.(as provided below) a $90,000,000 Revolving Credit
Commitment (the "Commitment") upon the terms and conditions attached hereto as
Annex I (the "Term Sheet"). All capitalized terms used and not otherwise defined
herein shall have the meanings set forth in the Term Sheet.
In connection with the proposed commitment, the banks listed below are
pleased to advise you of their respective commitment as set forth in the table
below, subject to the terms and conditions set forth herein and in the Term
Sheet:
Commitment Amount
-----------------
CoreStates Bank, N.A. ("Corestates") $45,000,000
The Bank of Nova Scotia ("Scotiabank") $45,000,000
-----------
$90,000,000
The foregoing commitments of CoreStates and Scotiabank are several (and
not joint) obligations.
Our commitment is subject, however, to each of the following terms and
conditions being satisfied in a manner acceptable to the Agents in their sole
discretion:
(a) satisfaction of each of the terms and conditions set forth
herein;
(b) satisfaction of each of the terms and conditions set forth in
the Term Sheet;
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Page 2
(c) the negotiation, execution and delivery of definitive documentation
with respect to the Commitment consistent with the Term Sheet and otherwise
satisfactory to the Agents;
(d) execution of that certain fee letter by SDI Operating Partners,
L.P. and the Agents (the "Fee Letter") concurrently with the acceptance by SDI
Operating Partners, L.P. of this letter;
(e) there not having occurred (and continuing) since the date hereof a
material adverse change in the market for syndicated bank credit facilities
similar in nature to the Commitment or a material disruption of, or a material
adverse change in, financial, banking or capital market conditions, in each case
as determined by the Agents in their sole discretion; and, furthermore, the
commitments of the Agents hereunder are based upon the financial and other
information regarding the Borrower, its subsidiaries and guarantors previously
provided to the Agents and are subject to the condition, among others, that
there shall not have occurred after the date of such information, in the opinion
of the Agents any material adverse change in the business, assets, liabilities
(actual or contingent), operations, condition (financial or otherwise) or
prospects of the Borrower, its subsidiaries and guarantors taken as a whole. If
the continuing review by the Agents of the Borrower discloses information
relating to new information or additional developments concerning conditions or
events previously disclosed to the Agents which the Agents in their sole
discretion believe may have a material adverse effect on the condition
(financial or otherwise), assets, properties, business, operations or prospects
of the Borrower, its subsidiaries and guarantors taken as a whole, the Agents
may, in their sole discretion, suggest alternative financing amounts or
structures that ensure adequate protection for the Lenders or decline to
participate in the Commitment; and
(f) you agree to actively assist the Agents in forming a syndicate of
lenders and to provide the Agents and any Lender, promptly upon request, with
all information deemed necessary by them to complete successfully the
syndication, including, but not limited to, an information package for delivery
to potential Lenders including projections prepared by you; furthermore, you
agree to make appropriate officers and representatives of the Borrower and the
Guarantors available to participate in information meetings for potential
Lenders at such times and places as the Agents may reasonably request.
By executing this letter agreement, you agree to reimburse the Agents at
closing for all reasonable out-of-pocket fees and expenses (including, but not
limited to, the reasonable fees, disbursements and other charges of counsel to
the
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Page 3
Agents) incurred in connection with the Commitment and the preparation of the
definitive documentation for the Commitment.
SDI Operating Partners, L.P. agrees to indemnify and hold harmless the
Agents, each other Lender and each director, officer, employee, attorney and
affiliate of each Agent and each other Lender, and each director, officer,
employee or attorney of such affiliate of each Agent and each other Lender (each
such person or entity referred to hereafter in this paragraph as an "Indemnified
Person") from any losses, claims, costs, damages, expenses or liabilities (or
actions, suits or proceedings, including any inquiry or investigation, with
respect thereto) to which any Indemnified Person may become subject, insofar as
such losses, claims, costs, damages, expenses or liabilities (or actions, suits,
or proceedings, including any inquiry or investigation, with respect thereto)
arise out of, in any way relate to, or result from, this letter, the Commitment
or any other transactions contemplated hereby or thereby and to reimburse upon
demand each Indemnified Person for any and all legal and other expenses incurred
in connection with investigating, preparing to defend or defending any such
loss, claim, cost, damage, expense or liability (or actions, suits or
proceedings, including any inquiry or investigation, with respect thereto);
provided that SDI Operating Partners, L.P. shall not have any obligation under
this indemnity provision for liabilities resulting from gross negligence or
willful misconduct of any Indemnified Person. The foregoing provisions of this
paragraph shall be in addition to any right that an Indemnified Person shall
have at common law or otherwise. No Indemnified Person shall be responsible or
liable for consequential damages which may be alleged as a result of the letter.
The provisions of the immediately preceding two paragraphs shall remain
in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered (but may be superseded thereby)
and not withstanding the termination of this letter agreement or commitments of
the Agents hereunder.
This offer will expire at 12:00 noon EST time on February 28, 1997
unless the Borrower shall execute this letter and return it to the Agents prior
to that time (which may be by facsimile transmission), whereupon this letter
shall become a binding agreement. Thereafter, this undertaking and commitment
will expire at 5:00 p.m. EST time on May 30, 1997 unless definitive Commitment
documentation is executed and delivered prior to that time.
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet and the Fee
Letter, embodies the entire agreement and understanding between the Agents and
SDI Operating Partners, L.P. with respect to the specific matters set forth
herein
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Page 4
and supersedes all prior agreements and understandings relating to the subject
matter hereof. No party has been authorized by the Agents to make any oral or
written statements inconsistent with this letter.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW.
Very truly yours,
CORESTATES BANK, N.A.
By: /s/ Corestates Bank, N.A
------------------------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By: /s/ The Bank of Nova Scotia
------------------------------------------------------
Title:
Accepted and Agreed to:
SDI OPERATING PARTNERS, L.P.
By: /s/ SDI Operating Partners, L.P.
------------------------------------------------------
Title:
<PAGE>
April 8, 1997
Mr. Joseph M. Corvino
Vice President - Finance
SDI Operating Partners, L.P.
One Logan Square Suite 2600
Philadelphia, PA 19103
Dear Joe:
This letter is delivered to you pursuant to the Commitment Letter and Term Sheet
and the Fee Letter dated February 27, 1997 among SDI Operating Partners, L.P.,
CoreStates Bank, N.A. and The Bank of Nova Scotia. Unless otherwise defined
herein, capitalized terms shall have the meaning set forth in the Commitment
Letter and Term Sheet. The Agents hereby agree to extend the expiry of the
Commitment from May 30, 1997 to June 30, 1997. In addition to the fees outlined
in the Fee Letter and any other fees agreed to by the Agents and the Borrower,
the Borrower hereby agrees to pay to the Agents for their own account a fee of
18.75bps per diem on the Commitment from the period commencing May 31, 1997
until Closing. Payment is due upon Closing.
If the foregoing is in accordance with your understanding, please sign and
return the enclosed copy of this letter.
Very truly yours,
CORESTATES BANK, N.A.
By: /s/ Corestates Bank N.A.
------------------------------
Title:
Accepted and Agreed To:
THE BANK OF NOVA SCOTIA SDI OPERATING PARTNERS, L.P.
By: /s/ The Bank of Nova Scotia By: /s/ SDI Operating Partners, L.P.
------------------------------ ---------------------------------
Title: Title:
<PAGE>
SunSource Inc.
SUMMARY TERMS AND CONDITIONS FEBRUARY 18, 1997
- ---------------------------- -----------------
BORROWERS: SDI Operating Partners, LP and subsidiaries on a joint
and several basis.
GUARANTORS: SunSource Inc., Sun SubC, Inc. and others as may be
deemed appropriate. Guarantees shall be of payment
and not of collection.
ADMINISTRATIVE AND
L/C ISSUING AGENT and
SWING LINE CoreStates Bank, N.A. ("Agent").
SYNDICATION AGENT: CoreStates Capital Markets ("CCM") will manage the
syndication including invitation, timing and amounts
offered to potential lenders and the acceptance and
final allocation of commitment amounts.
DOCUMENTATION AGENT: The Bank of Nova Scotia (collectively with CoreStates
Bank N.A., the "Agents").
LENDERS: A group of lenders acceptable to the Borrowers and
the Agents (The Agents and the lenders collectively
the "Lenders").
FACILITY: $90,000,000 Revolving Credit Commitment
("Commitment") with a $20,000,000 sublimit for
Letter of Credit and a $5,000,000 Swing Line sublimit.
Each Lender will purchase an irrevocable and
undconditional participation on a pro rata basis in each
Letter of Credit and each Swing Line Loan. The
<PAGE>
Commitment shall terminate and all amounts shall be due
and payable 5 years from closing but no later than May
31, 2002 ("Termination Date").
USE OF PROCEEDS: General corporate purposes including working capital,
acquisition financing, transaction expenses and
repayment of debt including the current bank revolver
and make whole payments.
INTEREST RATES: a. Base Rate (defined as the higher of Agent's Prime
Rate, as announced publicly from time to time changing
when and if such rate changes, or Fed Funds plus 1/2%
p.a.);
b. Adjusted LIBO Rate plus the Applicable Margin;
c. Swing Loans shall be made at the Base Rate;
APPLICABLE MARGIN: The Applicable Margin is based on the Funded Debt to
EBITDA Ratio as follows:
LIBO Rate Non-Use
Level Ratio Margin Fee
----- ------ ------- ---
I 3.25 # x # 2.75 1.50 .375
II 2.75 # x # 2.25 1.25 .375
III x @ 2.25 1.00 .375
- ------
# = greater than
@ = less than
At Closing, Borrower shall be deemed to be in Level I
and until receipt of the 9/30/97 financial statement,
Borrower shall not be eligible for Levels II and III.
DEFAULT RATE: 200 basis points per annum in excess of the then
applicable rate.
INTEREST PERIODS: Interest periods for LIBO Rate Loans shall be 1, 2, 3,
or 6 months. LIBO Rate Loan Tranches limited to five
(5) at any time.
INTEREST PAYMENTS: Interest shall be payable on the last day of each
interest period for LIBO Rate Loans. If the interest
period is 6 months, interest shall be payable on the
90th day and on the last day of the interest period.
Interest on Base Rate Loans and the Swing Line
Loans shall be payable monthly.
<PAGE>
FEES:
Non-Use Fee: Based on grid, payable on the unused portion of the
Commitment to the Lenders on a pro rata basis for
the period commencing upon the Closing Date payable
quarterly in arrears.
MINIMUM DRAWDOWN: In minimum amounts of $2,000,000 with increments
of $100,000 for LIBO Rate and Base Rate Loans. No
minimum on Swing Line Loans.
NOTICE OF BORROWING: Three days on LIBO Rate Loans, one day on Base Rate
Loans and same day on Swing Line Loans.
OPTIONAL PREPAYMENT: LIBO Rate Loans may not be prepaid prior to the end
of an interest period. Base Rate Loans may be
prepaid at any time upon one business days notice to
the Agent. Swing Line Loans may be prepaid on same
day basis.
OPTIONAL REDUCTION OF
COMMITMENTS: Commitment may be reduced in increments of at least
$5,000,000 at any time on three (3) business days'
notice.
LETTERS OF CREDIT: a. Final expiry i) one year from date of issuance or
ii) Termination Date with cash collateral
provisions if necessary,
b. Evergreens permitted,
c. Five (5) day notice for issuance and
d. Fees equal to the then Applicable Margin with
1/8% p.a. Fronting Fee paid to Issuing Bank.
REPRESENTATIONS
and WARRANTIES: Applicable to Borrowers and Guarantors. Customary
for credit facilities of this type, including
but not limited to:
3
<PAGE>
a. Corporate Existence and Authority;
b. Binding Effect;
c. Financial Information;
d. No Material Adverse Change;
e. Compliance with laws, including environmental,
ERISA and CERCLA;
f. Payment of Taxes;
g. Absence of Litigation;
h. Absence of Default;
i. Title to Assets.
CONDITIONS PRECEDENT: Applicable to Borrowers and Guarantors. Customary
for credit facilities of this type, including but not
limited to:
First Advance: a. Receipt of 5 years financial projections on a
consolidated basis satisfactory to the Agents;
b. Accuracy of Representations and Warranties;
c. Absence of Default;
d. Negotiation and execution of documentation,
including notes and opinions, satisfactory to the
Agents;
e. Satisfactory completion of the Agents' due
diligence;
f. No Material Adverse Change in the financial
condition, assets, nature of the assets,
operations or prospects of the Borrowers and
Guarantors;
g. Completion of proposed transaction as outlined
in SEC Form S-4 Registration Statement dated
December 31, 1996 as amended;
h. Notice of Borrowing;
i. Payment of Fees;
j. Officer certification as to financial condition
and solvency;
k. Placement of $60,000,000 in notes in form
acceptable to the Agents.
Subsequent Advances: a. Absence of Default;
b. No Material Adverse Change;
c. Notice of Borrowing.
4
<PAGE>
COVENANTS: A commitment will be subject to negotiation of
covenants satisfactory to the Agents. These shall be
customary for credit facilities of this type, including
but not limited to:
Affirmative Covenants: a. Financial Reporting (quarterly- 45 days, annually-
90 days, annual projections)
b. Payment of Taxes;
c. Corporate Existence;
d. Maintenance of Properties;
e. Compliance with laws, including environmental,
ERISA and CERCLA;
f. Maintenance of ownership, payment of debt;
g. Compliance Certificates;
h. SEC Reports and Filings;
i. Maintenance of Insurance;
j. Use of Proceeds.
k. Notice of Litigation;
l. Notice of management changes.
Financial Covenants: Applicability including but not limited to the
consolidated statements of SunSource, Inc. (see
attached definitions):
a. Capitalization Test not to exceed 62% for the
first two fiscal quarters of each fiscal year and
60% for the last two fiscal quarters of each
fiscal year;
b. Fixed Charge Coverage Test to be greater than
the following for the period from the receipt of
the financial statments dated:
Closing thru 3/31/98 1.00x
6/30/98 thru 12/31/98 1.25x
3/31/99 thru 9/30/99 1.40x
12/31/99 and thereafter 1.50x
c. Leverage Test not to exceed 3.25x..
Negative Covenants: a. Restriction on Additional Indebtedness;
Guaranties;
b. Restricted Payments (limitation on dividends,
distributions and redemptions on securities and
payments to affiliates); share repurchase of either
common stock or Guaranteed Preferred Beneficial
5
<PAGE>
Interests in Company's Junior Subordinated Debentures
prohibited unless demonstrated pro forma compliance with
Leverage Test of less than 2.25x.
c. Negative Pledge, Negative-Negative Pledge;
d. Limitation on Investments ;
e. Limitation on Mergers (surviving entity),
Acquisitions (similar line of business and pro forma
compliance), Divestitures (prohibited over a certain
threshold, mandatory reductions if in excess of a
certain threshold);
f. No more restrictive agreements.
EVENTS OF DEFAULT: Customary for credit facilities of this type , including
but not limited to:
a. Failure to pay principal, interest, or fees when
due;
b. Noncompliance with covenants;
c. Any Representation or Warranty shall prove to
be incorrect, false or misleading in a material
respect when made;
d. Insolvency; Bankruptcy;
e. Cross default to other indebtedness;.
f. Judgments;
g. Change in Control.
INCREASED COST/CHANGE
OF CIRCUMSTANCES: The Credit Agreement will contain customary provisions
protecting the Lenders in the event of unavailability of
funding, illegality, capital adequacy requirements,
increased costs, and funding losses.
ASSIGNMENTS AND
PARTICIPATIONS: Except for assignments within the Lender group (which
are not limited) each Lender will be permitted to assign
outstandings and commitments with the approval of the
Borrowers and the Agent provided that the aggregate
amount assigned is at least $10,000,000. Assigning Bank
will be responsible to the Agent for an administrative
fee of $3,500 per assignment. No restrictions on
participations, except voting limitations.
6
<PAGE>
INDEMNIFICATIONS: The Borrowers will indemnify the Lenders and their
agents against all losses, liabilities, claims, damages,
or expenses relative to the loans, the Borrowers' use of
loan proceeds, or the Commitment, including but not
limited to legal fees and settlement costs whether or
not the transaction contemplated hereby is consummated.
EXPENSES: The Borrowers will pay all legal and other reasonable
out-of-pocket expenses of the Agents related to this
transaction and any subsequent waivers or
amendments.
GOVERNING LAW: Commonwealth of Pennsylvania.
WAIVER OF JURY TRIAL: By all parties.
REQUIRED LENDERS: Lenders holding at least 51% of the aggregate amount
of the outstanding loans, outstanding letter of credit
exposures and undrawn commitments; except that
reductions in pricing, increased commitment levels,
extension of maturity, release of guarantees or
changes in the definition of required banks requires
approval of 100% of the Lenders.
OTHER: This term sheet is intended as an outline only and does
not purport to summarize all the conditions, covenants,
representations, warranties and other provisions which
would be contained in definitive legal documentation for
the Commitment contemplated hereby.
ANTICIPATED
CLOSING DATE: No later than May 31, 1997
7
<PAGE>
SELECTED DEFINITIONS
All determined in accordance with GAAP
CAPITALIZATION TEST
Ratio of Funded Debt to Total Capital
Funded Debt
Sum of the following: (i) Indebtedness for borrowed money; (ii) Indebtedness
evidenced by notes, debentures or similar instruments; (iii) Capital Leases;
(iv) guarantees of Indebtedness or Capital Leases; and (v) Letters of Credit and
letter of credit reimbursement obligations. For purposes of this definition, the
Guaranteed Preferred Beneficial Interests in Company's Junior Subordinated
Debentures are not considered Funded Debt.
Total Capital
Sum of the following: (i) Funded Debt; (ii) Guaranteed Preferred Beneficial
Interests in Company's Junior Subordinated Debentures and (iii) Net Worth.
FIXED CHARGE COVERAGE TEST
Ratio of Adjusted EBITDAR to Fixed Charges determined on a rolling four quarter
basis.
EBITDA
Net Income plus General Partner management fees plus Interest Expense (including
all Distributions paid on the Guaranteed Preferred Beneficial Interests in
Company's Junior Subordinated Debentures whether paid in cash or in kind) plus
all provisions for taxes plus depreciation and amortization plus extraordinary
losses minus extraordinary gains. For purposes of this definition the
restructuring charges ($4.9MM) and conversion transaction charges ($2.1MM)
incurred during 1996 and conversion transaction charges (including make whole
provisions and other costs) , not to exceed $8.0MM, incurred in 1997 are deemed
to be extraordinary losses.
Adjusted EBITDAR
EBITDA plus rent expense minus capital expenditures.
Fixed Charges
Interest Expense (including Distributions paid on the Guaranteed Preferred
Beneficial Interests in Company's Junior Subordinated Debentures to the extent
paid in cash) plus General Partner management fees plus rent expense plus
scheduled maturities paid on Funded Debt (excluding Commitment) plus cash
dividends plus Partnership Distributions.
8
<PAGE>
LEVERAGE TEST
Ratio of Funded Debt to EBITDA with EBITDA determined on a rolling four quarter
basis.
Additional Indebtedness
Prohibited except: Indebtedness under Commitment, Indebtedness under the Bank of
Nova Scotia Canadian Revolving Credit Facility, Trade Indebtedness in the
ordinary course of business except no more that $5,000,000 shall be in the form
of Trade Notes, Indebtedness for purchase of or lease of fixed or capital assets
provided that the total amount shall not exceed $5,000,000 in any calendar year,
Contingent Obligations (other than those under Commitment) in excess of
$5,000,000 at any one time and Indebtedness outstanding and disclosed at
Closing.
Restricted Payments
Prohibited except (provided there exists no Event of Default or Default and no
Event of Default or Default will result therefrom): dividends on common stock,
Distributions on Guaranteed Preferred Beneficial Interests in Company's Junior
Subordinated Debentures and Partnership Distributions. Share repurchase of
either common stock or Guaranteed Preferred Beneficial Interests in Company's
Junior Preferred Subordinated Debentures prohibited unless demonstrated pro
forma compliance with Leverage Test below 2.25x. In the event of a Tax Event
redemptions on Subordinated Debt are prohibited.
9
<PAGE>
Teachers Insurance and Annuity Association
730 Third Avenue
New York, NY 10017
May 15, 1997
Mr. Joseph M. Corvino
Chief Financial Officer
SDI Operating Partners, L.P. ("SDI")
One Logan Square, Suite 2600
Philadelphia, PA 19103
Re: SDI Operating Partners, L.P.
$60,000,000 7.66% Senior Notes due 2002 (the "Notes")
-----------------------------------------------------
Dear Mr. Corvino:
This letter is delivered to you pursuant to the Commitment Letter and
Summary of Proposed Terms dated March 4, 1997, (together the "Commitment
Letter") between SDI and the undersigned, Teachers Insurance and Annuity
Association of America (TIAA). Unless otherwise defined herein, capitalized
terms shall have the meaning set forth in the Commitment Letter. TIAA hereby
agrees to extend the expiry of the Commitment Letter from May 31, 1997 to June
30, 1997. In addition to the fees outlined in the Commitment Letter and any
other fees agreed to by SDI and TIAA, SDI hereby agrees to pay TIAA for their
own account a fee of 18.75 basis points per annum on the principal amount of the
Notes, payable on a per diem basis for the period commencing May 31, 1997 until
closing. Payment is due upon closing.
If the foregoing is in accordance with your understanding, please sign and
return the enclosed copy of this letter.
Very truly yours,
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
BY /s/
--------------------------------
William Stuart Shepetin
Director-Private Placements
Accepted and Agreed to:
SDI OPERATING PARTNER, L.P./SUNSOURCE, INC.
By: _________________________________
Its: _________________________________
<PAGE>
Teachers Insurance and Annuity Association
College Retirement Equities Fund
730 Third Avenue
New York, NY 10017
March 4, 1997
Mr. Joseph M. Corvino
Chief Financial Officer
Sunsource, Inc.
One Logan Square
Philadelphia, PA 19103
Re: SDI Operating Partners, L.P.
$60,000,000 7.66% Senior Notes due 2002 (the "Notes")
-----------------------------------------------------
Dear Mr. Corvino:
We are pleased to confirm that our Officers Investment Committee has
authorized the acquisition by Teachers Insurance and Annuity Association of
America ("TIAA") of the captioned securities.
This authorization is contingent upon the preparation, execution and
delivery of documents, in form and substance satisfactory to TIAA and of TIAA's
special counsel, substantially in accordance with the Summary of Proposed Terms
attached hereto; and is further contingent upon the absence of any material,
adverse change in the business or financial condition of the Company from that
in existence on December 31, 1995. This authorization will expire if the
necessary documents, as aforesaid, have not been executed prior to May 31, 1997,
unless TIAA has extended said date in writing.
Other provisions: The documents shall contain such representations and
warranties, closing conditions, other covenants, events of default and remedies,
requirements for delivery of financial statements, and other information and
provisions as are usual and customary in this type of transaction and as we and
our special counsel may deem reasonably necessary to accomplish this
transaction.
Special Counsel: Milbank, Tweed, Hadley & McCloy
Expenses: The Company agrees to pay or, at TIAA's option to reimburse TIAA, for
all reasonable out-of-pocket expenses incurred in connection with this
transaction including, without limitation, fees and expenses of our special
counsel, printing costs, and broker's or finder's fees or commissions, if any,
whether or not this transaction is consummated.
<PAGE>
If the foregoing properly sets forth your understanding of this
transaction, please evidence acceptance of the conditions of this letter by
having it executed below by a duly authorized officer of the Company and by
returning one executed counterpart to TIAA, attention: Securities Division.
Upon receipt by TIAA of an accepted counterpart of this letter, our
agreement to purchase from you and your agreement to issue, sell and deliver to
us, or at our request to our wholly-owned subsidiary, the captioned securities,
shall become a binding agreement between us. Failure to receive such acceptance
by March 15, 1997 will constitute termination of this authorization.
Very truly yours,
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
BY /s/
----------------------------------
William Stuart Shepetin
Director-Private Placements
Accepted and agreed to:
/s/___________________________
BY____________________________
TITLE
<PAGE>
Summary of Proposed Terms
Re: SDI Operating Partners, L.P.
$60,000,000 7.66% Senior Notes due 2002 (the "Notes")
-----------------------------------------------------
TIAA's investment in the above referenced securities is further conditioned upon
the repayment of our existing Senior Note investment ($33,650,000 SDI Operating
Partners, L.P. Series A Senior Notes due 2002) with accrued interest and a
makewhole premium, per its terms, as part of the conversion of the SunSource, LP
from a Master Limited Partnership to a C-Corporation structure (the
"Conversion") as outlined in the draft version of the SEC S-4 Registration
Statement dated December 31, 1996 (the "S-4") you have furnished to us. A
further condition of TIAA's investment will be the completion of the Conversion,
also as outlined in the S-4.
Please note that references to the "Bank Facility" are to that bank facility
outlined in the memorandum titled Summary Terms and Conditions provided to you
by CoreStates, dated February 18, 1997, the relevant pages of which have been
attached hereto.
Issuer: SDI Operating Partners, L.P.
Guarantors: Certain owners and affiliates of the Issuer.
Amount: $60,000,000
Interest Rate: 7.66%, payable quarterly in arrears. The interest rate
on the Notes shall be 7.91% (the "Surcharge Rate") for any
interest period during which the Company's Leverage Test (as
defined) meets or exceeds 2.75x. Application of the Surcharge
Rate will be based on the Leverage Test calculated for the
rolling four quarter period ended immediately prior to the
date of the interest payment then being made. In any event,
the Surcharge Rate shall be applied for the period from
closing through September 30, 1997.
Fees: There will be a commitment fee of 25 basis points on the
entire principal amount of the Notes, payable at closing.
Maturity: Co-terminus with the Bank Facility, but not later than 5 years
from closing. The maturity will also be prior to the first
call date of the Company's Junior Subordinated Debentures (the
"Junior Debentures"), as such debentures are outlined in the
Company's S-4. In any event the maturity of the Notes will
also be not more than 59 months after the date of issuance of
the Junior Debentures. There will be no required amortization
of the Notes - they shall be due in their entirety at
maturity.
<PAGE>
Prepayment: i) The Notes may be prepaid at any time, in whole or in part,
at par plus a makewhole to Treasuries plus 50 basis points.
ii) Upon the occurrence of a change of control event, TIAA
shall have the right to require prepayment of the Notes at par
plus accrued interest.
iii) Upon the occurrence of the sale, divestiture or spin-off
of either the Hillman Fastener or Harding Glass Divisions of
the Company, a cumulative total of up to $15 million of the
Loan may be prepaid at par plus accrued interest, without
makewhole premium.
Ranking: The Notes will rank pari passu to the Bank Facility and to any
other senior unsecured debt of the Company.
Affirmative
Covenants: Substantially similar to those outlined in the Bank Facility
Summary Terms and Conditions.
Financial
Covenants: Substantially similar to those outlined in the Bank Facility
Summary Terms and Conditions.
Negative
Covenants: Substantially similar to those outlined in the Bank Facility
Summary Terms and Conditions.
Voting: The Notes will be issued under a Note Purchase Agreement
separate from the Bank Facility. Holders of the Notes will
vote separately from the holders Loans under the Bank
Facility.
<PAGE>
Teachers Insurance and Annuity Association
730 Third Avenue
New York, NY 10017
June 24, 1997
Mr. Joseph M. Corvino
Chief Financial Officer
SDI Operating Partners, L.P. ("SDI")
One Logan Square, Suite 2600
Philadelphia, PA 19103
Re: SDI Operating Partners, L.P.
$60,000,000 7.66% Senior Notes due 2002 (the "Notes")
-----------------------------------------------------
Dear Mr. Corvino:
This letter is delivered to you pursuant to the Commitment Letter and
Summary of Proposed Terms dated March 4, 1997, (together the "Commitment
Letter") between SDI and the undersigned, Teachers Insurance and Annuity
Association of America (TIAA). Unless otherwise defined herein, capitalized
terms shall have the meaning set forth in the Commitment Letter. TIAA hereby
agrees to extend the expiry of the Commitment Letter from May 31, 1997 to
September 30, 1997. As set forth in the extension letter dated May 15, 1997, in
addition to the fees outlined in the Commitment Letter and any other fees agreed
to by SDI and TIAA, SDI hereby agrees to pay TIAA for their own account a fee of
18.75 basis points per annum on the principal amount of the Notes, payable on a
per diem basis for the period commencing May 31, 1997 until closing. Payment is
due upon closing.
If the foregoing is in accordance with your understanding, please sign and
return the enclosed copy of this letter.
Very truly yours,
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
BY /s/
--------------------------------
William Stuart Shepetin
Director-Private Placements
Accepted and Agreed to:
SDI OPERATING PARTNER, L.P./SUNSOURCE, INC.
By: /s/ Joseph M. Corvino
--------------------------------
Its: Vice President - Finance
--------------------------------
<PAGE>
CoreStates Bank, N.A.
CoreStates Capital Markets
PO 1-8-12-1
PO Box 7618
1345 Chestnut Street
Philadelphia, PA 19101-7618
215-973-2727
Fax 215-973-1887
June 10, 1997
Mr. Joseph M. Corvino
Vice President - Finance
SDI Operating Partners, L.P.
One Logan Square Suite 2600
Philadelphia, PA 19103
Dear Joe:
This letter is delivered to you pursuant to the Commitment Letter and
Summary and the Fee Letter dated February 27, 1997, and supercedes the
commitment extension letter dated April 8, 1997 among SDI Operating Partners,
L.P., CoreStates Bank, N.A. and The Bank of Nova Scotia. Unless otherwise
defined herein, capitalized terms shall have the meaning set forth in the
Commitment Letter and Term Sheet. The Agents hereby agree to extend the expiry
of the Commitment from May 31, 1997 to September 30, 1997. In addition to the
fees outlined in the Fee Letter and any other fees agreed to by the Agents and
the Borrower, the Borrower hereby agrees to pay to the Agents for their own
account, a fee of 18.75 bps on each Agents's Commitment Amount from the period
commencing May 31, 1997 until Closing, based on the actual number of days
elapsed over a year of 360 days. Payment is due upon Closing.
If the foregoing is in accordance with your understanding, please sign and
return the enclosed copy of this letter.
Very truly yours,
CORESTATES BANK, N.A. THE BANK OF NOVA SCOTIA
BY /s/ BY /s/
-------------------------------- --------------------------------
Title: Senior Vice President Title: Authorized Signatory
Accepted and Agreed to:
SDI OPERATING PARTNER, L.P.
By: /s/ Joseph M. Corvino
--------------------------------
Its: Vice President - Finance
--------------------------------
<PAGE>
================================================================================
A Presentation to the Special Committee of the Board of Directors of
Lehman / SDI, Inc.
Project Sprinter
December 10, 1996
Confidential
================================================================================
SMITH BARNEY INC.
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Confidential
MATERIAL FOR SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
OF
LEHMAN / SDI, INC.
The following pages contain material that was provided to the Special
Committee of the Board of Directors (the "Special Committee") of Lehman/SDI
Inc. (the "Company") by Smith Barney Inc. ("Smith Barney") in the context of
meetings of the Special Committee held to evaluate the potential conversion of
SunSource, L.P. (the "Partnership") from a publicly traded partnership to a
publicly traded corporation. The Company is the general partner of SDI
Partners I, L.P., a limited partnership that acts as the general partner of SDI
Operating Partners, L.P., which is the operating partnership of SunSource, L.P.
The accompanying material was compiled or prepared on a confidential basis
solely for use by the Special Committee and not with a view toward public
disclosure under state and federal securities laws. The information contained in
this material was obtained from the Partnership and other sources. Any estimates
and projections for the Partnership contained herein have been prepared by
management or are based upon such estimates and projections, and involve
numerous and significant subjective determinations, which may or may not be
correct. No representation or warranty, expressed or implied, is made as to the
accuracy or completeness of such information and nothing contained herein is, or
shall be relied upon as, a promise or representation, whether as to the past or
the future. Because this material was prepared for use in the context of an oral
presentation to the Special Committee, the material was not prepared to comply
with the disclosure standards set forth under state and federal securities laws
and to the extent the material was not prepared to comply with the disclosure
standards set forth under state and federal securities laws and to the extent
the material may be used by readers not as familiar with the business and
affairs of the Partnership as the Special Committee, neither the Partnership nor
Smith Barney nor any of their respective legal or financial advisors or
accountants takes any responsibility for the accuracy or completeness of any of
the material when used by persons other than the Board of Directors. Neither the
Partnership nor Smith Barney expects to update or otherwise revise the
accompanying materials.
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Tab
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY....................................................1
SUMMARY FINANCIALS.....................................................2
VALUATION SUMMARY......................................................3
VALUATION MATRIX.......................................................4
ANALYSIS OF CLASS A INTERESTS..........................................5
ANALYSIS OF CLASS B INTERESTS..........................................6
ANALYSIS OF THE GENERAL PARTNER INTEREST AND THE MANAGEMENT FEE........7
APPENDIX
- --------------------------------------------------------------------------------
TERM SHEET.............................................................A
FINANCIAL COMPARISON OF SELECTED INDUSTRIAL DISTRIBUTING COMPANIES.....B
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Transaction Summary
<TABLE>
<CAPTION>
<S> <C> <C>
-----------------------------------------------------------------------------------------------
Existing Security/Interest New Security/Interest
-----------------------------------------------------------------------------------------------
Exchange Offers: 11.100 million Class A Units Each Class A Unit shall be exchanged for 0.38 shares of
Trust Preferred Securities (the "Preferred Securities") and
$1.30 in cash
-----------------------------------------------------------------------------------------------
21.676 million Class B Units Each Class B Unit shall be exchanged for one share of
Common Stock
-----------------------------------------------------------------------------------------------
GP rights to 1.99% economic GP shall receive 4.000 million shares of Common Stock
interest and Management Fee for the GP Interest (0.3 million shares to be held back for
(collectively, the "GP Interest") a period of 2 years subject to dividend payments on the
trust preferred securities)
-----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock: = To be listed on the NYSE
= Entitled to one vote per share, with Lehman, its affiliates
and management agreeing to vote their Excess Voting Shares in
the same proportion as shares of common stock owned by
unaffiliated persons
= Lehman, its affiliates and management will agree not to sell
any shares of common stock in a single transaction to a third
party which to their knowledge would own after such sale in
excess of 10% of the outstanding common stock (15% if such
third party is eligible to report the acquisition of such
shares on Schedule 13G)
Preferred Securities: = Structured as retail trust preferred stock
= To be listed on the NYSE
= 11.6% dividend rate payable monthly
= 30 year maturity
= Redeemable after five years at par plus accrued and unpaid distributions
= Redeemable at 101% of par plus accrued and unpaid distributions upon certain Special Events relating to
changes in tax treatment
</TABLE>
Page 1-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Transaction Summary
<TABLE>
<CAPTION>
Corporate Governance: = 9 members of the Board of Directors with Lehman electing 2 directors if they hold 20% or more of the Common
Stock (1 director if they hold between 10% and 20%), 3 directors from management and 4 independent
directors
= Approval of a majority of disinterested directors required for significant corporate actions for three
years following the Conversion
= Shareholder rights plan to be implemented
Ownership Structure(1):
Pre-Conversion Post-Conversion
------------------------------------------------------------------ ------------------------------
Class A Units Class B Units Common Stock
Holder (in millions) Percent (in millions) Percent (in millions) Percent
--------------- --------- -------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Public 11.01 99.2% 11.634 53.7% 11.636 45.3%
Lehman 0.00 0.0% 5.897 27.2% 8.097 31.5%
Management 0.09 0.8% 4.145 19.1% 5.943 23.2%
--------------- --------- -------------- ---------- -------------- ---------
Total 11.10 100.0% 21.676 100.0% 25.676 100.0%
- --------------------
(1)Note that this does not reflect the 1.99% economic interest of the General Partner and assumes that the 300,000 shares to be held
back are distributed to the G.P.
</TABLE>
Page 1-2
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical Projected
---------------------------------------------- -----------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Sales(1) $493,437 $558,754 $599,865 $648,199
Cost of sales 292,878 331,609 355,004 386,430
--------- --------- --------- --------- ---------
Gross profit 200,559 227,145 244,861 261,769
Operating expenses 159,772 177,765 194,917 206,679
Corporate SG&A 9,067 11,487 10,263 11,813
Management Risk Adjustment(3) 0 0 0 342(4)
Other operating income (expense) (72) 46 (367) (117)
--------- --------- --------- --------- ---------
EBITDA 31,648 37,939 39,314 42,818
Depreciation 3,556 3,249 3,358 3,244
Amortization 2,496 2,143 1,961 2,396
Management EBIT Adjustment(3) 0 0 0 76
--------- --------- --------- --------- ---------
EBIT 25,596 32,547 33,995 37,102
Interest income 85 66 412 177
Interest expense 9,876 9,956 7,332 6,314 95
Management fee 3,330 3,330 3,330 3,330 (3,330)
MIPS dividends 0 0 0 0 12,232
Other income (expense) 450 (1,496) 1,071 (498)
--------- --------- --------- --------- ---------
EBT 12,925 17,831 24,816 27,137 (8,997)
Income taxes 869 100 537 1,065 6,942
--------- --------- --------- --------- ---------
Net income 12,056 17,731 24,279 26,072 (15,938)
Minority interest in OLP 187 298 446 263 (263)
--------- --------- --------- --------- ---------
Net income available to common 11,869 17,433 23,833 25,809 (15,675)
Extraordinary items 6,637 12,111 20,285 0 2,073(2)
--------- --------- --------- --------- ---------
Adjusted net income $18,506 $29,544 $44,118 $25,809 ($13,602)
========= ========= ========= ========= =========
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT
Sales(1) $648,199 $705,757 $766,494 $832,159
Cost of sales 386,430 420,872 457,018 496,630
--------- --------- --------- ---------
Gross profit 261,769 284,885 309,476 335,529
Operating expenses 206,679 221,854 238,910 257,502
Corporate SG&A 11,813 13,709 14,085 14,474
Management Risk Adjustment(3) 342(4) 2,513(4) 6,000 8,600
Other operating income (expense) (117) (190) (175) (172)
--------- --------- --------- ---------
EBITDA 42,818 46,619 50,306 54,781
Depreciation 3,244 3,242 3,340 3,402
Amortization 2,396 2,052 1,732 1,645
Management EBIT Adjustment(3) 76(4) 180(4) 0 0
--------- --------- --------- ---------
EBIT 37,102 41,145 45,234 49,734
Interest income 177 177 177 177
Interest expense 6,409 6,409 5,906 5,272
Management fee 0 0 0 0
MIPS dividends 12,232 12,232 12,232 12,232
Other income (expense) (498) (645) (677) (711)
--------- --------- --------- ---------
EBT 18,140 22,036 26,596 31,697
Income taxes 8,006 9,453 11,277 13,320
--------- --------- --------- ---------
Net income 10,134 12,583 15,319 18,377
Minority interest in OLP 0 0 0 0
--------- --------- --------- ---------
Net income available to common 10,134 12,583 15,319 18,377
Extraordinary items 2,073 0 0 0
--------- --------- --------- ---------
Adjusted net income $12,207 $12,583 $15,319 $18,377
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
------------------------------------
2000 2001
--------- ---------
<S> <C> <C>
INCOME STATEMENT
Sales(1) $903,369 $981,413
Cost of sales 539,836 587,308
--------- ---------
Gross profit 363,533 394,105
Operating expenses 277,610 300,108
Corporate SG&A 14,875 15,290
Management Risk Adjustment(3) 11,000 13,000
Other operating income (expense) (172) (172)
--------- ---------
EBITDA 59,876 65,535
Depreciation 3,480 3,557
Amortization 1,645 1,645
Management EBIT Adjustment(3) 0 0
--------- ---------
EBIT 54,751 60,333
Interest income 177 177
Interest expense 4,514 3,579
Management fee 0 0
MIPS dividends 12,232 12,232
Other income (expense) (747) (784)
--------- ---------
EBT 37,435 43,915
Income taxes 15,617 18,212
--------- ---------
Net income 21,818 25,703
Minority interest in OLP 0 0
--------- ---------
Net income available to common 21,818 25,703
Extraordinary items 0 0
--------- ---------
Adjusted net income $21,818 $25,703
========= =========
- ---------------------------------
Source: Company Consolidated July 1996 Projections
(1) Includes commission income.
(2) Extraordinary after tax loss from the early extinguishment of debt and deferred tax benefit.
(3) Consolidated 1996 and 1997 EBIT and EBITDA are adjusted per November 1996 Projections. Subsequent years are based on July 1996
Projections, risk adjusted, and adjusted for revised corporate administrative costs and accrued deferred compensation expense.
(4) The 1996 and 1997 risk adjustment numbers reflect the management risk adjustment included in the November 1996 Projections and
certain other differences between the November 1996 Projections and the July 1996 Projections. Sales and balance sheet
adjustments were not changed from the July 1996 Projections.
</TABLE>
Page 2-1
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical Projected
---------------------------------------------- -----------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Assets:
Cash & equivalents $ 1,327 $ 4,903 $ 5,900 $ 5,900
Accounts receivable 80,006 77,521 75,824 79,167
Inventories 95,617 92,653 96,022 97,498
Other current assets 5,294 6,703 4,742 4,551
--------- --------- --------- --------- ------
Total 182,244 181,780 182,488 187,116
Net PP&E 29,629 27,514 20,181 20,291
Net intangibles 59,446 50,935 45,562 43,166
Deferred income taxes 1,410 2,144 2,844 2,844 7,500
Other assets 764 3,813 3,516 6,516
--------- --------- --------- --------- ------
Total assets $273,493 $266,186 $254,591 $259,933 $7,500
========= ========= ========= ========= ======
Liabilities and Equity
Accounts payable $ 50,333 $ 44,435 $ 42,437 $ 45,014
Other current liabilities 30,090 39,219 35,062 35,139 (11,149)(2)
--------- --------- --------- --------- ------
Total current liabilities 80,423 83,654 77,499 80,153 (11,149)
Total Debt(1) 113,915 96,847 73,082 61,787 31,517
Deferred compensation plan 5,363 6,398 7,829 9,765
Other liabilities 910 68 1,238 1,238
MIPS 0 0 0 0 105,446
Common shareholders equity 0 0 0 0 ( 11,324)
Partners equity 72,882 79,219 94,943 106,990 (106,990)
--------- --------- --------- --------- ------
Total liabilities & equity $273,493 $266,186 $254,591 $259,933 $7,500
========= ========= ========= ========= ======
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET
Assets:
Cash & equivalents $ 5,900 $ 5,900 $ 5,900 $ 5,900
Accounts receivable 79,167 86,128 92,967 100,592
Inventories 97,498 104,346 111,036 119,186
Other current assets 4,551 4,716 4,921 5,086
--------- --------- --------- ---------
Total 187,116 201,090 214,824 230,764
Net PP&E 20,291 20,849 21,579 22,357
Net intangibles 43,166 41,114 39,382 37,737
Deferred income taxes 10,344 10,107 9,779 9,410
Other assets 6,516 9,516 12,516 15,516
--------- --------- --------- ---------
Total assets $267,433 $282,675 $298,080 $315,784
========= ========= ========= =========
Liabilities and Equity
Accounts payable $ 45,014 $ 50,396 $ 54,578 $ 59,545
Other current liabilities 23,990 25,323 27,085 28,987
--------- --------- --------- ---------
Total current liabilities 69,004 75,719 81,663 88,532
Total Debt(1) 93,304 86,117 77,056 66,236
Deferred compensation plan 9,765 12,896 16,100 19,377
Other liabilities 1,238 1,238 1,238 1,238
MIPS 105,446 105,446 105,446 105,446
Common shareholders equity (11,324) 1,259 16,578 34,955
Partners equity 0 0 0 0
--------- --------- --------- ---------
Total liabilities & equity $267,433 $282,675 $298,080 $315,784
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
------------------------------------
2000 2001
--------- ---------
<S> <C> <C>
BALANCE SHEET
Assets:
Cash & equivalents $ 5,900 $ 5,900
Accounts receivable 108,739 117,809
Inventories 128,330 138,800
Other current assets 5,211 5,311
--------- ---------
Total 248,180 267,820
Net PP&E 23,207 24,030
Net intangibles 36,092 34,447
Deferred income taxes 9,057 8,724
Other assets 18,516 21,516
--------- ---------
Total assets $335,051 $356,537
========= =========
Liabilities and Equity
Accounts payable $ 64,955 $ 70,859
Other current liabilities 31,033 33,278
--------- ---------
Total current liabilities 95,988 104,137
Total Debt(1) 52,876 37,080
Deferred compensation plan 22,731 26,161
Other liabilities 1,238 1,238
MIPS 105,446 105,446
Common shareholders equity 56,773 82,476
Partners equity 0 0
--------- ---------
Total liabilities & equity $335,051 $356,537
========= =========
- -----------------------------------
(1) Includes current portion.
(2) Represents distribution and management fees payable (balance as of 1995 year end.)
</TABLE>
Page 2-2
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical Projected
---------------------------------------------- -----------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOW STATEMENT
Cash Flow From Operations:
Net Income $18,506 $29,544 $44,118 $25,809 ($13,602)
Provision for deferred compensation 721 3,187 2,340 1,936 0
Deferred taxes 208 (734) (700) 0 47
Depreciation 3,556 3,249 3,358 3,244 0
Amortization 2,496 2,143 1,961 2,396 0
Minority Interest 187 298 446 263 (263)
Extraordinary loss 0 0 629 0 (2,073)
Other 783 (5,770) (20,410) 0 0
Changes in working capital (2,886) (14,213) (14,690) (1,974) 0
--------- --------- --------- --------- ---------
Net cash from operations 23,571 17,704 17,052 31,675 (15,891)
--------- --------- --------- --------- ---------
Cash Flow From Investing Activities:
Capital expenditures (3,734) (4,263) (4,299) (3,354)
Other 439 27,513 35,085 0
--------- --------- --------- --------- ---------
Net cash used by investing (3,295) 23,250 30,786 (3,354) 0
--------- --------- --------- --------- ---------
Cash Flows From Financing Activities:
Issuance of senior notes 0 0 0 0 0
Issuance of subordinated notes 0 0 0 0 0
Bank debt borrowings (paydowns) 0 0 0 0 68,122
Revolver/other borrowings (paydowns) (4,801) (11,321) (21) 0 22,429
Repayment of senior notes 0 (5,700) (19,600) (11,295) (59,034)
Repayment of subordinated notes 0 0 0 0 0
Issuance of common stock 0 0 0 0 112,331
Issuance of MIPS 0 0 0 0 105,446
Retirement of common stock 0 0 0
Retirement of preferred stock 0 0 0 0
Retirement of Class A interests 0 0 0 0 (119,875)
Retirement of Class B interests 0 0 0 0 (94,831)
Retirement of GP interest 0 0 0 0 (1,935)
Retirement of management fee 0 0 0 0 (15,565)
Distributions/Dividends (14,940) (20,357) (27,218) (14,026) 14,026
Investments in Rabbi Trust 0 0 0 (3,000)
Transaction costs 0 0 0 0 (8,000)
Other 47 0 0 0
--------- --------- --------- --------- ---------
Net cash used by financing (19,694) (37,378) (46,839) (28,321) 23,113
--------- --------- --------- --------- ---------
Cash increase(decrease) $582 $3,576 $999 $0 $7,222
========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOW STATEMENT
Cash Flow From Operations:
Net income $12,207 $12,583 $15,319 $18,377
Provision for deferred compensation 1,936 3,131 3,204 3,278
Deferred taxes 47 237 327 369
Depreciation 3,244 3,242 3,340 3,402
Amortization 2,396 2,052 1,732 1,645
Minority Interest 0 0 0 0
Extraordinary loss (2,073) 0 0 0
Other 0 0 0 0
Changes in working capital (1,974) (7,259) (7,791) (9,071)
--------- --------- --------- ---------
Net cash from operations 15,784 13,987 16,132 18,000
--------- --------- --------- ---------
Cash Flow From Investing Activities:
Capital expenditures (3,354) (3,800) (4,070) (4,180)
Other 0 0 0 0
--------- --------- --------- ---------
Net cash used by investing 3,354) (3,800) (4,070) (4,180)
--------- --------- --------- ---------
Cash Flows From Financing Activities:
Issuance of senior notes 0 0 0 0
Issuance of subordinated notes 0 0 0 0
Bank debt borrowings (paydowns) 68,122 (7,187) (9,062) (10,820)
Revolver/other borrowings (paydowns) 22,429 0 0 0
Repayment of senior notes (70,329) 0 0 0
Repayment of subordinated notes 0 0 0 0
Issuance of common stock 112,331 0 0 0
Issuance of MIPS 105,446 0 0 0
Retirement of common stock 0 0 0 0
Retirement of preferred stock 0 0 0 0
Retirement of Class A interests (119,875) 0 0 0
Retirement of Class B interests (94,831) 0 0
Retirement of GP interest (1,935) 0 0 0
Retirement of management fee (15,565) 0 0
Distributions/Dividends 0 0 0 0
Investments in Rabbi Trust (3,000) (3,000) (3,000) (3,000)
Transaction costs (8,000) 0 0 0
Other 0 0 0 0
--------- --------- --------- ---------
Net cash used by financing (5,207) (10,187) (12,062) (13,820)
--------- --------- --------- ---------
Cash increase(decreasc) $7,222 $0 $0 $0
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
-----------------------------
2000 2001
--------- ---------
<S> <C> <C>
CASH FLOW STATEMENT
Cash Flow From Operations:
Net income $21,818 $25,703
Provision for deferred compensation 3,353 3,430
Deferred taxes 354 332
Depreciation 3,480 3,557
Amortization 1,645 1,645
Minority Interest 0 0
Extraordinary loss 0 0
Other 0
Changes in working capital (9,960) (11,491)
--------- ---------
Net cash from operations 20,690 23,176
--------- ---------
Cash Flow From Investing Activities:
Capital expenditures (4,330) (4,380)
Other 0 0
--------- ---------
Net cash used by investing (4,330) (4,380)
--------- ---------
Cash Flows From Financing Activities:
Issuance of senior notes 0 0
Issuance of subordinated notes 0 0
Bank debt borrowings (paydowns) (13,360) (15,796)
Revolver/other borrowings (paydowns) 0 0
Repayment of senior notes 0 0
Repayment of subordinated notes 0 0
Issuance of common stock 0 0
Issuance of MIPS 0 0
Retirement of common stock 0 0
Retirement of preferred stock 0 0
Retirement of Class A interests 0 0
Retirement of Class B interests 0
Retirement of GP interest 0 0
Retirement of management fee 0 0
Distributions/Dividends 0 0
Investments in Rabbi Trust (3,000) (3,000)
Transaction costs 0 0
Other 0 0
--------- ---------
Net cash used by financing (16,360) (18,796)
--------- ---------
Cash increase(decrease) $0 $0
========= =========
</TABLE>
Page 2-3
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical Projected
---------------------------------------------- -----------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
Growth rate assumptions
Sales growth rate -- 13.2% 7.4% 8.1%
EBITDA growth -- 19.9% 3.6% 8.9%
EBIT growth -- 27.2% 4.4% 9.1%
Net income growth -- 46.9% 36.7% 8.3%
Margin assumptions
Gross margin 40.6% 40.7% 40.8% 40.4%
Operating expenses as a % of sales 32.4% 31.8% 32.5% 31.9%
SG&A as a % of sales 1.8% 2.1% 1.7% 1.8%
EBITDA margin 6.4% 6.8% 6.6% 6.6%
Taxes as a % of EBT NM NM NM 3.9%
Net income margin 4.1% 5.3% 6.7% 6.7%
Working capital assumptions
Days receivable 59.2 50.6 46.1 44.6
Inventory turns 3.1 3.6 3.7 4.0
Other current assets (% sales) 1.1% 1.2% 0.8% 0.7%
Days payables -- 49.4 43.2 42.4
Other current liabilities (% of sales) 6.1% 7.0% 5.8% 5.4%
Capex/depreciation 1.1x 1.3x 1.3x 1.0x
Segment revenue contribution analysis
Technology services 45.5% 46.6% 47.6% 46.4%
Kar Products / A&H Bolt 20.1% 19.1% 19.0% 19.0%
SIMCO / Special-T Metals 3.8% 3.8% 4.1% 4.8%
Hillman Fasteners 11.5% 13.0% 14.1% 15.7%
Harding Glass Industries 19.2% 17.4% 15.3% 14.1%
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED
Growth rate assumptions
Sales growth rate 8.1% 8.9% 8.6% 8.6%
EBITDA growth 8.9% 8.9% 7 9% 8.9%
EBIT growth 9.1% 10.9% 9.9% 9.9%
Net income growth (57.5%) 24.2% 21.7% 20.0%
Margin assumptions
Gross margin 40.4% 40.4% 40.4% 40.3%
Operating expenses as a % of sales 31.9% 31.4% 31.2% 30.9%
SG&A as a % of sales 1.8% 1.9% 1.8% 1.7%
EBITDA margin 6.6% 6.6% 6.6% 6.6%
Taxes as a % of EBT 44.1% 42.9% 42.4% 42.0%
Net income margin 2.6% 3.0% 3.4% 3.7%
Working capital assumptions
Days receivable 44.6 44.5 44.3 44.1
Inventory turns 4.0 4.0 4.1 4.2
Other current assets (% sales) 0.7% 0.7% 0.6% 0.6%
Days payables 42.4 43.0 43.0 43.1
Other current liabilities (% of sales) 5.4% 3.6% 3.5% 3.5%
Capex/depreciation 1.0x 1.2x 1.2x 1.2x
Segment revenue contribution analysis
Technology services 46.4% 46.0% 45.7% 45.5%
Kar Products / A&H Bolt 19.0% 18.7% 18.4% 18.1%
SIMCO / Special-T Metals 4.8% 5.4% 5.9% 6.4%
Hillman Fasteners 15.7% 16.5% 17.1% 17.8%
Harding Glass Industries 14.1% 13.3% 12.8% 12.2%
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
-----------------------------
2000 2001
--------- ---------
<S> <C> <C>
CONSOLIDATED
Growth rate assumptions
Sales growth rate 8.6% 8.6%
EBITDA growth 9.3% 9.5%
EBIT growth 10.1% 10.2%
Net income growth 18.7% 17.8%
Margin assumptions
Gross margin 40.2% 40.2%
Operating expenses as a % of sales 30.7% 30.6%
SG&A as a % of sales 1.6% 1.6%
EBITDA margin 6.6% 6.7%
Taxes as a % of EBT 41.7% 41.5%
Net income margin 4.0% 4.4%
Working capital assumptions
Days receivable 43.9 43.8
Inventory turns 4.2 4.2
Other current assets (% sales) 0.6% 0.5%
Days payables 43.2 43.3
Other current liabilities (% of sales) 3.4% 3.4%
Capex/depreciation 1.2x 1.2x
Segment revenue contribution analysis
Technology services 45.3% 45.0%
Kar Products / A&H Bolt 17.7% 17.4%
SIMCO / Special-T Metals 6.9% 7.5%
Hillman Fasteners 18.2% 18.7%
Harding Glass Industries 11.8% 11.4%
-------- --------
100.0% 100.0%
</TABLE>
Page 2-4
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical Projected
---------------------------------------------- -----------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CONT'D
Consolidated working capital
Accounts receivable $80,006 $77,521 $75,824 $79,167
Inventory 95,617 92,653 96,022 97,498
Other current assets 5,294 6,703 4,742 4,551
Accounts payable 50,333 44,435 42,437 45,014
Other current liabilities 30,090 39,219 35,062 35,139 (11,149)
Change in Working Capital (7,271) 5,866 1,974
Leverage ratios
Total debt / EBITDA 3.6x 2.6x 1.9x 1.4x
Total debt + pref / EBITDA NA NA NA NA
Total debt / book capitalization 61.0% 55.0% 43.5% 36.6%
(Total debt + pref.) / book capitalization NA NA NA NA
EBITDA / interest 3.2x 3.8x 5.4x 6.8x
EBITDA / (interest +Class A) 1.4x 1.7x 2.0x 2.3x
EBITDA / (int.+Class A+Mgmt Fee) 1.2x 1.5x 1.7x 2.0x
EBITDA / (interest+Preferred) NA NA NA NA
EBITDA /(senior int.) NA NA NA 6.8x
(EBITDA-capex) / interest 2.8x 3.4x 4.8x 6.3x
(EBITDA-capex) / (interest +Class A) 1.3x 1.5x 1.8x 2.1x
(EBITDA-capex) / (int.+Class. A+Mgmt Fee) 1.1x 1.3x 1.5x 1.8x
(EBITDA-capex) / (int. +preferred) 2.8x 3.4x 4.8x 6.3x
(EBITDA-capex) / (senior int.) NA NA NA NA
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED CONT'D
Consolidated working capital
Accounts receivable $79,167 $86,128 $92,967 $100,592
Inventory 97,498 104,346 111,036 119,186
Other current assets 4,551 4,716 4,921 5,086
Account% payable 45,014 50,396 54,578 59,545
Other current liabilities 23,990 25,323 27,085 28,987
Change in Working Capital 1,974 7,259 7,791 9,071
Leverage ratios
Total debt / EBITDA 2.2x 1.8x 1.5x 1.2x
Total debt + pref / EBITDA 4.6x 4.1x 3.6x 3.1x
Total debt / book capitalization 49.8% 44.7% 38.7% 32.1%
(Total debt + pref.) / book capitalization 106.0% 99.3% 91.7% 83.1%
EBITDA / interest 6.7x 7.3x 8.5x 10.4x
EBITDA / (interest +Class A) NA NA NA NA
EBITDA / (int.+Class A+Mgmt Fee) NA NA NA NA
EBITDA / (interest+Preferred) 2.3x 2.5x 2.8x 3.1x
EBITDA /(senior int.) 8.9x 9.7x 11.7x 14.9x
(EBITDA-capex) / interest 6.2x 6.7x 7.8x 9.6x
(EBITDA-capex) / (interest +Class A) NA NA NA NA
(EBITDA-capex) / (int.+Class. A+Mgmt Fee) NA NA NA NA
(EBITDA-capex) / (int. +preferred) 2.1x 2.3x 2.5x 2.9x
(EBITDA-capex) / (senior int. 8.2x 8.9x 10.7x 13.8x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
-----------------------------
2000 2001
--------- ---------
<S> <C> <C>
CONSOLIDATED CONT'D
Consolidated working capital
Accounts receivable $108,739 $117,809
Inventory 128,330 138,800
Other current assets 5,211 5,311
Account% payable 64,955 70,859
Other current liabilities 31,033 33,278
Change in Working Capital 9,960 11,491
Leverage ratios
Total debt / EBITDA 0.9x 0.6x
Total debt + pref / EBITDA 2.6x 2.2x
Total debt / book capitalization 24.6% 16.5%
(Total debt + pref.) / book capitalization 73.6% 63.3%
EBITDA / interest 13.3x 18.3x
EBITDA / (interest +Class A) NA NA
EBITDA / (int.+Class A+Mgmt Fee) NA NA
EBITDA / (interest+Preferred) 3.6x 4.1x
EBITDA /(senior int. ) 20.5x 33.0x
(EBITDA-capex) / interest 12.3x 17.1x
(EBITDA-capex) / (interest +Class A) NA NA
(EBITDA-capex) / (int.+Class. A+Mgmt Fee) NA NA
(EBITDA-capex) / (int. +preferred) 3.3x 3.9x
(EBITDA-capex) / (senior int. 19.0x 30.8x
</TABLE>
Page 2-5
<PAGE>
<TABLE>
<CAPTION>
Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
Projection Reconciliation
July Projections
-------------------------------------------------------------
Sales Divisional EBIT
---------------------------- ---------------------------
1996 1997 1996 1997
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Technology Services $300,555 $324,573 $19,594 $22,708
Kar Products / A&H Bolt(1) 123,042 132,194 17,991 19,468
SIMCO / Special-T Metals 31,195 38,058 982 1,507
Hillman Fastener 101,937 116,718 9,291 11,525
Harding Glass 91,470 94,214 3,916 4,439
Management Risk Adjustment 0 0 (2,000) (6,000)
--------- -------- --------- ----------
Total Operating Divisions $648,199 $705,757 $49,774 $53,647
Corporate and Other Adjustments
Deferred Compensation 2,436 2,558
Insurance, net 992 350
Compensation Expense 2,899 3,044
Depreciation Expense 45 47
All other Administrative costs 5,486 5,760
--------- ----------
Total Administrative Expenses 11,858 11,759
Total Amortization 2,396 2,052
Other GAAP Expenses(2) 498 645
GAAP EBIT $35,022 $39,191
November Projections(3)
-------------------------------------------------------------
Sales Divisional EBIT
------------------------------- ---------------------------
1996 1997 1996 1997
---------- ----------- ---------- -----------
Technology Services $300,400 $324,200 $17,931 $25,157
Kar Products / A&H Bolt(1) 123,200 131,000 19,150 21,450
SIMCO / Special-T Metals 34,500 56,000(4) 613 1,591
Hillman Fastener (104,500) 124,000 9,648 13,350
Harding Glass 91,034 95,500 3,587 4,800
Management Risk Adjustment 0 0 (1,254) (8,800)
--------- -------- --------- ----------
Total Operating Divisions $653,634 $730,700 $49,675 $57,548
Corporate and Other Adjustments
Deferred Compensation 1,760 3,631
Insurance, net 495 142
Compensation Expense 2,298 3,054
Depreciation Expense 54 55
All other Administrative costs 5,182 6,827
--------- ----------
Total Administrative Expenses 9,789 13,709
Total Amortization 2,362 2,069
Other GAAP Expenses(2) 422 625
GAAP EBIT $37,102 $41,145
- ----------------------------------
(1) 1996 and 1997 July Divisional EBIT Projections does not include management fee income of $360 and $360, respectively.
(2) Note that for the purpose of the Model, Smith Barney treats these expenses as other income, below the EBIT line.
(3) In November 1996, the division heads were asked to update 1996 and 1997 Sales and EBIT projections, which when combined with new
management Risk Adjustments and estimates of corporate expenses, produced revised earnings estimates.
(4) Increase in 1997 Sales projections principally results from $15.0 MM of additional break-even sales at SIMCO.
</TABLE>
Page 2-6
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Summary
o Valuation parameters of Company based on current management projections and
assuming corporate conversion
<TABLE>
<CAPTION>
<S> <C>
-----------------------------------------------------------------------------------
---
| |
Current Trading Value | |
---
----------------------
| |
Comparable Trading Multiples | |
----------------------
--------------------
DCF (EBITDA multiples) | |
| |
--------------------
-------------------------
DCF (perpetuity growth rates) | |
| |
-------------------------
-----------------------------------------------------------------------------------
$100 $150 $200 $250 $300 $350 $400 $450 $500
Enterprise Value ($ MM)
</TABLE>
Page 3-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Summary
Multiple Valuation Analysis: Assuming Corporate Conversion
Based on Comparable Trading Multiples(1)
<TABLE>
<CAPTION>
Multiple Range(2) Total Enterprise Value Total Equity Value
---------------------- -------------------------- Net -------------------------
Value Mean Median Mean Median Debt & Pref. Mean Median
--------- ------- -------- --------- ---------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM EBITDA $39,111 7.2x 6.5x $281,599 $254,222 $192,850 $88,749 $61,371
FY+1 EBITDA 42,818 6.6x 6.lx 282,599 261,190 192,850 89,749 68,340
FY+2 EBITDA 46,619 6.2x 5.9x 289,038 275,052 192,850 96,188 82,202
FY+1 Net Income 10,134 12.8x 12.0x 322,564 314,457 192,850 129,714 121,607
FY+2 Net Income 12,583 11.6x 11.7x 338,814 340,072 192,850 145,964 147,222
</TABLE>
- ----------------------------------
(1) Based on comparable companies: B, BMCW, BER, CABP, HUG, LAWS, NCH, and RXL.
(2) As of 12/6/96 and LTM ended 9/30/96.
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Summary
Unlevered DCF Valuation Analysis: Assuming Corporate Conversion using Terminal
Values Based off of 2001 EBITDA
<TABLE>
<CAPTION>
Projected
---------------------------------------------------------------------------------------
1997 1998 1999 2000 2001
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Sales $705,757 $766,494 $832,159 $903,369 $981,413
EBITDA 46,619 50,306 54,781 59,876 65,535
EBIT $ 41,145 $ 45,234 $ 49,734 $ 54,751 $ 60,333
Management Fee 0 0 0 0 0
Income Taxes (16,458) (18,093) (19,894) (21,900) (24,133)
---------- ---------- ---------- ----------- ----------
Unlevered Net Income 24,687 27,140 29,841 32,850 36,200
D&A 5,294 5,072 5,047 5,125 5,202
Capital expenditures (3,800) (4,070) (4,180) (4,330) (4,380)
Investment in Rabbi Trust (3,000) (3,000) (3,000) (3,000) (3,000)
Changes in working capital (7,259) (7,791) (9,071) (9,960) (11,491)
---------- ---------- ---------- ----------- ----------
Free Cash Flow $ 15,922 $ 17,351 $ 18,636 $ 20,686 $ 22,530
========== ========== ========== =========== ==========
Discounted Free Cash Flows(1)
Discount PV of free
Rate cash flows
--------- ------------
9.0% $76,110
10.0% 74,397
11.0% 72,750
Cap. Structure Adj.
Pro forma
12/31/96
-----------
Total debt $93,304
Class A's 0
MIPS 105,446
Cash (5,900)
-----------
Total $192,850
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Discounted Terminal Value
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $255,558 $276,855 $298,151 $319,448
10.0% 244,151 264,497 284,843 305,189
11.0% 233,350 252,796 272,242 291,687
Total Enterprise Value (TEV)
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $331,668 $352,965 $374,262 $395,558
10.0% 318,549 338,894 359,240 379,586
11.0% 306,100 325,546 344,991 364,437
Common Equity Value
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $138,818 $160,115 $181,411 $202,708
10.0% 125,699 146,044 166,390 186,736
11.0% 113,250 132,696 152,141 171,587
Common Equity Value Class B Units(2)
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $117,192 $135,171 $153,150 $171,129
10.0% 106,116 123,293 140,469 157,645
11.0% 95,607 112,023 128,440 144,856
Per Share Common Equity Value Class B Units(2)
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $5.41 $6.24 $7.07 $7.89
10.0% $4.90 $5.69 $6.48 $7.27
11.0% $4.41 $5.17 $5.93 $6.68
- ------------------------------
(1) Discounted back to 1/1/97, assuming mid-year convention.
(2) Represents the value of the common stock to be received.
</TABLE>
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Summary
Unlevered DCF Valuation Analysis: Assuming Corporate Conversion using Terminal
Values Based on Perpetuity Growth Rates
<TABLE>
<CAPTION>
Projected
---------------------------------------------------------------------------
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales $705,757 $766,494 $832,159 $903,369 $981,413
EBITDA 46,619 50,306 54,781 59,876 65,535
EBIT $ 41,145 $ 45,234 $ 49,734 $ 54,751 $ 60,333
Management Fee 0 0 0 0 0
Income Taxes (16,458) (18,093) (19,894) (21,900) (24,133)
---------- ---------- ---------- ---------- ----------
Unlevered Net Income 24,687 27,140 29,841 32,850 36,200
D&A 5,294 5,072 5,047 5,125 5,202
Capital expenditures (3,800) (4,070) (4,180) (4,330) (4,380)
Investment in Rabbi Trust (3,000) (3,000) (3,000) (3,000) (3,000)
Changes in working capital (7,259) (7,791) (9,071) (9,960) (11,491)
---------- ---------- ---------- ---------- ----------
Free Cash Flow $ 15,922 $ 17,351 $18,636 $20,686 $ 22,530
========== ========== ========== ========== ==========
Discounted Free Cash Flows(l)
Discount PV of free
Rate cash flows
--------- ------------
9.0% $76,110
10.0% 74,397
11.0% 72,750
Capital Structure Adjustments
Pro forma
12/31/96
------------
Total debt $93,304
Class A's 0
MIPS 105,446
Cash (5,900)
------------
Total $192,850
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Discounted Terminal Value
Perpetuity Growth Rate
Discount --------------------------------------------
Rate 1.0% 2.0% 3.0%
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
9.0% $183,039 $209,188 $244,052
10.0% 155,439 174,869 199,850
11.0% 133,706 148,562 167,133
Total Enterprise Value (TEV)
Perpetuity Growth Rate
Discount --------------------------------------------
Rate 1.0% 2.0% 3.0%
---------- ---------- ----------- ----------
9.0% $259,149 $285,298 $320,162
10.0% 229,836 249,266 274,247
11.0% 206,456 221,312 239,882
Common Equity Value
Perpetuity Growth Rate
Discount --------------------------------------------
Rate 1.0% 2.0% 3.0%
---------- ---------- ----------- ----------
9.0% $66,299 $92,448 $127,312
10.0% 36,986 56,416 81,397
11.0% 13,606 28,462 47,032
Common Equity Value to B Units(2)
Perpetuity Growth Rate
Discount --------------------------------------------
Rate 1.0% 2.0% 3.0%
---------- ---------- ----------- ----------
9.0% $55,971 $78,045 $107,478
10.0% 31,224 47,627 68,717
11.0% 11,486 24,028 39,705
Per Share Common Equity Value Class B Units(2)
Perpetuity Growth Rate
Discount --------------------------------------------
Rate 1.0% 2.0% 3.0%
---------- ---------- ----------- ----------
9.0% $2.58 $3.60 $4.96
10.0% $1.44 $2.20 $3.17
11.0% $0.53 $1.11 $1.83
- ---------------------------
(1) Uses mid-year convention back to 1977.
(2) Represents the value of the common stock to be received.
</TABLE>
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Matrix
o Based upon the valuation analysis described in Tab 3, the range of post
conversion per share values for the common stock is $4.50 - $6.50.
<TABLE>
<CAPTION>
SDP Class B
12/6/96 Assumed Value per Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Price Per Share $4.38 $4.50 $4.75 $5.00 $5.25 $5.50 $5.75 $6.00 $6.25 $6.50
Premium 2.9% 8.6% 14.3% 20.0% 25.7% 31.4% 37.1% 42.9% 48.6%
- ----------------------------
Shares Outstanding 25,676
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Value $112,331 $115,541 $121,960 $128,379 $134,798 $141,217 $147,636 $154,054
Plus: Debt (Pro Forma 12/31/96) 93,304 93,304 93,304 93,304 93,304 93,304 93,304 93,304
Plus: MIPS (Pro Forma 12/31/96) 105,446 105,446 105,446 105,446 105,446 105,446 105,446 105,446
Less: Cash (Pro Forma 12/31/96) 5,900 5,900 5,900 5,900 5,900 5,900 5,900 5,900
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Enterprise Value $305,181 $308,391 $314,810 $321,229 $327,648 $334,067 $340,486 $346,904
========== ========== ========== ========== ========== ========== ========== ==========
<S> <C> <C>
Equity Value $160,473 $166,892
Plus: Debt (Pro Forma 12/31/96) 93,304 93,304
Plus: MIPS (Pro Forma 12/31/96) 105,446 105,446
Less: Cash (Pro Forma 12/31/96) 5,900 5,900
---------- ---------
Enterprise Value $353,323 $359,742
========== =========
Pro Forma
Financial Comparable Company
Statistic Enterprise Value Ranges(2)
----------- ----------------------------------------------------------------------------- -------------------
EBITDA Median Mean
---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM(1) $39,111 7.8x 7.9x 8.0x 8.2x 8.4x 8.5x 8.7x 8.9x 9.0x 9.2x 6.5x 7.2x
1996E 42,818 7.1x 7.2x 7.4x 7.5x 7.7x 7.8x 8.0x 8.1x 8.3x 8.4x 6.1x 6.6x
1997E 46,619 6.5x 6.6x 6.8x 6.9x 7.0x 7.2x 7.3x 7.4x 7.6x 7.7x 5.9x 6.2x
Equity Value
Net Income -----------------------------------------------------------------------------
LTM(1) 10,236 11.0x 11.3x 11.9x 12.5x 13.2x 13.8x 14.4x 15.1x 15.7x 16.3x 13.0x 13.4x
1996E 10,134 11.1x 11.4x 12.0x 12.7x 13.3x 13.9x 14.6x 15.2x 15.8x 16.5x 12.0x 12.8x
1997E 12,583 8.9x 9.2x 9.7x 10.2x 10.7x 11.2x 11.7x 12.2x 12.8x 13.3x 11.7x 11.6x
- -------------------------
(1) LTM ended 9/30/96.
(2) Based on comparable companies: B, BMCW, BER, CABP, HUG, LAWS, NCH, and RXL as of 12/6/96.
</TABLE>
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of Class A Interests
Current Value of Class A Limited Partnership Interests:
(In millions, except for per share/unit data)
<TABLE>
<CAPTION>
o Market value:
52 Week
Current High / Low
---------------------------- ---------------
<S> <C> <C> <C> <C>
Class A units outstanding 11.100
Market price (as of 12/6/96) $10.50 Yield 10.48% 9.36% / 10.73%
-------- Price $10.50 $11.75 / $10.25
Total market value $116.6
o Discounted cash flow analysis of Class A Units(1):
Assuming Assuming Assuming Assuming
Discount Immediate Liquidation Liquidation Liquidation
Rate Liquidation at y/e 1997 at y/e 2001 at y/e 2036
---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total value 9.4% $111.0 $112.7 $118.2 $129.3
per share $10.00 $10.16 $10.65 $11.65
-------------------------
Total value 10.5% $111.0 $111.6 $113.2 $116.3 High (per share) $11.65
per share $10.00 $10.05 $10.20 $10.47 Low (per share) $ 8.83
-------------------------
Total value 12.5% $111.0 $109.4 $104.8 $98.0
per share $10.00 $9.86 $9.44 $8.83
- -------------------------
(1) The Partnership Agreement provides that upon liquidation of the Partnership, holders of Class A Units will receive $10.00 per
unit.
</TABLE>
Page 5-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of Class A Interests
o Pursuant to the Term Sheet, the Class A Interests are being offered 0.38
shares of Preferred Securities and $1.30 in cash (the "Class A
Consideration"). The value of the Class A Consideration was compared to the
value of the Class A Interests described on page 5-1
o The Preferred Securities were analyzed in relation to the trading value of the
Class A Interests
o The change from no call life to a call in five years at par would have the
following effect on yield:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Current Trading Price of Class A Interest $10.50 Current Yield on Class A Interest 10.48%
11% Annual Dividend $1.10 Increase for Change in Call Protection(1) 0.93%
-------
Resulting Yield 11.41%
</TABLE>
o For illustrative purposes, assuming the Preferred Securities trade to yield
11.41%, the value to be received by a holder of a Class A Interest
would be calculated as follows:
Liquidation Value per Share $25.00
11.6% Annual Dividend $2.90
Assumed Yield 11.41%
Implied Price $25.42
Shares for each Class A Unit 0.38
---------
Implied value for each Class A Unit $9.66
Cash for each Class A Unit 1.30
---------
Total Consideration $10.96
o In addition to the changes in dividend rate and call protection, the following
factors, among others, were also considered in analyzing the differences
between the Preferred Securities and the Class A Interests:
= Market risk associated with the Preferred Securities
= Changes in other terms of the securities (e.g., potential for a 5 year
dividend policy)
= Changes in corporate governance (e.g., holders of Class A Interests could
remove general partner)
o In comparing the value of the Class A Consideration with the value of the
Class A Interests, the potention payment of taxes by holders of Class A
Interests in the Conversion and the amount of monthly distributions payable
were also considered.
- -----------------------------
(1) Based upon treasury yield curve as of December 6, 1996, interest rate
volatility of 9% and a 40 year maturity.
<PAGE>
Project Sprinter
- -------------------------------------------------------------------------------
Analysis of Class A Interests
o Consideration to holders of Class A Interests:
<TABLE>
<CAPTION>
Yield to Yield to
Call Price(1) Cash Value Maturity Price Cash Value
------------- ------------- ----------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
9.4% $10.33 $1.30 $11.63 $11.59 $1.30 $12.89
Trading Yield 9.8% 10.17 1.30 11.47 11.15 1.30 12.45
of Preferred 10.2% 10.02 1.30 11.32 10.74 1.30 12.04
Securities 10.6% 9.87 1.30 11.17 10.36 1.30 11.66
11.0% 9.72 1.30 11.02 10.00 1.30 11.30
11.4% 9.57 1.30 10.87 9.66 1.30 10.96
11.6% 9.50 1.30 10.80 9.50 1.30 10.80
11.8% 9.43 1.30 10.73 9.34 1.30 10.64
12.2% 9.29 1.30 10.59 9.05 1.30 10.35
</TABLE>
- ------------------------------------
(1) Assumes a five year call at par.
Page 5-3 SMITHBARNEY
<PAGE>
Project Sprinter
- -------------------------------------------------------------------------------
Analysis of Class A Interests
Recent Trading Performance of the Class A Limited Partnership Interest:
<TABLE>
<CAPTION>
Price / Volume Analysis for SunSource, L.P. Class A Units
Latest Twelve Months
<S> <C> <C>
70,000--------------------------------------------------------------------------------------------------------------$12.00
V 60,000 *
$11.50 P
O * * *
50,000 * * R
L * *
* I
U 40,000 * * * $11.00
C
M
30,000 * E
E $10.50
20,000
$10.00
10,000
O-------------------------------------------------------------------------------------------------------------- $9.50
12/6/95 1/3/96 1/31/96 2/28/96 3/27/96 4/24/96 5/22/96 6/19/96 7/17/96 8/14/96 9/11/96 10/9/96 11/6/96 12/4/96
====== Volume ----- Closing Price
</TABLE>
Source: IDD Information Services / Tradeline
Page 5-4 SMITHBARNEY
<PAGE>
Project Sprinter
- -------------------------------------------------------------------------------
Analysis of Class B Interests
Current Value of Class B Limited Partnership Interests:
(in millions, except for per share/unit data)
o Market value:
Class B units outstanding 21.676 52 Week
Current High/Low
-------------- ----------
Market price (as of 12/6/96) $4.375 Price $4.375 $5.125/$4.00
-------
Total market value $94.83
Recent Trading Performance of the Class B Limited Partnership Interest:
<TABLE>
<CAPTION>
Price / Volume Analysis for SunSource, L.P. Class B Units
Latest Twelve Months
<S> <C>
70,000 ----------------------------------------------------------------------------------------------------------------$5.50
V 60,000 P
o 50,000 - -$5.00 r
l 40,000 i
u 30,000 - -$4.50 c
m 20,000 e
e 10,000 - -$4.00
0 -----------------------------------------------------------------------------------------------------------------$3.50
12/6/95 1/3/96 1/31/96 2/28/96 3/27/96 4/24/96 5/22/96 6/19/96 7/17/96 8/14/96 9/11/96 10/9/96 11/6/96 12/4/96
---------------------------------
==== Volume ---- Closing Price
---------------------------------
S
</TABLE>
[LOGO]
Page 6-1
<PAGE>
<TABLE>
<CAPTION>
Project Sprinter
- -----------------------------------------------------------------------------------------------------------------------------------
Analysis of Class B Interests
Unlevered DCF Valuation Analysis: Assuming No Conversion using Terminal Values Based off of 2001 EBITDA
Projected
--------------------------------------------------------------------------
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales $705,757 $766,494 $832,159 $903,369 $981,413
EBITDA 46,619 50,306 54,781 59,876 65,535
EBIT $ 41,145 $ 45,234 $ 49,734 $ 54,751 $ 60,333
Management Fee (3,330) (3,330) (3,330) (3,330) (3,330)
Income Taxes 154 (13,962) (16,035) (18,370) (21,016)
-------- -------- -------- -------- --------
Unlevered Net Income 37,969 27,942 30,369 33,051 35,986
DD&A 5,294 5,072 5,047 5,125 5,202
Capital expenditures (3,800) (4,070) (4,180) (4,330) (4,380)
Investment in Rabbi Trust (3,000) (3,000) (3,000) (3,000) (3,000)
Changes in working capital (7,259) (7,791) (9,071) (9,960) (11,491)
-------- -------- -------- -------- --------
Free Cash Flow $29,204 $18,153 $19,165 $20,886 $22,317
======== ======== ======== ======== ========
Discounted Free
Cash Flows Discounted Terminal Value
- ---------------------------------- -----------------------------------------------------------------------------------
EBITDA exit multiple
Discount PV of free Discount ----------------------------------------------------------------
Rate cash flows Rate 5.5x 6.0x 6.5x 7.0x
- -------------- ----------------- ----------------- ----------- ------------ ----------- ------------
11.5% $85,618 11.5% $198,523 $216,571 $234,619 $252,666
12.5% 83,990 12.5% 189,856 207,115 224,375 241,634
13.5% 82,421 13.5% 181,638 198,151 214,663 231,176
- ---------------------------------- -----------------------------------------------------------------------------------
Total Enterprise Value (TEV)
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $284,141 $302,189 $320,237 $338,284
12.5% 273,845 291,105 308,365 325,624
13.5% 264,059 280,571 297,084 313,596
-----------------------------------------------------------------------------------
Cap Structure AdJ Total Equity Value
- ---------------------------------- -----------------------------------------------------------------------------------
Pro forma EBITDA exit multiple
12/31/96 Discount ----------------------------------------------------------------
---------- Rate 5.5x 6.0x 6.5x 7.0x
Total debt $61,787 ----------------- ----------- ------------ ----------- ------------
Class A's 110,996 11.5% $228,254 $246,302 $264,350 $282,397
MIPS 0 12.5% 217,958 235,218 252,478 269,737
Cash (5,900) 13.5% 208,172 224,684 241,197 257,709
-------- -----------------------------------------------------------------------------------
Total adj. $166,883
- ----------------------------------
Value to GP (2)
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $4,542 $4,901 $5,261 $5,620
12.5% 4,337 4,681 5,024 5,368
13.5% 4,143 4,471 4,800 5,128
-----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Equity Value of Class A and Class B Interests
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $223,712 $241,401 $259,089 $276,777
12.5% 213,621 230,537 247,453 264,370
13.5% 204,029 220,213 236,397 252,581
----------------------------------------------------------------------------------
Equity Value of Class B Interests
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $112,716 $130,405 $148,093 $165,782
12.5% 102,625 119,542 136,458 153,374
13.5% 93,033 109,217 125,401 141,585
-----------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) Discounted back to 1/1/97, assuming mid-year convention, terminal value
adjusted for the effect of the management fee when the Partnership is
maintained.
(2) Reflects 1.99% of Total Equity Value.
Page 6-2
[LOGO]
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of General Partner Interest and Management Fee
o In determining the amount of value to be given for the management fee, the
following factors, among others, were considered:
== the accelerated timing of the receipt of the consideration by the General
Partner
== the illiquidity of the management contract
== the potential elimination of the management fee in the event of: (a) a
liquidation or sale of the Partnership, or (b) removal of the General
Partner by a vote of 80% of the unaffiliated partners
== the subordination of the management fee to the Class A distributions
== the services provided by the General Partner
Management Fee:
---------------
- ---------------------- ---------------------- ----------------------
Discount
Annual Distribution Rate NPV
- ---------------------- ---------------------- ----------------------
$3.33 9.4% $35.6
10.5% 31.8
12.5% 26.6
----------------------- ----------------------
LTM EBITDA Multiple Value
----------------------- ----------------------
$3.33 Median 6.5x $21.6
Mean 7.2x $24.0
----------------------- ----------------------
LTM Net Income Multiple Value
----------------------- ----------------------
$3.33(1) Median 13.0x $26.0
Mean 13.4x $26.8
1.99% Interest:
---------------
High Low
--------- -------
Enterprise Value $356.3 $280.6 ----------------------
Less: Net Debt 55.9 55.9 Value
------ ------ ----------------------
$300.4 $224.7 High Low
G.P. 1.99% Interest $6.0 $4.5
o The total potential value attributed to the General Partner's 1.99% interest
and management fee ranges from $26.1 MM to $41.6 MM
- ---------------------
(1) Note that management fee is tax effected at a 40% corporate tax rate for
purposes of this valuation.
Page 7-1
[LOGO]
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of General Partner Interest and Management Fee
Shares to be Received for the 1.99% G.P. Interest and the Management Fee
(Share Amounts in Thousands)
Potential Value of 1.99% G.P. Interest and Management Fee ($MM)
-------------------------------------------------------------------
$25.0 $30.0 $35.0 $40.0
-------------- ------------- ------------ -------------
S $3.00 8,333 10,000 11,667 13,333
h $3.50 7,143 8,571 10,000 11,429
a $4.00 6,250 7,500 8,750 10,000
r -------------------------------------------------------------------
e $4.50 5,556 6,667 7,778 8,889
$5.00 5,000 6,000 7,000 8,000
P $5.50 4,545 5,455 6,364 7,273
r $6.00 4,167 5,000 5,833 6,667
i $6.50 3,846 4,615 5,385 6,154
c -------------------------------------------------------------------
e $7.00 3,571 4,286 5,000 5,714
$7.50 3,333 4,000 4,667 5,333
$8.00 3,125 3,750 4,375 5,000
o Utilizing the range of values of the Common Stock of the Company
post-conversion described in Tab 4, 4.0 million shares have an implied
value of $18.0 million to $26.0 million
Page 7-2
<PAGE>
EXHIBIT A
LEHMAN BROTHERS
FACSIMILE
--------------------------------------
DATE: December 9, 1996 PAGES (INCLUDING COVER): 8
- --------------------------------------------------------------------------------
To: Peter Cripps - 215 994 2222
David Schinasi - 212 816 7475/7949/7457
Norm Edmonson - 215 665 3662
Dom Scott - 215 963 5299
Andrew Keller - 212 455 2502
- --------------------------------------------------------------------------------
FROM: Murat Erkurt
- --------------------------------------------------------------------------------
MESSAGE:
Please find attached the final term sheet for SunSource.
Regards.
- --------------------------------------------------------------------------------
The information contained in this facsimile message is intended only for the
personal and confidential use of the designated recipients named above. If the
reader of this message is not the intended recipient or an agent responsible for
delivering it to the intended recipient, you are hereby notified that you have
received this document in error, and that any review, dissemination,
distribution, or copying of this message is strictly prohibited. If you have
received this communication in error, please notify us immediately by telephone
and return the original message to us by mail. Thank you.
- --------------------------------------------------------------------------------
<PAGE>
SUNSOURCE, L.P.
FINAL
Summary Terms of the Conversion Proposal
----------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Exchange Offer................... (i) Holders of Class A Interest will receive 0.38 shares of Trust
Preferred Securities, par value $25.00 per share ("Preferred
Securities") of the Trust and $1.30 of cash for each unit of Class A
Interest;
(ii) holders of Class B Interest will receive one share of common
stock (to be adjusted for any stock-split, the terms of which are
to be approved by the Board of Directors), par value $0.01 per share
("Common Stock") of the Corporation for each unit of Class B Interest;
(iii) the General Partner ("G.P.") will receive 4,000,000 shares (to be
adjusted for any stock-split) of Common Stock in exchange for
the G.P.'s general partnership interest in SunSource L.P. and
SDI Operating Partners, L.P. which interest includes the right to
receive the management fee (the "General Partnership Interest")
of which 3,700,000 shall be distributed to the G.P. upon
consummation of the Conversion and 300,000 shall be escrowed
until the second anniversary of the Conversion and shall be
distributed to the G.P. thereafter provided the conditions
specified herein are satisfied; and
(iv) the distributions on Class A Interest, Class B Interest and the
management fee to the G.P. will accrue until the Conversion and
shall be payable in cash upon Conversion.
Common Stock to be Distributed
in Exchange for the
G.P. Interest..................... 2,152,000 shares to be distributed through the G.P. to Lehman Brothers
and its affiliates upon consummation of the Conversion;
1,548,000 shares to be distributed through the G.P. to beneficiaries
of the General Partnership Interest other than Lehman Brothers
and its affiliates upon consummation of the Conversion; and
300,000 shares to be held in escrow (the "Escrow Shares") and
distributed to beneficiaries of the General Partnership
Interest other than Lehman Brothers and its affiliates on the
second anniversary of the Conversion provided that, if at that
time the Company is not current on distributions on Preferred
Securities, then the distribution of such Escrow Shares shall
be delayed until the Company becomes current on distributions
on Preferred Securities.
4,000,000 TOTAL SHARES FOR GENERAL PARTNERSHIP INTEREST
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Contribution Agreement between
Lehman Brothers and the Company... Lehman Brothers, as part of the Conversion, will agree that, if the
Company exercises its Optional Redemption right in case of an
occurrence of a Special Event, as described herein, so long as there are
any outstanding Escrow Shares, Lehman Brothers shall pay in cash to the
Company upon occurrence of such redemption, an amount equal to the product
obtained by multiplying; (i) 1% of par value of Preferred Securities by
(ii) the number shares of Preferred Securities redeemed under such
redemption by (iii) a fraction, the numerator of which is equal to the number
of the Escrow Shares outstanding at the time of such redemption, and the
denominator of which is equal to the number of the Escrow Shares outstanding
immediately after the Conversion by (iv) a fraction, the numerator of which is
equal the number of shares of Common Stock to be held by Lehman Brothers and
its affiliates immediately after the Conversion minus the number of shares of
Common Stock to he held by Lehman Brothers and affiliates at the time of
such event, and the denominator of which is equal to the total number of shares
of Common Stock outstanding immediately after the Conversion.
Approval of Conversion ........... Affirmative vote by:
(i) unaffiliated holders of more than 50% of Class A Interests outstanding; and
(ii) unaffiliated holders of more than 50% of Class B Interests outstanding.
Management post Conversion........ Same management team, but without involvement by the General Partner;
Employee Benefits Plans and Deferred Compensation Plans substantially
consistent with the existing plans.
Federal Income Tax
Considerations.................... Holders of only Class A Interest: Subject to Federal income tax on the gain
recognized as the difference between their tax basis in the Class A Interests
and the total consideration received as Preferred Securities and cash.
Holders of only Class B Interest: Not subject to Federal income tax on the receipt
of Common Stock.
Investors holding both Class A Interests and Class B Interests: While not free
from doubt, a likely result is that these investors will be subject to
Federal income tax on the gain recognized as the difference between their
aggregate tax basis in the Class A Interests and Class B Interests and the
aggregate fair market value of the consideration received through Preferred
Securities, cash and Common Stock, to the extent of boot received, where boot
is the Preferred Securities and cash.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Conditions to Conversion.......... The Conversion will not be consummated unless the following conditions are satisfied or
waived:
(i) approval by a majority of unaffiliated Class A Interests and a majority of
unaffiliated Class B Interests, voting separately;
(ii) listing of the Common Stock and the Preferred Securities on the NYSE;
(iii) completion of certain necessary governmental filings;
(iv) effectiveness of a Registration Statement under the Securities Act of 1933,
as amended;
(v) absence of any court order or legal restraint preventing the consummation
of the Conversion;
(vi) approval by existing senior lenders to the Company or availability of
financing to refinance existing senior debt on terms acceptable to the
Company;
(vii) the Special Committee determining that the Conversion is fair to the holders
of Class A Interests and holders of Class B Interests and such determination
shall not have been withdrawn;
(viii) Smith Barney delivering its opinion that a) the consideration to be received
in the Conversion is fair to the holders of the Class A Interests and holders
of the Class B Interests from a financial point of view, and b) the allocation
of consideration to the General Partner in exchange for the General Partnership
Interest is fair to the holders of the Class A Interests and holders of the
Class B Interests from a financial point of view, and such opinion shall not
have been withdrawn;
(ix) the Company shall have received, in a form satisfactory to the Company, all
opinions of counsel, including the opinion regarding the Federal income
tax consequences of the Conversion to the Company and the holders of the
Class A Interests and the holders of the Class B Interests;
(x) the Company shall have received, in a form satisfactory to the Company,
from each of the following members of management, Donald T. Marshall, John P.
McDonnell and Norman V. Edmonson, who own, directly or indirectly, an
economic interest in the General Partner, an undertaking to defer into
Deferred Compensation Plan for Key Employees of SDI Operating Partners, L.P.
all payments due under the Company's previous Deferred Compensation Plans and
the Long Term Preference Share Plan; and
(xi) there being no material change in applicable law, including with respect
to the taxation of the Company, the Corporation or the Preferred Securities.
Solicitation Agent................ To be determined.
</TABLE>
-3-
<PAGE>
Common Stock
<TABLE>
<CAPTION>
<S> <C>
Issuer............................ The Corporation
Listing .......................... NYSE
Common Stock to be Outstanding
immediately after the Conversion.. 11,633,603(1) shares to be owned by unaffiliated Class B Interest holders;
4,145,465(1)(2) shares to be owned by the executive officers of SunSource L.P.
and directors of Lehman/SDI, Inc. (excluding shares to be
distributed to General Partner) of which 4,114,965 shares will be
owned by the Senior Executives as defined;
5,896,678(1)(2) shares to be owned by Lehman Brothers and affiliates, excluding
shares to be distributed to General Partner; and
4,000,000 shares to be distributed in accordance with the conditions
specified herein, of which 1,663,200 shares will be owned by the
Senior Executives.
25,675,746 TOTAL OUTSTANDING
(1) The foregoing numbers represent the number of Class B Interests held by such
persons as of December 11, 1996 and assume no change prior to closing of the
Conversion in number of outstanding Class B Interests or number owned by such
persons.
(2) Does not include Class B Interests owned by Lehman LTD I, Inc. or Lehman Brothers
Capital Partners I.
(3) Includes Class B Interests owned by Lehman LTD I, Inc. and Lehman Brothers
Capital Partners I.
Common Stock to be Distributed
to General Partners............... 4,000,000 shares of Common Stock to be distributed upon consummation of Conversion,
of which 3,700,000 shall be distributed to the G.P. and 300,000 to be held in escrow
and distributed on the second anniversary of the Conversion, provided that the
conditions specified herein are satisfied.
Voting............................ Holders of Common Stock are entitled to cast one vote per share on matters submitted
to a vote of shareholders, subject to the provisions below. No holders of Common Stock
will be entitled to any cumulative voting rights.
On matters submitted to a vote of shareholders, Lehman Brothers and its affiliates
and each of the following members of management, Donald T. Marshall, John P. McDonnell,
Norman V. Edmonson, Harold J. Cornelius, Max W. Hillman and Joseph M. Corvino
(the "Senior Executives") will agree to vote, in the same proportion as the shares of
outstanding common Stock not owned by them ("Unaffiliated Shares") that are voted on any
such matter, that percentage of Excess Voting Shares held by them at such time that
equals the percentage of outstanding Unaffiliated Shares that are voted on such matter,
"Excess Voting Shares" means the shares of common stock beneficially owned by Lehman
Brothers and its
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
affiliates and the Senior Executives, at any time, that represents voting power
in excess of the respective voting powers immediately prior to the Conversion that
they would have had in a vote of the holders of Class A Interests and Class B
Interests voting together as a single class.
Dividends......................... If, as and when declared by the Board of Directors of the Company out of funds
legally available.
Liquidation....................... Standard, distributions to Common Stock after payments to creditors
including the Trust for the Series A Junior Subordinated Notes that may be
outstanding at the time.
Preemptive Rights................. No preemptive rights.
Board of Directors................ Total of 9 directors.
Lehman Brothers and its affiliates elect 1 director if they hold between 10% and
20% of Common Stock outstanding and 2 directors if they hold more than 20% of
Common Stock.
3 directors from management and 4 independent directors.
Directors' Liability.............. Indemnification to the fullest extent permitted by the Delaware statute.
Resale of Common Stock............ Pursuant to Securities Act and Rule 144 for "affiliated" holders.
Lehman Brothers and its affiliates and the Senior Executives will agree with the
Company not to sell any shares of common stock which they beneficially own, in a
single transaction or series of related transactions, to any third person(s) which,
to the knowledge of Lehman Brothers and its affiliates and the Senior Executives after
reasonable inquiry, would beneficially own after such transactions more than 10% of
the outstanding common stock (or more than 15% of the outstanding common stock if such
third person(s) are eligible to report the acquisition of such shares on Schedule 13G
pursuant to Rule 13d-1(b)(1) under Exchange Act, as such rule is currently in effect).
Corporate Governance.............. Standard Charter and By Laws under Delaware Law; Shareholder Rights Plan.
Certain By Law Provisions......... Approval of majority of Independent Directors required for:
a) prior to third anniversary of Conversion,
i) sale of the Company or substantial part thereof, and
ii) amendment of Charter, By Laws or Shareholder Rights Plan or any waiver or
opt-out under any anti-takeover statute:
b) i) affiliate transactions; and
ii) amendments to Shareholders' Agreement among Lehman Brothers, the Senior
Executives and the Company.
</TABLE>
<PAGE>
Trust Preferred Securities
<TABLE>
<CAPTION>
<S> <C>
Issuer............................ A statutory business trust created under Delaware law (the "Trust") solely for the
purpose of holding the Corporation's Series A Junior Subordinated Notes and issuing
Preferred Securities and Common Securities.
Preferred Securities.............. 11.6% coupon payable monthly with $25 par value and 30 year maturity.
Listing........................... NYSE
Preferred Securities to be
Outstanding immediately after
the Conversion.................... 4,217,837*
* Assumes 11,099,573 Class A Interests outstanding as of Dec. 11, 1996
(subject to cash-out of any fractions)
Junior Subordinated Notes......... The Company will issue to the Trust Junior Subordinated Notes with principal amount,
interest rate, payment dates, call provisions and maturity matching to those of
Preferred Securities.
Junior Subordinated Notes will be subordinate to all Senior Indebtedness. Definition
of Senior Indebtedness standard.
Mandatory Redemption.............. 30 year maturity; redemption at par plus accrued and unpaid distributions.
Optional Redemption............... Redeemable, in whole or in part, from time to time, at the option of the Company,
(i) on or after 5 years from date of Conversion, at par plus accrued and unpaid
distributions, or
(ii) under certain circumstances, upon occurrence of a Special Event, as defined
below, at 101% of par plus accrued and unpaid distributions.
Guarantee......................... The payment of distributions on the Preferred Securities is guaranteed by the
Company to the extent required by applicable law.
Deferral of Distributions......... Deferrable at any time for up to 60 consecutive months.
Voting Rights..................... Standard creditors rights as per Trust Indenture.
Amendments to the Trust Agreement adversely affecting rights of the holders require
a class vote seeking approval of at least two-thirds of holders of Preferred Securities.
Trust Covenants................... If distributions on Preferred Securities are under deferral, no dividend payment or
redemption of capital or servicing of debt ranking subordinate to Junior Subordinated
Notes.
Event of Default if distributions are deferred beyond 60 consecutive months or principal
is not fully paid upon maturity or optional redemption.
No financial covenants, no change of control provision.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Special Event..................... A Special Event means a Tax Event or an Investment Company Act Event.
"Tax Event" means that the Regular Trustees shall have requested and received
an opinion from independent tax counsel experienced in such matters (which may
be counsel to the Company) to the effect that, as a result of (a) any amendment
to, or change (including any announced prospective change) in, the laws
(or any regulations thereunder) of the United States or any political subdivision
or taxing authority thereof or therein, (b) any amendment to, or change (including
any announced prospective change) in, an interpretation or application of such
laws or regulations, (c) any interpretation or pronouncement that provides for a
position with respect to such laws or regulations that differs from the generally
accepted position of (d) any action by any governmental agency or body or
regulatory authority, there is more than an insubstantial risk that (i) the Trust is or
within 90 days would be subject to United States Federal income tax with respect to
income accrued or received or the Junior Subordinated Notes, (ii) interest payable
to the Trust on the Junior Subordinated Notes is or within 90 days would not be
deductible by the Corporation for United States Federal income tax purposes, or
(iii) the Trust is or within 90 days would be subject to more than a de minimis
amount of other taxes, duties or other governmental charges, which change,
amendment, interpretation, pronouncement or action becomes effective on or after
the date of exchange.
"Investment Company Event" means that the Regular Trustees shall have requested
and received an opinion of independent counsel (which may be counsel to the
Corporation) to the effect that, as a result of a change in law or regulation or a
change in interpretation or application of law or regulation by any legislative
body, court, governmental agency or regulatory authority after the date of exchange,
there is more than an insubstantial risk that the Trust is or will be considered
an investment company under the Investment Company Act of 1940, as amended.
Except otherwise provided herein, the Preferred Securities shall have such other
terms as are consistent with securities generally similar to the Preferred
Securities.
</TABLE>
<PAGE>
EXHIBIT B
Project Sprinter
- --------------------------------------------------------------------------------
Comparison of Selected Industrial Distribution Companies
(Dollars in millions, except for per share amounts)
<TABLE>
<CAPTION>
Stock Price Equity Market Value(1)/
----------- ------------------------------------------------------
vs. LTM Equity Net Income After-Tax Cash Flow
Price at ------------ Market ------------------------ -------------------------
Company 6/16/97 High Low Value(1) LTM 1997E 1998E LTM 1997E 1998E
------- ------- ---- --- -------- --- ----- ----- --- ----- -----
Industrial Distribution
Companies
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Barnes Group, Inc. $27.25 (3.1%) 76.7% $554 15.1x 14.0X 13.2x 8.6x 8.3x 8.0x
BMC West Corp. $13.38 (26.7%) 30.5% $158 13.9X 11.8x 9.6x 7.2x 6.6x 5.9x
Applied Industrial
Technologies, Inc.(5) $36.00 (1.4%) 40.5% $447 17.3x 16.9x 13.4x 11.8x 10.8x 9.3x
Cameron Ashley Building
Products, Inc. $14.75 (6.3%) 51.3% $142 10.9x 19.3x 8.1x 7.3x 6.6x 6.0x
Hughes Supply, Inc. $39.50 (11.5%) 29.5% $465 12.9x 11.6x 10.4x 9.0x 8.8x 8.1x
Lawson Products, Inc. $26.50 (1.4%) 26.2% $295 14.7x 14.3x 13.6x 12.2x 12.3x 11.7x
NCH Corporation $62.75 (4.6%) 17.0% $495 13.6x 13.9x 13.0x 10.3x 10.6x 10.1x
Rexel Inc. $18.38 (9.8%) 40.0% $490 16.2x 13.8x 12.0x 12.2x 10.8x 9.7x
-----------------------------------------------------------------------
Mean: 14.3x 13.2x 11.7x 9.8x 9.4x 8.6x
Median: 14.3x 13.9x 12.5x 9.7x 9.7x 8.7x
High: 17.3x 16.9x 13.6x 12.2x 12.3x 11.7x
Low: 10.9x 19.3x 8.1x 7.2x 6.6x 5.9x
-----------------------------------------------------------------------
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
Enterprise Value(2)/
-------------------------
EBITDA
Enterprise -------------------------
Company Value(2) LTM 1997E 1998E
------- -------- --- ----- -----
Industrial Distribution
Companies
- ------------------------
<S> <C> <C> <C> <C>
Barnes Group, Inc. $613 7.0x 6.6x 6.3x
BMC West Corp. $249 6.8x 6.1x 5.4x
Applied Industrial
Technologies, Inc.(5) $520 8.2x 8.1x 6.9x
Cameron Ashley Building
Products, Inc. $218 7.0x 6.2x 5.6x
Hughes Supply, Inc. $686 9.2x 8.2x 7.4x
Lawson Products, Inc. $268 7.2x 7.2x 6.9x
NCH Corporation $408 5.5x 5.4x 5.1x
Rexel Inc. $548 8.4x 7.0x 6.3x
-----------------------------------
7.4x 6.8x 6.2x
7.1x 6.8x 6.3x
9.2x 8.1x 7.4x
5.5x 5.4x 5.1x
-----------------------------------
</TABLE>
- ----------
* Denotes an unaccounted for transaction.
(1) Equity Market Value = Total Shares Outstanding (calculated by the treasury
method) * Current Common Stock Price.
(2) Enterprise Value = Equity Market Value + Market Value of Preferred + Total
Debt (principal amount) + Minority Interest - Unrestricted Cash and
Marketable Securities
(3) Latest Twelve Months as of 3/31/97.
(4) Excludes outliers.
(5) Formerly Bearings Inc.
Page A-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Comparison of Selected Industrial Distribution Companies
(Dollars in millions, except for per share amounts)
<TABLE>
<CAPTION>
Total Debt/ LTM
S&P Senior Capitalization Total Deb/ LTM EBITDA- Dividend Payout
Unsecured Total --------------------- LTM EBITDA Capex/ Dividend ---------------
Company Credit Rating Debt Book(1) Market(2) EBITDA Interest Interest Yield EPS ATCF(3)
------- ------------- ---- -------- ---------- ------ -------- -------- ----- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial Distribution
Companies
Barnes Group, Inc. NR/NR $ 81 32.5% 12.7% 0.9x 17.5x 17.5x 6.6% 97.1% 55.2%
Applied Industrial
Technologies, Inc.(5) NR/NR $ 98 40.1% 38.2% 2.7x 3.8x 3.8x NA NM NM
Bearings, Inc. NR/NR $ 89 31.0% 16.7% 1.4x 9.9x 9.9x 1.6% 26.9% 18.4%
Cameron Ashley Building
Products, Inc. NR/NR $ 79 44.9% 35.8% 2.6x 7.3x 7.3x NA NM NM
Hughes Supply, Inc. NR/NR $227 44.9% 32.8% 3.1x 5.5x 5.5x 0.9% 11.1% 7.8%
Lawson Products, Inc. NR/NR $ 0 NM NM NM NM NM 2.0% 28.8% 23.9%
NCH Corporation NR/NR $ 6 1.9% 1.1% 0.lx NM NM 1.9% 47.8% 36.0%
Rexel Inc. NR/NR $ 77 27.2% 13.6% 1.2x 11.7x 11.7x N/A NM NM
------------------------------------------------------------------------------------------------
Mean: 31.8% 21.6% 1.7x 9.3x 9.3x 2.6% 42.3% 28.3%
Median: 32.5% 16.7% 1.4x 8.6x 8.6x 1.9% 28.8% 23.9%
High: 44.9% 38.2% 3.1x 17.5x 17.5x 6.6% 97.1% 55.2%
Low: 1.9% 1.1% 0.1x 3.8x 3.8x 0.9% 11.1% 7.8%
------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Denotes an unaccounted for transaction.
(1) Book Capitalization = Total Debt + Common Book Equity + Preferred (at
liquidation preference) + Minority Interest.
(2) Market Capitalization = Total Debt + Common Equity Market Value + Preferred
Market Value + Minority Interest.
(3) ATCF = After Tax Cash Flow.
(4) Excludes outliers.
(5) Formerly Bearings Inc.
Page A-2
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Comparison of Selected Industrial Distribution Companies
(Dollars in millions, except for per share amounts)
<TABLE>
<CAPTION>
Equity Market LTM Return
SB Value/ 5 Year CAGR(2) 5 Year EPS LTM Return LTM Return on Average
Ticker Research Tangible --------------- Projected on Average on Average Invested
Company Symbol Rating Book Value(1) EBITDA EPS Growth Rate Equity Assets Capital(3)
------- ------ ------ ------------- ------ --- ----------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial Distribution
Companies
Barnes Group, Inc. B NR 3.7x 14.7% 14.6% NA 23.8% 9.3% 27.0%
BMC West Corp. BMCW NR 1.3x 31.3% NM NA 8.8% 1.9% 16.1%
Applied Industrial
Technologies, Inc.(5) APZ NR 2.2x 25.7% 45.8% 17.3% 13.5% 6.4% 23.9%
Cameron Ashley Building
Products, Inc. CABP NR 1.5x 31.1% 18.1% NA 13.8% 6.1% 21.7%
Hughes Supply, Inc. HUG 2H 2.5x 58.2% 54.5% 12.5% 14.5% 6.1% 16.1%
Lawson Products, Inc. LAWS NR 2.3X 7.0% 11.2% 5.0% 14.1% 12.1% 27.9%
NCH Corporation NCH NR 1.7x (1.4%) (2.1%) 7.3% 11.6% 6.7% 19.1%
Rexel Inc. RXL NR 4.1x NM NM NA 15.6% 7.0% 22.2%
---------------------------------------------------------------------------------------------
Mean: 2.4x 23.8% 23.7% 10.5% 14.4% 6.9% 21.8%
Median: 2.3x 25.7% 16.4% 9.9% 13.7% 6.5% 22.0%
High: 4.1x 58.2% 54.5% 17.3% 22.1% 12.1% 27.9%
Low: 1.3x (1.4%) (2.1%) 5.0% 9.4% 1.9% 16.1%
---------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Denotes an unaccounted for transaction.
(1) Tangible Book Value = Common Equity Book Value - Goodwill.
(2) CAGR = Compounded Annual Growth Rate.
(3) Invested Capital = Total Debt + Common Equity Book Value + Preferred Book
Value + Minority Interest + Deferred Income Tax Liability.
(4) Excludes outliers.
(5) Formerly Bearings Inc.
Page A-3
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Comparison of Selected Industrial Distribution Companies
(Dollars in millions, except for per share amounts)
<TABLE>
<CAPTION>
Operating LTM(1)Data
LTM(1) LTM(1) LTM(1) LTM(1) Expenses ------------------------------------------------
Gross EBITDA EBIT Net as a % of Gross
Margin Margin Margin Margin Sales Revenues Profit EBITDA EBIT EBT NIAC
------ ------ ------ ------ ----- -------- ------ ------ ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial Distribution
Companies
Barnes Group, Inc. 39.7% 14.5% 10.1% 6.0% 25.2% 603.0 239.2 87.4 60.9 58.0 36.0
Applied Industrial
Technologies, Inc. (5) 22.3% 5.1% 3.6% 1.5% 17.2% 717.1 159.8 36.6 26.1 17.4 10.7
Bearings, Inc. 27.3% 5.5% 4.3% 2.2% 21.8% 1,149.9 314.5 63.3 49.9 43.9 25.7
Cameron Ashley Building
Products, Inc. 20.8% 4.9% 3.9% 2.0% 15.9% 625.5 130.3 30.9 24.4 20.2 12.5
Hughes Supply, Inc. 20.8% 4.9% 3.9% 2.1% 15.9% 1,516.1 315.9 74.2 59.3 51.7 32.5
Lawson Products, Inc. 66.5% 14.4% 12.8% 8.0% 52.1% 259.9 172.7 37.3 33.2 35.0 20.7
NCH Corporation 49.4% 9.6% 7.6% 4.5% 39.8% 769.0 380.2 73.9 58.4 58.5 34.5
Rexel Inc. 20.7% 5.5% 4.8% 2.5% 15.2% 1,183.5 234.5 65.2 56.9 51.8 29.5
--------------------------------------------------------------------------------------------------------
Mean: 33.4% 8.1% 6.4% 3.6% 25.4% $853.0 $244.7 $58.6 $46.1 $42.1 $25.3
Median: 24.8% 5.5% 4.6% 2.4% 19.5% 743.1 242.2 64.3 53.4 47.8 27.6
High: 66.5% 14.5% 12.8% 8.0% 52.1% 1,516.1 380.2 87.4 60.9 58.5 36.0
Low: 20.7% 4.9% 3.6% 1.5% 15.2% 259.9 130.3 30.9 24.4 17.4 10.7
--------------------------------------------------------------------------------------------------------
SunSource L.P. 40.5% 6.2% 4.8% 2.0% 34.2% 633.9 256.6 39.5 30.7 25.0 12.6
</TABLE>
- ----------
1) Latest Twelve Months as of 3/31/97
Page A-4
<PAGE>
================================================================================
A Presentation to the Special Committee of the Board of
Directors of Lehman / SDI, Inc.
Project Sprinter
June 19, 1997
Confidential
================================================================================
SMITH BARNEY INC.
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Confidential
MATERIAL FOR SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
OF
LEHMAN / SDI, INC.
The following pages contain material that was provided to the Special Committee
of the Board of Directors (the "Special Committee") of Lehman / SDI, Inc. (the
"Company") by Smith Barney Inc. ("Smith Barney") in the context of meetings of
the Special Committee held to evaluate the potential conversion of SunSource,
L.P. (the "Partnership") from a publicly traded partnership to a publicly traded
corporation. The Company is the general partner of SDI Partners I, L.P., a
limited partnership that acts as the general partner of SDI Operating Partners,
L.P., which is the operating partnership of SunSource, L.P. The accompanying
material was compiled or prepared on a confidential basis solely for use by the
Special Committee and not with a view toward public disclosure under state and
federal securities laws. The information contained in this material was obtained
from the Partnership and other sources. Any estimates and projections for the
Partnership contained herein have been prepared by management or are based upon
such estimates and projections, and involve numerous and significant subjective
determinations, which may or may not be correct. No representation or warranty,
expressed or implied, is made as to the accuracy or completeness of such
information and nothing contained herein is, or shall be relied upon as, a
promise or representation, whether as to the past or the future. Because this
material was prepared for use in the context of an oral presentation to the
Special Committee, the material was not prepared to comply with the disclosure
standards set forth under state and federal securities laws and to the extent
the material was not prepared to comply with the disclosure standards set forth
under state and federal securities laws and to the extent the material may be
used by readers not as familiar with the business and affairs of the Partnership
as the Special Committee, neither the Partnership nor Smith Barney nor any of
their respective legal or financial advisors or accountants takes any
responsibility for the accuracy or completeness of any of the material when used
by persons other than the Board of Directors. Neither the Partnership nor Smith
Barney expects to update or otherwise revise the accompanying materials.
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Table of Contents
Tab
---
SECTION I
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY.................................................. 1
SUMMARY FINANCIALS................................................... 2
VALUATION SUMMARY.................................................... 3
VALUATION MATRIX..................................................... 4
ANALYSIS OF CLASS A INTERESTS........................................ 5
ANALYSIS OF CLASS B INTERESTS........................................ 6
ANALYSIS OF THE GENERAL PARTNER INTEREST AND THE MANAGEMENT FEE...... 7
APPENDIX
- --------------------------------------------------------------------------------
FINANCIAL COMPARISON OF SELECTED INDUSTRIAL DISTRIBUTING COMPANIES... A
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Tab 1
- --------------------------------------------------------------------------------
Page 1-1
- --------------------------------------------------------------------------------
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Transaction Summary
<TABLE>
<CAPTION>
------------------------------------- -----------------------------------------------------------------
Existing Security/Interest New Security/Interest
------------------------------------- -----------------------------------------------------------------
<S> <C> <C>
Exchange Offers: 11.100 million Class A Units Each Class A Unit shall be exchanged for 0.38 shares of Trust
Preferred Securities (the "Preferred Securities") and $1.30 in
cash
------------------------------------- -----------------------------------------------------------------
21.676 million Class B Units Each Class B Unit shall be exchanged for 0.25 share of Common
Stock
------------------------------------- -----------------------------------------------------------------
GP rights to 1.99% economic interest GP shall receive 1.000 million shares of Common Stock for the
and Management Fee (collectively, the GP Interest (0.075 million shares to be held back for a period
"GP Interest") of 2 years subject to dividend payments on the trust preferred
securities)
------------------------------------- -----------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Common Stock: = To be listed on the NYSE
= Entitled to one vote per share, with Lehman, its
affiliates and management agreeing to vote their
Excess Voting Shares in the same proportion as shares
of common stock owned by unaffiliated persons
= Lehman, its affiliates and management will agree not
to sell any shares of common stock in a single
transaction to a third party which to their knowledge
would own after such sale in excess of 10% of the
outstanding common stock (15% if such third party is
eligible to report the acquisition of such shares on
Schedule 13G)
Preferred Securities: = Structured as retail trust preferred stock
= To be listed on the NYSE
= 11.6% dividend rate payable monthly
= 30 year maturity (subject to changes by the Company
under certain conditions)
= Redeemable after five years at par plus accrued and
unpaid distributions
= Redeemable at 101% of par = plus accrued and unpaid
distributions upon certain Special Events relating to
changes in tax treatment
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Transaction Summary
Corporate Governance: = 9 members of the Board of Directors with Lehman
electing 2 directors if they hold 20% or more of the
Common Stock (1 director if they hold between 10% and
20%), 3 directors from management and 4 independent
directors
= Approval of a majority of disinterested directors
required for significant corporate actions for three
years following the Conversion
= Shareholder rights plan to be implemented
Ownership Structure(1):
<TABLE>
<CAPTION>
Pre-Conversion Post-Conversion
------------------------------------------------------------- --------------------------------------------
Class A Units Class B Units Common Stock
Holder (in millions) Percent (in millions) Percent ( in millions) Percent
-------------------- ------------- ----------------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Public 11.01 99.2% 11.63 53.7% 2.95 46.0%
Lehman 0.00 0.0% 5.89 27.2% 2.01 31.4%
Management 0.09 0.8% 4.14 19.1% 1.45 22.6%
----- ----- ----- ----- ---- -----
Total 11.10 100.0% 21.67 100.0% 6.41 100.0%
</TABLE>
- ----------
(1) Note that this does not reflect the 1.99% economic interest of the General
Partner and assumes that the 75,000 shares to be held back are distributed
to the G.P.
Page 1-2
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Tab 2
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical
-------------------------------------------------------------------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Sales(1) $493,437 $558,754 $599,865 $649,544
Cost of sales 292,878 331,609 355,004 386,541
--------- --------- --------- --------- ---------
Gross profit 200,559 227,145 244,861 263,003
Operating expenses 159,772 177,765 194,917 212,724
Corporate SG&A 9,067 11,487 10,263 8,848
--------- --------- --------- --------- ---------
EBITDA 31,648 37,939 39,314 41,431
Depreciation 3,556 3,249 3,358 3,623
Amortization 2,496 2,143 1,961 1,924
--------- --------- --------- --------- ---------
EBIT 25,596 32,547 33,995 35,884
Interest income 85 66 412 69
Interest expense 9,876 9,956 7,332 6,944 448
Management fee 3,330 3,330 3,330 3,330 (3,330)
MIPS dividends 0 0 0 0 12,232
Other income (expense) 450 (1,496) 1,071 550
--------- --------- --------- --------- ---------
EBT 12,925 17,831 24,816 26,229 (9,350)
Income taxes 869 100 537 (1,410) 6,339
--------- --------- --------- --------- ---------
Net income 12,056 17,731 24,279 27,369 (15,496)
Minority interest in OLP 187 298 446 193 (193)
--------- --------- --------- --------- ---------
Net income available to common 11,869 17,433 23,833 27,176 (15,689)
Extraordinary items 6,637 12,111 20,285 0 8,100
--------- --------- --------- --------- ---------
Adjusted net income $18,506 $29,544 $44,118 $27,176 ($23,596)
========= ========= ========= ========= =========
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT
Sales(1) $649,544 $706,080 $766,795 $832,514
Cost of sales 386,541 419,175 458,704 500,018
--------- --------- --------- ---------
Gross profit 263,003 286,905 308,091 332,497
Operating expenses 212,724 228,563 245,203 263,339
Corporate SG&A 8,848 11,758 11,401 11,972
--------- --------- --------- ---------
EBITDA 41,431 46,584 51,487 57,186
Depreciation 3,623 3,937 4,278 4,476
Amortization 1,924 2,186 1,877 1,789
--------- --------- --------- ---------
EBIT 35,884 40,461 45,332 50,921
Interest income 69 50 50 50
Interest expense 7,392 7,955 7,881 7,257
Management fee 0 0 0 0
MIPS dividends 12,232 12,232 12,232 12,232
Other income (expense) 550 490 582 590
--------- --------- --------- ---------
EBT 16,879 20,814 25,852 32,072
Income taxes 5,199 9,270 11,531 14,089
--------- --------- --------- ---------
Net income 11,680 11,543 14,321 17,983
Minority interest in OLP 0 0 0 0
--------- --------- --------- ---------
Net income available to common 11,680 11,543 14,321 17,983
Extraordinary items (8,100) 0 0 0
--------- --------- --------- ---------
Adjusted net income $ 3,580 $ 11,543 $ 14,321 $17,983
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
------------------------------------
2000 2001
--------- ---------
<S> <C> <C>
INCOME STATEMENT
Sales(1) $903,735 $981,750
Cost of sales 544,063 592,736
--------- ---------
Gross profit 359,672 389,015
Operating expenses 283,016 306,330
Corporate SG&A 13,569 13,199
--------- ---------
EBITDA 63,087 69,486
Depreciation 4,644 4,832
Amortization 1,788 1,788
--------- ---------
EBIT 56,655 62,866
Interest income 50 50
Interest expense 6,410 5,301
Management fee 0 0
MIPS dividends 12,232 12,232
Other income (expense) 596 602
--------- ---------
EBT 38,659 45,985
Income taxes 16,947 20,183
--------- ---------
Net income 21,712 25,802
Minority interest in OLP 0 0
--------- ---------
Net income available to common 21,712 25,802
Extraordinary items 0 0
--------- ---------
Adjusted net income $21,712 $25,802
========= =========
- ---------------------------------
Source: Company Consolidated July 1996 Projections
(1) Includes commission income.
</TABLE>
Page 2-1
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical
-------------------------------------------------------------------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Assets:
Cash & equivalents $ 1,327 $ 4,903 $ 5,900 $ 1,666
Accounts receivable 80,006 77,521 75,824 78,578
Inventories 95,617 92,653 96,022 102,396
Other current assets 5,294 6,703 4,742 4,672
--------- --------- --------- --------- ------
Total 182,244 181,780 182,488 187,312
Net PP&E 29,629 27,514 20,181 21,409
Net intangibles 59,446 50,935 45,562 43,703 14,829
Deferred income taxes 1,410 2,144 2,844 5,007 9,200
Other assets 764 3,813 3,516 5,124
--------- --------- --------- --------- ------
Total assets $273,493 $266,186 $254,591 $262,555 $24,029
========= ========= ========= ========= ======
Liabilities and Equity
Accounts payable $ 50,333 $ 44,435 $ 42,437 $ 48,557
Other current liabilities 30,090 39,219 35,062 28,909 (8,025)(2)
--------- --------- --------- --------- ------
Total current liabilities 80,423 83,654 77,499 77,466 (8,025)
Total Debt(1) 113,915 96,847 73,082 77,604 37,555
Deferred compensation plan 5,363 6,398 7,829 8,644
Other liabilities 910 68 1,238 4,222
MIPS 0 0 0 0 105,446
Common shareholders equity 0 0 0 0 (16,328)
Partners equity 72,882 79,219 94,943 94,619 (94,619)
--------- --------- --------- --------- ------
Total liabilities & equity $273,493 $266,186 $254,591 $262,555 $24,029
========= ========= ========= ========= ======
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET
Assets:
Cash & equivalents $ 1,666 $ 1,666 $ 1,666 $ 1,666
Accounts receivable 78,578 85,712 92,820 99,736
Inventories 102,396 111,021 118,194 126,126
Other current assets 4,672 4,735 5,043 5,353
--------- --------- --------- ---------
Total 187,312 203,134 217,723 232,881
Net PP&E 21,409 22,244 22,976 23,700
Net intangibles 58,532 56,346 54,469 52,680
Deferred income taxes 14,207 13,927 13,689 13,429
Other assets 5,124 7,124 10,124 13,124
--------- --------- --------- ---------
Total assets $286,584 $302,775 $318,981 $335,814
========= ========= ========= =========
Liabilities and Equity
Accounts payable $ 48,557 $ 52,441 $ 58,055 $ 63,511
Other current liabilities 20,884 24,603 26,423 28,394
--------- --------- --------- ---------
Total current liabilities 69,441 77,044 84,479 91,905
Total Debt(1) 115,159 114,089 105,174 93,082
Deferred compensation plan 8,644 10,323 13,765 17,381
Other liabilities 4,222 657 1,580 1,480
MIPS 105,446 105,446 105,446 105,446
Common shareholders equity (16,328) (4,784) 9,537 27,520
Partners equity 0 0 0 0
--------- --------- --------- ---------
Total liabilities & equity $286,584 $302,775 $318,981 $335,814
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
------------------------------------
2000 2001
--------- ---------
<S> <C> <C>
BALANCE SHEET
Assets:
Cash & equivalents $ 1,666 $ 1,666
Accounts receivable 108,273 117,675
Inventories 134,522 143,027
Other current assets 5,608 5,878
--------- ---------
Total 250,069 268,246
Net PP&E 24,281 24,724
Net intangibles 50,892 49,104
Deferred income taxes 13,174 12,958
Other assets 16,124 19,124
--------- ---------
Total assets $354,540 $374,156
========= =========
Liabilities and Equity
Accounts payable $ 69,633 $ 76,397
Other current liabilities 31,433 33,851
--------- ---------
Total current liabilities 101,066 110,248
Total Debt(1) 77,239 57,984
Deferred compensation plan 21,177 25,163
Other liabilities 380 280
MIPS 105,446 105,446
Common shareholders equity 49,232 75,035
Partners equity 0 0
--------- ---------
Total liabilities & equity $354,540 $374,156
========= =========
- -----------------------------------
(1) Includes current portion.
(2) Represents distribution and management fees payable (balance as of 1995 year end.)
</TABLE>
Page 2-2
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical
-------------------------------------------------------------------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOW STATEMENT
Cash Flow From Operations:
Net Income $18,506 $29,544 $44,118 $27,176 ($23,596)
Provision for deferred compensation 721 3,187 2,340 1,079 0
Deferred taxes 208 (734) (700) 0 298
Depreciation 3,556 3,249 3,358 3,623 0
Amortization 2,496 2,143 1,961 1,924 0
Minority Interest 187 298 446 193 (193)
Extraordinary loss 0 0 629 0 0
Other 783 (5,770) (20,410) 0 0
Changes in working capital (2,886) (14,213) (14,690) (9,091) (8,025)
--------- --------- --------- --------- ---------
Net cash from operations 23,571 17,704 17,052 24,904 (31,516)
--------- --------- --------- --------- ---------
Cash Flow From Investing Activities:
Capital expenditures (3,734) (4,263) (4,299) (3,354)
Other 439 27,513 35,085 0
--------- --------- --------- --------- ---------
Net cash used by investing (3,295) 23,250 30,786 (3,354) 0
--------- --------- --------- --------- ---------
Cash Flows From Financing Activities:
Issuance of senior notes 0 0 0 0 0
Issuance of subordinated notes 0 0 0 0 0
Bank debt borrowings (paydowns) 0 0 0 0 67,854
Revolver/other borrowings (paydowns) (4,801) (11,321) (21) (83) 33,634
Repayment of senior notes 0 (5,700) (19,600) (6,676) (63,934)
Repayment of subordinated notes 0 0 0 0 0
Issuance of common stock 0 0 0 0 112,331
Issuance of MIPS 0 0 0 0 105,446
Retirement of common stock 0 0 0
Retirement of preferred stock 0 0 0 0
Retirement of Class A interests 0 0 0 0 (119,875)
Retirement of Class B interests 0 0 0 0 (94,831)
Retirement of GP interest 0 0 0 0 (1,935)
Retirement of management fee 0 0 0 0 (15,565)
Distributions/Dividends (14,940) (20,357) (27,218) (13,391) 13,391
Investments in Rabbi Trust 0 0 0 (1,400)
Transaction costs 0 0 0 0 (5,000)
Other 47 0 0 0
--------- --------- --------- --------- ---------
Net cash used by financing (19,694) (37,378) (46,839) (21,550) 31,516
--------- --------- --------- --------- ---------
Cash increase(decrease) $582 $3,576 $999 $0 $0
========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOW STATEMENT
Cash Flow From Operations:
Net income $ 3,580 $11,543 $14,321 $17,983
Provision for deferred compensation 1,079 1,679 3,442 3,616
Deferred taxes 298 280 238 260
Depreciation 3,623 3,937 4,278 4,476
Amortization 1,924 2,186 1,877 1,789
Minority Interest 0 0 0 0
Extraordinary loss 0 0 0 0
Other 0 (3,565) (77) (100)
Changes in working capital (17,116) (8,218) (7,155) (7,732)
--------- --------- --------- ---------
Net cash from operations (6,612) 7,842 16,924 20,292
--------- --------- --------- ---------
Cash Flow From Investing Activities:
Capital expenditures (3,354) (4,772) (5,010) (5,200)
Other 0 0 0 0
--------- --------- --------- ---------
Net cash used by investing (3,354) (4,772) (5,010) (5,200)
--------- --------- --------- ---------
Cash Flows From Financing Activities:
Issuance of senior notes 0 0 0 0
Issuance of subordinated notes 0 0 0 0
Bank debt borrowings (paydowns) 67,854 (1,070) (8,914) (12,092)
Revolver/other borrowings (paydowns) 33,551 0 0 0
Repayment of senior notes (70,610) 0 0 0
Repayment of subordinated notes 0 0 0 0
Issuance of common stock 112,331 0 0 0
Issuance of MIPS 105,446 0 0 0
Retirement of common stock 0 0 0 0
Retirement of preferred stock 0 0 0 0
Retirement of Class A interests (119,875) 0 0 0
Retirement of Class B interests (94,831) 0 0
Retirement of GP interest (1,935) 0 0 0
Retirement of management fee (15,565) 0 0
Distributions/Dividends 0 0 0 0
Investments in Rabbi Trust (1,400) (2,000) (3,000) (3,000)
Transaction costs (5,000) 0 0 0
Other 0 0 0 0
--------- --------- --------- ---------
Net cash used by financing 9,966 (3,070) (11,914) (15,092)
--------- --------- --------- ---------
Cash increase(decreasc) $ 0 $0 $0 $0
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
-----------------------------
2000 2001
--------- ---------
<S> <C> <C>
CASH FLOW STATEMENT
Cash Flow From Operations:
Net income $21,712 $25,802
Provision for deferred compensation 3,796 3,986
Deferred taxes 255 216
Depreciation 4,644 4,832
Amortization 1,788 1,788
Minority Interest 0 0
Extraordinary loss 0 0
Other (100) (100)
Changes in working capital (8,027) (8,995)
--------- ---------
Net cash from operations 24,069 27,529
--------- ---------
Cash Flow From Investing Activities:
Capital expenditures (5,225) (5,275)
Other 0 0
--------- ---------
Net cash used by investing (5,225) (5,275)
--------- ---------
Cash Flows From Financing Activities:
Issuance of senior notes 0 0
Issuance of subordinated notes 0 0
Bank debt borrowings (paydowns) (15,844) (19,254)
Revolver/other borrowings (paydowns) 0 0
Repayment of senior notes 0 0
Repayment of subordinated notes 0 0
Issuance of common stock 0 0
Issuance of MIPS 0 0
Retirement of common stock 0 0
Retirement of preferred stock 0 0
Retirement of Class A interests 0 0
Retirement of Class B interests 0 0
Retirement of GP interest 0 0
Retirement of management fee 0 0
Distributions/Dividends 0 0
Investments in Rabbi Trust (3,000) (3,000)
Transaction costs 0 0
Other 0 0
--------- ---------
Net cash used by financing (18,844) (22,254)
--------- ---------
Cash increase(decrease) $0 $0
========= =========
</TABLE>
Page 2-3
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical
-------------------------------------------------------------------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
Growth rate assumptions
Sales growth rate -- 13.2% 7.4% 8.3%
EBITDA growth -- 19.9% 3.6% 4.4%
EBIT growth -- 27.2% 4.4% 4.4%
Net income growth -- 46.9% 36.7% 12.3%
Margin assumptions
Gross margin 40.6% 40.7% 40.8% 40.5%
Operating expenses as a % of sales 32.4% 31.8% 32.5% 32.7%
SG&A as a % of sales 1.8% 2.1% 1.7% 1.4%
EBITDA margin 6.4% 6.8% 6.6% 6.4%
Taxes as a % of EBT NM NM NM (4.3)%
Net income margin 4.1% 5.3% 6.7% 7.0%
Working capital assumptions
Days receivable 59.2 50.6 46.1 44.2
Inventory turns 3.1 3.6 3.7 3.8
Other current assets (% sales) 1.1% 1.2% 0.8% 0.7%
Days payables -- 49.4 43.2 45.1
Other current liabilities (% of sales) 6.1% 7.0% 5.8% 4.5%
Capex/depreciation 1.1x 1.3x 1.3x 0.9x
Segment revenue contribution analysis
Technology services 45.5% 46.6% 47.6% 46.1%
Kar Products / A&H Bolt 20.1% 19.1% 19.0% 18.7%
SIMCO / Special-T Metals 3.8% 3.8% 4.1% 5.4%
Hillman Fasteners 11.5% 13.0% 14.1% 15.9%
Harding Glass Industries 19.2% 17.4% 15.3% 13.9%
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED
Growth rate assumptions
Sales growth rate 8.3% 8.7% 8.6% 8.6%
EBITDA growth 4.4% 12.4% 10.5% 11.1%
EBIT growth 4.4% 12.8% 12.0% 12.3%
Net income growth (51.7%) (1.2)% 24.1% 25.6%
Margin assumptions
Gross margin 40.5% 40.6% 40.2% 39.9%
Operating expenses as a % of sales 32.7% 32.4% 32.0% 31.6%
SG&A as a % of sales 1.4% 1.7% 1.5% 1.4%
EBITDA margin 6.4% 6.6% 6.7% 6.9%
Taxes as a % of EBT 30.8% 44.5% 44.6% 43.9%
Net income margin 3.0% 2.8% 3.1% 3.6%
Working capital assumptions
Days receivable 44.2 44.3 44.2 43.7
Inventory turns 3.8 3.8 3.9 4.0
Other current assets (% sales) 0.7% 0.7% 0.7% 0.6%
Days payables 45.1 44.7 45.5 45.6
Other current liabilities (% of sales) 4.5% 3.5% 3.4% 3.4%
Capex/depreciation 0.9x 1.2x 1.2x 1.2x
Segment revenue contribution analysis
Technology services 46.1% 45.1% 44.2% 43.3%
Kar Products / A&H Bolt 18.7% 18.1% 17.6% 17.2%
SIMCO / Special-T Metals 5.4% 6.7% 7.9% 9.0%
Hillman Fasteners 15.9% 16.8% 17.6% 18.2%
Harding Glass Industries 13.9% 13.3% 12.7% 12.3%
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
-----------------------------
2000 2001
--------- ---------
<S> <C> <C>
CONSOLIDATED
Growth rate assumptions
Sales growth rate 8.6% 8.6%
EBITDA growth 10.3% 10.1%
EBIT growth 11.3% 11.0%
Net income growth 20.7% 18.8%
Margin assumptions
Gross margin 39.8% 39.6%
Operating expenses as a % of sales 31.3% 31.2%
SG&A as a % of sales 1.5% 1.3%
EBITDA margin 7.0% 7.1%
Taxes as a % of EBT 43.8% 43.9%
Net income margin 4.0% 4.4%
Working capital assumptions
Days receivable 43.7 43.7
Inventory turns 4.0 4.1
Other current assets (% sales) 0.6% 0.6%
Days payables 46.0 46.4
Other current liabilities (% of sales) 3.5% 3.4%
Capex/depreciation 1.1x 1.1x
Segment revenue contribution analysis
Technology services 42.5% 41.6%
Kar Products / A&H Bolt 16.9% 16.7%
SIMCO / Special-T Metals 9.9% 11.0%
Hillman Fasteners 18.8% 19.2%
Harding Glass Industries 11.9% 11.6%
-------- --------
100.0% 100.0%
</TABLE>
Page 2-4
<PAGE>
<TABLE>
<CAPTION>
CONFIDENTIAL / DRAFT Assumes Corporate Conversion Project Sprinter
- ------------------------------------------------------------------------------------------------------------------------------------
SunSource L.P. 5 Year Projections
(Dollars in thousands, except for per share amounts)
Historical
-------------------------------------------------------------------
1993 1994 1995 1996 Adjust.
---------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CONT'D
Consolidated working capital
Accounts receivable $80,006 $77,521 $75,824 $ 78,578
Inventory 95,617 92,653 96,022 102,396
Other current assets 5,294 6,703 4,742 4,672
Accounts payable 50,333 44,435 42,437 48,557
Other current liabilities 30,090 39,219 35,062 28,909 (8,025)
Change in Working Capital (7,271) 5,866 9,091 8,025
Leverage ratios
Total debt / EBITDA 3.6x 2.6x 1.9x 1.9x
Total debt + pref / EBITDA NA NA NA NA
Total debt / book capitalization 61.0% 55.0% 43.5% 45.1%
(Total debt + pref.) / book capitalization NA NA NA NA
EBITDA / interest 3.2x 3.8x 5.4x 6.0x
EBITDA / (interest +Class A) 1.4x 1.7x 2.0x 2.2x
EBITDA / (int.+Class A+Mgmt Fee) 1.2x 1.5x 1.7x 1.8x
EBITDA / (interest+Preferred) NA NA NA NA
EBITDA /(senior int.) NA NA NA 6.6x
(EBITDA-capex) / interest 2.8x 3.4x 4.8x 5.5x
(EBITDA-capex) / (interest +Class A) 1.3x 1.5x 1.8x 2.0x
(EBITDA-capex) / (int.+Class. A+Mgmt Fee) 1.1x 1.3x 1.5x 1.7x
(EBITDA-capex) / (int. +preferred) 2.8x 3.4x 4.8x 5.5x
(EBITDA-capex) / (senior int.) NA NA NA NA
Projected Pro Forma
------------------------------------------------------------------
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED CONT'D
Consolidated working capital
Accounts receivable $ 78,578 $ 85,712 $ 92,820 $ 99,736
Inventory 102,396 111,021 118,194 126,126
Other current assets 4,672 4,735 5,043 5,353
Account% payable 48,557 52,441 58,055 63,511
Other current liabilities 20,884 24,603 26,423 28,394
Change in Working Capital 17,116 8,218 7,155 7,732
Leverage ratios
Total debt / EBITDA 2.8x 2.4x 2.0x 1.6x
Total debt + pref / EBITDA 5.3x 4.7x 4.1x 3.5x
Total debt / book capitalization 56.4% 53.1% 47.8% 41.2%
(Total debt + pref.) / book capitalization 108.0% 102.2% 95.7% 87.8%
EBITDA / interest 5.6x 5.9x 6.5x 7.9x
EBITDA / (interest +Class A) NA NA NA NA
EBITDA / (int.+Class A+Mgmt Fee) NA NA NA NA
EBITDA / (interest+Preferred) 2.1x 2.3x 2.6x 2.9x
EBITDA /(senior int.) 8.6x 8.4x 9.4x 11.7x
(EBITDA-capex) / interest 5.2x 5.3x 5.9x 7.2x
(EBITDA-capex) / (interest +Class A) NA NA NA NA
(EBITDA-capex) / (int.+Class. A+Mgmt Fee) NA NA NA NA
(EBITDA-capex) / (int. +preferred) 1.9x 2.1x 2.3x 2.7x
(EBITDA-capex) / (senior int. 7.9x 7.5x 8.5x 10.7x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Projected Pro Forma
-----------------------------
2000 2001
--------- ---------
<S> <C> <C>
CONSOLIDATED CONT'D
Consolidated working capital
Accounts receivable $108,273 $117,675
Inventory 134,522 143,027
Other current assets 5,608 5,878
Account% payable 69,633 76,397
Other current liabilities 31,433 33,851
Change in Working Capital 8,027 8,995
Leverage ratios
Total debt / EBITDA 1.2x 0.8x
Total debt + pref / EBITDA 2.9x 2.4x
Total debt / book capitalization 33.3% 24.3%
(Total debt + pref.) / book capitalization 78.8% 68.5%
EBITDA / interest 9.8x 13.1x
EBITDA / (interest +Class A) NA NA
EBITDA / (int.+Class A+Mgmt Fee) NA NA
EBITDA / (interest+Preferred) 3.4x 4.0x
EBITDA /(senior int. ) 15.7x 23.8x
(EBITDA-capex) / interest 9.0x 12.1x
(EBITDA-capex) / (interest +Class A) NA NA
(EBITDA-capex) / (int.+Class. A+Mgmt Fee) NA NA
(EBITDA-capex) / (int. +preferred) 3.1x 3.7x
(EBITDA-capex) / (senior int. 14.4x 22.0x
</TABLE>
Page 2-5
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Tab 3
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Summary
o Valuation parameters of Company based on current management projections
and assuming corporate conversion
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------------------------------------------
------
| |
12/10/96 Trading Value | |
------
--------------------
| |
Comparable Trading Multiples | |
--------------------
---------------------
DCF (EBITDA multiples) | |
| |
---------------------
--------------------------------------------------------------------------
$150 $200 $250 $300 $350 $400 $450
Enterprise Value ($ MM)
</TABLE>
Page 3-1
Page 3-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Summary
Multiple Valuation Analysis: Assuming Corporate Conversion
Based on Comparable Trading Multiples(1)
<TABLE>
<CAPTION>
Per Share
Multiple Range(2) Total Enterprise Value Total Equity Value Equity Value
------------------- ----------------------- Net ------------------- ----------------
Value Mean Median Mean Median Debt & Pref. Mean Median Mean Median
--------- ------- -------- --------- ---------- ------------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM EBITDA $42,665 7.4x 7.1x $315,721 $302,922 $218,939 $96,782 $83,983 $15.08 $13.08
FY+1 EBITDA 46,584 6.8x 6.8x 316,771 316,771 218,939 97,833 97,833 $15.24 $15.24
FY+2 EBITDA 51,487 6.2x 6.3x 319,222 324,370 218,939 100,283 105,432 $15.62 $16.42
LTM Net Income $10,452 14.3x 14.3x $368,404 $368,404 $218,939 $149,466 $149,466 $23.28 $23.28
FY+1 Net Income 11,543 13.2x 13.9x 371,312 379,392 218,939 152,373 160,454 $23.74 $25.00
FY+2 Net Income 14,321 11.7x 12.5x 386,499 397,956 218,939 167,560 179,017 $26.10 $27.89
</TABLE>
- ----------------------------------
(1) Based on comparable companies: APZ, BMCW, BER, CABP, HUG, LAWS, NCH,
and RXL.
(2) As of 6/16/97 and LTM ended 3/31/97.
(3) Reflects the reverse stock split.
Page 3-2
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Summary
Unlevered DCF Valuation Analysis: Assuming Corporate Conversion using Terminal
Values Based off of 2001 EBITDA
<TABLE>
<CAPTION>
Projected
---------------------------------------------------------------------------------------
1997 1998 1999 2000 2001
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Sales $706,080 $766,795 $832,514 $903,735 $981,750
EBITDA 46,584 51,487 57,186 63,087 69,486
EBIT 40,461 45,332 50,921 56,655 $ 62,866
Management Fee* (2,498) 0 0 0 0
Income Taxes* (3,796) (18,133) (20,368) (22,662) (25,146)
---------- ---------- ---------- ----------- ----------
Unlevered Net Income 34,167 27,199 30,552 33,993 37,720
D&A 6,123 6,155 6,265 6,432 6,620
Capital expenditures (4,772) (5,010) (5,200) (5,225) (5,275)
Investment in Rabbi Trust (2,000) (3,000) (3,000) (3,000) (3,000)
Changes in working capital (8,218) (7,155) (7,732) (8,027) (8,995)
---------- ---------- ---------- ----------- ----------
Free Cash Flow $ 25,300 $ 18,189 $ 20,886 $ 24,173 $ 27,069
========== ========== ========== =========== ==========
* Assumes that the Partnership consummates conversion as of 9/30/97
Discounted Free Cash Flows(1)
Discount PV of free
Rate cash flows
--------- ------------
9.0% $93,301
10.0% 91,291
11.0% 89,358
Cap. Structure Adj.
Pro forma
12/31/96
-----------
Total debt $115,159
Class A's 0
MIPS 105,446
Cash (1,666)
-----------
Total $218,939
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Discounted Terminal Value
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $270,966 $293,547 $316,127 $338,708
10.0% 258,871 280,444 302,017 323,589
11.0% 247,419 268,037 288,655 309,273
Total Enterprise Value (TEV)
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $364,267 $386,848 $409,428 $432,009
10.0% 350,163 371,735 393,308 414,880
11.0% 336,777 357,395 378,013 398,632
Common Equity Value
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $145,329 $167,909 $190,490 $213,070
10.0% 131,224 152,797 174,369 195,942
11.0% 117,838 138,457 159,075 179,693
Common Equity Value allocated to Class B Units(2)
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $122,688 $141,751 $160,814 $179,877
10.0% 110,781 128,993 147,205 165,417
11.0% 99,481 116,887 134,293 151,699
Per Share Common Equity Value allocated to Class B Units(2)
EBITDA exit multiple
Discount -----------------------------------------------------------------------
Rate 6.0x 6.5x 7.0x 7.5x
--------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
9.0% $22.64 $26.16 $29.68 $33.19
10.0% $20.44 $23.80 $27.16 $30.53
11.0% $18.36 $21.57 $24.78 $27.99
- ------------------------------
(1) Discounted back to 1/1/97, assuming mid-year convention.
(2) Represents the value of the common stock to be received after taking into
account the reverse stock split.
</TABLE>
Page 3-3
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Tab 4
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Valuation Matrix
o Based upon the valuation analysis described in Tab 3, the range of post
conversion per share values for the common stock is $20.00 - $28.00.
<TABLE>
<CAPTION>
SDP Class B
12/10/96 Assumed Value per Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Price Per Share $4.38 $5.00 $5.25 $5.50 $5.75 $6.00 $6.25 $6.50 $6.75 $7.00
Premium 14.3% 20.0% 25.7% 31.4% 37.1% 42.9% 48.6% 54.3% 60.0%
- ----------------------------
Shares Outstanding 25,676
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Value $112,331 $128,379 $134,798 $141,217 $147,636 $154,054 $160,473 $166,892 $173,311 $179,730
Plus: Debt (Pro Forma 12/31/96) 115,159 115,159 115,159 115,159 115,159 115,159 115,159 115,159 115,159 115,159
Plus: MIPS (Pro Forma 12/31/96) 105,446 105,446 105,446 105,446 105,446 105,446 105,446 105,446 105,446 105,446
Less: Cash (Pro Forma 12/31/96) 1,666 1,666 1,666 1,666 1,666 1,666 1,666 1,666 1,666 1,666
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Enterprise Value $331,270 $347,317 $353,736 $360,155 $366,574 $372,993 $379,412 $385,831 $392,250 $398,669
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Pro Forma
Financial Comparable Company
Statistic Enterprise Value Ranges(2)
----------- ----------------------------------------------------------------------------- -------------------
EBITDA Median Mean
---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LTM(1) $42,665 7.8x 8.1x 8.3x 8.4x 8.6x 8.7x 8.9x 9.0x 9.2x 9.3x 7.1x 7.4x
1997E 46,584 7.1x 7.5x 7.6x 7.7x 7.9x 8.0x 8.1x 8.3x 8.4x 8.6x 6.8x 6.8x
1998E 51,487 6.4x 6.7x 6.9x 7.0x 7.1x 7.2x 7.4x 7.5x 7.6x 7.7x 6.3x 6.2x
Equity Value
Net Income -----------------------------------------------------------------------------
LTM(1) 10,452 10.7x 12.3x 12.9x 13.5x 14.1x 14.7x 15.4x 16.0x 16.6x 17.2x 14.3x 14.3x
1997E 11,543 9.7x 11.1x 11.7x 12.2x 12.8x 13.3x 13.9x 14.5x 15.0x 15.6x 13.9x 13.2x
1998E 14,321 7.8x 9.0x 9.4x 9.9x 10.3x 10.8x 11.2x 11.7x 12.1x 12.5x 12.5x 11.7x
- -------------------------
(1) LTM ended 3/31/97.
(2) Based on comparable companies: APZ, B, BMCW, CABP, HUG, LAWS, NCH, and RXL as of 6/16/97.
</TABLE>
Page 4-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Tab 5
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of Class A Interests
Value of Class A Limited Partnership Interests:
(In millions, except for per share/unit data)
o Pre-Announcement market value:
<TABLE>
<CAPTION>
Year Ended
12/10/96
12/10/96 High / Low
--------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Class A units outstanding 11.100
Market price (as of 12/10/96) $10.38 Yield 10.60% 9.36% / 10.73%
----------------
Total market value $115.2 Price $10.38 $11.75 / $10.25
</TABLE>
o The Partnership Agreement provides that upon liquidation of the
Partnership, holders of Class A Units will receive $10.00 per unit. In a
negotiated transaction, it is likely that holders of the Class A Units
would require a premium to liquidation value before agreeing to have their
security retired. The table below computes the value of each Class A Unit,
prior to any such premium, assuming the units are retired at $10.00 per
unit at different points in time.
<TABLE>
<CAPTION>
Discount
Rate 6/30/97 6/30/98 6/30/02 6/30/37
------------------ ------------------ ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Total value 9.5% $111.0 $112.6 $117.6 $128.1
per share $10.00 $10.16 $10.60 $11.54
Total value 10.5% $111.0 $111.5 $113.2 $116.2
per share $10.00 $10.05 $10.19 $10.47
Total value 11.5% $111.0 $110.5 $108.9 $106.2
per share $10.00 $9.95 $9.81 $9.57
</TABLE>
Page 5-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of Class A Interests
o Pursuant to the Term Sheet, the Class A Interests are being offered 0.38
shares of Preferred Securities and $1.30 in cash (the "Class A
Consideration"). The value of the Class A Consideration was compared to
the value of the Class A Interests described on page 5-1
o The Preferred Securities were analyzed in relation to the trading value of
the Class A Interests
o The change from no call life to a call in five years at par would have the
following effect on yield:
<TABLE>
<S> <C> <C> <C>
Pre-Announcement Trading Price of Class A Interest $10.38 Pre-Announcement Yield on Class A Interest 10.60%
11% Annual Dividend $1.10 Increase for Change in Call Protection(1) 0.93%
-------------
Resulting Yield 11.53%
</TABLE>
o For illustrative purposes, assuming the Preferred Securities trade to
yield 11.53%, the value to be received by a holder of a Class A Interest
would be calculated as follows:
Liquidation Value per Share $25.00
11.6% Annual Dividend $2.90
Assumed Yield 11.53%
Implied Price $25.15
Shares for each Class A Unit 0.38
----------------
Implied value for each Class A Unit $9.56
Cash for each Class A Unit 1.30
----------------
Total Consideration $10.86
o In addition to the changes in dividend rate and call protection, the
following factors, among others, were also considered in analyzing the
differences between the Preferred Securities and the Class A Interests:
= Market risk associated with the Preferred Securities
= Changes in other terms of the securities (e.g., potential for a 5
year dividend holiday)
= Changes in corporate governance (e.g., holders of Class A Interests
could vote on removal of the General Partner or on significant
transactions such as mergers or liquidations)
o In comparing the value of the Class A Consideration with the value of the
Class A Interests, the potential payment of taxes by holders of Class A
Interests in the Conversion and the amount of monthly distributions
payable were also considered
- ----------
(1) Based upon treasury yield curve as of December 6, 1996, interest rate
volatility of 9% and a 40 year maturity.
Page 5-2
<PAGE>
Project Sprinter
- -------------------------------------------------------------------------------
Analysis of Class A Interests
o Consideration to holders of Class A Interests:
<TABLE>
<CAPTION>
Yield to Yield to
Call Price(1) Cash Value Maturity Price Cash Value
------------- ------------- ----------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
9.50% $10.29 $1.30 $11.59 $11.48 $1.30 $12.78
Trading Yield 9.75% 10.19 1.30 11.49 11.20 1.30 12.50
of Preferred 10.00% 10.10 1.30 11.40 10.94 1.30 12.24
Securities 10.25% 10.00 1.30 11.30 10.69 1.30 11.99
11.50% 9.91 1.30 11.21 10.45 1.30 11.75
10.75% 9.81 1.30 11.11 10.22 1.30 11.52
11.00% 9.72 1.30 11.02 10.00 1.30 11.30
11.25% 9.63 1.30 10.93 9.79 1.30 11.09
11.50% 9.54 1.30 10.84 9.58 1.30 10.88
11.75% 9.45 1.30 10.75 9.38 1.30 10.68
12.00% 9.36 1.30 10.66 9.19 1.30 10.49
12.25% 9.27 1.30 10.57 9.01 1.30 10.31
12.50% 9.18 1.30 10.48 8.83 1.30 10.13
</TABLE>
- ------------------------------------
(1) Assumes a five year call at par.
SMITHBARNEY
Page 5-3
<PAGE>
Project Sprinter
- -------------------------------------------------------------------------------
Analysis of Class A Interests
Recent Trading Performance of the Class A Limited Partnership Interest:
<TABLE>
<CAPTION>
Price / Volume Analysis for SunSource, L.P. Class A Units
December 7, 1995 - Present
<S> <C> <C>
140,000--------------------------------------------------------------------------------------------------------------$12.00
*
V 120,000 * *
* * * * $11.50 P
O *
100,000 * * R
L * *
I
U 80,000 * * * $11.00
C
M
60,000 E
E $10.50
40,000
$10.00
20,000
$9.50
O-------------------------------------------------------------------------------------------------------------- $9.00
12/8/95 1/5/96 2/2/96 3/1/96 3/29/96 4/26/96 5/24/96 6/21/96 7/19/96 8/16/96 9/13/96 10/11/96 11/8/96 12/6/96
====== Volume ----- Closing Price
</TABLE>
<TABLE>
<CAPTION>
Price / Volume Analysis for SunSource, L.P. Class A Units
December 7, 1995 - Present
<S> <C> <C>
140,000--------------------------------------------------------------$12.00
V 120,000
* $11.50 P
O *
100,000 R
L * *
* I
U 80,000 * $11.00
C
M
60,000 E
E $10.50
40,000
$10.00
20,000
$9.50
0-------------------------------------------------------------- $9.00
1/3/97 1/31/97 2/28/97 3/28/97 4/25/97 5/23/97
====== Volume ----- Closing Price
</TABLE>
Source: IDD Information Services / Tradeline
Page 5-4
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Tab 6
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of Class B Interests
Value of Class B Limited Partnership Interests:
(In millions, except for per share/unit data; not adjusted for reverse
stock split)
o Pre-announcement market value:
<TABLE>
<CAPTION>
Year Ended
12/10/96
12/10/96 High / Low
--------------------- -------------------
<S> <C> <C> <C> <C> <C>
Class B units outstanding 21.676
Market price (as of 12/10/96) $4.375 Price $4.375 $5.125 / $4.00
----------------
Total market value $94.83
</TABLE>
Recent Trading Performance of the Class B Limited Partnership Interests:
[GRAPHIC OMITTED]
Source: IDD Information Services / Tradeline
Page 6-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of Class B Interests
Unlevered DCF Valuation Analysis1: Assuming No Conversion using Terminal Values
Based off of 2001 EBITDA
<TABLE>
<CAPTION>
Project Sprinter
- -----------------------------------------------------------------------------------------------------------------------------------
Analysis of Class B Interests
Unlevered DCF Valuation Analysis: Assuming No Conversion using Terminal Values Based off of 2001 EBITDA
Projected
--------------------------------------------------------------------------
1997 1998 1999 2000 2001
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales $706,080 $766,795 $832,514 $903,735 $981,750
EBITDA 46,584 51,487 57,186 63,087 69,486
EBIT $ 40,461 $ 45,332 $ 50,921 $ 56,655 $ 62,866
Management Fee (3,330) (3,330) (3,330) (3,330) (3,330)
Income Taxes 159 (14,528) (17,121) (19,981) (23,198)
-------- -------- -------- -------- --------
Unlevered Net Income 37,290 27,475 30,470 33,344 36,338
DD&A 6,123 6,155 6,265 6,432 6,620
Capital expenditures (4,772) (5,010) (5,200) (5,225) (5,275)
Investment in Rabbi Trust (2,000) (3,000) (3,000) (3,000) (3,000)
Changes in working capital (8,218) (7,155) (7,732) (8,027) (8,995)
-------- -------- -------- -------- --------
Free Cash Flow $28,423 $18,465 $20,803 $23,525 $25,687
======== ======== ======== ======== ========
Discounted Free
Cash Flows Discounted Terminal Value
- ---------------------------------- -----------------------------------------------------------------------------------
EBITDA exit multiple
Discount PV of free Discount ----------------------------------------------------------------
Rate cash flows Rate 5.5x 6.0x 6.5x 7.0x
- -------------- ----------------- ----------------- ----------- ------------ ----------- ------------
11.5% $90,258 11.5% $211,133 $230,327 $249,521 $268,715
12.5% 88,465 12.5% 201,915 220,271 238,627 256,983
13.5% 86,738 13.5% 193,175 210,737 228,298 245,859
- ---------------------------------- -----------------------------------------------------------------------------------
Total Enterprise Value (TEV)
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $301,391 $320,585 $339,779 $358,973
12.5% 290,380 308,736 327,092 345,448
13.5% 279,914 297,475 315,036 332,598
-----------------------------------------------------------------------------------
Cap Structure AdJ Total Equity Value
- ---------------------------------- -----------------------------------------------------------------------------------
Pro forma EBITDA exit multiple
12/31/96 Discount ----------------------------------------------------------------
---------- Rate 5.5x 6.0x 6.5x 7.0x
Total debt $77,604 ----------------- ----------- ------------ ----------- ------------
Class A's 110,996 11.5% $225,453 $244,647 $263,841 $283,035
MIPS 0 12.5% 214,442 232,798 251,154 269,510
Cash (1,666) 13.5% 203,976 221,537 239,098 256,660
-------- -----------------------------------------------------------------------------------
Total adj. $186,934
- ----------------------------------
Value to GP (2)
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $4,487 $4,868 $5,250 $5,632
12.5% 4,267 4,633 4,998 5,368
13.5% 4,059 4,409 4,758 5,108
-----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Equity Value of Class A and Class B Interests
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $220,967 $239,779 $258,590 $277,402
12.5% 210,175 228,165 246,156 264,146
13.5% 199,917 217,128 234,340 251,552
----------------------------------------------------------------------------------
Equity Value of Class B Interests
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $109,971 $128,783 $147,595 $166,407
12.5% 99,179 117,170 135,160 153,151
13.5% 88,921 106,133 123,345 140,557
-----------------------------------------------------------------------------------
Per Share Equity Value of a Class B Interest (3)
-----------------------------------------------------------------------------------
EBITDA exit multiple
Discount ----------------------------------------------------------------
Rate 5.5x 6.0x 6.5x 7.0x
----------------- ----------- ------------ ----------- ------------
11.5% $20.29 $23.77 $27.24 $30.71
12.5% 18.30 21.62 24.94 28.26
13.5% 16.41 19.59 22.76 25.94
----------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) Discounted back to 1/1/97, assuming mid-year convention, terminal value
adjusted for the effect of the management fee.
(2) Reflects 1.99% of Total Equity Value.
(3) Adjusted for the stock split.
Page 6-2
[LOGO]
Page 6-2
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Tab 7
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of General Partner Interest and Management Fee
o The tables below calculate the total potential value attributable to the
General Partner Interest and the Management Fee:
Management Fee:
- ---------------
<TABLE>
<CAPTION>
- ----------------------------------- --------------------------------------- ----------------------------------
Discount
Annual Distribution Rate NPV
- ----------------------------------- --------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
$3.33 9.5% $35.1
10.5% 31.7
11.5% 29.0
--------------------------------------- ----------------------------------
LTM EBITDA Multiple Value
--------------------------------------- ----------------------------------
$3.33 Median 7.1x $23.6
Mean 7.4x 24.6
--------------------------------------- ----------------------------------
LTM Net Income Multiple Value
--------------------------------------- ----------------------------------
$3.33(1) Median 14.3x $28.6
Mean 14.3x 28.6
1.99% Interest:
- --------------- High Low
Enterprise Value $359.0 $279.9
Less: Net Debt 75.9 75.9 ----------------------------------
---------------- ----------------- Value
$283.1 $204.0 ----------------------------------
================ ================= High Low
G.P. 1.99% Interest $5.6 $4.1
</TABLE>
o The total potential value attributable to the General Partner's 1.99%
interest and management fee ranges from $27.7 MM to $40.7 MM
- ----------
(1) Note that management fee is tax effected at a 40% tax rate for purposes of
this valuation.
Page 7-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Analysis of General Partner Interest and Management Fee
Shares to be Received for the 1.99% G.P. Interest and the Management Fee
(Share Amounts in Thousands, adjusted for the reverse stock split)
Potential Value of 1.99% G.P. Interest and Management Fee ($MM)
-------------------------------------------------------------------
$25.0 $30.0 $35.0 $40.0
-------------- ------------- ------------ -------------
S $3.00 2,083 2,500 2,917 3,333
h $3.50 1,786 2,143 2,500 2,857
a $4.00 1,563 1,875 2,188 2,500
r -------------------------------------------------------------------
e $4.50 1,389 1,667 1,944 2,222
$5.00 1,250 1,500 1,750 2,000
P $5.50 1,136 1,364 1,591 1,818
r $6.00 1,042 1,250 1,458 1,667
i $6.50 962 1,154 1,346 1,538
c -------------------------------------------------------------------
e $7.00 893 1,071 1,250 1,429
$7.50 833 1,000 1,167 1,333
$8.00 781 938 1,094 1,250
o In determining the amount of value to be given for the General Partner
Interest and Management Fee, the following factors, among others, were
considered:
= the accelerated timing of the receipt of the consideration by the
General Partner
= the illiquidity of the management contract
= the potential elimination of the management fee in the event of: (a)
a liquidation or sale of the Partnership, or (b) removal of the
General Partner by a vote of 80% of the unaffiliated partners
= the subordination of the management fee to the Class A distributions
= the services provided by the General Partner
o Utilizing the range of values of the Common Stock of the Company
post-conversion described in Tab 4, the 1.0 million shares given for
General Partner Interest and Management Fee have an implied value of $20
million to $28 million
Page 7-2
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Appendix A
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
Project Sprinter
- --------------------------------------------------------------------------------
Comparison of Selected Industrial Distribution Companies
(Dollars in millions, except for per share amounts)
<TABLE>
<CAPTION>
Stock Price Equity Market Value(1)/
----------- ------------------------------------------------------
vs. LTM Equity Net Income After-Tax Cash Flow
Price at ------------ Market ------------------------ -------------------------
Company 6/16/97 High Low Value(1) LTM 1997E 1998E LTM 1997E 1998E
------- ------- ---- --- -------- --- ----- ----- --- ----- -----
Industrial Distribution
Companies
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Barnes Group, Inc. $27.25 (3.1%) 76.7% $554 15.1x 14.0x 13.2x 8.6x 8.3x 8.0x
BMC West Corp. $13.38 (26.7%) 30.5% $158 13.9X 11.8x 9.6x 7.2x 6.6x 5.9x
Applied Industrial
Technologies, Inc.(5) $36.00 (1.4%) 40.5% $447 17.3x 16.9x 13.4x 11.8x 10.8x 9.3x
Cameron Ashley Building
Products, Inc. $14.75 (6.3%) 51.3% $142 10.9x 9.3x 8.1x 7.3x 6.6x 6.0x
Hughes Supply, Inc. $39.50 (11.5%) 29.5% $465 12.9x 11.6x 10.4x 9.0x 8.8x 8.1x
Lawson Products, Inc. $26.50 (1.4%) 26.2% $295 14.7x 14.3x 13.6x 12.2x 12.3x 11.7x
NCH Corporation $62.75 (4.6%) 17.0% $495 13.6x 13.9x 13.0x 10.3x 10.6x 10.1x
Rexel Inc. $18.38 (9.8%) 40.0% $490 16.2x 13.8x 12.0x 12.2x 10.8x 9.7x
-----------------------------------------------------------------------
Mean: 14.3x 13.2x 11.7x 9.8x 9.4x 8.6x
Median: 14.3x 13.9x 12.5x 9.7x 9.7x 8.7x
High: 17.3x 16.9x 13.6x 12.2x 12.3x 11.7x
Low: 10.9x 9.3x 8.1x 7.2x 6.6x 5.9x
-----------------------------------------------------------------------
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
Enterprise Value(2)/
-------------------------
EBITDA
Enterprise -------------------------
Company Value(2) LTM 1997E 1998E
------- -------- --- ----- -----
Industrial Distribution
Companies
- ------------------------
<S> <C> <C> <C> <C>
Barnes Group, Inc. $613 7.0x 6.6x 6.3x
BMC West Corp. $249 6.8x 6.1x 5.4x
Applied Industrial
Technologies, Inc.(5) $520 8.2x 8.1x 6.9x
Cameron Ashley Building
Products, Inc. $218 7.0x 6.2x 5.6x
Hughes Supply, Inc. $686 9.2x 8.0x 7.4x
Lawson Products, Inc. $268 7.2x 7.2x 6.9x
NCH Corporation $408 5.5x 5.4x 5.1x
Rexel Inc. $548 8.4x 7.0x 6.3x
-----------------------------------
7.4x 6.8x 6.2x
7.1x 6.8x 6.3x
9.2x 8.1x 7.4x
5.5x 5.4x 5.1x
-----------------------------------
</TABLE>
- ----------
* Denotes an unaccounted for transaction.
(1) Equity Market Value = Total Shares Outstanding (calculated by the treasury
method) * Current Common Stock Price.
(2) Enterprise Value = Equity Market Value + Market Value of Preferred + Total
Debt (principal amount) + Minority Interest - Unrestricted Cash and
Marketable Securities.
(3) Latest Twelve Months as of 3/31/97.
(4) Excludes outliers.
(5) Formerly Bearings Inc.
Page A-1
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Comparison of Selected Industrial Distribution Companies
(Dollars in millions, except for per share amounts)
<TABLE>
<CAPTION>
Total Debt/ LTM
S&P Senior Capitalization Total Deb/ LTM EBITDA- Dividend Payout
Unsecured Total --------------------- LTM EBITDA Capex/ Dividend ---------------
Company Credit Rating Debt Book(1) Market(2) EBITDA Interest Interest Yield EPS ATCF(3)
------- ------------- ---- -------- ---------- ------ -------- -------- ----- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial Distribution
Companies
Barnes Group, Inc. NR/NR $ 81 32.5% 12.7% 0.9x 17.5x 17.5x 6.6% 97.1% 55.2%
Applied Industrial
Technologies, Inc.(5) NR/NR $ 98 40.1% 38.2% 2.7x 3.8x 3.8x NA NM NM
Bearings, Inc. NR/NR $ 89 31.0% 16.7% 1.4x 9.9x 9.9x 1.6% 26.9% 18.4%
Cameron Ashley Building
Products, Inc. NR/NR $ 79 44.9% 35.8% 2.6x 7.3x 7.3x NA NM NM
Hughes Supply, Inc. NR/NR $227 44.9% 32.8% 3.1x 5.5x 5.5x 0.9% 11.1% 7.8%
Lawson Products, Inc. NR/NR $ 0 NM NM NM NM NM 2.0% 28.8% 23.9%
NCH Corporation NR/NR $ 6 1.9% 1.1% 0.lx NM NM 1.9% 47.8% 36.0%
Rexel Inc. NR/NR $ 77 27.2% 13.6% 1.2x 11.7x 11.7x N/A NM NM
------------------------------------------------------------------------------------------------
Mean: 31.8% 21.6% 1.7x 9.3x 9.3x 2.6% 42.3% 28.3%
Median: 32.5% 16.7% 1.4x 8.6x 8.6x 1.9% 28.8% 23.9%
High: 44.9% 38.2% 3.1x 17.5x 17.5x 6.6% 97.1% 55.2%
Low: 1.9% 1.1% 0.1x 3.8x 3.8x 0.9% 11.1% 7.8%
------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Denotes an unaccounted for transaction.
(1) Book Capitalization = Total Debt + Common Book Equity + Preferred (at
liquidation preference) + Minority Interest.
(2) Market Capitalization = Total Debt + Common Equity Market Value + Preferred
Market Value + Minority Interest.
(3) ATCF = After Tax Cash Flow.
(4) Excludes outliers.
(5) Formerly Bearings Inc.
Page A-2
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Comparison of Selected Industrial Distribution Companies
(Dollars in millions, except for per share amounts)
<TABLE>
<CAPTION>
Equity Market LTM Return
SB Value/ 5 Year CAGR(2) 5 Year EPS LTM Return LTM Return on Average
Ticker Research Tangible --------------- Projected on Average on Average Invested
Company Symbol Rating Book Value(1) EBITDA EPS Growth Rate Equity Assets Capital(3)
------- ------ ------ ------------- ------ --- ----------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial Distribution
Companies
Barnes Group, Inc. B NR 3.7x 14.7% 14.6% NA 23.8% 9.3% 27.0%
BMC West Corp. BMCW NR 1.3x 31.3% NM NA 8.8% 1.9% 16.1%
Applied Industrial
Technologies, Inc.(5) APZ NR 2.2x 25.7% 45.8% 17.3% 13.5% 6.4% 23.9%
Cameron Ashley Building
Products, Inc. CABP NR 1.5x 31.1% 18.1% NA 13.8% 6.1% 21.7%
Hughes Supply, Inc. HUG 2H 2.5x 58.2% 54.5% 12.5% 14.5% 6.0% 16.1%
Lawson Products, Inc. LAWS NR 2.3X 7.0% 11.2% 5.0% 14.1% 12.1% 27.9%
NCH Corporation NCH NR 1.7x (1.4%) (2.1%) 7.3% 11.6% 6.7% 19.1%
Rexel Inc. RXL NR 4.1x NM NM NA 15.6% 7.0% 22.2%
---------------------------------------------------------------------------------------------
Mean: 2.4x 23.8% 23.7% 10.5% 14.5% 6.9% 21.8%
Median: 2.3x 25.7% 16.4% 9.9% 14.0% 6.5% 22.0%
High: 4.1x 58.2% 54.5% 17.3% 23.8% 12.1% 27.9%
Low: 1.3x (1.4%) (2.1%) 5.0% 8.8% 1.9% 16.1%
---------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Denotes an unaccounted for transaction.
(1) Tangible Book Value = Common Equity Book Value - Goodwill.
(2) CAGR = Compounded Annual Growth Rate.
(3) Invested Capital = Total Debt + Common Equity Book Value + Preferred Book
Value + Minority Interest + Deferred Income Tax Liability.
(4) Excludes outliers.
(5) Formerly Bearings Inc.
Page A-3
<PAGE>
Project Sprinter
- --------------------------------------------------------------------------------
Comparison of Selected Industrial Distribution Companies
(Dollars in millions, except for per share amounts)
<TABLE>
<CAPTION>
Operating LTM(1)Data
LTM(1) LTM(1) LTM(1) LTM(1) Expenses ------------------------------------------------
Gross EBITDA EBIT Net as a % of Gross
Margin Margin Margin Margin Sales Revenues Profit EBITDA EBIT EBT NIAC
------ ------ ------ ------ ----- -------- ------ ------ ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial Distribution
Companies
Barnes Group, Inc. 39.7% 14.5% 10.1% 6.0% 25.2% $603.0 $239.2 $87.4 $60.9 $58.0 $36.0
Applied Industrial
Technologies, Inc. (5) 22.3% 5.1% 3.6% 1.5% 17.2% 717.2 159.8 36.6 26.1 17.4 10.7
Bearings, Inc. 27.3% 5.5% 4.3% 2.2% 21.8% 1,149.9 314.5 63.3 49.9 43.9 25.7
Cameron Ashley Building
Products, Inc. 20.8% 4.9% 3.9% 2.0% 15.9% 625.5 130.3 30.9 24.4 20.2 12.5
Hughes Supply, Inc. 20.8% 4.9% 3.9% 2.1% 15.9% 1,516.1 315.9 74.2 59.3 51.7 32.5
Lawson Products, Inc. 66.5% 14.4% 12.8% 8.0% 52.1% 259.9 172.7 37.3 33.2 35.0 20.7
NCH Corporation 49.4% 9.6% 7.6% 4.5% 39.8% 769.0 380.2 73.9 58.4 58.5 34.5
Rexel Inc. 20.7% 5.5% 4.8% 2.5% 15.2% 1,183.5 245.3 65.2 56.9 51.8 29.5
--------------------------------------------------------------------------------------------------------
Mean: 33.4% 8.1% 6.4% 3.6% 25.4% $853.0 $244.7 $58.6 $46.1 $42.1 $25.3
Median: 24.8% 5.5% 4.6% 2.4% 19.5% 743.1 242.2 64.3 53.4 47.8 27.6
High: 66.5% 14.5% 12.8% 8.0% 52.1% 1,516.1 380.2 87.4 60.9 58.5 36.0
Low: 20.7% 4.9% 3.6% 1.5% 15.2% 259.9 130.3 30.9 24.4 17.4 10.7
--------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
1) Latest Twelve Months as of 3/31/97.
Page A-4
<PAGE>
Exhibit 17(g)(1)
JULY 1996
PROJECTION
SUNSOURCE PROJECTION
1997 PRELIMINARY PLAN DATA
VS. 1996 PROJECTION
1997
PRELIM.
1996 PROJ. PLAN
---------- -----------
Historical EBIT $ 49,675(1) $ 57,546(2)
---------- ----------
Administrative Expenses:
Deferred compensation 1,760 3,631
Insurance, net 495 142
Compensation expense (3) 2,298 3,054
Depreciation expense 54 55
All other Administrative costs (4) 5,182 6,827
-------- --------
Total administrative expense 9,789 13,709
-------- --------
Amortization:
Fixed asset step up 262 264
Inventory 228 N/A
Intangible assets 460 398
Goodwill 1,412 1,407
-------- --------
Total amortization 2,362 2,069
-------- --------
Other GAAP expense:
Bank service fees 483 480
All other expense (income), net (61) 143
-------- --------
Total other expense 422 623
-------- --------
GAAP EBIT (5) $ 37,102 $ 41,145
Amortization 2,362 2,069
Administrative depreciation 54 55
Historical depreciation 3,300 3,350
-------- --------
GAAP EBITDA* $ 42,818 $ 46,619
======== ========
*Note: Does not include any
costs related to conversion
to corporate form or any
restructuring charge.
NOTES:
(1) Based on 1996 projection included with preliminary plan range schedules
less $1,254 risk adjustment. Includes approximately $3,300 of depreciation.
(2) Includes approximately $3,350 of depreciation.
(3) Salary and bonuses for Phila. operating management and financial staff.
(Excluding B. J. Cornelious and M. W. Hillman.)
(4) Includes $283 and $1,500 of expenses for Sun Industrial Services - Chicago
office in the 1996 projection and 1997 preliminary plan respectively.
(5) Excludes management fee expense and G. P. 1% minority interest.
<PAGE>
<TABLE>
<CAPTION>
SunSource 1996-2001 PROJECTION JULY 1996
PROJECTION
SDI - ALL DIVISIONS - CONSOLIDATED NO RISK (SPECIAL)
----------------------------------
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
ACTUAL ACTUAL ACTUAL ACTUAL
HISTORICAL INCOME STATEMENT: 1992 1993 1994 1995 1996
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SALES $449,185 $487,175 $554,819 $601,152 $648,000
-------- -------- -------- -------- --------
GROSS PROFIT 187,281 199,254 226,382 244,617 261,571
-------- -------- -------- -------- --------
OPERATING EXPENSES 151,042 160,909 179,989 198,251 209,878
COMMISSION INCOME 126 126 106 117 199
-------- -------- -------- -------- --------
OPERATING INCOME 36,365 38,471 46,499 46,483 51,891
OTHER INCOME (EXPENSE) 445 (448) 342 (38) 243
-------- -------- -------- -------- --------
EBIT 36,810 38,023 46,841 46,445 52,134
INTEREST EXPENSE (INCOME) 164 71 96 37 80
MGT. FEE EXPENSE (INCOME) 270 256 294 378 360
FEDERAL & STATE INCOME TAXES 0 0 0 0 0
FOREIGN INCOME TAXES 519 388 569 639 508
-------- -------- -------- -------- --------
NET INCOME (HISTORICAL PRE-TAX) 35,857 37,308 45,882 45,391 51,186
-------- -------- -------- -------- --------
DEPRECIATION EXPENSE 3,040 2,998 2,719 3,074 3,199
NET CASH FROM OPERATIONS $38,897 $40,306 $48,601 $48,465 $54,385
-------- -------- -------- -------- --------
HISTORICAL BALANCE SHEET:
- -------------------------
CASH 86 (917) 1,610 (6,353) 0
ACCOUNTS RECEIVABLE, NET 53,794 56,971 66,299 73,451 77,491
INVENTORY 62,960 71,199 80,092 95,488 97,497
OTHER CURRENT ASSETS 2,717 3,678 2,868 3,308 3,505
-------- -------- -------- -------- --------
TOTAL CURRENT ASSETS 119,558 130,930 150,869 165,894 178,493
FIXED ASSETS, NET 13,774 13,571 13,650 13,692 13,892
INTANGIBLE ASSETS 71 103 78 50 42
OTHER ASSETS 334 377 212 526 400
-------- -------- -------- -------- --------
TOTAL ASSETS $133,737 $144,982 $164,809 $180,163 $192,828
-------- -------- -------- -------- --------
ACCOUNTS PAYABLE 27,893 35,499 39,138 35,415 45,015
NOTES PAYABLE & CURRENT DEBT 2,206 2,914 2,027 1,966 1,962
ACCRUED EXPENSES 12,447 13,263 17,208 17,333 18,335
-------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES 42,546 51,676 58,373 54,714 65,312
LONG-TERM CAP LEASE OBLIGATIONS 106 68 0 0 0
OTHER NON-CURRENT LIABILITIES 209 121 (75) (307) (173)
HISTORIC CAPITAL 90,877 93,117 106,511 125,755 127,689
-------- -------- -------- -------- --------
TOTAL LIABILITIES & CAPITAL $133,737 $144,982 $164,809 $180,163 $192,828
-------- -------- -------- -------- --------
DIVIDENDS (CAPITAL) $37,642 $33,895 $32,952 $31,663 $49,252
-------- -------- -------- -------- --------
CAPITAL EXPENDITURES $2,089 $2,906 $2,895 $3,150 $3,354
-------- -------- -------- -------- --------
NET TANGIBLE ASSETS $94,151 $96,116 $101,281 $118,584 $132,325
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
========P R O J E C T I O N========
HISTORICAL INCOME STATEMENT: 1997 1998 1999 2000 2001
- ----------------------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
SALES $705,568 $766,304 $831,968 $903,177 $981,220
-------- -------- -------- -------- --------
GROSS PROFIT 284,696 309,286 335,339 363,340 393,911
-------- -------- -------- -------- --------
OPERATING EXPENSES 225,049 242,200 260,851 281,035 303,608
COMMISSION INCOME 189 190 191 192 194
-------- -------- -------- -------- --------
OPERATING INCOME 59,835 67,275 74,678 82,498 90,497
OTHER INCOME (EXPENSE) 170 185 188 188 188
-------- -------- -------- -------- --------
EBIT 60,005 67,460 74,866 82,686 90,685
INTEREST EXPENSE (INCOME) 65 55 55 50 50
MGT. FEE EXPENSE (INCOME) 360 360 360 360 360
FEDERAL & STATE INCOME TAXES 0 0 0 0 0
FOREIGN INCOME TAXES 587 611 652 696 741
-------- -------- -------- -------- --------
NET INCOME (HISTORICAL PRE-TAX) 58,993 66,434 73,799 81,579 89,534
-------- -------- -------- -------- --------
DEPRECIATION EXPENSE 3,195 3,290 3,350 3,425 3,500
NET CASH FROM OPERATIONS $62,188 $69,724 $77,149 $85,004 $93,034
-------- -------- -------- -------- --------
HISTORICAL BALANCE SHEET:
- -------------------------
CASH 0 0 0 0 0
ACCOUNTS RECEIVABLE, NET 84,451 91,290 98,916 107,063 116,133
INVENTORY 104,346 111,036 119,185 128,330 138,799
OTHER CURRENT ASSETS 3,670 3,875 4,040 4,165 4,265
-------- -------- -------- -------- --------
TOTAL CURRENT ASSETS 192,468 206,201 222,142 239,558 259,197
FIXED ASSETS, NET 14,497 15,277 16,107 17,012 17,892
INTANGIBLE ASSETS 37 35 34 34 34
OTHER ASSETS 414 447 501 558 620
-------- -------- -------- -------- --------
TOTAL ASSETS $207,416 $221,961 $238,785 $257,163 $277,744
-------- -------- -------- -------- --------
ACCOUNTS PAYABLE 50,396 54,578 59,544 64,955 70,860
NOTES PAYABLE & CURRENT DEBT 1,765 1,558 1,404 1,380 1,380
ACCRUED EXPENSES 19,668 21,429 23,331 25,377 27,622
-------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES 71,829 77,564 84,280 91,712 99,862
LONG-TERM CAP LEASE OBLIGATIONS 0 0 0 0 0
OTHER NON-CURRENT LIABILITIES (173) (173) (173) (173) (173)
HISTORIC CAPITAL 135,760 144,570 154,678 165,624 178,055
-------- -------- -------- -------- --------
TOTAL LIABILITIES & CAPITAL $207,416 $221,961 $238,785 $257,163 $277,744
-------- -------- -------- -------- --------
DIVIDENDS (CAPITAL) $50,922 $57,624 $63,691 $70,633 $77,103
-------- -------- -------- -------- --------
CAPITAL EXPENDITURES $3,800 $4,070 $4,180 $4,330 $4,380
-------- -------- -------- -------- --------
NET TANGIBLE ASSETS $133,895 $140,796 $149,037 $158,091 $168,337
-------- -------- -------- -------- --------
</TABLE>
* INCLUDES INTERCOMPANY SALES FOR ALL YEARS.
<PAGE>
<TABLE>
<CAPTION>
SunSource 1996-2001 PROJECTION JULY 1996
PROJECTION
SDI - ALL DIVISIONS - CONSOLIDATED NO RISK (SPECIAL)
----------------------------------
(dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
ACTUAL ACTUAL ACTUAL ACTUAL
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FINANCIAL STATISTICS:
- ---------------------
SALES GROWTH, % N/A 8.5% 13.9% 8.4% 7.8%
EBIT GROWTH, % N/A 3.3% 23.2% -0.8% 12.2%
GROSS PROFIT, % 41.7% 40.9% 40.8% 40.7% 40.4%
OPERATING EXPENSE, % OF SALES 33.6% 33.0% 32.4% 33.0% 32.4%
OPERATING PROFIT, % OF SALES 8.1% 7.9% 8.4% 7.7% 8.0%
ACCOUNTS RECEIVABLE DAYS 43.7 42.7 43.6 44.6 43.6
INVENTORY TURNS 4.16 4.04 4.10 3.73 3.96
ACCOUNTS PAYABLE DAYS 38.9 43.8 42.3 34.8 42.3
ACCRUED EXPENSES, % OF SALES 2.8% 2.7% 3.1% 2.9% 2.8%
RETURN ON NET TANGIBLE ASSETS, % 38.1% 38.8% 45.3% 40.4% 40.8%
DIVIDENDS, % OF PRE-TAX INCOME 105.0% 90.9% 71.8% 69.8% 96.2%
EBITA $36,810 $38,055 $46,816 $46,417 $52,126
-------- -------- -------- -------- --------
EBITDA $39,850 $41,053 $49,535 $49,491 $55,325
-------- -------- -------- -------- --------
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
========P R O J E C T I O N========
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FINANCIAL STATISTICS:
- ---------------------
SALES GROWTH, % 8.9% 8.6% 8.6% 8.6% 8.6%
EBIT GROWTH, % 15.1% 12.4% 11.0% 10.4% 9.7%
GROSS PROFIT, % 40.3% 40.4% 40.3% 40.2% 40.1%
OPERATING EXPENSE, % OF SALES 31.9% 31.6% 31.4% 31.1% 30.9%
OPERATING PROFIT, % OF SALES 8.5% 8.8% 9.0% 9.1% 9.2%
ACCOUNTS RECEIVABLE DAYS 43.7 43.5 43.4 43.3 43.2
INVENTORY TURNS 4.03 4.12 4.17 4.21 4.23
ACCOUNTS PAYABLE DAYS 43.0 43.0 43.1 43.2 43.3
ACCRUED EXPENSES, % OF SALES 2.8% 2.8% 2.8% 2.8% 2.8%
RETURN ON NET TANGIBLE ASSETS, % 44.3% 48.4% 50.9% 53.1% 54.9%
DIVIDENDS, % OF PRE-TAX INCOME 86.3% 86.7% 86.3% 86.6% 86.1%
EBITA $60,000 $67,458 $74,865 $82,686 $90,685
-------- -------- -------- -------- -------
EBITDA $63,195 $70,748 $78,215 $86,111 $94,185
-------- -------- -------- -------- -------
</TABLE>
* EXCLUDES CORPORATE SG&A EXPENSES AND OTHER EXPENSE ITEMS.
<PAGE>
JULY 1996
PROJECTION
SunSource
G A A P PROJECTION
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Historical E B I T $52,134 $60,005 $67,460 $74,866 $82,686 $90,685
Administration Expense:
- Deferred Compensation $ 2,436 $ 2,558 $ 2,686 $ 2,820 $ 2,961 $ 3,109
- Insurance, net 992 350 368 386 405 425
- Compensation Expense 2,899 3,044 3,196 3,356 3,524 3,700
- Depreciation Expense 45 47 50 52 55 57
- All Other Administrative Costs 5,486 5,760 6,048 6,351 6,668 7,002
------- ------- ------- ------- ------- -------
Total Administration Expense $11,858 $11,759 $12,347 $12,965 $13,613 $14,294
Amortization:
- Fixed Asset Step Up $ 254 $ 266 $ 255 $ 255 $ 255 $ 255
- Inventory 293 N/A N/A N/A N/A N/A
- Intangible Assets 459 396 87 - - -
- Goodwill 1,390 1,390 1,390 1,390 1,390 1,390
------- ------- ------- ------- ------- -------
Total Amortization $ 2,396 $ 2,052 $ 1,732 $ 1,645 $ 1,645 $ 1,645
Other G A A P Expense:
- Bank Service Fees $ 507 $ 532 $ 559 $ 587 $ 616 $ 647
- All Other, net (9) 113 118 124 130 137
------- ------- ------- ------- ------- -------
Total Other Expense $ 498 $ 645 $ 677 $ 711 $ 747 $ 784
G A A P E B I T * $37,382 $45,549 $52,704 $59,545 $66,681 $73,962
======= ======= ======= ======= ======= =======
</TABLE>
* Excludes Management Fee Expense, and G.P. 1% Minority Interest
<PAGE>
November 1996
Projection
INFORMATION PROVIDED TO BOB MARTIN
OF SMITH BARNEY ON 11/25/96
AND SUBSEQUENTLY ADJUSTED PER
CONFERENCE CALL *
Risk Management Adjustment to be applied to our July Five-Year Projections are
as follows:
Updated Adjustments
Original Per Conference Call
-------- -------------------
1996 Projection $ 342M $ 342M
------- --------
1997 Projection 6,000M 2,512M
--------
1998 Projection 6,500M 6,000M
1999 Projection 7,500M 8,600M
2000 Projection 8,000M 11,000M
2001 Projection 9,000M 13,000M
* Reproduction of hand-written note/telephone conversations.
<PAGE>
COMPANY NAME : Existing Operations Including RISK
(dollars in thousands)
<TABLE>
<CAPTION>
ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL
HISTORICAL INCOME STATEMENT: 1992 1993 1994 1995 1996
- ----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SALES* $ 449,185 $ 487,175 $ 554,819 $ 601,152 $ 650,791(1)
--------- --------- --------- --------- ---------
GROSS PROFIT 187,281 199,254 226,382 244,617 263,362
OPERATING EXPENSES 151,042 160,909 179,989 198,251 215,643
COMMISSION INCOME 126 126 106 117 290
--------- --------- --------- --------- ---------
OPERATING INCOME 36,365 38,471 46,499 46,483 48,009
OTHER INCOME (EXPENSE) 445 (448) 342 (38) 248
--------- --------- --------- --------- ---------
EBIT 36,810 38,023 46,841 46,445 48,257
--------- --------- --------- --------- ---------
INTEREST EXPENSE (INCOME) 164 71 96 37 59
MGT. FEE EXPENSE (INCOME) 270 256 294 378 434
FEDERAL & STATE INCOME TAXES -- -- -- -- --
FOREIGN INCOME TAXES 519 388 569 639 603
--------- --------- --------- --------- ---------
NET INCOME (HISTORIC PRETAX INCOME) $ 35,857 $ 37,308 $ 45,882 $ 45,391 $ 47,161
--------- --------- --------- --------- ---------
--------- ---------
DEPRECIATION EXPENSE 3,040 2,998 2,719 3,074 3,250
NET CASH FROM OPERATIONS $ 38,897 $ 40,306 $ 48,601 $ 48,465 $ 50,411
--------- --------- --------- --------- ---------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
5 MONTHS 7 MONTHS
-------- --------
PROJ PROJ PROJ PROJ PROJ PROJ PROJ
HISTORICAL INCOME STATEMENT: 1997 1997 1997 1998 1999 2000 2001
- ----------------------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SALES* $ 284,174 421,626 $ 705,800 $ 766,500 $ 832,200 $ 903,400 $ 981,400
--------- --------- --------- --------- --------- ---------
GROSS PROFIT 114,505 172,121 286,625 307,795 332,182 359,338 388,664
--------- --------- --------- --------- ---------
OPERATING EXPENSES 95,488 136,693 232,181 249,168 267,499 288,340 310,840
--------- --------- --------- --------- ---------
COMMISSION INCOME 114 166 280 295 315 335 350
--------- --------- --------- --------- ---------
OPERATING INCOME 19,131 35,594 54,724 58,922 64,998 71,332 78,174
--------- ---------
OTHER INCOME (EXPENSE) (24) 304 280 320 335 350 365
--------- --------- --------- --------- ---------
EBIT 19,107 35,898 55,004 59,242 65,333 71,682 78,539
INTEREST EXPENSE (INCOME) 13 (13) 0 25 25 25 25
MGT. FEE EXPENSE (INCOME) 175 245 420 420 420 420 420
FEDERAL & STATE INCOME TAXES 0 -- 0 0 0 0 0
FOREIGN INCOME TAXES 230 403 633 1,131 1,343 1,646 2,040
NET INCOME (HISTORIC PRETAX INCOME) 18,689 35,263 53,951 57,666 63,545 69,591 76,055
--------- ---------
DEPRECIATION EXPENSE 1,608 2,010 3,618 3,965 4,160 4,325 4,510
--------- --------- --------- --------- ---------
NET CASH FROM OPERATIONS $ 20,297 $ 37,273 57,569 61,631 67,705 73,916 80,565
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL BALANCE SHEET : 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- -------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH $ 86 $ -- $ 1,610 $ -- $ 1,077
ACCOUNTS RECEIVABLE, NET 53,794 56,971 66,299 73,451 79,207
INVENTORY 62,960 71,199 80,092 95,488 99,967
OTHER CURRENT ASSETS 2,717 3,678 2,868 3,308 3,705
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 119,558 131,847 150,869 172,247 183,956
FIXED ASSETS, NET 13,774 13,571 13,650 13,692 15,742
INTANGIBLE ASSETS 71 103 78 50 41
OTHER ASSETS 334 377 212 526 196
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 133,737 $ 145,899 $ 164,809 $ 186,516 $ 199,935
ACCOUNTS PAYABLE $ 27,893 $ 36,416 $ 39,138 $ 41,769 $ 46,279
NOTES PAYABLE & CURRENT DEBT 2,206 2,914 2,027 1,966 1,854
ACCRUED EXPENSES 12,447 13,263 17,208 17,333 17,456
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 42,546 52,593 58,373 61,068 65,589
LONG-TERM CAP LEASE OBLIGATIONS 106 68 -- -- 611
OTHER NON-CURRENT LIABILITIES 209 121 (75) (307) (295)
HISTORIC CAPITAL 90,877 93,117 106,511 125,755 134,030
--------- --------- --------- --------- ---------
TOTAL LIABILITIES & CAPITAL $ 133,737 $ 145,899 $ 164,809 $ 186,516 $ 199,935
--------- --------- --------- --------- ---------
DIVIDENDS (CAPITAL) $ 37,642 $ 33,895 $ 32,952 $ 32,207 $ 38,886
--------- --------- --------- --------- ---------
CAPITAL EXPENDITURES $ 2,089 $ 2,906 $ 2,895 $ 3,150 $ 4,829
--------- --------- --------- --------- ---------
NET TANGIBLE ASSETS $ 94,151 $ 96,116 $ 101,281 $ 118,584 $ 133,989
--------- --------- --------- --------- ---------
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
5 MONTHS 7 MONTHS
-------- --------
PROJ PROJ PROJ PROJ PROJ PROJ PROJ
HISTORICAL BALANCE SHEET : 1997 1997 1997 1998 1999 2000 2001
- -------------------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CASH $0 $ -- 0 0 0 0 0
ACCOUNTS RECEIVABLE, NET 85,252 86,340 93,450 100,365 108,903 118,306
INVENTORY 112,271 108,592 115,764 123,698 132,094 140,599
OTHER CURRENT ASSETS 3,974 3,767 4,075 4,385 4,640 4,910
----- ----- ----- ----- -----
TOTAL CURRENT ASSETS 201,497 198,699 213,288 228,448 245,637 263,815
FIXED ASSETS, NET 16,606 16,937 17,982 19,022 19,922 20,687
INTANGIBLE ASSETS 12 35 32 30 29 28
OTHER ASSETS 85 165 200 225 245 280
-- --- --- --- --- ---
TOTAL ASSETS $ 218,200 215,836 231,502 247,725 265,833 284,810
---------
ACCOUNTS PAYABLE 52,772 50,163 55,777 61,233 67,355 74,125
NOTES PAYABLE & CURRENT DEBT 1,099 1,099 1,099 1,099 1,099 1,099
ACCRUED EXPENSES 18,768 21,174 22,995 24,966 28,005 30,423
------ ------ ------ ------ ------ ------
TOTAL CURRENT LIABILITIES 72,639 72,437 79,871 87,298 96,459 105,647
LONG-TERM CAP LEASE OBLIGATIONS 611 500 400 300 200 100
--- --- --- --- ---
OTHER NON-CURRENT LIABILITIES (318) (303) (275) (275) (275) (275)
---- ---- ---- ---- ----
HISTORIC CAPITAL 145,269 143,203 151,506 160,402 169,449 179,337
------- ------- ------- ------- ------- -------
TOTAL LIABILITIES & CAPITAL $ 218,201 215,837 231,502 247,725 265,833 284,810
---------
DIVIDENDS (CAPITAL) $ 7,450 $ 37,328 $ 44,778 $ 49,363 $ 54,648 $ 60,546 $ 66,166
--------- --------- --------- --------- --------- ---------
CAPITAL EXPENDITURES $ 2,472 $ 2,300 $ 4,772 $ 5,010 $ 5,200 $ 5,225 $ 5,275
--------- --------- --------- --------- --------- ---------
NET TANGIBLE ASSETS $ 144,938 $ 142,864 $ 151,199 $ 160,097 $ 169,145 $ 179,034
--------- --------- --------- --------- --------- ---------
</TABLE>
* INCLUDES INTERCOMPANY SALES FOR ALL YEARS.
(1) INCLUDES INTERCOMPANY SALES OF APPROXIMATELY $1,500.
<PAGE>
COMPANY NAME : Existing Operations Including RISK
(dollars in thousands)
<TABLE>
<CAPTION>
5 MONTHS 7 MONTHS
-------- --------
ACTUAL ACTUAL ACTUAL ACTUAL PROJ PROJ PROJ
FINANCIAL STATISTICS 1992 1993 1994 1995 1996 1997 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SALES GROWTH, % N/A 8.46% 13.88% 8.35% 8.26% N/A N/A
EBIT GROWTH, % N/A 3.30% 23.19% -0.85% 3.90% N/A N/A
GROSS PROFIT, % 41.69% 40.90% 40.80% 40.69% 40.47% 40.29% 40.82%
OPERATING EXPENSE, % OF SALES 33.63% 33.03% 32.44% 32.98% 33.14% 33.60% 32.42%
OPERATING PROFIT, % OF SALES 8.10% 7.90% 8.38% 7.73% 7.38% 6.73% 8.44%
ACCOUNTS RECEIVABLE DAYS 43.7 42.7 43.6 44.6 44.4 45.6 43.6
INVENTORY TURNS 4.16 4.04 4.10 3.73 3.88 3.63 3.94
ACCOUNTS PAYABLE DAYS 46.2 44.9 42.3 39.2 43.1 44.1 43.4
ACCRUED EXPENSES, % OF SALES 2.77% 2.72% 3.10% 2.88% 2.68% 2.75% 2.93%
RETURN ON NET TANGIBLE ASSETS, % 38.08% 38.82% 46.49% 42.67% 37.34% 32.16% 42.01%
DIVIDENDS, % OF PRE-TAX INCOME 104.98% 90.85% 71.82% 70.95% 82.45% 39.86% 105.86%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
UNALLOCATED RISK ADJUSTMENT EXPENSE RESERVE ($M) INPUT 0 0 -- -- --
HISTORICAL NON-CASH CHARGES
(INCLUDED IN OPERATING EXPENSE):
DEPRECIATION EXPENSE $3,040 $2,998 $2,719 $3,074 $3,250 $1,608 $2,010
AMORTIZATION EXPENSE -- (32) 25 28 9 29 (23)
------ ------ ------ ------ ------ ------ ------
TOTAL NON-CASH CHARGES $3,040 $2,966 $2,744 $3,102 $3,259 $1,637 $1,987
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
PROJ PROJ PROJ PROJ PROJ
FINANCIAL STATISTICS 1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SALES GROWTH, % 8.45%* 8.60% 8.57% 8.56% 8.63%
EBIT GROWTH, % 13.98% 7.71% 10.28% 9.72% 9.57%
GROSS PROFIT, % 40.61% 40.16% 39.92% 39.78% 39.60%
OPERATING EXPENSE, % OF SALES 32.90% 32.51% 32.14% 31.92% 31.67%
OPERATING PROFIT, % OF SALES 7.75% 7.69% 7.81% 7.90% 7.97%
ACCOUNTS RECEIVABLE DAYS 44.7 44.5 44.0 44.0 44.0
INVENTORY TURNS 3.86 3.96 4.04 4.12 4.22
ACCOUNTS PAYABLE DAYS 42.8 43.7 44.0 44.5 45.0
ACCRUED EXPENSES, % OF SALES 3.00% 3.00% 3.00% 3.10% 3.10%
RETURN ON NET TANGIBLE ASSETS, % 38.97% 39.22% 40.83% 42.27% 43.69%
DIVIDENDS, % OF PRE-TAX INCOME 83.00% 85.60% 86.00% 87.00% 87.00%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
UNALLOCATED RISK ADJUSTMENT EXPENSE RESERVE ($M) INPUT 6,431 10,095 12,730 13,884 15,196
HISTORICAL NON-CASH CHARGES
(INCLUDED IN OPERATING EXPENSE):
DEPRECIATION EXPENSE $3,618 $3,965 $4,160 $4,325 $4,510
AMORTIZATION EXPENSE 6 3 2 1 1
------ ------ ------ ------ ------
TOTAL NON-CASH CHARGES $3,624 $3,968 $4,162 $4,326 $4,511
</TABLE>
* BASED ON 1996 SALES OF $650,791 INCLUDING INTERCOMPANY SALES OF
APPROXIMATELY $1,500.
SALES GROWTH OF 8.7% EXCLUDING INTERCOMPANY SALES.
<PAGE>
REFINANCING
PROJECTION
RECONCILIATION OF REFINANCING
PROJECTION EBITDA
(dollars in millions)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EBIT FROM OPERATIONS - REFINANCING PROJECTION 1996 1997 1998 1999 2000 2001
---------------------------------------------------------------------
-----
<S> <C> <C> <C> <C> <C> <C>
exhibit 17(g)(4) $ 48.3 $ 56.3 $ 64.3 $ 72.6 $ 80.2 $ 88.5
DEPRECIATION FROM OPERATIONS exhibit 17(g)(4) 3.3 3.6 4.0 4.2 4.3 4.5
---------------------------------------------------------------------
EBITDA FROM OPERATIONS exhibit 17(g)(4) 51.6 59.9 68.3 76.8 84.5 93.0
CORPORATE SG&A EXPENSE [see below] (8.9) (10.5) (10.1) (10.6) (11.1) (11.7)
OTHER EXPENSE ITEMS, NET (1.3) (1.5) (1.7) (1.7) (1.8) (1.8)
---------------------------------------------------------------------
EBITDA - REFINANCING PROJECTION $ 41.4 $ 47.9 $ 56.5 $ 64.5 $ 71.6 $ 79.5
- ----------------------------------------------------------------------------------------------------------------------------
CORPORATE SG&A EXPENSE 1996 1997 1998 1999 2000 2001
---------------------------------------------------------------------
DEFERRED COMPENSATION $ 1.1 $ 2.6 $ 1.7 $ 1.8 $ 1.9 $ 2.0
INSURANCE, NET 0.5 0.6 0.6 0.6 0.6 0.7
COMPENSATION EXPENSE 2.8 2.6 2.7 2.8 3.0 3.1
DEPRECIATION EXPENSE 0.0 0.0 0.0 0.0 0.0 0.0
ALL OTHER ADMINISTRATIVE COSTS 4.5 4.8 5.1 5.3 5.6 5.9
---------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSE $ 8.9 $ 10.5 $ 10.1 $ 10.6 $ 11.1 $ 11.7
=====================================================================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
COMPANY NAME: CONSOLIDATED SUNSOURCE
(dollars in thousands)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL
HISTORICAL INCOME STATEMENT: 1992 1993 1994 1995 1996
- ----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SALES* $449,185 $487,175 $554,819 $601,152 $650,791(1)
----------- ----------- ----------- ----------- -----------
GROSS PROFIT 187,281 199,254 226,382 244,617 263,362
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES 151,042 160,909 179,989 198,251 215,643
----------- ----------- ----------- ----------- -----------
COMMISSION INCOME 126 126 106 117 290
----------- ----------- ----------- ----------- -----------
OPERATING INCOME 36,365 38,471 46,499 46,483 48,009
OTHER INCOME (EXPENSE) 445 (448) 342 (38) 248
----------- ----------- ----------- ----------- -----------
EBIT 36,810 38,023 46,841 46,445 48,257
INTEREST EXPENSE (INCOME) 164 71 96 37 59
MGT. FEE EXPENSES (INCOME) 270 256 294 378 434
FEDERAL & STATE INCOME TAXES 0 0 0 0 0
FOREIGN INCOME TAXES 519 388 569 639 603
NET INCOME (HISTORICAL PRE-TAX) 35,857 37,308 45,882 45,391 47,161
DEPRECIATION EXPENSE 3,040 2,998 2,719 3,074 3,250
----------- ----------- ----------- ----------- -----------
NET CASH FROM OPERATIONS 38,897 40,306 48,601 48,465 50,411
HISTORICAL BALANCE SHEET:
- -------------------------
CASH 86 (328) 1,663 (144) 1,077
ACCOUNTS RECEIVABLE, NET 53,794 56,971 66,299 73,451 79,207
INVENTORY 62,960 71,199 80,092 95,488 99,967
OTHER CURRENT ASSETS 2,717 3,678 2,868 3,308 3,704
----------- ----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 119,558 131,519 150,922 172,103 183,955
FIXED ASSETS, NET 13,774 13,571 13,650 14,089 15,742
INTANGIBLE ASSETS 71 103 78 50 41
OTHER ASSETS 334 377 212 129 196
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 133,737 145,571 164,862 186,372 199,934
ACCOUNTS PAYABLE 27,893 36,088 39,191 41,624 46,279
NOTES PAYABLE & CURRENT DEBT 2,206 2,914 2,027 1,966 1,854
ACCRUED EXPENSES 12,447 13,263 17,208 17,333 17,456
----------- ----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 42,546 52,265 58,426 60,923 65,588
LONG-TERM CAP LEASE OBLIGATIONS 106 68 0 0 611
----------- ----------- ----------- ----------- -----------
OTHER NON-CURRENT LIABILITIES 209 121 (75) (307) (295)
----------- ----------- ----------- ----------- -----------
HISTORIC CAPITAL 90,877 93,117 106,511 125,755 134,030
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES & CAPITAL 133,737 145,571 164,862 186,372 199,934
DIVIDENDS (CAPITAL) $ 37,532 $ 33,479 $ 32,952 $ 31,663 $ 38,886
----------- ----------- ----------- ----------- -----------
CAPITAL EXPENDITURES $ 2,089 $ 2,906 $ 2,895 $ 3,150 $ 4,829
----------- ----------- ----------- ----------- -----------
NET TANGIBLE ASSETS $ 90,928 $ 93,463 $104,695 $125,542 $132,617
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
========P R O J E C T I O N========
HISTORICAL INCOME STATEMENT: 1997 1998 1999 2000 2001
- ----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SALES* $737,834 $809,677 $881,401 $953,221 $1,030,868
----------- ----------- ----------- ----------- -----------
GROSS PROFIT 299,663 325,152 351,862 379,166 408,254
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES 243,938 261,480 279,899 299,635 320,483
----------- ----------- ----------- ----------- -----------
COMMISSION INCOME 280 295 315 335 350
----------- ----------- ----------- ----------- -----------
OPERATING INCOME 56,005 63,967 72,278 79,866 88,120
OTHER INCOME (EXPENSE) 280 320 335 350 365
----------- ----------- ----------- ----------- -----------
EBIT 56,285 64,287 72,613 80,216 88,485
INTEREST EXPENSE (INCOME) 0 25 25 25 25
MGT. FEE EXPENSES (INCOME) 420 420 420 420 420
FEDERAL & STATE INCOME TAXES 0 0 0 0 0
FOREIGN INCOME TAXES 633 1,131 1,343 1,646 2,040
NET INCOME (HISTORICAL PRE-TAX) 55,232 62,711 70,825 78,125 86,001
DEPRECIATION EXPENSE 3,618 3,965 4,160 4,325 4,510
----------- ----------- ----------- ----------- -----------
NET CASH FROM OPERATIONS 58,850 66,676 74,985 82,450 90,511
HISTORICAL BALANCE SHEET:
- -------------------------
CASH 0 0 0 0 0
ACCOUNTS RECEIVABLE, NET 90,671 98,678 106,188 114,333 123,110
INVENTORY 108,250 119,160 129,103 138,146 148,287
OTHER CURRENT ASSETS 3,767 4,075 4,385 4,640 4,910
----------- ----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 202,688 221,912 239,676 257,119 276,307
FIXED ASSETS, NET 16,937 17,982 19,022 19,922 20,687
INTANGIBLE ASSETS 35 32 30 29 28
OTHER ASSETS 165 200 225 245 280
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 219,825 240,126 258,953 277,315 297,302
ACCOUNTS PAYABLE 54,567 61,392 67,128 72,700 79,079
NOTES PAYABLE & CURRENT DEBT 1,099 1,099 1,099 1,099 1,099
ACCRUED EXPENSES 22,142 25,027 27,372 29,601 31,932
----------- ----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 77,809 87,518 95,599 103,400 112,110
LONG-TERM CAP LEASE OBLIGATIONS 500 400 300 200 100
----------- ----------- ----------- ----------- -----------
OTHER NON-CURRENT LIABILITIES (303) (275) (275) (275) (275)
----------- ----------- ----------- ----------- -----------
HISTORIC CAPITAL 141,820 152,483 163,329 173,990 185,366
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES & CAPITAL 219,826 240,126 258,953 277,315 297,302
DIVIDENDS (CAPITAL) $ 47,442 $ 52,048 $ 59,980 $ 67,463 $ 74,625
----------- ----------- ----------- ----------- -----------
CAPITAL EXPENDITURES $ 4,772 $ 5,010 $ 5,200 $ 5,225 $ 5,275
----------- ----------- ----------- ----------- -----------
NET TANGIBLE ASSETS $141,481 $152,176 $163,024 $173,686 $ 185,063
----------- ----------- ----------- ----------- -----------
</TABLE>
* INCLUDES INTERCOMPANY SALES FOR ALL YEARS
(1) INCLUDES INTERCOMPANY SALES OF APPROXIMATELY $1,500.
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
REFINANCING
PROJECTION
NO OF MTHS IN
STUB PERIOD ALLOCATION 4.00000
-------------------------
INPUT CALCULATE STUB PERIOD
HISTORICAL INCOME STATEMENT: 4 MONTHS 8 MONTHS TOTAL
- ---------------------------- --------------------------------------
SALES* $237,499 500,335 $737,834
--------- ---------
GROSS PROFIT 95,370 204,293 299,663
OPERATING EXPENSES 79,911 164,027 243,938
COMMISSION INCOME 83 197 280
OPERATING INCOME 15,542 40,463 56,005
------ ------
OTHER INCOME (EXPENSE) 116 164 280
EBIT 15,658 40,627 56,285
------
INTEREST EXPENSE (INCOME) (2) 2 --
MGT. FEE EXPENSES (INCOME) 140 280 420
FEDERAL & STATE INCOME TAXES 0 -- --
FOREIGN INCOME TAXES 160 473 633
NET INCOME (HISTORICAL PRE-TAX) 15,360 39,872 55,232
------ ------
DEPRECIATION EXPENSE 1,214 2,404 3,618
NET CASH FROM OPERATIONS $ 16,573 42,277 $ 58,850
--------- ---------
HISTORICAL BALANCE SHEET:
- -------------------------
CASH $ 0
ACCOUNTS RECEIVABLE, NET 90,586
INVENTORY 111,350
OTHER CURRENT ASSETS 3,972
-----
TOTAL CURRENT ASSETS 205,908
FIXED ASSETS, NET 16,353
INTANGIBLE ASSETS 12
OTHER ASSETS 85
TOTAL ASSETS $ 222,358
---------
ACCOUNTS PAYABLE 55,673
NOTES PAYABLE & CURRENT DEBT 1,099
ACCRUED EXPENSES 18,725
------
TOTAL CURRENT LIABILITIES 75,497
LONG-TERM CAP LEASE OBLIGATIONS 611
OTHER NON-CURRENT LIABILITIES (318)
HISTORIC CAPITAL 146,567
-------
TOTAL LIABILITIES & CAPITAL $ 222,358
---------
DIVIDENDS (CAPITAL) $ 2,822 44,620 47,442
CAPITAL EXPENDITURES $ 1,824 2,948 4,772
NET TANGIBLE ASSETS $ 146,237
---------
<PAGE>
COMPANY NAME : CONSOLIDATED SUNSOURCE
(dollars in thousands)
================================================================================
<TABLE>
<CAPTION>
ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
FINANCIAL STATISTICS:
- ---------------------
<S> <C> <C> <C> <C> <C>
SALES GROWTH, % N/A 8.5% 13.9% 8.4% 8.3%
EBIT GROWTH, % N/A 3.3% 23.2% -0.8% 3.9%
GROSS PROFIT, % 41.7% 40.9% 40.8% 40.7% 40.5%
OPERATING EXPENSE, % OF SALES 33.6% 33.0% 32.4% 33.0% 33.1%
OPERATING PROFIT, % OF SALES 8.1% 7.9% 8.4% 7.7% 7.4%
ACCOUNTS RECEIVABLE DAYS 43.7 42.7 43.6 44.6 44.4
INVENTORY TURNS 4.16 4.04 4.10 3.73 3.88
ACCOUNTS PAYABLE DAYS 38.9 45.7 43.6 42.6 43.6
ACCRUED EXPENSES, % OF SALES 2.8% 2.7% 3.1% 2.9% 2.7%
RETURN ON NET TANGIBLE ASSETS, % 0.0% 40.5% 46.3% 39.4% 36.5%
DIVIDENDS, % OF PRE-TAX INCOME 104.7% 89.7% 71.8% 69.8% 82.5%
EBITA $36,810 $38,055 $46,816 $46,417 $48,248
------- ------- ------- ------- -------
EBITDA * $39,850 $41,053 $49,535 $49,491 $51,498
------- ------- ------- ------- -------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
===========P R O J E C T I O N===========
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FINANCIAL STATISTICS:
- ---------------------
SALES GROWTH, % 13.4% 9.7% 8.9% 8.1% 8.1%
EBIT GROWTH, % 16.6% 14.2% 13.0% 10.5% 10.3%
GROSS PROFIT, % 40.6% 40.2% 39.9% 39.8% 39.6%
OPERATING EXPENSE, % OF SALES 33.1% 32.3% 31.8% 31.4% 31.1%
OPERATING PROFIT, % OF SALES 7.6% 7.9% 8.2% 8.4% 8.5%
ACCOUNTS RECEIVABLE DAYS 44.9 44.5 44.0 43.8 43.6
INVENTORY TURNS 4.05 4.07 4.10 4.16 4.20
ACCOUNTS PAYABLE DAYS 45.5 46.2 46.3 46.2 46.4
ACCRUED EXPENSES, % OF SALES 3.0% 3.1% 3.1% 3.1% 3.1%
RETURN ON NET TANGIBLE ASSETS, % 40.3% 42.7% 44.9% 46.4% 47.9%
DIVIDENDS, % OF PRE-TAX INCOME 85.9% 83.0% 84.7% 86.4% 86.8%
EBITA $56,279 $64,284 $72,611 $80,215 $88,484
------- ------- ------- ------- -------
EBITDA * $59,897 $68,249 $76,771 $84,540 $92,994
------- ------- ------- ------- -------
</TABLE>
* EXCLUDES CORPORATE SG&A EXPENSES AND OTHER EXPENSE ITEMS.
REFINANCING
PROJECTION
NO OF MTHS IN
STUB PERIOD ALLOCATION 4.00000
---------------------
INPUT CALCULATE STUB PERIOD
4 MONTHS 8 MONTHS TOTAL
----------------------------------
FINANCIAL STATISTICS:
- ---------------------
SALES GROWTH, % N/A
EBIT GROWTH, % N/A
GROSS PROFIT, % 40.2% 40.8%
OPERATING EXPENSE, % OF SALES 33.6% 32.8%
OPERATING PROFIT, % OF SALES 6.5% 8.1%
ACCOUNTS RECEIVABLE DAYS 45.8
INVENTORY TURNS 3.83
ACCOUNTS PAYABLE DAYS 47.0
ACCRUED EXPENSES, % OF SALES 2.6%
RETURN ON NET TANGIBLE ASSETS, % 33.0%
DIVIDENDS, % OF PRE-TAX INCOME 18.4% 111.9% 85.9%
EBITA $15,629 40,650 56,279
-------
EBITDA * $16,842 43,055 59,897
-------
