Form: 8-K

Current report filing

April 24, 2000

Documents

8-K: Current report filing

Published on April 24, 2000



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934


Date of report (Date of earliest event reported): April 7, 2000
-------------

SUNSOURCE INC.
-------------------------------
(Exact Name of Registrant Specified in Charter)


Delaware 1-13293 23-2874736
----------------- --------------------- --------------
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)


3000 One Logan Square
Philadelphia, PA 19103
------------------------------------ --------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (215) 282-1290
--------------

-------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)



Page 1 of 10
Exhibit Index on Page 10
Item 2. Acquisition or Disposition of Assets.

Acquisition of Axxess Technologies, Inc.
- ----------------------------------------

On April 7, 2000, the Company completed the acquisition of Axxess Technologies,
Inc. ("Axxess") pursuant to a certain Amended and Restated Agreement and Plan of
Merger dated as of April 7, 2000 entered into by and among SunSource Inc., The
Hillman Group, Inc., The Hillman Group Acquisition Corp., Axxess and certain
securityholders of Axxess (the "Axxess Merger Agreement").

Pursuant to the Axxess Merger Agreement, The Hillman Group Acquisition Corp., an
indirect wholly owned subsidiary of the Company, was merged with and into
Axxess, with Axxess as the surviving corporation in the merger. In the merger,
the outstanding securities of Axxess were converted into the right to receive
aggregate consideration in the amount of $110 million, less the total debt of
Axxess outstanding on the closing date, and less certain transaction expenses. A
portion of such consideration was paid by issuance of subordinated promissory
notes to the securityholders of Axxess in the aggregate principal amount of $23
million, which notes were guaranteed by the Company. The balance of such
consideration was paid in cash. The cash portion of the merger consideration was
borrowed by the company under its existing revolving credit facility with PNC
Bank, National Association, as agent and certain other lenders party thereto.
Following the completion of the merger, Axxess became a wholly owned subsidiary
of The Hillman Group, Inc., an indirect wholly owned subsidiary of the Company.
The relative amount of consideration paid by the Company was determined by the
parties in arms-length negotiations.

Sale of Assets of Harding Glass, Inc.
- -------------------------------------

On April 13, 2000, the Company completed the sale of all of the business and
related assets of Harding Glass, Inc. pursuant to a certain Asset Purchase
Agreement dated as of April 12, 2000 entered into by and among VVP America,
Inc., VVP America Acquisition, L.L.C., SunSource Inc., Harding Glass, Inc. and
SunSub A Inc. (the "Harding Purchase Agreement").

Pursuant to the Harding Purchase Agreement, Harding Glass, Inc., an indirect
wholly owned subsidiary of the Company, sold its business and related assets to
VVP America Acquisition, L.L.C., for a cash purchase price in the amount of
approximately $31.5 million. The relative amount of consideration paid under the
Harding Purchase Agreement was determined by the parties in arms-length
negotiations.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------

(a) Financial Statements of Business Acquired. To be filed by amendment
not later than 60 days after the date this report was required to be
filed.

(b) Pro forma Financial Information.
-------------------------------

(c) Exhibits.
--------


Exhibit No. Description of Document
----------- -----------------------

2.1 Amended and Restated Agreement and Plan of Merger dated
as of April 7, 2000 among SunSource Inc., The Hillman
Group, Inc., The Hillman Group Acquisition Corp., Axxess
Technologies, Inc. ("Axxess")and certain securityholders
of Axxess.
2.2 Asset Purchase Agreement dated as of April 12, 2000, among
VVP America, Inc., VVP America Acquisition, L.L.C.,
SunSource Inc., SunSource Investment Company, Inc.,
Harding Glass, Inc. and SunSub A Inc.
99.1 Press Release dated April 7, 2000 (Axxess)
99.2 Press Release dated April 13, 2000 (Harding)










Page 2 of 10







SUNSOURCE INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

INTRODUCTION


This Form 8-K is being filed for the following transactions:

The Kar Transaction
- -------------------
On March 2, 2000, SunSource Inc. (the "Company") completed a transaction with GC
Sun Holdings, L.P. (the "Partnership"), a newly-formed partnership affiliated
with Glencoe Capital, L.L.C. ("Glencoe") of Chicago, a private equity investment
firm, pursuant to a contribution agreement among the parties (the "Contribution
Agreement").

Pursuant to the Contribution Agreement, the Company, through certain of its
wholly owned subsidiaries, contributed all of the interests of its Kar Products
Inc. subsidiary and it's A & H Bolt & Nut Company Limited subsidiary (the
"Contributed Entities") to the Partnership in exchange for an aggregate 49%
interest in the Partnership. Affiliates of Glencoe, together with certain other
investors, contributed $22.5 million in cash in exchange for an aggregate 51%
interest in the Partnership. In addition, the Partnership repaid certain
intercompany indebtedness in the amount of $105 million owed to the Company. The
transactions outlined above are referred to as the "Kar Transaction".

Acquisition of Axxess Technologies, Inc.
- ----------------------------------------
On October 27, 1999, the Company signed a definitive merger agreement to acquire
Axxess Technologies, Inc. of Tempe, Arizona, a manufacturer and marketer of key
duplication and identification systems ("Axxess"). The merger agreement with
Axxess was amended and restated on April 7, 2000. On April 7, 2000, the Company
completed the Axxess acquisition which was structured as a purchase of 100% of
the stock of Axxess and repayment of its outstanding debt in exchange for $87
million in cash and $23 million in subordinated notes.

Sale of Harding Glass, Inc.
- ---------------------------
On January 10, 2000, VVP America, Inc. ("VVP") signed a letter of intent to
purchase the Company's Harding Glass, Inc. subsidiary ("Harding Glass"). On
April 13, 2000, the Company completed the sale of substantially all of the
assets of Harding Glass plus the assumption of certain liabilities aggregating
$11.6 million, by VVP for a cash purchase price of approximately $31.5 million
subject to certain post closing adjustments.

General
- -------
The accompanying pro forma consolidated balance sheet and pro forma consolidated
statement of income give effect to all of the transactions noted above
(collectively, the "Transactions").

The pro forma financial information is unaudited and assumes that the
Transactions for which pro forma effects are shown occurred as of December 31,
1999 for the pro forma consolidated balance sheet and as of January 1, 1999 for
the pro forma consolidated statement of income (the "Pro Forma Consolidated
Financial Information").

The Pro Forma Consolidated Financial Information presented herein is not
necessarily indicative of what the financial position or results of operations
would have been had the Transactions occurred on those dates, nor are they
necessarily indicative of the future results of operations of the Company.
Management believes the pro forma adjustments reflected in the accompanying
consolidated balance sheet and consolidated statement of income give effect to
all material changes arising from the Transactions. The pro forma adjustments
are preliminary and subject to post-closing adjustments related to the
Transactions and changes in estimated fair market values of the purchased
assets. The Pro Forma Consolidated Financial Information should be read in
conjunction with the historical consolidated financial information and related
notes included in the Company's report on Form 10-K for the year ended December
31, 1999 and report on Form 8K dated March 2, 2000.

Page 3 of 10

SUNSOURCE INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(UNAUDITED)
(dollars in thousands)



Divestment
Contributed Axxess of Harding
Entities Acquisition Glass Pro Forma
ASSETS Historical (a) (b) (c) Adjustments Pro Forma
--------- --------- --------- --------- ----------- ---------
Current assets:

Cash and cash equivalents $ 5,186 $ (2,502) $ 1,829 $ -- $ -- $ 4,513
Accounts receivable, net 65,141 (17,475) 8,426 -- -- 56,092
Inventories 92,691 (17,968) 13,889 -- 1,507(d) 90,119
Deferred income taxes 10,218 (1,085) 1,088 -- -- 10,221
Net assets held for sale 35,249 -- -- (35,249) -- --
Income taxes receivable 8,561 -- -- -- -- 8,561
Other current assets 5,226 (834) 679 -- -- 5,071
--------- --------- --------- --------- ----------- ---------
Total current assets 222,272 (39,864) 25,911 (35,249) 1,507 174,577
Property and equipment, net 17,282 (5,511) 52,024 -- 5,202(e) 68,997
Goodwill an other intangibles, net 52,404 (20,385) 58 -- 38,174(f) 70,251
Deferred financing fees 3,493 -- -- -- 1,500(g) 4,993
Deferred income taxes 5,865 (797) -- -- -- 5,068
Cash surrender value of life insurance policies 14,190 -- -- -- -- 14,190
Other assets 7,511 (246) 384 -- -- 7,649
--------- --------- --------- --------- ----------- ---------

Total assets $ 323,017 $ (66,803) $ 78,377 $ (35,249) $ 46,383 $ 345,725
========= ========= ========= ========= =========== =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable $ 44,358 $ (7,658) $ 7,605 $ -- $ -- $ 44,305
Notes payable 376 -- -- -- -- 376
Current portion of capitalized lease obligations 923 -- -- -- -- 923
Dividends / distributions payable 1,019 -- -- -- -- 1,019
Deferred tax liability 929 -- -- -- -- 929
Current portion of senior secured term loan 3,750 -- -- -- -- 3,750
Accrued expenses: --
Salaries and wages 5,343 (1,875) 912 -- -- 4,380
Income and other taxes 3,299 (1,013) -- -- -- 2,286
Accrued losses on discontinued operation 2,703 -- -- (2,703) -- --
Other accrued expenses 23,961 (3,740) 2,161 -- -- 22,382
--------- --------- --------- --------- ----------- ---------
Total current liabilities 86,661 (14,286) 10,678 (2,703) -- 80,350
Inter-company debt -- -- -- -- -- --
Senior notes -- -- -- -- -- --
Senior secured term loan 17,750 -- -- -- (4,000)(h) 13,750
Bank revolving credit 102,791 -- -- -- (28,666)(i) 74,125
Subordinated notes -- -- -- -- 11,000 (j) 11,000
Capitalized lease obligations 1,509 -- -- -- -- 1,509
Deferred compensation 14,173 -- -- -- -- 14,173
Deferred Income Taxes -- -- 976 -- -- 976
Other liabilities 2,148 (1,954) 406 -- -- 600
--------- --------- --------- --------- ----------- ---------
Total liabilities 225,032 (16,240) 12,060 (2,703) (21,666) 196,483
--------- --------- --------- --------- ----------- ---------

Guaranteed preferred beneficial interests in the
Company's junior subordinated debentures 115,200 -- -- -- -- 115,200
--------- --------- --------- --------- ----------- ---------

Commitments and contingencies

Stockholders' equity (deficit):
Preferred stock, $.01 par, 1,000,000 shares
authorized, none issued -- -- -- -- -- --
Common stock, $.01 par, 20,000,000 shares authorized, 72 -- -- -- -- 72
Additional paid-in capital 21,342 -- -- -- -- 21,342
Retained earnings (25,297) (51,889) 66,317 (32,546) 68,049 (k) 24,634
Unearned compensation (283) -- -- -- -- (283)
Accumulated other comprehensive income (4,344) 1,326 -- -- -- (3,018)
Treasury stock (8,705) -- -- -- -- (8,705)
--------- --------- --------- --------- ----------- ---------
Total stockholders' equity (deficit) (17,215) (50,563) 66,317 (32,546) 68,049 34,042
--------- --------- --------- --------- ----------- ---------

Total liabilities and stockholders'
equity (deficit) $ 323,017 $ (66,803) $ 78,377 $ (35,249) $ 46,383 $ 345,725
========= ========= ========= ========= =========== =========



SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL INFORMATION

Page 4 of 10
SUNSOURCE INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
(dollars in thousands, except for share amounts)


Contributed Axxess
Entities Acquisition Pro Forma
Historical (l) (m) Adjustments Pro Forma
---------- ---------- -------- ---------- ----------

Net sales $ 555,652 $(124,780) $82,132 $ - $ 513,004
Cost of sales 326,399 (38,576) 36,356 - 324,179
related to restructuring 2,130 - - - 2,130
---------- ---------- -------- ---------- ----------
Gross profit 227,123 (86,204) 45,776 - 186,695
---------- ---------- -------- ---------- ----------
Operating expenses:
Selling, general and administrative expenses 218,437 (67,291) 30,849 - 181,995
Depreciation 4,272 (1,060) 11,530 1,040 (n) 15,782
Amortization 1,847 (665) 7 954 (n) 2,143
---------- ---------- -------- ---------- ----------
Total operating expenses 224,556 (69,016) 42,386 1,995 199,921
---------- ---------- -------- ---------- ----------
Transaction and other related costs
Restructuring charges and asset write-off 8,118 (1,020) - - 7,098
Gain on curtailment of defined benefit
pension plan 5,608 - - - 5,608
Equity in earnings - - 2,520 (o) 2,520
Other income 685 (52) 507 1,140
---------- ---------- -------- ---------- ----------
Income from operations 742 (16,220) 3,897 525 (11,056)

Interest expense, net 9,724 6 - (829)(p) 8,901
Distributions on guaranteed preferred
beneficial interests 12,232 - - - 12,232
---------- ---------- -------- ---------- ----------
Income (loss) from continuing operations
before provision (benefit) for income taxes (21,214) (16,226) 3,897 1,353 (32,190)

Provision (benefit) for income taxes (10,100) (3,061)(q) (13,161)
---------- ---------- -------- ---------- ----------

Income (loss) from continuing operations (11,114) (16,226) 3,897 4,414 (19,029)
---------- ---------- -------- ---------- ----------
Basic and diluted income (loss) per common share:
Income (loss) from continuing operations $ (1.65) $ 0.65 $ (2.82)

Weighted average number of
outstanding common shares 6,747,142 6,747,142 6,747,142


SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL INFORMATION


Page 5 of 10

SUNSOURCE INC. AND SUBSIDIARIES

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(dollars in thousands)

1. Basis of Presentation

The Pro Forma Consolidated Financial Information is unaudited and
assumes that the Transactions for which the pro forma effects are shown
occurred as of December 31, 1999, for the pro forma consolidated
balance sheet and as of January 1, 1999, for the pro forma consolidated
statement of income.

The gain on divestment of Kar Products and other non-recurring charges
related to the Kar Transaction have been excluded from the accompanying
pro forma consolidated statement of income as such amounts do not
represent on-going income or costs of operations.

The loss on the sale of Harding Glass and results from its discontinued
operations have been excluded from the accompanying pro forma
consolidated statement of income as such amounts do not represent
on-going income or costs of operations.

2. Pro forma adjustments to consolidated balance sheet:

(a) Adjustment to reflect the elimination of historical assets and
liabilities of the Contributed Entities as of December 31, 1999.

(b) Adjustments to reflect purchased assets and liabilities of Axxess
as of December 31, 1999.

(c) Adjustment to reflect the sale of Harding Glass as of December
31, 1999.

(d) Adjustment to increase inventory of Axxess to fair market value
as of December 31, 1999, in accordance with Accounting Principles
Board #16, Accounting for Business Combinations ("APB #16").

(e) Adjustment to increase the property, plant and equipment of
Axxess to fair market value as of December 31, 1999, in
accordance with APB #16.

(f) Adjustment to reflect goodwill arising from the purchase of
Axxess as of December 31, 1999 in accordance with APB #16.

(g) Adjustment to reflect deferred financing fees incurred in
connection with the Axxess acquisition.

(h) Adjustment to reflect repayment of outstanding senior secured
term loan with net available proceeds from the Transactions.



Page 6 of 10




SUNSOURCE INC. AND SUBSIDIARIES, continued

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(dollars in thousands)


(i) Adjustment to reflect repayment of outstanding bank revolver
credit borrowing with net available proceeds from the
Transactions.

(j) Adjustment to reflect the issuance of $23 million subordinated
notes in connection with the Axxess acquisition net of a
repayment of $12 million. Interest on the $11 million
subordinated note ranges from prime plus 1% to prime plus 5% with
a maximum rate at any time of 15%. Interest is compounded
annually and payable upon maturity of the note. The principal
under the note shall be payable in seven equal quarterly
installments commencing the earlier of i) the first calendar
quarter after payment in full of the term loan extended by the
Company's senior lenders or ii) March 31, 2004.

(k) Adjustments to equity to reflect pro forma adjustments (d)
through (j) noted above.

3. Pro forma adjustments to consolidated statement of income
for the twelve months ended December 31, 1999:

(l) Adjustment to reflect elimination of the results of operations of
the Contributed Entities for the twelve months ended December 31,
1999.

(m) Adjustment to include the results of operations of Axxess for the
twelve months ended December 31, 1999.

(n) Adjustment to reflect APB #16 purchase accounting related to the
allocation of purchase price to goodwill and property, plant &
equipment in connection with the Axxess acquisition is as
follows:

Axxess Technologies Inc. Calculation of Purchase Price
------------------------------------------------------
Purchase price $110,000
Acquisition-related expenses of sale 1,200
--------
Total Purchase Price $111,200
========


Allocation of Total Purchase Price Amortization
Amortization Expense
Allocation Period Year Ended
Amount (in Months) Dec. 31, 1999
---------- ------------ -------------

Inventory $ 1,507 3 $1,507*
Property, plant
& equipment 5,202 60 1,040
Goodwill 38,174 480 954
Book Value of
Acquired net assets $ 66,317
--------
$111,200


*Excluded from Statement of Operations for the twelve months
ended December 31, 1999.







Page 7 of 10


SUNSOURCE INC. AND SUBSIDIARIES, continued

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(dollars in thousands)


(o) Adjustment to reflect the Company's 49% interest in the net
income of the Partnership for the twelve months ended December
31, 1999 incorporating historical earnings of the Contributed
Entities for the 1999 year adjusted for interest expense expected
to be incurred by the Partnership based on current effective
interest rates.

(p) Adjustment to reflect net decrease in interest expense resulting
from the Transactions based on current effective interest rates
as follows:

Increase (Decrease)
Transactions in Interest Expense
------------ -------------------
Proceeds from Kar Transaction $(8,680)
Funding of Axxess acquisition 11,273
Proceeds from sale of
Harding Glass (3,555)
--------
Net Decrease in Interest Expense $ (962)
========

(q) Adjustment to reflect additional consolidated net tax benefits as
a result of pro forma adjustments (l) through (p) noted above.
















Page 8 of 10







SIGNATURE
---------



Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


SUNSOURCE, INC.




Date: April 24, 2000 By: /s/ Joseph M. Corvino
---------------------------------
Joseph M. Corvino
Vice President- Finance and Chief
Financial Officer



Page 9 of 10



EXHIBIT INDEX
- -------------



EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------

2.1 Amended and Restated Agreement and Plan of Merger dated
as of April 7, 2000 among SunSource Inc., The Hillman Group,
Inc., The Hillman Group Acquisition Corp., Axxess Technologies,
Inc. ("Axxess")and certain securityholders of Axxess.
2.2 Asset Purchase Agreement dated as of April 12, 2000, among VVP
America, Inc., VVP America Acquisition, L.L.C., SunSource Inc.,
SunSource Investment Company, Inc., Harding Glass, Inc. and
SunSub A Inc.
99.1 Press Release dated April 7, 2000 (Axxess)
99.2 Press Release dated April 13, 2000 (Harding)

Page 10 of 10