STRATEGIC DISTRIBUTION INC, S-1/A, 1996-04-26

STRATEGIC DISTRIBUTION INC
S-1/A, 1996-04-26
MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996

REGISTRATION NO. 333-02393

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------

AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

-------------------

STRATEGIC DISTRIBUTION, INC.
(Exact name of registrant as specified in its charter)
-------------------

<TABLE>
<S> <C> <C>
DELAWARE 5085 22-1849240
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
</TABLE>

-------------------

12136 WEST BAYAUD, SUITE 320
LAKEWOOD, COLORADO 80228
(303) 234-1419
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------

THEODORE R. RIEPLE
PRESIDENT
STRATEGIC DISTRIBUTION, INC.
12136 WEST BAYAUD, SUITE 320
LAKEWOOD, COLORADO 80228
(303) 234-1419
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
COPIES TO:

NEIL NOVIKOFF, ESQ. STUART BRESSMAN, ESQ.
WILLKIE FARR & GALLAGHER ANDREWS & KURTH L.L.P.
ONE CITICORP CENTER 425 LEXINGTON AVENUE
153 EAST 53RD STREET NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10022 (212) 850-2800
(212) 821-8000
-------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
STRATEGIC DISTRIBUTION, INC.
CROSS REFERENCE SHEET

Cross-reference sheet furnished pursuant to Item 501(b) of Regulation S-K
showing location in the Prospectus of information required by Items of Form S-1.

<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN PROSPECTUS
---------------- ----------------------

<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page; Cross Reference Page; Outside
Front Cover Page

2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages;
Available Information

3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Investment
Considerations

4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds

5. Determination of Offering Price............ Not Applicable

6. Dilution................................... Not Applicable

7. Selling Security Holders................... Principal and Selling Stockholders

8. Plan of Distribution....................... Outside Front Cover Page; Underwriting

9. Description of Securities to be
Registered................................. Prospectus Summary; Description of Capital
Stock

10. Interests of Named Experts and Counsel..... Experts

11. Information with Respect to the
Registrant................................. Prospectus Summary; Investment
Considerations; Use of Proceeds; Dividend
Policy; Capitalization; Selected
Historical and Pro Forma Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Description of Capital Stock; Shares
Eligible for Future Sale; Legal Matters

12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED APRIL 26, 1996

[STRATEGIC DISTRIBUTION LOGO]
PROSPECTUS
, 1996

8,200,000 SHARES

STRATEGIC DISTRIBUTION, INC.

COMMON STOCK

Of the 8,200,000 shares (the "Shares") of common stock, par value $0.10 per
share (the "Common Stock"), offered hereby (the "Offering"), 7,000,000 shares
are being sold by Strategic Distribution, Inc. (the "Company") and 1,200,000
shares are being sold by certain stockholders of the Company. See "Principal and
Selling Stockholders." The Company will not receive any proceeds from the sale
of the Shares by such selling stockholders.

The Common Stock is listed on the Nasdaq National Market under the symbol
"STRD" . On April 25, 1996, the last reported sale price for the Common Stock as
reported by Nasdaq was $7 1/2 per share. See "Price Range of Common Stock."

SEE "INVESTMENT CONSIDERATIONS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO THE DISCOUNTS AND TO THE TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
Total(3).............. $ $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting expenses of the Offering estimated at $625,000, payable by
the Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,230,000 shares of Common Stock, on the same terms and conditions set
forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting."

The Shares are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the Shares will be made in New York, New
York on or about , 1996.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

SCHRODER WERTHEIM & CO.

HANIFEN, IMHOFF INC.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
TRADITIONAL DISTRIBUTION FLOW THE IN-PLANT STORE PROGRAM

MANUFACTURER MANUFACTURER
A A

MANUFACTURER MANUFACTURER MANUFACTUER MANUFACTURER
B C B C

DISTRIBUTOR DISTRIBUTOR

F A C I L I T Y F A C I L I T Y

PURCHASING
DEPARTMENT IN-PLANT STORE

SUB SUB
STOCKS STOCKS

USE USE USE USE USE USE
AREAS AREAS AREAS AREAS AREAS AREAS

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET SYSTEM
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

In-Plant Store is a registered servicemark of Strategic Distribution, Inc.
On-Site Store, Value Managed Supply, Value Management Study and ISACS are
servicemarks of Strategic Distribution, Inc.

2
<PAGE>
PROSPECTUS SUMMARY

The following is a summary of certain information contained elsewhere in
this Prospectus and is qualified in its entirety by the more detailed
information and financial statements, and notes thereto, contained elsewhere in
this Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. Prospective
investors are urged to read this Prospectus in its entirety. Unless otherwise
indicated, all information in this Prospectus gives effect to the three percent
(3%) Common Stock dividend paid on December 29, 1995 to stockholders of record
on December 18, 1995.

THE COMPANY

The Company provides proprietary industrial supply procurement solutions to
industrial sites, primarily through its In-Plant Store(R) program. The Company
sells a broad range of industrial supplies, which include maintenance, repair
and operations ("MRO") items, replacement parts and selected classes of
production materials. Industrial supplies are generally items which are low in
price, but are critical to the production process and have historically been
characterized by high procurement costs due to inherent inefficiencies in
traditional industrial supply distribution methods. The Company's In-Plant
Store(R) program, in which large industrial sites outsource the procurement of
industrial supplies to the Company, substantially eliminates these
inefficiencies by reducing both the process and product costs associated with
industrial supply procurement. The Company's In-Plant Store(R) program also
helps customers achieve operational improvements, such as reduced plant
down-time resulting from unavailable parts and manufacturing process
improvements due to better tracking of critical parts. The Company believes that
its In-Plant Store(R) program is superior to both traditional and other
alternative methods of industrial supply distribution.

The Company believes that increased recognition of the inefficiencies
associated with the traditional industrial supply distribution process has
rapidly increased the demand for the Company's In-Plant Store(R) program in
recent years. From January 1994 to April 1996, the number of In-Plant Store(R)
sites operated by the Company increased from 13 to 44. Twenty of these sites
were added from March 1995 to April 1996. In addition, the Company recently
announced the signing of an agreement with a single customer to implement eight
additional In-Plant Store(R) facilities during 1996.

The In-Plant Store(R) program is a comprehensive outsourcing service through
which the Company manages all aspects of industrial supply procurement at a
customer's industrial site. Prior to the implementation of an In-Plant Store(R),
the industrial site would typically obtain industrial supplies from as many as
500 traditional industrial distributors. Through the In-Plant Store(R) program,
the Company becomes responsible for servicing all of its customer's industrial
supply needs by establishing a dedicated, fully integrated store within the
customer's plant. The customer, in turn, purchases virtually all of its
industrial supplies from the In-Plant Store(R). The Company staffs the In-Plant
Store(R) with its own highly trained industrial procurement professionals,
installs proprietary software designed specifically for industrial procurement
and helps determine optimal inventory levels based on the supply needs of each
site. Upon implementation, the In-Plant Store(R) purchases, receives,
inventories and issues industrial supplies directly to plant personnel, delivers
ongoing technical support and provides the customer with a comprehensive invoice
twice per month thereby reducing the administrative burden of traditional
industrial supply. The In-Plant Store(R) generates system-wide savings generally
ranging from 15% to 25% of customers' annual industrial supply purchase costs.

3
<PAGE>

industrial supply procurement. The Company's In-Plant Store(R) customers span a
broad range of industries, including the automotive, chemicals, construction,
food processing, power generation and natural resource extraction industries,
and the In-Plant Store(R) program is suitable for virtually any industry that
uses industrial supplies. The Company's existing customers include Allied Signal
Inc., The Black and Decker Corporation, Bridgestone/Firestone, Inc., Onan
Corporation, Homelite Inc., Hoechst Celanese Corporation, NACCO Materials
Handling Group Inc. and Westinghouse Electric Corporation.

In addition to its In-Plant Store(R) program, the Company offers several
other proprietary industrial supply procurement solutions aimed at specific
types of customers. Through its Value Managed SupplySM program, the Company is
able to provide some of the features of the In-Plant Store(R) to customers which
are too small to support an In-Plant Store(R) or are not prepared to outsource
completely their industrial supply procurement. For industrial activities such
as construction projects and plant turnarounds, the Company offers its
proprietary On-Site StoreSM program in which customers temporarily outsource the
management of industrial supply procurement to the Company. The Company offers
its Value Managed SupplySM and On-Site StoreSM programs through its network of
branches which also provide traditional industrial supply services to customers
in markets that have historically been underserved by other industrial supply
distributors. The Company also offers other selected outsourcing services for
industrial customers, including the management of industrial laundry, process
control maintenance and plant logistics. The Company delivers the Value Managed
SupplySM program, the On-Site StoreSM program, other outsourcing services and
traditional distribution to over 19,000 customers through a network of 32
branches and ten sales and service offices located throughout the United States
and in Mexico.

The Company's principal executive offices are located at 12136 West Bayaud,
Suite 320, Lakewood, Colorado 80228, and the Company's telephone number is (303)
234-1419.

4
<PAGE>
THE OFFERING

<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company.......... 7,000,000 shares
Common Stock offered by the Selling
Stockholders................................. 1,200,000 shares(1)
Total.................................. 8,200,000 shares
Common Stock to be outstanding after the
Offering..................................... 28,765,957 shares(2)
Use of Proceeds.............................. To repay bank indebtedness, for working
capital, including the opening of In-Plant
Store(R) facilities, for general corporate
purposes and for the possible acquisition of
companies engaged in the business of
providing industrial supply services. See
"Use of Proceeds."
Nasdaq Symbol................................ STRD
</TABLE>

- ------------

(1) See "Principal and Selling Stockholders."

(2) Excludes (i) 2,976,093 shares of Common Stock at March 31, 1996 which were
reserved for issuance under the Company's 1990 Incentive Stock Option Plan
and certain other stock option agreements, 1,727,188 of which were subject
to currently exercisable options and 429,983 of which were subject to
options that were not currently exercisable, and (ii) warrants to purchase
38,625 shares of Common Stock outstanding at March 31, 1996. See Note 14 of
Notes to the Company's Financial Statements included elsewhere in this
Prospectus.

5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA

The following summary consolidated financial and operating data should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
of the Company and the other selected historical and pro forma consolidated
financial data set forth elsewhere in this Prospectus.

<TABLE><CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- -----------------------
PRO FORMA(1)
1993 1994 1995 1995 1995 1996
---------- ---------- ---------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $37,098 $77,613 $117,493 $120,265 $25,396 $33,316
Income (loss) from
continuing operations.... 202 2,235 1,004 429 540 (1,966)(2)
Income from discontinued
operations(3)............... 100 -- -- -- -- --
Net income (loss).......... 302 2,235 1,004 429 540 (1,966)(2)

PER SHARE DATA:
Primary:
Income (loss) from
continuing operations....... 0.02 0.13 0.05 0.02 0.02 (0.09)(2)
Income from discontinued
operations(3)............... -- -- -- -- -- --
Net income (loss)........ 0.02 0.13 0.05 0.02 0.02 (0.09)(2)
Fully diluted--
Net income (loss)........ 0.02 0.13 0.04 0.02 0.02 (0.09)(2)

AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING.... 12,684,911 16,993,971 21,689,653 21,689,653 21,661,222 21,740,823
OTHER DATA:
Number of operational
In-Plant Store(R)
facilities(4)............... -- 17 31 31 24 37
Number of In-Plant Store(R)
Customers(4)................ -- 12 21 21 14 23
Number of branches(4)...... 23 26 32 32 26 32
Revenues from In-Plant
Store(R) facilities...... -- $31,931 $ 53,895 $ 53,895 $ 11,126 $ 16,805
Revenues from
branches(5)................. $37,098 $45,682 $ 63,598 $ 66,370 $ 14,270 $ 16,511
</TABLE>

<TABLE><CAPTION>
MARCH 31, 1996
----------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(6)
------------ ------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $ 23,599 $19,650 $66,190
Total assets....................................... 48,051 48,881 95,421
Long-term debt obligations......................... 5,903 4,162 1,452
Stockholders' equity............................... 27,391 25,518 74,768
</TABLE>

- ------------
(1) Includes the applicable pro forma effect of adjustments in 1995 for the
acquisition of American Technical Services Group, Inc. ("ATSG") as if such
acquisition occurred on January 1 , 1995. See Pro Forma Statement of Income
for the year ended December 31, 1995 set forth in the Company's Financial
Statements included elsewhere in this Prospectus.

(2) Includes a restructuring charge of $920,000.

(3) Relates to the Company's discontinuance of its information services
business, which constituted the Company's business prior to July 1, 1990.

(4) As of the end of the period.

(5) Includes all revenues other than those from the Company's In-Plant Store(R)
program.

(6) Adjusted to give effect to the sale by the Company of the Shares offered by
the Company hereby (based upon an assumed offering price of $7.50 per share)
and the application of the net proceeds therefrom as described under "Use of
Proceeds."

6
<PAGE>
INVESTMENT CONSIDERATIONS

Each prospective investor should carefully consider all information
contained in this Prospectus and should give particular consideration to the
following factors before deciding to purchase the Shares offered hereby.

MANAGEMENT OF GROWTH

The Company plans substantial expansion in the number of In-Plant Store(R)
facilities which it operates. While the Company believes that there will be
significant demand for its In-Plant Store(R) program, there can be no assurance
that such program will be broadly accepted or that the rate of acceptance will
be consistent with the Company's operating strategy. The opening of a large
number of In-Plant Store(R) facilities will require the Company to hire and
train qualified personnel, to expand its management infrastructure and to invest
substantial amounts of capital. Although the Company has successfully opened 31
In-Plant Store(R) facilities since January 1994, there can be no assurance that
the Company will be able to open additional In-Plant Store(R) facilities, to
hire sufficient qualified personnel, to expand the required control systems or
to secure the capital necessary to accomplish its expansion plans. In addition,
the Company has added, and intends to continue to add, to its personnel in order
to prepare its administrative infrastructure to accommodate future growth. The
cost of such infrastructure is anticipated to depress earnings in the near term,
and if anticipated growth is not attained, future earnings may not be achieved.

The Company may also expand through acquisitions. Although the Company
evaluates business opportunities on a regular basis, there can be no assurance
that the Company will be successful in identifying suitable acquisition
candidates on acceptable terms. In addition, there can be no assurance that
acquired operations will be effectively and profitably integrated into the
Company or that any future acquisitions will not have a material adverse effect
on the Company's operating results, particularly during the period immediately
following such acquisition. Although the Company is continually evaluating
possible acquisitions, it is not currently engaged in any negotiations with
respect thereto.

TERMINATION OF CONTRACTS

The Company's customers generally may terminate the In-Plant Store(R)
agreement for any reason upon 90 days' prior written notice. The termination of
one or more significant contracts could have a material adverse effect on the
Company's operating results. See "Business--In Plant Store(R) Program-- The
In-Plant Store(R) Supply Agreement."

COMPETITION

The Company's business is highly competitive. The Company competes with a
wide variety of traditional industrial supply distributors in each of the
Company's geographic markets. Most of such distributors are small enterprises
selling to customers in a limited geographic area. The Company also competes
with several integrated direct mail suppliers and large warehouse stores, some
of which have significantly greater financial resources than the Company. The
primary areas of competition include price, breadth and quality of product lines
distributed, ability to fill orders promptly, technical knowledge of sales
personnel and, in certain product lines, service and repair capability. The
Company believes that its ability to compete effectively is dependent upon its
ability to deliver value-added procurement solutions to its customers through
its In-Plant Store(R), On-Site StoreSM and Value Managed SupplySM programs, to
respond to the needs of its customers through quality service and to be price-
competitive. The Company believes that other companies, some of which may have
greater resources than the Company, may develop and implement programs which
offer services similar to, and which compete with, the Company's In-Plant
Store(R) program. See "Business--Competition."

7
<PAGE>
DEPENDENCE ON KEY PERSONNEL

The Company's success depends largely on the efforts and abilities of
certain key management employees. The loss of the services of one or more of
such key personnel could have a material adverse effect on the Company's
business and financial results.

CONTROL BY PRINCIPAL STOCKHOLDERS

Following the Offering, the officers and directors of the Company will
beneficially own in the aggregate approximately 34.9% of the outstanding shares
of Common Stock (approximately 33.5% if the Underwriters' over-allotment option
is exercised in full). Because of such share ownership, these stockholders will
continue to have a significant influence on the election of members of the
Company's Board of Directors and the determination of other corporate actions.
See "Principal and Selling Stockholders."

DIVIDEND POLICY

The Company intends to retain its earnings, if any, for use in the
development and expansion of its business and does not presently intend to pay
cash dividends to the holders of Common Stock. Payment of dividends is within
the sole discretion of the Board of Directors and subject to certain limitations
imposed by Delaware law. In addition, the Company's bank credit agreement limits
the Company's ability to pay cash dividends to its stockholders. See "Dividend
Policy."

SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL FOR ADVERSE EFFECT ON STOCK PRICE

Sales of substantial amounts of Common Stock in the public market following
the Offering could have an adverse effect on the market price of the Common
Stock. Of the 28,765,957 shares of Common Stock to be outstanding after the
Offering, the Company estimates that 16,017,444 shares, including the 8,200,000
shares of Common Stock to be sold in the Offering, will be freely tradeable
without restriction and 12,748,513 shares of Common Stock will be eligible for
sale pursuant to the provisions of Rule 144 under the Securities Act. See
"Shares Eligible for Future Sale" and "Underwriting."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 7,000,000 shares of
Common Stock offered hereby by the Company (based upon an assumed offering price
of $7.50 per share and after payment of underwriting discounts and commissions
and estimated expenses of the Offering) are estimated to be $49,250,000
($58,013,750 if the Underwriters' over-allotment option is exercised in full).

The net proceeds to the Company from the Offering will be used to repay bank
indebtedness, for working capital, including the opening of In-Plant Store(R)
facilities, for general corporate purposes and for the possible acquisition of
companies engaged in the business of providing industrial supply services. On
March 31, 1996, approximately $2.7 million was borrowed, at the prime rate
(8.25%), under the Company's bank credit agreement. The credit facility expires
on January 31, 2000. Although the Company is continually evaluating possible
acquisitions, it is not currently engaged in any negotiations with respect
thereto.

Pending application of the proceeds as described above, the Company intends
to invest such proceeds in short-term interest-bearing securities. The Company
will not receive any proceeds from the sale of shares of Common Stock by the
Selling Stockholders.

DIVIDEND POLICY

The Company has paid no cash dividends on its Common Stock during the fiscal
years ended December 31, 1994 and December 31, 1995 and presently does not
intend to declare any cash dividends on the Common Stock in the foreseeable
future. The payment of cash dividends in the future will depend on the Company's
earnings, financial condition and capital needs and on other factors deemed
relevant by the Board of Directors. It is the current policy of the Board of
Directors to retain earnings to finance the operations and expansion of the
Company's business. The Company's bank credit agreement restricts the Company's
ability to pay cash dividends to its stockholders.

8
<PAGE>
CAPITALIZATION

The following table sets forth as of March 31, 1996 (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted for the sale by the Company of 7,000,000 shares of Common Stock offered
hereby based upon an assumed offering price of $7.50 per share and the
application of the net proceeds thereof as described under "Use of Proceeds."

MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
Current portion of long-term debt................ $ 147 $ 147
------- -----------
------- -----------
Long-term obligations:
Note payable................................... $ 2,710 $ --
Long-term debt................................. 1,452 1,452
------- -----------
Total long-term obligations.................. 4,162 1,452
------- -----------
Stockholders' equity:
Preferred stock, par value $0.10 per share.
Authorized: 500,000 shares; issued and
outstanding: none................................ -- --
Common stock, par value $0.10 per share.
Authorized: 25,000,000 shares(1); 21,765,957
shares issued and outstanding; 28,765,957
shares issued and outstanding as
adjusted(2)...................................... 2,177 2,877
Additional paid-in capital....................... 33,949 82,499
Accumulated deficit.............................. (10,558) (10,558)
Note receivable from sale of stock............... (50) (50)
------- -----------
Total stockholders' equity................... 25,518 74,768
------- -----------
Total capitalization......................... $29,680 $ 76,220
------- -----------
------- -----------

- ------------

(1) Authorized Common Stock does not give effect to the amendment to the
Company's Restated Certificate of Incorporation which increased the
authorized Common Stock from 25,000,000 shares to 50,000,000 shares and
which became effective on April 8, 1996.

9
<PAGE>
PRICE RANGE OF COMMON STOCK

The Common Stock is quoted on the Nasdaq National Market ("NNM") under the
symbol "STRD". Prior to October 6, 1994, the Common Stock traded on the Nasdaq
SmallCap Market. Prior to March 16, 1994, the Common Stock was not regularly
quoted on any national market quotation system.

The following table sets forth the high and low sale prices of the Common
Stock on the NNM or the Nasdaq SmallCap Market, as the case may be, in 1994 and
1995 for the periods indicated. These prices have not been adjusted to reflect
the three percent (3%) Common Stock dividend paid on December 29, 1995 to
stockholders of record on December 18, 1995.

<TABLE>
<CAPTION>
HIGH LOW
---------------- ----------------
<S> <C> <C>
Fiscal Year Ended December 31, 1994:
First Quarter........................................... $ 5 1/4 $ 3 3/4
Second Quarter.......................................... 5 3 3/4
Third Quarter........................................... 5 3 3/4
Fourth Quarter.......................................... 5 1/8 3

Fiscal Year Ended December 31, 1995:
First Quarter........................................... $ 5 $ 3 3/4
Second Quarter.......................................... 4 15/16 3 1/16
Third Quarter........................................... 6 3/8 4 1/16
Fourth Quarter.......................................... 7 7/8 5 5/8

Fiscal Year Ending December 31, 1996:
First Quarter........................................... $ 8 1/4 $ 5 5/8
Second Quarter (through April 25, 1996)................. 7 5/8 5 3/4
</TABLE>

On April 25, 1996, the last reported sale price for the Common Stock as
reported by Nasdaq was $7 1/2 per share. As of March 31, 1996, there were
approximately 1,500 holders of record of the Common Stock.

10
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical and pro forma
consolidated financial data for the periods indicated. Such data is qualified by
reference to, and should be read in conjunction with, the Company's Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

The statement of operations data for the years ended December 31, 1991,
1992, 1993, 1994 and 1995 and the balance sheet data as of December 31, 1991,
1992, 1993, 1994 and 1995 are derived from the Company's audited consolidated
financial statements. The Company's consolidated financial statements as of
December 31, 1994 and 1995 and for the years ended December 31, 1993, 1994 and
1995 have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in their report thereon which appears elsewhere in
this Prospectus. The information for the three months ended March 31, 1995 and
1996 has been derived from the Company's unaudited financial statements. In the
opinion of management, such unaudited consolidated financial statements include
all adjustments (consisting only of normal, recurring accruals) necessary for a
fair presentation of financial position and results of operations. The pro forma
and as adjusted data are provided for informational purposes only and the pro
forma data should not be construed to be indicative of what results would have
been, or what results may be in the future, had the transaction referred to
therein been consummated as of the beginning of the year presented.

<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------------------------- ----------
PRO FORMA(1)
1991 1992 1993 1994 1995 1995 1995
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $25,987 $31,025 $37,098 $77,613 $117,493 $120,265 $25,396
Gross profit............... 6,965 8,293 10,161 18,228 25,898 26,262 5,853
Operating income (loss).... (317) 327 639 2,202 1,959 1,386 903
Income (loss) from
continuing operations.... 404(3) 63 202 2,235 1,004 429 540
Income from discontinued
operations(4)............... 100(5) 165 100 -- -- -- --
Net income (loss).......... 554(3) 228 302 2,235 1,004 429 540

PER SHARE DATA:
Primary:
Income (loss) from
continuing operations... 0.03(3) 0.01 0.02 0.13 0.05 0.02 0.02
Income from discontinued
operations(4)............... 0.01 0.01 -- -- -- -- --
Net income (loss)........ 0.04(3) 0.02 0.02 0.13 0.05 0.02 0.02
Fully Diluted--
Net income (loss)........ 0.04(3) 0.02 0.02 0.13 0.04 0.02 0.02
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING... 12,488,873 12,541,784 12,684,911 16,993,971 21,689,653 21,689,653 21,661,222

OTHER DATA:
Number of operational
In-Plant Store(R)
facilities(6)............... -- -- -- 17 31 31 24
Number of In-Plant Store(R)
customers(6)................ -- -- -- 12 21 21 14
Number of branches(6)...... 13 20 23 26 32 32 26
Revenues from In-Plant
Store(R) facilities...... -- -- -- $31,931 $53,895 $53,895 $11,126
Revenues from
branches(7)................. $25,987 $31,025 $37,098 $45,682 $63,598 $66,370 $14,270

1996

<S> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $33,316
Gross profit............... 7,083
Operating income (loss).... (1,877)(2)
Income (loss) from
continuing operations.... (1,966)(2)
Income from discontinued
operations(4)............... --
Net income (loss).......... (1,966)(2)
PER SHARE DATA:
Primary:
Income (loss) from
continuing operations... (0.09)(2)
Income from discontinued
operations(4)............... --
Net income (loss)........ (0.09)(2)
Fully Diluted--
Net income (loss)........ (0.09)(2)
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING... 21,740,823
OTHER DATA:
Number of operational
In-Plant Store(R)
facilities(6)............... 37
Number of In-Plant Store(R)
customers(6)................ 23
Number of branches(6)...... 32
Revenues from In-Plant
Store(R) facilities...... $16,805
Revenues from
branches(7)................. $16,511
</TABLE>

(Footnotes on following page)

11
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------- ----------------------
AS
ADJUSTED(8)
1991 1992 1993 1994 1995 1996 1996
------ ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $3,854(9) $ 4,464 $ 4,978 $17,902 $23,599 $19,650 $66,190
Total assets............................... 9,056 13,003 14,926 37,408 48,051 48,881 95,421
Long-term debt obligations................. 3,253(9) 4,882 5,949 1,618 5,903 4,162 1,452
Stockholders' equity....................... 2,738 3,116 3,448 24,721 27,391 25,518 74,768
</TABLE>

- ------------
(1) Includes the applicable pro forma effect of adjustments in 1995 for the
acquisition of ATSG as if such acquisition occurred on January 1, 1995. See
Pro Forma Statement of Income for the year ended December 31, 1995 set forth
in the Company's Financial Statements included elsewhere in this Prospectus.

(2) Includes a restructuring charge of $920,000.

(3) Includes $1,000,000 of proceeds from a key-man life insurance policy.

(4) Relates to the Company's discontinuance of its information services
business, which constituted the Company's business prior to July 1, 1990.

(5) Net of $50,000 in income taxes.

(6) As of the end of the period.

(7) Includes all revenues other than those from the Company's In-Plant Store(R)
program.

(8) Adjusted to give effect to the sale by the Company of the Shares offered by
the Company hereby (based upon an assumed offering price of $7.50 per share)
and the application of the net proceeds therefrom as described under "Use of
Proceeds."

(9) Current portion of note payable to bank in 1991 of $3,083,000 has been
excluded from working capital and included in long-term debt obligations.
This debt was subsequently refinanced.

12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company provides proprietary industrial supply procurement solutions to
industrial sites, primarily through its In-Plant Store(R) program. The Company
became a provider of industrial supply services in July 1990. The Company
conducts its operations primarily through its four subsidiaries, SafetyMaster
Corporation ("SafetyMaster"), acquired on July 9, 1990, Lewis Supply (Delaware),
Inc. ("Lewis Supply"), acquired on August 28, 1992, Industrial Systems
Associates, Inc. ("ISA"), acquired on January 4, 1994, and American Technical
Services Group, Inc. ("ATSG"), acquired on May 12, 1995. In addition, Lewis
Supply acquired the Industrial Supplies Division of Lufkin Industries, Inc. (the
"Lufkin Division") on June 16, 1994. For more information concerning these
entities, see the Company's Financial Statements and the notes thereto included
elsewhere in this Prospectus.

RESULTS OF OPERATIONS

The following table of revenues and percentages sets forth selected items of
the results of operations.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ --------------------
1993 1994 1995 1995 1996
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................. $37,098 $77,613 $117,493 $ 25,396 $ 33,316
------- ------- -------- -------- --------
100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 72.6 76.5 78.0 77.0 78.7
Gross profit............................. 27.4 23.5 22.0 23.0 21.3
Selling, general and administrative
expenses................................. 25.7 20.7 20.3 19.4 24.1
Restructuring charge..................... -- -- -- -- 2.8
Operating income (loss).................. 1.7 2.8 1.7 3.6 (5.6)
Interest (income) expense, net........... 1.2 0.9 0.1 -- 0.3
Income (loss) before income taxes........ 0.5 1.9 1.6 3.6 (5.9)
Income tax expense (benefit)............. -- (1.0) 0.7 1.5 --
Income (loss) from continuing
operations............................... 0.5 2.9 0.9 2.1 (5.9)
Income from discontinued operations...... 0.3 -- -- -- --
Net income (loss)........................ 0.8 2.9 0.9 2.1 (5.9)
</TABLE>

Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995

Revenues for the three months ended March 31, 1996 increased 31.2% to
$33,316,372 from $25,396,090 for the three months ended March 31, 1995. During
the three months ended March 31, 1996, $16,804,823 of revenues were from
In-Plant Store(R) facilities and $16,511,549 were from branches (including sales
and service locations). During the three months ended March 31, 1995,
$11,126,084 of revenues were from In-Plant Store(R) facilities and $14,270,006
were from branches (including sales and service locations). Internal growth,
primarily from implementation of new In-Plant Store(R) facilities, accounted for
66.2% of the increase. The balance of the increase came from the inclusion of
the results of operations of ATSG for the three months ended March 31, 1996. One
In-Plant Store(R) customer (with which the Company operates under four separate
contracts) represented approximately 12.3% of revenues for the three months
ended March 31, 1995 but less than 10.0% of revenues for the three months ended
March 31, 1996. Another In-Plant Store(R) customer (with which the Company
operates under four separate contracts) represented approximately 11.5% of
revenues for the three months ended March 31, 1996.

13
<PAGE>

Cost of sales as a percentage of revenues increased to 78.7% for the three
months ended March 31, 1996 from 77.0% for the three months ended March 31,
1995. The increase resulted from the higher percentage of sales from In-Plant
Store(R) facilities which have lower margins than the branches.

Selling, general and administrative expenses as a percentage of revenues
increased to 24.1% for the three months ended March 31, 1996 from 19.4% for the
three months ended March 31, 1995. The increase resulted primarily from expenses
incurred by the Company in connection with its expansion of the In-Plant
Store(R) program.

On March 18, 1996, the Company announced the merger of SafetyMaster and
Lewis Supply. In connection with the merger, the Company recorded a
restructuring charge aggregating $920,000 for employee termination benefits,
asset write-offs and lease payments. The restructuring charge was equal to 2.8%
of revenues for the three months ended March 31, 1996.

Interest expense, net increased by $94,177 to $89,069 for the three months
ended March 31, 1996 from interest income, net of $5,108 for the three months
ended March 31, 1995. The increase in interest expense, net resulted primarily
from borrowings incurred to finance the working capital requirements of new
In-Plant Store(R) facilities.

Income tax expense decreased by $368,000 to $0 for the three months ended
March 31, 1996. An income tax benefit was not recorded for the three months
ended March 31, 1996 because the Company does not believe that it is more likely
than not that the benefit will be realized during the current year.

The net loss for the three months ended March 31, 1996 was $1,965,692
compared to net income of $539,687 for the three months ended March 31, 1995,
primarily as a result of the items previously discussed.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Revenues for the year ended December 31, 1995 increased 51.4% to
$117,493,338 from $77,613,379 in 1994. During 1995, $53,895,081 of revenues were
from In-Plant Store(R) facilities and $63,598,257 were from branches (including
sales and service locations). During 1994, $31,931,587 of revenues were from
In-Plant Store(R) facilities and $45,681,792 were from branches (including sales
and service locations). Internal growth, primarily from implementation of new
In-Plant Store(R) facilities, accounted for 78.4% of the increase. The balance
of the increase came from the inclusion of the results of operations of ATSG
from the date of the acquisition of ATSG through December 31, 1995. One In-Plant
Store(R) customer (with which the Company operates under four separate
contracts) represented approximately 10% and 15% of the revenues for the years
ended December 31, 1995 and 1994, respectively.

Cost of sales as a percentage of revenues increased to 78.0% for the year
ended December 31, 1995 from 76.5% in 1994. The increase resulted primarily from
higher percentage of sales from In-Plant Store(R) facilities which have lower
margins than the branches.

Selling, general and administrative expenses as a percentage of revenues
decreased to 20.3% for the year ended December 31, 1995 from 20.7% in 1994. The
improvement resulted primarily from the higher percentage of sales from In-Plant
Store(R) facilities which have lower levels of selling, general and
administrative expenses than the branches. The improvement was partially offset
by expenses incurred by the Company in connection with its expansion of the
In-Plant Store(R) program.

Interest expense, net decreased by $637,029 to $98,006 for the year ended
December 31, 1995 from $735,035 in 1994. The decrease in interest expense, net
resulted primarily from the repayment of the Company's bank indebtedness in the
amount of approximately $13,300,000 with net proceeds from the sale of 5,750,000
shares of Common Stock on October 13, 1994.

Income tax expense increased by $1,625,000 to $857,000 for the year ended
December 31, 1995 from an income tax benefit of $768,000 in 1994. The tax
benefit in 1994 resulted from a reevaluation,

14
<PAGE>
based on expected future taxable income resulting from 1994 acquisitions, of the
realizability of future income tax benefits arising from the utilization of a
net operating loss carryforward and other deferred tax assets. At December 31,
1995, no valuation allowance related to the utilization of the net operating
loss carryforward was provided because the Company believes that it is more
likely than not that sufficient taxable income will be generated to allow for
the realization of the future tax benefits.

Net income for the year ended December 31, 1995 was $1,003,926, compared to
net income of $2,234,820 in 1994, primarily as a result of the items previously
discussed.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

Revenues for the year ended December 31, 1994 increased 109.2% to
$77,613,379 from $37,097,753 in 1993. During 1994, $31,931,587 of revenues were
from In-Plant Store(R) facilities and $45,681,792 were from branches. During
1993, all revenues were from branches. The inclusion of the results of
operations of ISA and the Lufkin Division for the year ended December 31, 1994
accounted for 77.1% and 15.4%, respectively, of the increase; the balance was
from internal growth at the branches. One In-Plant Store(R) customer (with which
the Company operates under four separate contracts) represented approximately
15% of the revenues for the year ended December 31, 1994.

Cost of sales as a percentage of revenues increased to 76.5% for the year
ended December 31, 1994 from 72.6% in 1993. The primary reason for the increase
was the impact of the acquisition of ISA, whose In-Plant Store(R) facilities
have lower margins than the Company's branches.

Selling, general and administrative expenses as a percentage of revenues
decreased to 20.7% for the year ended December 31, 1994 from 25.7% in 1993. The
improvement resulted primarily from the impact of the acquisition of ISA, whose
In-Plant Store(R) facilities have lower levels of selling, general and
administrative expenses than the branches.

Interest expense, net increased by $297,713 to $735,035 for the year ended
December 31, 1994 from $437,322 in 1993. The increase resulted primarily from
additional borrowings incurred to finance the acquisitions of ISA and the Lufkin
Division, as well as higher interest rates. Included in interest expense, net
was interest income earned from the net proceeds of the sale of 5,750,000 shares
of Common Stock on October 13, 1994. The Company used net proceeds from such
sale to repay approximately $13,300,000 of bank debt, thereby reducing interest
expense for the remainder of the year.

The tax benefit in 1994 resulted from a reevaluation, based on expected
future taxable income resulting from 1994 acquisitions, of the realizability of
future income tax benefits arising from the utilization of a net operating loss
carryforward and other deferred tax assets. At December 31, 1994, no valuation
allowance related to the utilization of the net operating loss carryforward was
provided because the Company believes that it is more likely than not that
sufficient taxable income will be generated to allow for the realization of the
future tax benefits.

Income from discontinued operations, which was 0.3% of revenues for the year
ended December 31, 1993, related to the Company's previous decision to dispose
of its information services business and represented current valuations of
certain lease obligations.

Net income for the year ended December 31, 1994 was $2,234,820, compared to
net income of $301,599 in 1993, primarily as a result of the items previously
discussed.

LIQUIDITY AND CAPITAL RESOURCES

Effective as of December 31, 1995, the Company entered into a new revolving
bank credit agreement providing for maximum outstanding borrowings of
$20,000,000. These borrowings bear interest at the prime rate (8.25% as of March
31, 1996) and/or a Eurodollar rate, with a 1/4% commitment fee on the unused
portion of the credit available. The credit facility expires on January 31,

15
<PAGE>

2000. At March 31, 1996, $2,710,000 was borrowed, at an interest rate of 8.25%,
under the credit facility. The amount which the Company may borrow under the
credit facility is based upon eligible accounts receivable, which were
approximately $18,900,000 at March 31, 1996. The credit facility contains
customary financial and other covenants and is collateralized by substantially
all of the assets, as well as the pledge of the capital stock, of the Company's
subsidiaries.

On October 13, 1994, the Company sold 5,750,000 shares of Common Stock in an
underwritten public offering. The net proceeds to the Company were $15,405,500,
of which approximately $13,300,000 was used to repay the Company's bank
indebtedness.

The net cash provided by operating activities was $2,509,498 for the three
months ended March 31, 1996 compared to $288,628 for the three months ended
March 31, 1995. The increase resulted primarily from a decrease in accounts
receivable and an increase in accounts payable and accrued expenses, which were
partially offset by an increase in inventories and the change from net income to
a net loss.

The net cash used in operating activities was $5,319,122 for the year ended
December 31, 1995, compared to $3,932,668 for the year ended December 31, 1994.
The increase resulted primarily from an increase in accounts receivable and
inventories and a decrease in net income, which were partially offset by
increases in deferred taxes, accounts payable and accrued expenses.

The Company believes that cash on hand, cash generated from operations and
cash from the Company's bank credit facility will generate sufficient funds to
permit the Company to meet its liquidity needs for the foreseeable future,
including the costs to be incurred by the Company in connection with the
anticipated expansion of the In-Plant Store(R) program.

The Company has stated its intention to seek further acquisition
opportunities. If the Company is able to identify satisfactory acquisitions, the
source of funds for such acquisitions is anticipated to be internally generated
cash and cash from future borrowings or sales of equity securities, although
there is no guarantee that the Company would be successful in raising funds from
such sources.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement, effective commencing in 1996, establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of. The initial adoption of
this standard will not have a material impact on the Company's financial
position and results of operations.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." As allowable by SFAS No. 123, the Company will not recognize
compensation cost for stock-based compensation arrangements, but rather will
disclose in the notes to the financial statements the impact on net income and
earnings per share as if the fair value based compensation cost had been
recognized commencing in 1996.

INFLATION

The Company believes that any impact of general inflation has not had a
material effect on its results of operations. The Company's current policy is to
attempt to reduce any impact of inflation through price increases and cost
reductions.

SEASONALITY

The Company does not believe that its business is seasonal in nature.

16
<PAGE>
BUSINESS

GENERAL

The Company provides proprietary industrial supply procurement solutions to
industrial sites, primarily through its In-Plant Store(R) program. The Company
sells a broad range of industrial supplies, which include MRO items, replacement
parts and selected classes of production materials. Industrial supplies are
generally items which are low in price, but are critical to the production
process and have historically been characterized by high procurement costs due
to inherent inefficiencies in traditional industrial supply distribution
methods. The Company's In-Plant Store(R) program, in which large industrial
sites outsource the procurement of industrial supplies to the Company,
substantially eliminates these inefficiencies by reducing both the process and
product costs associated with industrial supply procurement. The Company's
In-Plant Store(R) program also helps customers achieve operational improvements,
such as reduced plant down-time resulting from unavailable parts and
manufacturing process improvements due to better tracking of critical parts. The
Company believes that its In-Plant Store(R) program is superior to both
traditional and other alternative methods of industrial supply distribution.

The In-Plant Store(R) program is a comprehensive outsourcing service through
which the Company manages all aspects of industrial supply procurement at a
customer's industrial site. Prior to the implementation of an In-Plant Store(R),
the industrial site would typically obtain industrial supplies from as many as
500 traditional industrial distributors. Through the In-Plant Store(R) program,
the Company becomes responsible for servicing all of its customer's industrial
supply needs by establishing a dedicated, fully integrated store within the
customer's plant. The customer, in turn, purchases virtually all of its
industrial supplies from the In-Plant Store(R). The Company staffs the In-Plant
Store(R) with its own highly trained industrial procurement professionals,
installs proprietary software designed specifically for industrial procurement
and helps determine optimal inventory levels based on the supply needs of each
site. Upon implementation, the In-Plant Store(R) purchases, receives,
inventories and issues industrial supplies directly to plant personnel, delivers
ongoing technical support and provides the customer with a comprehensive invoice
twice per month, thereby reducing the administrative burden of traditional
industrial supply. The In-Plant Store(R) generates system-wide savings generally
ranging from 15% to 25% of customers' annual industrial supply purchase costs.

The total United States market for the categories of industrial supplies
offered by the Company is estimated to be approximately $225 billion annually.
Of this total, it is estimated that approximately $20 billion to $30 billion of
industrial supplies are purchased annually by the 15,000 largest industrial
plants in the United States. These plants represent potential customers for the
Company's In-Plant Store(R) program. The Company believes that very few of these
15,000 plants have outsourced their industrial supply procurement. The Company's
In-Plant Store(R) customers span a broad range of industries, including the
automotive, chemicals, construction, food processing, power generation and
natural resource extraction industries, and the In-Plant Store(R) program is
suitable for virtually any industry that uses industrial supplies. The Company's
existing customers include Allied Signal Inc., The Black and Decker Corporation,
Bridgestone/Firestone, Inc., Onan Corporation, Homelite, Inc., Hoechst Celanese
Corporation, NACCO Materials Handling Group, Inc. and Westinghouse Electric
Corporation.

17
<PAGE>
In addition to its In-Plant Store(R) program, the Company offers several
other proprietary industrial supply procurement solutions aimed at specific
types of customers. Through its Value Managed SupplySM program, the Company is
able to provide some of the features of the In-Plant Store(R) to customers which
are too small to support an In-Plant Store(R) or are not prepared to outsource
their industrial supply procurement completely. For industrial activities such
as construction projects and plant turnarounds, the Company offers its
proprietary On-Site StoreSM program in which customers temporarily outsource the
management of industrial supply procurement to the Company. The Company offers
its Value Managed SupplySM and On-Site StoreSM programs through its network of
branches which also provide traditional industrial supply services to customers
in markets that have historically been underserved by other industrial supply
distributors. The Company also offers other selected outsourcing services for
industrial customers, including the management of industrial laundry, process
control maintenance and plant logistics. The Company delivers the Value Managed
SupplySM program, the On-Site StoreSM program, other outsourcing services and
traditional distribution to over 19,000 customers through a network of 32
branches and ten sales and service offices located throughout the United States
and in Mexico.

INDUSTRY OVERVIEW

The total United States market for industrial supplies is estimated to be in
excess of $225 billion annually. As a provider of targeted industrial supply
procurement solutions, the Company's market includes virtually every industrial,
manufacturing and service business that uses large quantities of industrial
supplies. Although growth in the industrial supply market is generally tied to
the expansion of Gross Domestic Product, most companies have continuing needs
for industrial supplies. The Company believes that increasing numbers of
industrial firms are looking for ways to reduce costs by eliminating the
inefficiencies of traditional industrial supply distribution.

The Company operates in a highly fragmented industry with the 50 largest
industrial supply distributors accounting for only about 6% of the market. The
Company believes that approximately 135,000 smaller traditional industrial
distributors, substantially all of which have annual sales of less than $10
million, supply over 65% of the market. Growing recognition of the high costs
and operational inefficiencies associated with purchasing industrial supplies
from traditional distributors has increased demand for alternative methods of
distribution, leading to the development of programs which are generally
referred to as "integrated supply." These programs vary widely, but they include
such concepts as corporate purchasing cards, industrial supply consortiums and
direct mail supply. While these integrated supply programs help to reduce some
of the costs associated with traditional industrial supply distribution and
modestly increase efficiencies, in contrast to the Company's proprietary
In-Plant Store(R) program they do not focus on the structural flaws inherent in
the industrial supply distribution process.

The traditional model for the distribution of industrial supplies is
burdened by both the duplication and the inefficient performance of multiple
functions. In the traditional model, the industrial distributor must (i) source
and absorb the freight costs for the item, (ii) receive, warehouse and account
for the item, (iii) invest in inventory and incur the associated carrying costs
and (iv) market and sell the item to the end user. Once the need for the item
arises, the plant requiring the item must repeat many of these steps, including
(i) sourcing and absorbing the freight costs for the item, (ii) receiving,
warehousing and accounting for the item, (iii) investing in inventory and
incurring the associated carrying costs and (iv) issuing the item to the user on
the plant floor. In the In-Plant Store(R), each activity is performed only once
by the Company, thereby streamlining the procurement process and generating
system-wide savings generally ranging from 15% to 25% of customers' annual
industrial supply purchase costs. The procurement of industrial supplies is
generally outside the core activity of most manufacturers. As a result,
industrial supply procurement is often neglected and poorly managed within
industrial plants. For example, industrial supplies are generally purchased by
personnel whose expertise in purchasing these items is limited. In addition,
supplies are typically stored in a number of locations within an

18
<PAGE>
industrial plant, resulting in excess inventories and duplicate purchase orders.
Finally, industrial supplies are frequently purchased by multiple personnel in
uneconomic quantities, and a substantial portion of most facilities' industrial
supplies are one-time purchases which entail high prices and time-consuming
administrative efforts. The In-Plant Store(R) eliminates the duplication and
waste inherent in the traditional industrial distribution model.

In addition to the cost savings inherent in eliminating an entire step in
the distribution process, the In-Plant Store(R) leads to operational
improvements at the customers' host plants. For stock items, each of the
In-Plant Store(R) facilities has achieved more than a 98% product request fill
rate. For one-time purchases, In-Plant Store(R) personnel are experts in
efficiently sourcing these generally low usage items. The efficient procurement
of industrial supplies reduces the down-time of equipment in need of a critical
part. In the traditional model, a significant percentage of industrial supplies
are sourced directly by the plant employee in need of the item, rather than a
purchasing professional. These plant employees, whose time is diverted from
performing their core functions, generally do not consider price as the
determining factor in their purchase decision. The In-Plant Store(R), on the
other hand, offers these critical items at prices available to a high volume
purchaser. Further, under the traditional model such plant personnel accumulate
sub-stocks of low usage but critical items. In the Company's experience, the
presence of an In-Plant Store(R) eliminates the need for such sub-stocks.

COMPANY STRATEGY

The Company intends to enhance its position as the leading on-site provider
of proprietary industrial supply procurement solutions, primarily through the
expansion of its In-Plant Store(R) program. The Company believes its In-Plant
Store(R) model is superior to the traditional model of industrial distribution
due to the following key elements: (i) efficient, low cost operations; (ii)
superior customer service; (iii) superior technology; and (iv) ease of
implementation.

. Efficient, Low Cost Operations. The In-Plant Store(R) is an effective
means for customers to eliminate redundant and inefficient distribution
methods. By locating the In-Plant Store(R) within a customer's site, the
cost of supporting two warehouses, one at the traditional distributor and
one within the customer's plant site, is eliminated. Similarly, because
the customer agrees to purchase its industrial supply requirements from
the In-Plant Store(R), the continuing marketing and selling expenses of
the traditional distributor are eliminated. In addition, as a volume
purchaser of low price and often critical items, the In-Plant Store(R)
maintains competitive prices on virtually all items sold. Finally, because
the Company employs its own highly trained personnel and assumes ownership
of the industrial supply inventory at host plants, the Company's customers
can reduce their own headcount and investment in inventory. Although the
inventory investment is transferred to the In-Plant Store(R), the
Company's superior information and sourcing systems enable the In-Plant
Store(R) to operate with reduced levels of inventory with turns often in
excess of seven times per year, as opposed to an average of under two
times per year previously incurred by existing customers which relied on
the traditional method of industrial distribution.

. Superior Customer Service. With its commitment to customer service and
continuous improvement, supported by extensive training at the Company's
dedicated training center in Easton, Maryland, the Company delivers
substantial operational improvements to its customers. By determining
inventory levels appropriate to each customer and installing proprietary
systems which monitor and replenish that inventory on a timely basis, each
of the In-Plant Store(R) facilities has achieved more than a 98% product
request fill rate for stock items. The efficient and dependable sourcing
of low usage, yet critical, repair or replacement parts minimizes machine
down-time at customer plants. In addition, In-Plant Store(R) systems
centrally process authorizations, purchase orders, receiving tickets,
invoices, accounting data and other administrative tasks

19
<PAGE>
previously dispersed throughout the customer's plant. The customer
receives only two detailed invoices per month.

. Superior Technology. The In-Plant Store's(R) proprietary management
information system, known as ISACSSM, aids customers in improving
manufacturing performance and supports customer service and efficient
operations. In addition to the centralized administrative functions
mentioned above, ISACSSM generates real-time reports specifying product
utilization by work order, department and/or individual. This improved
information flow gives site managers the ability to measure certain
manufacturing and maintenance processes, often for the first time.
Additionally, the In-Plant Store(R) employees have on-line access to stock
inquiry and order-status reports allowing them to respond to customer
inquiries for both stock and one-time purchases on a real-time basis. This
allows the In-Plant Store(R) to minimize its own inventories while
eliminating out-of-stock items for its customer. The Company continually
upgrades its management information system to improve productivity and
customer service. The Company is in the process of developing several
Internet applications, including corporate-wide e-mail and a World Wide
Web presence with ongoing marketing and stockholder information. The
Company is committed to exploring other Internet applications, such as the
development of technical support databases, industrial supply procurement
tools and multimedia marketing presentations.

. Ease of Implementation. When the Company implements an In-Plant Store(R)
program, it redefines the customer's distribution channel for a large
number of critical items. Recognizing the challenges faced by its
customers associated with switching from the traditional to the In-Plant
Store(R) model, the Company believes that a well-executed implementation
is extremely important in creating a long term customer relationship. The
Company's dedicated implementation staff works with the management and
employees of the host site and, when necessary, customizes the In-Plant
Store(R) to the needs of each customer. This customization includes
determining the nature and quantity of stock items appropriate for the
plant site, arranging for the optimal sourcing of one-time buys and
configuring ISACSSM to generate detailed billing, price variance and
inventory control reports useful to that particular host plant. In
addition, the Company's implementation team works with host site managers
to determine whether the customer would benefit from the Company's other
value-added services.

GROWTH STRATEGY

The Company's goal is to become the leading provider of industrial supply
procurement solutions for major industrial companies throughout North America.
In pursuing this goal, the Company benefits from the current trends toward
outsourcing non-core activities, consolidating vendor relationships and focusing
on lowering costs while improving operations. To increase its business, the
Company plans to: (i) market its In-Plant Store(R) program to new customers;
(ii) expand relationships with existing customers; (iii) offer proprietary
solutions to existing customers and new categories of customers; and (iv) expand
internationally.

. New In-Plant Store(R) Customers. The Company believes that its most
significant opportunity to grow revenues is to market its In-Plant
Store(R) program to new customers. The total United States market for the
categories of industrial supplies offered by the Company is estimated to
be approximately $225 billion annually. Of this total, it is estimated
that approximately $20 billion to $30 billion of industrial supplies are
purchased annually by the 15,000 largest industrial plants in the United
States. These plants represent potential customers for the Company's
In-Plant Store(R) program. From January 1994, when the Company began
actively marketing the program, to April 1996, the number of In-Plant
Store(R) sites operated by the Company increased from 13 to 44. Twenty of
these sites were added from March 1995 to April 1996. In addition, the
Company recently announced the signing of an agreement with a single
customer to implement eight additional In-Plant Store(R) facilities during
1996. The Company believes that increasing

20
<PAGE>
recognition of the high costs associated with the traditional model of
industrial distribution, as well as recognition of the Company's ability
to provide an effective industrial supply solution, have increased demand
for the Company's In-Plant Store(R) facilities.

The principal tool used by the Company to sell the In-Plant Store(R) concept
is the Value Management StudySM. A Value Management StudySM is an analysis
prepared by the Company and provided to a potential customer detailing the
savings achievable from an In-Plant Store(R). The Value Management StudySM is
a valuable tool in allowing the Company to assess the particular needs of
each potential customer. See "--In-Plant Store(R) Program--Sales and
Marketing."

To meet the increased demand for its In-Plant Store(R) program, the Company
is currently investing substantial resources in order to sell, implement and
staff additional In-Plant Store(R) facilities. The Company has increased its
direct sales force from one at the beginning of 1995 to eight at the
beginning of 1996. The Company's direct sales force is supported by ten
analysts who focus primarily on the preparation of Value Management
StudiesSM. The Company began establishing a dedicated implementation staff in
June 1995 and currently employs 25 implementation specialists. The Company
also employs 11 information technology professionals. Finally, the Company
has established a training center in Easton, Maryland where employees receive
extensive training in the In-Plant Store(R) program.

. Expansion of Existing Customer Relationships. The Company's typical large
industrial customer has multiple plant sites. As a result, the Company has
been successful in selling multi-site In-Plant Store(R) programs to
existing customers. In January 1995, the Company operated multi-site
In-Plant Store(R) programs for two customers representing seven individual
In-Plant Store(R) sites. The Company currently serves nine multi-site
customers representing 28 In-Plant Store(R) sites. The Company believes
that existing In-Plant Store(R) customers operate over 350 additional
industrial sites of sufficient size to support an In-Plant Store(R)
program.

Historically, the Company focused its In-Plant Store(R) sales effort on plant
level decision makers. While the Company still believes that acceptance from
plant level managers is critical to satisfying its customers, the Company is
also directing marketing resources toward corporate level sales. In the
Company's experience, corporate level acceptance has shortened the sales
cycle necessary to add facilities to existing customers.

. Additional Proprietary Services. In addition to its In-Plant Store(R)
program, the Company offers several other proprietary industrial supply
procurement solutions aimed at specific types of customers. Through its
Value Managed SupplySM program, the Company is able to provide some of the
features of the In-Plant Store(R) to customers which are too small to
support an In-Plant Store(R) or are not prepared to outsource completely
their industrial supply procurement. For industrial activities such as
construction projects and plant turnarounds, the Company offers its
proprietary On-Site StoreSM program in which customers temporarily
outsource the management of industrial supply procurement to the Company.
The Company offers its Value Managed SupplySM and On-Site StoreSM programs
through its network of branches which also provide traditional industrial
supply services to customers in markets that have historically been
underserved by other industrial supply distributors. The Company also
offers other selected outsourcing services for industrial customers,
including the management of industrial laundry, process control
maintenance and plant logistics. The Company delivers the Value Managed
SupplySM program, the On-Site StoreSM program, other outsourcing services
and traditional distribution to over 19,000 customers through a network of
32 branches and ten sales and service offices located throughout the
United States and in Mexico.

. International Expansion. The Company has found that its In-Plant Store(R)
program and other of the Company's proprietary services are applicable
outside the United States. The Company

21
<PAGE>
believes that foreign markets, including both developed and emerging
markets, are characterized by inadequate industrial supply infrastructure.
In addition, many of the Company's existing In-Plant Store(R) customers
are multi-national corporations. In the first quarter of 1996, the Company
implemented an In-Plant Store(R) in a plant in Mexicali, Mexico.

IN-PLANT STORE(R) PROGRAM

The Company expects its future growth to be achieved primarily through its
In-Plant Store(R) program. The Company believes that the In-Plant Store(R)
offers customers the lowest achievable cost structure for their industrial
supply procurement requirements. The In-Plant Store(R) program is a
comprehensive out-sourcing service through which the Company manages all aspects
of industrial supply procurement at a customer's industrial site. The Company
staffs the In-Plant Store(R) with its own personnel, helps determine optimal
inventory levels, purchases and stocks all industrial supplies, issues them to
the customer's plant employees and provides ongoing technical support.

The In-Plant Store(R) program has been able to achieve substantial cost
savings and more efficient plant operations through reductions in product costs,
elimination of process costs and improvements in operations. Based upon the
Company's Value Management StudiesSM, system-wide savings in customers' annual
industrial supply purchase costs have generally ranged from 15% to 25%.

Reduction of Customer's Product Costs

. Lowers Direct Product Costs. The Company offers pricing that is typically
3% to 5% lower than a customer's historic cost. The Company is able to
achieve such pricing because it is a high volume purchaser and its
operating model comprises a lower inherent cost structure than traditional
methods of supply.

. Eliminates Industrial Supply Inventory Carrying Costs. The Company, rather
than the customer, purchases and maintains industrial supply inventory at
the plant site. The customer is charged only as each item is used, thereby
eliminating the need for the customer's capital to be deployed in
industrial supply inventory. The Company has historically been able to
achieve plant level inventory reductions ranging from $500,000 to $2.5
million. The Company's information systems permit it to carry much lower
inventory positions than customers could carry using traditional
industrial supply management. Although the inventory investment is
transferred to the In-Plant Store(R), the Company's superior information
and sourcing systems enable the In-Plant Store(R) to operate with reduced
levels of inventory with turns often in excess of seven times per year, as
opposed to an average of under two times per year previously incurred by
existing customers which relied on the traditional method of industrial
distribution.

Elimination of Process Costs

. Reduces Paperwork. Accounting and data processing expenses are reduced as
the Company issues the customer only two comprehensive invoices each month
as compared to the thousands of requisitions, purchase orders, packing
slips and vendor invoices which were created when the customer's own
purchasing department was responsible for industrial supply procurement.
The Company believes that the administrative costs associated with placing
a single purchase order can be in excess of $100.

. Reduces Payroll. As a result of the Company assuming the supply function,
the customer can redeploy or eliminate personnel who were previously
responsible for purchasing, receiving, taking inventory and issuing
industrial supplies.

. Eliminates Multiple Suppliers. The customer no longer needs to maintain
relationships with numerous industrial distributors. All supplies are
obtained from one source, the In-Plant Store(R), as opposed to as many as
500 traditional industrial distributors for a typical large industrial
plant.

22
<PAGE>
Operational Improvements

. Improves Plant Productivity. The Company has developed proprietary
computer systems which maintain appropriate inventory levels of industrial
supplies and minimize the risk to the customer of costly plant down-time
due to the absence of a key part. For stock items, each of the In-Plant
Store(R) facilities has achieved more than a 98% product request fill
rate. The Company offers customers further productivity improvements
through a specialized program to stock certain low-price hardware items in
actual work areas. The Company's procurement expertise also enables it to
fill one-time orders for low usage items in an efficient manner, thereby
eliminating the need for plant employees to devote time to research
availability and negotiate prices.

. Improved Information Flow. The improved information flow provided by the
In-Plant Store(R) program allows customers to reduce shrinkage and improve
their manufacturing process. Using ISACSSM, its proprietary computer
system, the Company establishes sophisticated controls on inventory and
usage of supplies, allowing the In-Plant Store(R) customer to allocate
costs to a department, work cell or individual. Industrial supply costs
and utilization can be tracked as they occur in the plant. Further, the
Company's networking capability allows for the consolidation of a
customer's industrial supply management for any number of facilities that
utilize the In-Plant Store(R) program.

The In-Plant Store(R) Supply Agreement

Operation of the In-Plant Store(R) is governed by an In-Plant Store(R)
supply agreement (the "Supply Agreement"). Pursuant to the Supply Agreement, the
Company is responsible for (i) providing designated categories of supplies and
parts at the In-Plant Store(R), (ii) providing all on-site staffing necessary to
purchase, receive, inventory and issue industrial supplies to plant personnel
and (iii) maintaining certain specified levels of inventory at the In-Plant
Store(R). On the effective date of the Supply Agreement, the Company takes
control of all of the customer's existing industrial supply inventory. During
the period in which the customer's inventory is depleted, the Company is
generally entitled to recover its costs in operating the In-Plant Store(R). As
the In-Plant Store(R) becomes stocked with the Company's own inventory, the
Company's compensation is typically based on a fixed markup from the cost of the
items purchased. In certain situations, however, the Company may, in addition to
or in lieu of such markup, receive a management fee. The Supply Agreement also
provides that if, in any six month period, the customer has not utilized a stock
item, the customer is required to purchase the entire inventory of such product
from the In-Plant Store(R). This provision eliminates the Company's risk of
inventory obsolescence. The term of the typical Supply Agreement is three years,
with automatic renewal provisions, although the customer generally may terminate
the Supply Agreement for any reason upon 90 days' prior written notice. Upon
termination of the Supply Agreement, the customer is required to purchase all
Company owned inventory located at the In-Plant Store(R).

Sales and Marketing

The Company's recent sales effort has focused on the 15,000 domestic plant
sites which the Company believes have sufficient industrial supply requirements
to support an In-Plant Store(R). In particular, the Company has emphasized very
large industrial plants which can generate revenues of over $10 million annually
for the Company, and on prospective customers which have expressed interest in a
multi-plant, company-wide implementation of the Company's programs. The Company
also seeks to penetrate more plants of existing customers, pursue referrals from
satisfied customers and contact plant managers whose manufacturing sites are
located near existing In-Plant Store(R) facilities.

The critical element of the Company's marketing process is the Value
Management StudySM. Through its proprietary study, the Company analyzes the
industrial supply function at the site or sites of a potential customer,
highlights the inefficiencies at the site and quantifies the cost reductions
achievable through the implementation of an In-Plant Store(R) program. For
prospects which become

23
<PAGE>
customers, the Company uses the Value Management StudySM as a guide for
tailoring the actual In-Plant Store(R) to the customer's particular needs.

As an example, a recent Value Management StudySM for a potential customer
revealed that the customer held $3.8 million in MRO inventory, and on an annual
basis purchased for stock approximately $3 million of MRO items and an
additional $900,000 of one-time purchases. One percent of the stock units
accounted for approximately 50% of the inventory carrying value. The remaining
99% of the stock units were MRO parts with a unit value of less than $150 each.
To purchase and maintain this inventory, the customer employed one supervisor
and three clerks, placed 7,200 purchase orders, and processed 10,000 receipts
and 10,000 invoices per year. As a result of the Value Management StudySM, the
Company was able to identify approximately $770,000 in potential annual savings
achieved over a two-year period, including reductions in purchasing, inventory
carrying, labor and freight costs. In addition, the Value Management StudySM
indicated that within 12 months the In-Plant Store(R) program would eliminate
most of the customer's $3.8 million investment in inventory.

Although the Value Management StudySM described above is representative of
the types of cost savings that can be achieved from the implementation of an
In-Plant Store(R) program, there can be no assurance that such savings could be
achieved by other potential customers of the Company.

ADDITIONAL PROPRIETARY SERVICES

In addition to the In-Plant Store(R) program, the Company markets several
other services to meet the industrial supply and other needs of its customers.
The Value Managed SupplySM and On-Site StoreSM programs are proprietary
industrial supply solutions targeted at particular customers and delivered
through the Company's network of 32 branches which typically operate in smaller,
less competitive geographic markets.

Value Managed SupplySM Program

The Value Managed SupplySM program is targeted at smaller plant sites and
large plants which have not adopted the full In-Plant Store(R) program. This
program offers selected elements of the In-Plant Store(R) program that serve to
reduce some of the inefficiencies and costs of traditional industrial supplies
distribution. As a result of its Value Managed SupplySM program, the Company
believes that, through its branches, it is able to provide its customers with a
higher level of service than many of its competitors which attempt to service
customers in smaller markets on a regional basis through warehouses in larger
cities.

On-Site StoreSM Program

The On-Site StoreSM program is marketed to construction sites and process
plants for temporary construction or maintenance projects. This program provides
a temporary on-site warehouse that is fully staffed and stocked with all items
that the customer believes may be necessary for the project. The Company staffs
the On-Site StoreSM with its own trained, technically qualified personnel, who
are responsible for procurement, inventory management, disbursement and product
training. Management of On-Site StoreSM facilities is provided through the
Company's branch network.

Branches

In addition to its proprietary industrial supply procurement services, the
Company also provides more traditional industrial distribution services through
its branch network. The Company has located most branches in smaller cities
which are less well supplied by traditional industrial distributors and where
competition is more moderate than in larger industrial cities. The Company
believes that in these smaller markets, the local availability of adequate
supplies of frequently used industrial supply items, together with locally
based, technically competent service representatives, provide the Company with a
competitive advantage. In addition, to maximize the benefits which customers
realize from the

24
<PAGE>
Company's branch presence, each branch manager is allowed considerable autonomy
in setting inventory levels that are responsive to the branch customers'
particular needs. Branch managers receive incentive compensation designed to
maximize branch gross profit.

INSTRUMENTATION SERVICES

The Company is one of the largest independent suppliers of instrumentation
services in the United States. These services, as well as process control
services, are provided through a network of five sales offices located across
the United States.

MANAGEMENT INFORMATION SYSTEMS

The In-Plant Store(R) program utilizes ISACSSM, the Company's proprietary
computer system, to control all In-Plant Store(R) functions. In addition to the
traditional functions of inventory control, order processing, purchasing,
accounts receivable, accounts payable and general ledger, ISACSSM has the
flexibility to integrate with the customer's maintenance, accounting and
management systems. ISACSSM allows for real-time reporting of industrial
supplies utilization by work order, department and individual, as well as
on-line stock inquiry and order-status reports. ISACSSM also supports advanced
functions, such as Electronic Data Interchange ("EDI"), customized billing, end
user reporting and facsimile transmission. Operations that interact within the
Company's multiple In-Plant Store(R) programs are linked together through a
dedicated data network.

For its other activities, the Company operates a mainframe system which is
supported by the industry standard open system environment. The Company has
invested significant resources within the last year to increase the capabilities
and networking opportunities of this system. The Company's system supports EDI,
as well as a large number of customer specific databases which tie into the
Company's primary database. This allows the Company to provide its customers
with a wide variety of reports which are customized to meet the specific needs
of the customer. The Company also utilizes a variety of third-party software
packages periodically upgraded to support additional functions.

CUSTOMERS

At April 1, 1996, the Company operated 44 In-Plant Store(R) facilities for
25 individual customers. In addition, the Company recently announced the signing
of an agreement with a single customer to implement eight additional In-Plant
Store(R) facilities during 1996. Additionally, through its branches, the Company
services approximately 19,000 customers in a variety of industries. For the 12
months ended December 31, 1995, Black & Decker Corporation represented
approximately 10% of the Company's revenues. For the three months ended March
31, 1996, Black & Decker Corporation represented less than 10% of the Company's
revenues and Westinghouse Electric Corporation represented approximately 11.5%
of the Company's revenues.

25
<PAGE>
PRODUCTS

The Company provides a broad range of MRO supplies, replacement parts and
selected classes of production materials, including the following:

. Abrasives
. HVAC and plumbing equipment

. Adhesives
. Janitorial supplies

. Coatings, lubricants and
compounds
. Material handling products

. Cutting, hand, pneumatic and power
tools
. Measuring Instruments

. Electrical supplies
. Power transmission equipment

. Fasteners
. Respiratory products

. Fire protection equipment and
clothing
. Replacement parts

. Hoses, pipe fitting and valves
. Safety products

. Welding materials

Because of the broad range of products sold by the Company, no single
product or class of products accounted for more than 10% of the Company's
revenues in 1995.

SUPPLIERS

The Company purchases its products from numerous manufacturers and other
distributors. The Company has distribution agreements with numerous suppliers,
some of which give the Company the exclusive right to distribute the supplier's
products in a specific geographic area. All of the contracts can be canceled by
the respective suppliers upon notice of one year or less. Because no supplier
provides products that account for as much as 10% of the Company's revenues and
because the Company believes that it could quickly find alternative sources of
supply if any distribution contract were canceled, the Company does not believe
that the loss of any one distribution contract, or any small group of
distribution contracts, would have a material adverse impact on the Company's
business.

COMPETITION

The Company's business is highly competitive. The Company competes with a
wide variety of traditional industrial supply distributors in each of the
Company's geographic markets. Most of such distributors are small enterprises
selling to customers in a limited geographic area. The Company also competes
with several integrated supply consortiums, direct mail suppliers and large
warehouse stores, some of which have significantly greater financial resources
than the Company. The primary areas of competition include price, breadth and
quality of product lines distributed, ability to fill orders promptly, technical
knowledge of sales personnel and, in certain product lines, service and repair
capability. The Company believes that its ability to compete effectively is
dependent upon its ability to deliver value-added procurement solutions to its
customers through its In-Plant Store(R), Value Managed SupplySM and On-Site
StoreSM programs, to respond to the needs of its customers through quality
service and to be price-competitive. The Company believes that other companies
may develop and implement programs which offer services similar to, and which
compete with, the Company's In-Plant Store(R) program. See "Investment
Considerations--Competition."

The Company also competes to some extent with the manufacturers of
industrial supplies. The Company believes, however, that most of such
manufacturers sell their products through traditional industrial distributors,
because the limited range of products that a manufacturer offers cannot compete
effectively with the broad product lines and additional services offered by
traditional industrial distributors and industrial supply service providers such
as the Company.

26
<PAGE>
GOVERNMENT REGULATION

In recent years, governmental and regulatory bodies such as The Occupational
Safety and Health Administration, The National Institute for Occupational Safety
and Health and The Mine Safety and Health Administration have promulgated
numerous standards and regulations designed to protect workers' well-being and
to make the workplace safer. The Company reviews regulations governing its
customers in order to be able to distribute products that meet its customers'
needs, and some of the Company's past growth has been as a result of its
customers' compliance with this increasing level of regulation. In addition,
many of the Company's customers are cooperating with their insurance companies
in safety programs designed to reduce accident and injury rates in response to
rising workers' compensation costs. This trend has also resulted in increased
purchases of safety equipment from the Company. The Company cannot predict the
level or direction of future regulation or insurance costs, but believes these
trends will continue to contribute to the Company's growth.

EMPLOYEES

As of April 1, 1996, the Company had approximately 710 employees, of whom
approximately 220 were employed in selling and administrative capacities and
approximately 490 were involved in operations. ATSG regularly employs
individuals covered under collective bargaining agreements for temporary
periods. As of April 1, 1996, approximately 20 of ATSG's employees were covered
under such collective bargaining agreements. The Company considers its employee
relations to be good.

PROPERTIES

The Company's corporate headquarters is located in Lakewood, Colorado. The
Company does not own or lease the space for its In-Plant Store(R) facilities.
Each of the Company's branch facilities (other than the facility in Lufkin,
Texas, which is owned by the Company) is leased by the Company. The Company has
the right to renew some of these leases. The Company believes that the
properties which are currently under lease are adequate to serve the Company's
business operations for the foreseeable future. The Company believes that if it
were unable to renew the lease on any of these facilities, it could find other
suitable facilities with no adverse effect on the Company's business.

INSURANCE

The Company maintains liability and other insurance that it believes to be
customary and generally consistent with industry practice. The Company is also
named as an additional insured under the products liability policies of many of
its suppliers and manufacturers and, with respect to In-Plant Store(R)
facilities, many of its customers. The Company believes that such insurance is
adequate to cover potential claims relating to its existing business activities.

LITIGATION

The Company is currently involved in certain legal proceedings incidental to
the normal conduct of its business. The Company does not believe that any
liabilities relating to such proceedings are likely to be, individually or in
the aggregate, material to its consolidated financial position or results of
operations.

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<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information concerning each of the
Company's directors and executive officers:

<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Andrew M. Bursky.......................... 39 Chairman of the Board of Directors
Theodore R. Rieple........................ 50 President and Director
Catherine B. James........................ 43 Chief Financial Officer, Executive Vice
President, Secretary, Treasurer and
Director
Charles J. Martin......................... 51 Vice President, Controller and Chief
Accounting Officer
William R. Berkley........................ 50 Director
Arnold W. Donald.......................... 41 Director
George E. Krauter......................... 64 Director
Joshua A. Polan........................... 48 Director
Mitchell I. Quain......................... 44 Director
</TABLE>

Directors of the Company are elected annually at the annual meeting of
stockholders. Each of the directors listed above has been elected for a term
that expires at the annual meeting of stockholders in 1996. The Company's
officers are elected annually by the Board of Directors and serve at the
discretion of the Board of Directors.

Mr. Bursky has served as Chairman of the Board of Directors since July 1988.
He was President of the Company from November 1989 until December 1990. He has
served as an executive officer of Interlaken Capital, Inc. ("Interlaken
Capital"), a private investment firm that is an affiliate of the Company, since
May 1980, and currently is serving as a Managing Director of Interlaken Capital.
Mr. Bursky is a director of Pioneer Companies, Inc. ("PCI"), a manufacturer and
marketer of chlorine and caustic soda and related products.

Mr. Rieple has served as a member of the Board of Directors since 1991. Mr.
Rieple has served as President of the Company since December 1990. From 1984 to
November 1990, Mr. Rieple was President, Chief Executive Officer and a director
of Diversey Corp., a manufacturer of specialty chemicals. In this role, he was
responsible for the United States and Canadian operations.

Ms. James has served as a member of the Board of Directors since 1990. Ms.
James has served as Chief Financial Officer of the Company since February 1996,
has served as Executive Vice President of the Company since January 1989 and has
served as Secretary and Treasurer of the Company since December 1989. She was
Chief Financial Officer of the Company from January 1989 until September 1993.
Ms. James has been a Managing Director of Interlaken Capital since January 1990.
From 1982 through 1988, she was employed by Morgan Stanley & Co. Incorporated,
serving as a Managing Director in the corporate finance area during the last two
years of her tenure.

Mr. Martin has served as Vice President, Controller of the Company since
July 1990. He was employed by Interlaken Capital from August 1986 to January
1996 and served as Vice President, Finance for the last six years of his tenure.
In this role, he was responsible for accounting and general financial
administrative functions.

Mr. Berkley has served as a member of the Board of Directors since May 1994.
Mr. Berkley also serves as Chairman of the Board of several companies which he
controls or founded. These include W.R. Berkley Corporation, a property and
casualty insurance company, PCI and Interlaken Capital. Mr. Berkley is
Vice-Chairman of the Board of Trustees of the University of Connecticut, a
Director of

28
<PAGE>
Georgetown University, a Trustee of New York University and a member of the
Board of Overseers of New York University Stern School of Business.

Mr. Donald has served as a member of the Board of Directors since 1995. Mr.
Donald is President of Monsanto Company's Crop Protection unit, with
responsibility for Monsanto's worldwide agricultural chemicals business, and has
been associated with Monsanto in various capacities for more than the last five
years. Mr. Donald is a past president and serves on the board of The Leadership
Center of Greater St. Louis. He currently serves on the executive boards of John
Burroughs School, British-American Project, Fair St. Louis and the American Crop
Protection Association. Mr. Donald also serves on the board of the National FFA
Organization, National 4-H Council, Lindenwood College, U.S.-Russia Business
Council, Eurasia Foundation, Jackson Laboratories, Opera Theatre of St. Louis,
Carleton College and the Municipal Theatre Association of St. Louis. Mr. Donald
is a member of the advisory boards of the Junior League of St. Louis and the St.
Louis Butterfly House and serves on the National Advisory Council for Washington
University's School of Engineering.

Mr. Krauter has served as a member of the Board of Directors since January
1994. Mr. Krauter is currently President of ISA, which was acquired by the
Company in January 1994, and has served as President of ISA since March 1971.

Mr. Polan has served as a member of the Board of Directors since 1988. He
has served as an executive officer of Interlaken Capital since June 1988,
currently serving as a Managing Director. For more than the five years prior to
June 1988, Mr. Polan was a partner in the accounting firm of Touche Ross & Co.

Mr. Quain has served as a member of the Board of Directors since 1995. Mr.
Quain has been a Managing Director of Schroder Wertheim & Co. Incorporated for
more than the last five years. Mr. Quain is a director of Allied Products
Corporation, a member of the Board of Governors of the School of Engineering and
Applied Sciences at the University of Pennsylvania where he also serves on the
President's Council, and a member of the Board of Trustees and the executive
committee of St. Luke's Academy, a college preparatory school in New Canaan,
Connecticut.

Mr. Bursky, Ms. James and Mr. Polan are executive officers of Idle Wild
Farm, Inc., a privately owned company that was formerly engaged in the
manufacture of frozen foods which, in October 1993, filed a Chapter 11 petition
for reorganization under Federal bankruptcy laws. Mr. Bursky is an executive
officer of Blue Lustre Products, Inc., a privately owned company which is
engaged in the sale and leasing of carpet cleaning equipment and other carpet
cleaning products which, in October 1995, filed a Chapter 11 petition for
reorganization under Federal bankruptcy laws.

COMMITTEES AND BOARD MEETINGS

The Board has two standing committees: the Stock Option and Compensation
Committee and the Audit Committee.

The Stock Option and Compensation Committee, composed of Mr. Bursky and Mr.
Polan, administers the Company's 1990 Incentive Stock Option Plan (the "1990
Stock Option Plan") and makes recommendations to the Board of Directors
regarding the level and form of compensation to be paid to the Company's
executive officers and reviews the levels of compensation of senior officers of
the Company's subsidiaries. The Audit Committee, composed of Messrs. Berkley,
Polan and Quain, meets with management and the Company's independent accountants
to consider the adequacy of the Company's internal controls and other financial
reporting matters.

DIRECTORS' COMPENSATION

Beginning in May 1995, members of the Board of Directors who were not
employees of the Company received directors' fees in the amount of $1,000 for
each meeting of the Board of Directors they attended. The Company was obligated
to reimburse members of the Board of Directors for all

29
<PAGE>
reasonable expenses incurred in connection with their attendance at Directors'
meetings, but no Director made any claim for reimbursement.

STOCK OPTION AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1995, Mr. Bursky, Ms. James and Mr. Polan served on the Stock Option
and Compensation Committee. Mr. Bursky has served as Chairman of the Board of
Directors since 1988 and was President of the Company from November 1989 to
December 1990. Ms. James has served as an executive officer of the Company since
January 1989. During 1995, Mr. Bursky served on the compensation committee of
Fine Host Corporation. William R. Berkley, the Chairman of the Board of Fine
Host Corporation, is a member of the Company's Board of Directors. See "Certain
Transactions" for a description of certain transactions between the Company and
certain other companies of which Mr. Bursky, Ms. James, Mr. Polan and Mr.
Berkley are officers, directors and/or shareholders.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth all the cash and noncash compensation for
each of the three fiscal years ended December 31, 1995 awarded to or earned by
the President of the Company. No other executive officer of the Company earned
more than $100,000 in salary and bonus in any of the three fiscal years ended
December 31, 1995. Mr. Bursky and Ms. James do not receive any compensation from
the Company but are executive officers of and are compensated by Interlaken
Capital, which is party to a services agreement with the Company pursuant to
which Interlaken Capital will receive a fee of $400,000 during 1996. See
"Certain Transactions."

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL --------------------
COMPENSATION NUMBER OF SECURITIES
NAME AND ------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS GRANTED COMPENSATION
- -------------------------------- ---- -------- ------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Theodore R. Rieple.............. 1995 $213,617 $40,000 51,500 $1,366(1)
President 1994 204,038 10,000 -- 1,534(1)
1993 180,000 5,000 -- 2,630(1)
</TABLE>

- ------------

(1) These amounts represent contributions to the Company's Retirement Savings
Plan.

Mr. Rieple did not receive any other annual compensation, restricted stock
awards, stock appreciation rights, long-term incentive plan payouts or other
compensation for the three fiscal years ended December 31, 1995.

OPTIONS GRANTS IN LAST FISCAL YEAR

The following table sets forth options granted to Mr. Rieple during 1995:

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL EXERCISE APPRECIATION
SECURITIES OPTIONS OR BASE FOR OPTION TERM
UNDERLYING GRANTED TO PRICE EXPIRATION ------------------
NAME OPTIONS GRANTED EMPLOYEES ($/SH) DATE 5% ($) 10% ($)
- -------------------------------- --------------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Theodore R. Rieple.............. 51,500(1) 14.8% $ 3.45 05/25/2005 $111,755 $283,250
</TABLE>

- ------------

(1) These options vest in equal installments on the first three annual
anniversaries of the date of grant.

30
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUE TABLE

The following table sets forth the option exercises and the value of
in-the-money unexercised options held by Mr. Rieple at December 31, 1995:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
ACQUIRED OPTIONS/SARS AT FY/END(#) AT
ON FY/END($)(1)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Theodore R. Rieple................ 0 0 257,500 103,000 $ 1,779,325 $ 584,010
</TABLE>

- ------------

(1) Mr. Rieple has been granted options to purchase a total of 309,000 shares of
Common Stock at an exercise price of $0.97 per share and 51,500 shares of
Common Stock at an exercise price of $3.45 per share. The fiscal year-end
closing price of the Common Stock was $7.88 per share. The amounts in these
columns were calculated using the difference between the exercise price and
the fiscal year-end closing price.

31
<PAGE>
CERTAIN TRANSACTIONS

In 1995, 1994 and 1993, the Company and its subsidiaries paid fees to
Interlaken Capital totaling $0, $260,910 and $133,350, respectively, in
consideration of services rendered in connection with acquisitions made by the
Company and its subsidiaries. Mr. Berkley is the sole stockholder of Interlaken
Capital. Messrs. Berkley and Bursky are the sole directors of Interlaken
Capital. Mr. Bursky, Ms. James and Mr. Polan are all employees and executive
officers of Interlaken Capital.

The Company has entered into an agreement (the "Services Agreement") with
Interlaken Capital pursuant to which Interlaken Capital will provide the Company
with certain corporate and administrative services during 1996, including but
not limited to services relating to accounting and internal legal advice. The
fee to be paid by the Company pursuant to the Services Agreement is $400,000
plus expenses incurred by Interlaken Capital. Besides providing services to the
Company, Interlaken Capital provides legal, accounting and other services to
companies engaged in such businesses as fire protection, contract food services,
infants' clothing manufacturing and chemical manufacturing. Ms. James, although
not an employee of the Company, will devote her full attention to the Company in
her capacity as Executive Vice President and Chief Financial Officer. Mr.
Bursky, also not an employee of the Company, will devote a significant portion
of his time to the Company in his capacity as Chairman. However, the percentage
of time Mr. Bursky devotes to the Company will vary, and will depend upon the
demands and growth of the Company and other business enterprises with which he
is involved. Mr. Berkley and Mr. Polan, as directors of the Company, will devote
such time as a director ordinarily devotes to his duties as a director. The
Services Agreement is effective from March 1, 1996 through December 31, 1996
unless terminated by either party on 30 days' prior written notice. The terms of
the Services Agreement were approved by the Company's disinterested directors.

On May 12, 1995, the Company acquired all of the outstanding common stock of
American Technical Services Group, Inc. ("ATSG") in exchange for options to
purchase an aggregate of 1,036,708 shares of Common Stock at a purchase price of
$5.82 per share. The options became exercisable in whole or in part on November
13, 1995 and terminate on May 12, 2000. The selling stockholders of ATSG
included (i) Interlaken Investment Partners, L.P., which received options to
purchase 919,600 shares of Common Stock, (ii) The Berkley Family Limited
Partnership, which received options to purchase 19,649 shares of Common Stock,
(iii) Andrew M. Bursky, who received options to purchase 28,295 shares of Common
Stock, and (iv) Catherine B. James, who received options to purchase 44,800
shares of Common Stock. Ms. James was Chairman of ATSG and Mr. Bursky was a
director of ATSG at the time of the transaction. Mr. Berkley is the sole owner
of a company that indirectly controls Interlaken Investment Partners, L.P. and
is a general partner of The Berkley Family Limited Partnership. The Company
obtained an opinion from an independent investment bank that the transaction was
fair to the Company's stockholders from a financial point of view.

The Company's SafetyMaster subsidiary currently leases space to Master
Protection Corporation ("Master Protection") in offices located in Billings,
Montana and Bismarck, North Dakota. During 1995, 1994 and 1993, SafetyMaster
leased space to Master Protection under the foregoing leases for aggregate
annual rentals of approximately $15,851, $30,194 and $25,597, respectively. It
is anticipated that the Company will receive an aggregate annual rent of $15,839
in 1996. Messrs. Berkley, Bursky and Polan and Ms. James are stockholders of
Master Protection Holdings, Inc. ("Master Protection Holdings"), the parent of
Master Protection. The Company's current directors own, in the aggregate,
approximately 78% of Master Protection Holdings' outstanding common stock. Ms.
James is the Chairman of Master Protection Holdings and Master Protection and
Messrs. Berkley, Bursky and Polan are directors of Master Protection Holdings
and Master Protection.

In accordance with the agreement pursuant to which the Company purchased its
original safety products distribution business from Master Protection in 1990,
Master Protection is the distributor of record for all products manufactured by
Ansul Fire Protection ("Ansul") and sold by SafetyMaster in those markets in
which SafetyMaster operated at the time of the purchase. Master Protection has
had a

32
<PAGE>
long standing relationship with Ansul and is responsible for negotiating the
terms under which SafetyMaster buys Ansul products and resolving any
distribution problems that arise between the Company and Ansul. During 1995,
1994 and 1993, the Company paid annual commissions to Master Protection of
approximately $65,043, $65,419 and $64,228, respectively, in connection with the
sale of Ansul products, and it is anticipated that the Company will continue to
pay annual commissions to Master Protection of approximately $65,000.

The Company has issued a subordinated note due 1998 to Mr. Krauter in the
principal amount of $500,000, bearing interest at the rate of 6% per annum. The
Company issued this note on January 4, 1994 in connection with its acquisition
from Mr. Krauter of all of the issued and outstanding stock of ISA.

The Company believes that the foregoing transactions were on terms no less
favorable to the Company than those available from unaffiliated parties. In the
future, the Company will engage in transactions with affiliated parties only if
they satisfy the foregoing criteria.

33
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information, as of March 31, 1996,
concerning beneficial ownership of Common Stock (calculated based on 21,765,957
shares outstanding, unless otherwise indicated in the footnotes hereto), and as
adjusted to reflect the sale of the Common Stock in the Offering (assuming no
exercise of the Underwriters' over-allotment option), by (i) each person known
by the Company to own beneficially more than five percent of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) the executive
officer of the Company named in the Summary Compensation Table, (iv) all
executive officers and directors of the Company as a group, and (v) each Selling
Stockholder. Unless otherwise indicated, all amounts reflected in the table
represent shares the beneficial owners of which have sole voting and investment
power.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING OWNED AFTER OFFERING
DIRECTORS, OFFICERS AND 5% ---------------------- SHARES BEING ---------------------
STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------- ---------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
William R. Berkley (a)............. 9,282,898(b) 40.88(b) -- 9,282,898 31.25
Director
Andrew M. Bursky................... 1,090,863(c) 4.91(c) -- 1,090,863 3.73
Director, Chairman of the
Board
Arnold W. Donald................... 1,030 * -- 1,030 *
Director
Catherine B. James................. 720,820(d) 3.29(d) -- 720,820 2.49
Chief Financial Officer,
Executive Vice President and
Director
George E. Krauter.................. 206,000 * -- 206,000 *
Director
Joshua A. Polan.................... 165,781 * -- 165,781 *
Director
Mitchell I. Quain.................. 10,000 * -- 10,000 *
Director
Theodore R. Rieple................. 430,195(e) 1.95(e) -- 430,195 1.48
President and Director
The Soros Group (f)................ 2,472,000 11.36 1,200,000 1,272,000 4.42
Wellington Management Company 1,288,360(h) 5.92 -- 1,288,360 4.48
(g)................................
All executive officers and
directors as a group (9
persons)........................... 11,491,641(i) 49.51(i) -- 11,491,641 38.04
</TABLE>

- ------------

<TABLE>
<C> <S>
* Owns less than 1% of the outstanding shares of Common Stock.
(a) The business address of William R. Berkley and all executive officers and directors of
the Company is 165 Mason Street, Greenwich, Connecticut 06830. The business addresses
of the members of the Soros Group are set forth in footnote (f) below and the business
address of Wellington Management Company is set forth in footnote (g).
(b) Includes (i) 417,182 shares of Common Stock as to which Mr. Berkley has granted a call
option to Mr. Bursky, (ii) 19,649 shares of Common Stock which are subject to currently
exercisable stock options held by The Berkley Family Limited Partnership, and (iii)
919,600 shares of Common Stock which are subject to currently exercisable stock options
held by Interlaken Investment Partners, L.P. Mr. Berkley is a general partner of The
Berkley Family Limited Partnership and is the sole owner of a company that indirectly
controls Interlaken Investment Partners, L.P.; as such, he may be deemed to be the
beneficial owner of shares of Common Stock and/or options to purchase Common Stock held
by those entities. The number of outstanding shares used to calculate percent of class
is 22,705,206.
</TABLE>

(Footnotes continued on following page)

34
<PAGE>
(Footnotes continued from preceding page)

<TABLE>
<C> <S>
(c) Includes (i) 417,182 shares of Common Stock which Mr. Bursky may acquire from Mr.
Berkley upon exercise of a call option and (ii) 28,295 shares of Common Stock which are
subject to currently exercisable stock options held by Mr. Bursky. The number of
outstanding shares used to calculate percent of class is 22,211,434.
(d) Includes 147,800 shares of Common Stock which are subject to currently exercisable
stock options held by Ms. James. The number of outstanding shares used to calculate
percent of class is 21,913,757.
(e) Includes (i) 309,000 shares of Common Stock which are subject to currently exercisable
stock options held by Mr. Rieple and (ii) 17,165 shares of Common Stock which are
subject to stock options held by Mr. Rieple that will become exercisable within 60
days. The number of outstanding shares used to calculate percent of class is
22,092,122.
(f) The Soros Group is comprised of George Soros (doing business as Soros Fund Management),
Brahman Partners II, L.P., B-Y Partners, L.P., Brahman Capital Corp., Brahman Partners,
Peter A. Hochfelder, Robert J. Sobel and Mitchell A. Kuflik. The business address of
Mr. Soros is 888 Seventh Avenue, New York, New York 10106. The business address of all
other members of the Soros Group is 277 Park Avenue, 26th Floor, New York, New York
10017. Information regarding the Soros Group has been obtained by the Company from a
Schedule 13D filed by the Soros Group with the Securities and Exchange Commission on or
about January 12, 1994. The 1,200,000 shares of Common Stock being offered by The Soros
Group are being offered as follows: Brahman Partners II, L.P., 450,000 shares; B-Y
Partners, L.P., 150,000 shares; Quota Fund, NV "Brahman," 450,000 shares; and Genesis
Capital Fund--"Brahman," 150,000 shares. Quota Fund, NV--"Brahman" and Genesis Capital
Fund--"Brahman" are investment accounts managed by Brahman Capital Corp.
(g) The business address of Wellington Management Company is 75 State Street, Boston,
Massachusetts 02109. Information regarding Wellington Management Company has been
obtained by the Company from a Schedule 13G filed by the Wellington Management Company
with the Securities and Exchange Commission on or about January 31, 1996.
(h) Wellington Management Company has shared investment power over 1,288,360 shares of Com-
mon Stock and shared voting power over 629,160 shares of Common Stock. Wellington
Management Company does not have sole voting power over any shares of Common Stock.
(i) Includes 1,442,745 shares of Common Stock which are subject to options held by
executive officers and directors of the Company that are currently exercisable or will
become exercisable within 60 days. The number of outstanding shares used to calculate
percent of class is 23,208,702.
</TABLE>

35
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $0.10 per share, and 500,000 shares of Preferred Stock,
par value $0.10 per share (the "Preferred Stock").

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. All the outstanding shares of Common Stock are, and the
shares of Common Stock to be sold by the Company in the Offering when issued and
paid for will be, fully paid and non-assessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock that the Company may designate and issue in the future.

PREFERRED STOCK

The Board of Directors is authorized, subject to any limitations prescribed
by law and without stockholder approval, to issue shares of Preferred Stock in
one or more series. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation privileges as
shall be determined by the Board of Directors.

The purpose of authorizing the Board of Directors to issue Preferred Stock
and to determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances and to provide desirable
flexibility in connection with possible acquisitions and other corporate
purposes. The issuance of any such series may have an adverse effect on the
rights of holders of Common Stock. The issuance of Preferred Stock could
decrease the amount of earnings and assets available for distribution to holders
of Common Stock. In addition, any such issuance could have the effect of
delaying, deferring or preventing a change of control of the Company. The
Company has no present plans to issue shares of Preferred Stock.

CERTAIN CHARTER PROVISIONS

The Company's Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the Delaware General Corporation Law (the "DGCL"), including payment in
advance of a final disposition of a director's or officer's expenses and
attorneys' fees incurred in defending any action, suit or proceeding. The
Company believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.

SECTION 203 OF THE DELAWARE LAW

Generally, Section 203 of the DGCL prohibits certain Delaware corporations
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time of the

36
<PAGE>
transaction in which the person became an interested stockholder, unless (i)
prior to the time of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) at or after such time the business combination is
approved by the board of directors and by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. A Delaware corporation may "opt
out" from the application of Section 203 of the DGCL through a provision in its
certificate of incorporation or by-laws. The Company has opted out of Section
203 of the DGCL.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer and Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

REGISTRATION RIGHTS

Following the Offering, the holders of 1,787,000 shares of Common Stock will
have the right, subject to certain conditions, to include such shares in certain
registration statements, if any, filed by the Company under the Securities Act.
The holders of all of such shares of Common Stock have waived their right to
include such shares in the Offering. The 1,200,000 shares of Common Stock being
offered by the Selling Stockholders have been included in the Offering pursuant
to such registration rights.

SALES PURSUANT TO RULE 144

Upon completion of the Offering, the Company will have outstanding
28,765,957 shares of Common Stock (assuming the Underwriters' over-allotment
option is not exercised). Of the total shares outstanding the Company estimates
that 16,017,444 shares, including the 8,200,000 shares sold in the Offering,
will be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the
Company, which will be subject to the limitations of Rule 144 under the
Securities Act ("Rule 144"). The Company estimates that an additional 12,748,513
outstanding shares of Common Stock (10,048,896 of which will be held by
affiliates of the Company) will be eligible for sale, subject to applicable
volume limitations and other provisions of Rule 144, 11,320,896 of which will be
subject to the expiration of the 180 day lock-up agreements described below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her restricted
securities (as that term is defined in Rule 144) for at least two years from the
date such securities were acquired from the Company or an affiliate of the
Company would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock (287,660 shares of Common Stock immediately
after the Offering) and (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding a sale by such person. Sales
under Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. Under Rule 144, however, a person who has held shares for a minimum of
three years from the later of the date such securities were acquired from the
Company or an affiliate of the Company and who is not, and for the three months
prior to the sale of such shares has

37
<PAGE>
not been, an affiliate of the Company, is free to sell such shares without
regard to the volume, manner-of-sale and certain other limitations contained in
Rule 144.

The Company, each executive officer and director of the Company and each
Selling Stockholder have agreed with the Underwriters not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of, directly
or indirectly, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for, or warrants, rights or options to acquire
Common Stock or in any manner transfer all or a portion of the economic
consequences associated with the ownership of Common Stock, for a period of 180
days after the date of this Prospectus without the prior written consent of the
Donaldson, Lufkin & Jenrette Securities Corporation, except for gifts, provided
that the donee agrees to be bound by the foregoing restrictions, and except that
the Company may grant options under its employee benefit plans consistent with
past practice or issue shares of Common Stock upon the exercise of options
granted under such employee benefit plans. The Company estimates that 11,320,896
outstanding shares of Common Stock will be subject to these lock-up agreements.

No predictions can be made about the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock in the public market may have an adverse
impact on the market for the Shares.

38
<PAGE>
UNDERWRITING

Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation,
Schroder Wertheim & Co. Incorporated and Hanifen, Imhoff Inc., are acting as
representatives (the "Representatives"), have severally agreed to purchase from
the Company and the Selling Stockholders an aggregate of 8,200,000 Shares. The
number of Shares that each Underwriter has agreed to purchase is set forth
opposite its name below:

NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------- ---------
Donaldson, Lufkin & Jenrette Securities Corporation.............
Schroder Wertheim & Co. Incorporated............................
Hanifen, Imhoff Inc.............................................

---------
Total........................................................... 8,200,000
---------
---------

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the Shares offered hereby are
subject to the approval of certain legal matters by counsel and to certain other
conditions. If any Shares are purchased by the Underwriters pursuant to the
Underwriting Agreement, all the Shares offered hereby (other than shares of
Common Stock subject to the over-allotment option described below) must be
purchased.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.

The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the Shares to the public
initially at the price to the public set forth on the cover page of this
Prospectus and to certain dealers (who may include the Underwriters) at such
price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, discounts not in excess of $
per share to any other Underwriter and certain other dealers.

The Company has granted to the Underwriters an option to purchase up to an
aggregate of 1,230,000 additional shares of Common Stock at the initial public
offering price net of underwriting discounts and commissions, solely to cover
over-allotments made in connection with the sale of the Shares offered hereby.
Such option may be exercised at any time within 30 days after the date of this
Prospectus. To the extent that the Underwriters exercise such option, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of additional shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.

The Company, each executive officer and director of the Company and each of
the Selling Stockholders have agreed with the Underwriters not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of, directly
or indirectly, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for, or warrants, rights or options to acquire
Common Stock or in any manner transfer all or a portion of the economic
consequences associated with the ownership of Common Stock, for a period of 180
days after the date of this Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, except for gifts, provided
that the donee agrees to be bound by the foregoing restrictions, and except that
the Company may grant options under its employee benefit plans consistent with
past practice or issue shares of Common Stock upon the exercise of outstanding
options granted under such employee benefit plans. See "Shares Eligible for
Future Sale."

Mitchell I. Quain, a director of the Company, is also a Managing Director of
Schroder Wertheim & Co. Incorporated, one of the Underwriters of the Offering.
Hanifen, Imhoff Inc. has, in the past,

39
<PAGE>
provided certain investment banking and underwriting services to the Company for
which it received customary compensation.

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Willkie Farr & Gallagher, New York, New
York. Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Underwriters by Andrews & Kurth L.L.P., New York,
New York.

EXPERTS

The financial statements of the Company as of December 31, 1994 and 1995 and
for the years ended December 31, 1993, 1994 and 1995 have been included herein
and elsewhere in the Registration Statement of which this Prospectus forms a
part in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein and upon the authority of said
firm as experts in accounting and auditing.

The financial statements of ATSG for the four months ended July 30, 1993,
the five months ended December 26, 1993 and the year ended December 25, 1994,
included herein and elsewhere in the Registration Statement of which this
Prospectus forms a part have been audited by Smith & Howard, P.C., independent
auditors, as stated in their reports appearing herein, and have been so included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.

The financial statements of ISA as of December 31, 1993 and for the ten
months ended December 31, 1993 included herein and elsewhere in the Registration
Statement of which this Prospectus forms a part have been audited by Coopers &
Lybrand L.L.P., independent auditors, as stated in their reports appearing
herein, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

The financial statements of the Lufkin Division for the year ended December
31, 1993 included herein and elsewhere in the Registration Statement of which
this Prospectus forms a part have been audited by Arthur Andersen LLP,
independent certified public accountants, as stated in their report appearing
herein, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the office of the Securities and Exchange
Commission (the "Commission"), 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information pertaining to the Common
Stock offered hereby and to the Company, reference is made to the Registration
Statement, including the exhibits filed or incorporated by reference as a part
thereof. Statements contained herein concerning the provisions of any documents
filed with, or incorporated by reference in, the Registration Statement as
exhibits are necessarily summaries and, in each instance, each such statement is
qualified in its entirety by reference to the copy of such document filed as an
exhibit to the Registration Statement.

The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and, accordingly, files reports,
proxy statements and other information with the Commission which may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at certain regional offices of the Commission located at Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Seven World Trade Center, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at
prescribed rates.

40
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
THE COMPANY
Independent Auditors' Report....................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995, and March 31, 1996
(unaudited).......................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995, and the three months ended March 31, 1995 and 1996 (unaudited)......... F-4
Consolidated Statement of Stockholders' Equity for the years ended December 31,
1993, 1994 and 1995, and the three months ended March 31, 1996 (unaudited)....... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995, and the three months ended March 31, 1995 and 1996 (unaudited)............. F-6
Notes to Consolidated Financial Statements......................................... F-7

ACQUIRED COMPANIES
American Technical Services Group, Inc.
Independent Auditors' Report....................................................... F-16
Consolidated Balance Sheet as of April 2, 1995 (unaudited)......................... F-17
Consolidated Statements of Operations for the four months ended July 30, 1993, the
five months ended December 26, 1993, the year ended December 25, 1994, the three
months ended April 3, 1994 and the three months ended April 2, 1995 (unaudited)...... F-18
Consolidated Statement of Stockholders' Equity for the four months ended July 30,
1993, the five months ended December 26, 1993, the year ended December 25, 1994
and the three months ended April 2, 1995 (unaudited)............................. F-19
Consolidated Statements of Cash Flows for the four months ended July 30, 1993, the
five months ended December 26, 1993, the year ended December 25, 1994, the three
months ended April 3, 1994 and the three months ended April 2, 1995 (unaudited)...... F-20
Notes to Consolidated Financial Statements......................................... F-21
Industrial Systems Associates, Inc.
Report of Independent Accountants.................................................. F-24
Statement of Income for the ten months ended December 31, 1993..................... F-25
Statement of Stockholders' Equity for the ten months ended December 31, 1993....... F-26
Statement of Cash Flows for the ten months ended December 31, 1993................. F-27
Notes to Financial Statements...................................................... F-28
Industrial Supplies Division of Lufkin Industries, Inc.
Report of Independent Public Accountants........................................... F-29
Statement of Earnings for the year ended December 31, 1993......................... F-30
Statement of Changes in Lufkin's Equity Investment for the year ended December 31,
1993................................................................................. F-31
Statement of Cash Flows for the year ended December 31, 1993....................... F-32
Notes to Financial Statements...................................................... F-33

PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Basis for Presentation of Pro Forma Financial Information.......................... F-36
Pro Forma Statement of Income for the year ended December 31, 1995................. F-37
Note to Pro Forma Statement of Income (unaudited).................................. F-38
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and
Stockholders
STRATEGIC DISTRIBUTION, INC.:

We have audited the accompanying consolidated balance sheets of Strategic
Distribution, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Strategic
Distribution, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.

KPMG PEAT MARWICK LLP

Stamford, Connecticut
March 18, 1996

F-2
<PAGE>

STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,022,428 $ 640,360 $ 872,659
Accounts receivable, net.......................... 10,078,210 20,104,270 19,051,554
Inventories....................................... 13,469,229 15,422,066 16,682,200
Prepaid expenses and other current assets......... 418,926 588,188 670,827
Deferred tax asset................................ 1,793,000 1,320,000 1,307,000
----------- ----------- -----------
Total current assets........................ 28,781,793 38,074,884 38,584,240
Property and equipment, net......................... 2,571,796 3,352,948 3,739,766
Excess of cost over fair value of net assets
acquired, net....................................... 5,158,911 5,865,691 5,817,917
Other assets........................................ 895,541 757,121 738,658
----------- ----------- -----------
Total assets................................ $37,408,041 $48,050,644 $48,880,581
----------- ----------- -----------
----------- ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $10,670,635 $14,317,750 $17,866,578
Current portion of long-term debt................. 209,643 158,553 147,469
Reserve for restructuring charge.................. -- -- 920,000
----------- ----------- -----------
Total current liabilities................... 10,880,278 14,476,303 18,934,047
Long-term debt...................................... 1,617,517 1,458,401 1,451,608
Note payable........................................ -- 4,445,000 2,710,000
Deferred tax liability.............................. 189,000 280,000 267,000
----------- ----------- -----------
Total liabilities........................... 12,686,795 20,659,704 23,362,655
----------- ----------- -----------
Stockholders' equity:
Preferred stock, par value $.10 per share.
Authorized: 500,000 shares; issued and
outstanding: none................................... -- -- --
Common stock, par value $.10 per share.
Authorized: 25,000,000 shares; issued and
outstanding: 21,020,535, 21,716,662 and
21,765,957 shares................................... 2,102,054 2,171,666 2,176,596
Additional paid-in capital.......................... 28,154,039 33,861,694 33,949,442
Accumulated deficit................................. (5,484,847) (8,592,420) (10,558,112)
Note receivable from sale of stock.................. (50,000) (50,000) (50,000)
----------- ----------- -----------
Total stockholders' equity.................. 24,721,246 27,390,940 25,517,926
----------- ----------- -----------
Total liabilities and stockholders'
equity.............................................. $37,408,041 $48,050,644 $48,880,581
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................ $37,097,753 $77,613,379 $117,493,338 $25,396,090 $33,316,372
Cost of sales................... 26,936,870 59,385,787 91,595,757 19,542,626 26,233,440
----------- ----------- ------------ ----------- -----------
Gross profit................... 10,160,883 18,227,592 25,897,581 5,853,464 7,082,932
Selling, general and
administrative expenses........ 9,521,962 16,025,737 23,938,649 4,950,885 8,039,555
Restructuring charge............ -- -- -- -- 920,000
----------- ----------- ------------ ----------- -----------
Operating income (loss)........ 638,921 2,201,855 1,958,932 902,579 (1,876,623)
Interest expense (income):
Interest expense............... 468,371 801,053 178,377 35,686 92,885
Interest (income).............. (31,049) (66,018) (80,371) (40,794) (3,816)
----------- ----------- ------------ ----------- -----------
Interest (income) expense,
net............................. 437,322 735,035 98,006 (5,108) 89,069
----------- ----------- ------------ ----------- -----------
Income (loss) before income
taxes........................... 201,599 1,466,820 1,860,926 907,687 (1,965,692)
Income tax expense (benefit)... -- (768,000) 857,000 368,000 --
----------- ----------- ------------ ----------- -----------
Income (loss) from continuing
operations...................... 201,599 2,234,820 1,003,926 539,687 (1,965,692)
Income from discontinued
operations...................... 100,000 -- -- -- --
----------- ----------- ------------ ----------- -----------
Net income (loss).......... $ 301,599 $ 2,234,820 $ 1,003,926 $ 539,687 $(1,965,692)
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Net income (loss) per common
share:
Primary:
Income (loss) from continuing
operations...................... $ 0.02 $ 0.13 $ 0.05 $ 0.02 $ (0.09)
Income from discontinued
operations...................... -- -- -- -- --
----------- ----------- ------------ ----------- -----------
Net income (loss).......... $ 0.02 $ 0.13 $ 0.05 $ 0.02 $ (0.09)
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Fully diluted--
Net income (loss).......... $ 0.02 $ 0.13 $ 0.04 $ 0.02 $ (0.09)
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Average number of shares of
common stock outstanding....... 12,684,911 16,993,971 21,689,653 21,661,222 21,740,823
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED NOTE
STOCK CAPITAL DEFICIT RECEIVABLE
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Balance December 31, 1992................ $ 1,227,512 $ 9,959,780 $ (8,021,266) $ (50,000)
Net income............................. -- -- 301,599 --
Issuance of 85,000 shares.............. 8,500 21,750 -- --
----------- ----------- ------------ ----------
Balance December 31, 1993................ 1,236,012 9,981,530 (7,719,667) (50,000)
Net income............................. -- -- 2,234,820 --
Issuance of 505,250 shares............. 50,525 595,475 -- --
Exercise of stock options.............. 517 4,649 -- --
Sale of 8,150,000 shares, net.......... 815,000 17,572,385 -- --
----------- ----------- ------------ ----------
Balance December 31, 1994................ 2,102,054 28,154,039 (5,484,847) (50,000)
Net income............................. -- -- 1,003,926 --
Exercise of stock options.............. 6,407 59,442 -- --
Tax benefit of stock options
exercised................................ -- 43,000 -- --
Value of options issued in connection
with acquisition......................... -- 1,560,100 -- --
Stock dividend (including cash paid for
fractional shares)....................... 63,205 4,045,113 (4,111,499) --
----------- ----------- ------------ ----------
Balance December 31, 1995................ 2,171,666 33,861,694 (8,592,420) (50,000)
(unaudited)
Net loss for the three months ended
March 31, 1996........................... -- -- (1,965,692) --
Exercise of stock options.............. 4,930 51,748 -- --
Tax benefit of stock options
exercised................................ -- 36,000 -- --
----------- ----------- ------------ ----------
Balance March 31, 1996................... $ 2,176,596 $33,949,442 $(10,558,112) $ (50,000)
----------- ----------- ------------ ----------
----------- ----------- ------------ ----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................. $ 301,599 $ 2,234,820 $ 1,003,926 $ 539,687 $(1,965,692)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization..... 362,196 802,905 1,211,171 241,097 366,678
Restructuring charge.............. -- -- -- -- 920,000
Deferred taxes.................... -- (886,000) 644,000 296,000 --
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable............. (370,811) (3,113,997) (8,239,648) (3,033,728) 1,052,716
Inventories..................... 43,314 (2,942,819) (1,952,837) 12,332 (1,260,134)
Prepaid expenses and other
current assets................ 5,746 (135,115) (344,814) (205,210) (152,385)
Accounts payable and accrued
expenses........................... (407,962) 163,787 2,348,843 2,439,970 3,563,102
Other, net........................ (55,959) (56,249) 10,237 (1,520) (14,787)
Net cash used in discontinued
operations......................... (100,000) -- -- -- --
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities............... (221,877) (3,932,668) (5,319,122) 288,628 2,509,498
---------- ----------- ----------- ----------- -----------
Cash flows used in investing
activities:
Acquisitions of businesses, net of
cash acquired................... (569,669) (5,020,777) 73,576 -- --
Additions of property and
equipment.......................... (245,098) (671,806) (1,183,984) (217,146) (581,000)
---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities......................... (814,767) (5,692,583) (1,110,408) (217,146) (581,000)
---------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from sale of stock,
net................................ -- 18,392,551 65,849 34,227 56,678
Cash paid in lieu of fractional
shares of stock dividend........ -- -- (3,181) -- --
Proceeds from (repayment of) note
payable............................ 1,251,635 (6,528,256) 4,445,000 -- (1,735,000)
Repayment of subordinated debt.... (56,250) -- -- -- --
Repayment of long-term
obligations........................ (118,286) (488,601) (460,206) (50,884) (17,877)
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities............... 1,077,099 11,375,694 4,047,462 (16,657) (1,696,199)
---------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents.............. 40,455 1,750,443 (2,382,068) 54,825 232,299
Cash and cash equivalents, at
beginning of the period........... 1,231,530 1,271,985 3,022,428 3,022,428 640,360
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents, at end
of the period..................... $1,271,985 $ 3,022,428 $ 640,360 $ 3,077,253 $ 872,659
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Supplemental cash flow information:
Taxes paid...................... $ 6,562 $ 227,423 $ 167,653 $ 85,290 $ 196,149
Interest paid................... 448,656 813,006 158,655 32,692 89,453
</TABLE>

See accompanying notes to consolidated financial statements.

F-6

<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information as to the March 31, 1996 balance sheet and as to the statements
of operations and cash flows for the three months ended March 31, 1995 and 1996
is unaudited.

(1) DESCRIPTION OF BUSINESS

The Company provides proprietary industrial supply procurement solutions to
industrial sites, primarily through its In-Plant Store(R) program. The Company
conducts its operations primarily through its four subsidiaries, SafetyMaster
Corporation ("SafetyMaster"), Lewis Supply (Delaware), Inc. ("Lewis Supply"),
Industrial Systems Associates, Inc. ("ISA") and American Technical Services
Group, Inc. ("ATSG").

(2) SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Strategic
Distribution, Inc. and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The preparation of the consolidated
financial statements requires estimates and assumptions that affect amounts
reported and disclosed in the financial statements and related notes. Actual
results could differ from those estimates.

Cash Equivalents

All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. At December 31, 1994 and
December 31, 1995, the Company had invested in cash equivalents of approximately
$2,710,000 and $203,000, respectively.

Disclosure About Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments approximate fair
value due to their short maturity and variable interest rate feature.

Inventories

Inventories of finished goods are stated at the lower of cost (first-in,
first-out basis) or market.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the remaining useful life of the asset or the lease term. Maintenance and
repairs are charged to expense. Major renewals and improvements are capitalized
and depreciated over the remaining useful life of the asset. Estimated useful
lives are as follows:

Building....................................................... 20 years
Warehouse and office equipment................................. 5-12 years
Leasehold improvements......................................... 5-14 years
Transportation equipment....................................... 4-8 years

F-7
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Intangible Assets

Excess of cost over fair value of net assets acquired is amortized on the
straight-line method over periods up to 40 years. The Company assesses the
recoverability of this intangible asset on a systematic basis by determining
whether the amortization over its remaining life can be recovered through
projected undiscounted future results. The amount of impairment, if any, is
measured based on projected discounted future operating earnings before
amortization.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.

Interim Financial Statements

The accompanying unaudited financial statements as of March 31, 1996 and for
the three months ended March 31, 1995 and 1996 have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments (consisting of normal, recurring
accruals) considered necessary for a fair presentation have been included.
Results for the interim periods are not necessarily indicative of the results
for an entire year.

Net Income (Loss) Per Common Share

Net income (loss) per share of common stock is computed using the weighted
average number of shares and common stock equivalents outstanding during the
respective periods. The fully diluted net income per share for the year ended
December 31, 1995 is based on 22,621,384 shares of Common Stock and common stock
equivalents. For the three months ended March 31, 1996, the net loss per share,
assuming full dilution, is considered to be the same as primary because the
effect of the common stock equivalents would be antidilutive.

Assuming that the 5,750,000 shares of Common Stock issued by the Company on
October 13, 1994 were outstanding for the entire year ended December 31, 1994,
net income per common share would have been $0.12.

(3) ACCOUNTS RECEIVABLE

Accounts receivable is net of an allowance for doubtful accounts of $80,000
and $140,000 at December 31, 1994 and 1995, respectively, and $168,000 at March
31, 1996.

F-8
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(4) PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Land................................................... $ 240,000 $ 240,000 $ 240,000
Building............................................... 567,994 567,994 567,994
Warehouse and office equipment......................... 2,157,140 3,413,553 3,947,242
Leasehold improvements................................. 282,913 569,463 523,898
Transportation equipment............................... 678,363 602,654 645,369
---------- ---------- ----------
3,926,410 5,393,664 5,924,503
Less: accumulated depreciation and amortization........ 1,354,614 2,040,716 2,184,737
---------- ---------- ----------
$2,571,796 $3,352,948 $3,739,766
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

(5) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED

Excess of cost over fair value of net assets acquired is net of accumulated
amortization of $360,000 and $607,000 at December 31, 1994 and 1995,
respectively, and $677,000 at March 31, 1996.

(6) NOTE PAYABLE TO BANK

Effective as of December 31, 1995, the Company entered into a new revolving
bank credit agreement providing maximum outstanding borrowings of $20,000,000.
These borrowings bear interest at the prime rate (8.25% as of March 31, 1996)
and/or a Eurodollar rate, with a 1/4% commitment fee on the unused portion of
the credit available. The credit facility expires on January 31, 2000. At March
31, 1996, $2,710,000 was borrowed, at an interest rate of 8.25%, under the
credit facility. The amount which the Company may borrow under the credit
facility is based upon eligible accounts receivable which were approximately
$18,900,000 at March 31, 1996. The credit facility is collateralized by
substantially all of the assets of the Company's subsidiaries (net book value,
as defined, of approximately $40,340,000 at March 31, 1996) and by a pledge of
all the capital stock of SafetyMaster, Lewis Supply, ISA, ATSG, SafetyMaster's
wholly-owned subsidiary Coulson Technologies, Inc. and ATSG's wholly-owned
subsidiaries ATS Phoenix Inc. and National Technical Services Group, Inc.

(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Accounts payable.................................... $ 7,945,378 $11,318,450 $15,495,896
Accrued expenses.................................... 2,225,825 1,604,796 1,208,117
Payroll and related expenses........................ 499,432 1,394,504 1,162,565
----------- ----------- -----------
$10,670,635 $14,317,750 $17,866,578
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

(8) LONG-TERM DEBT

Long-term debt consists of several loans with a weighted average interest
rate of 7.1% at December 31, 1994 and 1995, and 7.0% at March 31, 1996.

F-9
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(8) LONG-TERM DEBT--(CONTINUED)

Principal payments due on long-term obligations during each of the next five
years are: 1996 (nine months): $127,689; 1997: $373,994; 1998: $548,754; 1999:
$500,621; 2000: $22,058; and thereafter: $25,961.

(9) ACQUISITIONS

In July 1993 the Company issued 75,000 shares of Common Stock in connection
with the acquisition of Dakota Fire and Safety Equipment Co., Inc. and in
October 1993 issued 10,000 shares of Common Stock in connection with the
acquisition of Corpus Fire & Safety, Inc.

On January 4, 1994, the Company acquired all of the outstanding common stock
of ISA. The purchase price consisted of: (i) $3,000,000 in cash; (ii) a
promissory note in the amount of $500,000; and (iii) 500,000 shares of Common
Stock. The source of the cash portion of the purchase price was borrowings under
a revolving bank facility.

On June 16, 1994, Lewis Supply acquired certain assets of the Industrial
Supplies Division of Lufkin Industries, Inc. (the "Lufkin Division"). The
purchase price consisted of: (i) $2,040,000 in cash; and (ii) a mortgage note in
the amount of $600,000. The source of the cash portion of the purchase price was
borrowings under a revolving bank facility.

On May 12, 1995, the Company acquired all of the outstanding common stock of
ATSG. The purchase price consisted of options to purchase 1,036,708 shares of
Common Stock at a price of $5.82 per share. The fair market value of these
options, as determined by an independent investment bank, was $1,560,100.

(10) DISCONTINUED OPERATIONS

During 1990, the Company disposed of its information services business. The
results of these operations are included under the caption "Income From
Discontinued Operations."

In connection with the discontinuance of this business, the Company remained
liable for certain lease obligations. At December 31, 1993, there was no
remaining liability.

(11) RETIREMENT PLAN

The Company has a qualified defined contribution plan (the "Retirement
Savings Plan") for employees who meet certain eligibility requirements.
Contributions to the Retirement Savings Plan are at the discretion of the Board
of Directors and are limited to the amount deductible for Federal income tax
purposes. The expense for the Retirement Savings Plan was $17,525, $38,452 and
$57,936 for the years ended December 31, 1993, 1994 and 1995, respectively, and
$15,652 and $12,502 for the three months ended March 31, 1995 and 1996,
respectively. ATSG regularly employs individuals covered under collective
bargaining agreements. Accordingly, ATSG makes contributions to several multi-
employer defined contribution and defined benefit pension plans ("Plans") for
these employees. The expense for these Plans was $268,931 for the period from
May 12, 1995 to December 31, 1995 and $52,615 for the three months ended March
31, 1996.

F-10
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(12) INCOME TAXES

The income tax expense (benefit) in the Consolidated Statements of
Operations is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ------------------
1993 1994 1995 1996
--------- ----------- -------- ------------------
<S> <C> <C> <C> <C>
Current:
Federal............................... $ -- $ 20,000 $ 35,000 $--
State................................. -- 98,000 178,000 --

Deferred:
Federal............................... -- (828,000) 632,000 --
State................................. -- (58,000) 12,000 --
--------- ----------- -------- ----------
$ -- $ (768,000) $857,000 $--
--------- ----------- -------- ----------
--------- ----------- -------- ----------
</TABLE>

A reconciliation of the expected Federal income tax expense (benefit) at the
statutory rate to the Company's income tax expense follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ------------------
1993 1994 1995 1996
--------- ----------- -------- ------------------
<S> <C> <C> <C> <C>
Expected tax expense (benefit).......... $ 103,000 $ 499,000 $632,000 ($668,000)
Increase (reduction) in tax expense
resulting from:
State taxes........................... -- 26,000 125,000 --
Changes in (reversal of) valuation
allowance............................... -- (1,076,000) -- 639,000
Utilization of net operating loss..... (119,000) (386,000) -- --
State net operating loss not
utilized................................ -- 80,000 -- --
Goodwill.............................. 15,000 69,000 77,000 22,000
Other................................. 1,000 20,000 23,000 7,000
--------- ----------- -------- ------------------
$ -- $ (768,000) $857,000 $ --
--------- ----------- -------- ------------------
--------- ----------- -------- ------------------
</TABLE>

F-11
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(12) INCOME TAXES--(CONTINUED)
The components of the net deferred tax asset were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward (expires during
period ending 2008)................................ $1,181,000 $ 632,000 $ 950,000
----------
Accounts receivable.................................. 32,000 55,000 66,000
Inventories.......................................... 192,000 249,000 230,000
Accrued expenses..................................... 318,000 243,000 236,000
Vacation accrual..................................... 50,000 80,000 86,000
Reserve for restructuring charge..................... -- -- 313,000
Other................................................ 90,000 130,000 139,000
Valuation allowance.................................. -- -- (639,000)
---------- ---------- ----------
Total deferred tax asset........................... 1,863,000 1,389,000 1,381,000
---------- ---------- ----------
Deferred tax liabilities:
Property and equipment............................... 129,000 155,000 161,000
Other assets......................................... 122,000 181,000 164,000
Goodwill............................................. 8,000 13,000 16,000
---------- ---------- ----------
Total deferred tax liability....................... 259,000 349,000 341,000
---------- ---------- ----------
Net deferred tax asset................................. $1,604,000 $1,040,000 $1,040,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The valuation allowance for deferred tax assets as of January 1, 1994 was
$1,794,000, of which $332,000 was to be allocated to reduce goodwill. During the
fourth quarter of 1994, the valuation allowance was eliminated resulting from
the Company's reevaluation of the realizability of future income tax benefits
due to the 1994 acquisitions of ISA and the Lufkin Division. The reversal of the
valuation allowance for deferred tax assets in 1994 which was allocated to
reduce goodwill was $718,000. At December 31, 1995, no valuation allowance was
provided because management believes that it is more likely than not that
sufficient taxable income will be generated to allow for realization of the tax
benefits. At March 31, 1996, a valuation allowance was recorded because the
Company does not believe that it is more likely than not that a benefit will be
realized during the current year.

(13) STOCKHOLDERS' EQUITY

The Company has authorized 500,000 shares of Preferred Stock, par value
$0.10 per share. No shares of Preferred Stock are currently issued or
outstanding. The Board of Directors may at any time fix by resolution any of the
powers, preferences and rights, and the qualifications, limitations and
restrictions of the Preferred Stock, which may be issued in series.

On January 4, 1994, the Company sold an aggregate of 2,400,000 shares of
Common Stock for $3,000,000.

On October 13, 1994, the Company sold 5,750,000 shares of Common Stock in an
underwritten public offering. The net proceeds to the Company were $15,405,500.
The Company's bank indebtedness was repaid and the balance of the proceeds was
available for working capital and for general corporate acquisitions.

F-12
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(13) STOCKHOLDERS' EQUITY--(CONTINUED)

On December 6, 1995, the Company declared a three percent stock dividend
paid on December 29, 1995 to stockholders of record as of December 18, 1995. The
Company had accumulated net income of $4,148,000 from July 1, 1990 (when it
became a provider of industrial supply services) to December 31, 1995.

(14) STOCK COMPENSATION PLAN

The Company has an Incentive Stock Option Plan (the "1990 Stock Option
Plan") under which the Board of Directors is authorized to grant certain
directors, executives and key employees of the Company options for the purchase
of up to 2,060,000 shares of Common Stock. The 1990 Stock Option Plan provides
for the granting of both incentive stock options and options that do not qualify
as incentive stock options. In the case of each incentive stock option granted
under the 1990 Stock Option Plan, the option price must not be less than the
fair market value of the Common Stock at the date of grant. To date, all options
granted under the 1990 Stock Option Plan are exercisable at not less than the
fair market value of the Common Stock at the date of grant. Options which have
been granted under the 1990 Stock Option Plan are exercisable at various rates
from 25% to 33.3% per year beginning on the first anniversary date, except for
103,000 options which were exercisable at the date of grant.

The following table summarizes the option information (as adjusted for the
stock dividend):

<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICES
---------------- -------------
<S> <C> <C>
Options outstanding December 31, 1993......... 721,773 $0.97
Options granted during 1994................... 369,616 $1.21-$3.45
Options canceled or expired................... (83,812) $0.97-$3.45
Options exercised............................. (5,321) $0.97
----------------
Options outstanding December 31, 1994......... 1,002,256 $0.97-$3.45
----------------
Options granted during 1995................... 352,399 $3.45-$5.94
Options canceled or expired................... (99,815) $0.97-$3.45
Options exercised............................. (45,087) $0.97-$3.45
----------------
Options outstanding December 31, 1995......... 1,209,753 $0.97-$5.94
Options granted during first three months
1996........................................ --
Options canceled or expired................... (39,995) $0.97-$3.45
Options exercised............................. (49,295) $0.97-$3.45
----------------
Options outstanding March 31, 1996............ 1,120,463 $0.97-$5.94
----------------
----------------
Options exercisable........................... 690,480 $0.97-$5.94
----------------
----------------
</TABLE>

F-13
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(14) STOCK COMPENSATION PLAN--(CONTINUED)

Warrants to purchase 38,625 shares of Common Stock for $1.46 per share were
outstanding at March 31, 1996 and expire in 1999.

(15) LEASE COMMITMENTS

The Company leases equipment and real estate for initial terms of five to
eight years. The minimum future rental payments for operating leases with
initial noncancelable lease terms in excess of one year as of March 31, 1996 are
as follows:

1996 (nine months).............................................. $843,587
1997............................................................ 906,046
1998............................................................ 685,318
1999............................................................ 378,866
2000............................................................ 261,269
Thereafter...................................................... 144,327

Rental expense for the years ended December 31, 1993, 1994 and 1995 was
$576,509, $628,449 and $908,841, respectively, and $217,138 and $319,912 for the
three months ended March 31, 1995 and 1996, respectively.

(16) SUPPLEMENTAL CASH FLOW INFORMATION

In conjunction with the acquisitions, liabilities assumed were:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
<S> <C> <C> <C>
1993 1994 1995
---------- ----------- ----------
Fair value of assets acquired......................... $1,621,579 $13,496,558 $3,045,065
Net cash.............................................. 569,669 5,020,777 (73,576)
Common Stock or options issued........................ 30,250 625,000 1,560,100
---------- ----------- ----------
Liabilities assumed................................... $1,021,660 $ 7,850,781 $1,558,541
---------- ----------- ----------
---------- ----------- ----------
</TABLE>

(17) CUSTOMER BUSINESS DATA

One In-Plant Store(R) customer (with which the Company operates under four
separate contracts) represented approximately 15% and 10% of revenues for the
years ended December 31, 1994 and 1995, respectively, and approximately 12.3% of
revenues for the three months ended March 31, 1995. Another In-Plant Store(R)
customer (with which the Company operates under four separate contracts)
represented approximately 11.5% of revenues for the three months ended March 31,
1996.

(18) PRO FORMA

Presented below is an unaudited pro forma condensed statement of income
which gives effect to adjustments in 1994 for the acquisition of the Lufkin
Division on June 16, 1994 as if such acquisition

F-14
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(18) PRO FORMA--(CONTINUED)

occurred on January 1, 1994 and adjustments in 1994 and 1995 for the acquisition
of ATSG on May 12, 1995 as if such acquisition occurred on January 1 of each
such year.

YEAR ENDED DECEMBER 31,
----------------------------
1994 1995
------------ ------------
Revenues....................................... $ 91,630,660 $120,264,734
Operating income............................... $ 1,847,893 $ 1,385,880
Net income..................................... $ 1,797,743 $ 428,840
Net income per common share.................... $ 0.11 $ 0.02

One In-Plant Store(R) customer (with which the Company operates under four
separate contracts) represented approximately 12% and 10% of pro forma revenues
for the years ended December 31, 1994 and 1995, respectively.

(19) RESTRUCTURING CHARGE

On March 18, 1996, the Company announced the merger of two of its
subsidiaries. In connection with the merger, the Company recorded a
restructuring charge in the first quarter of 1996 aggregating $920,000 for
employee termination benefits, asset write-offs and lease payments.

(20) QUARTERLY DATA (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)--UNAUDITED

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1994
Revenues................................ $17,307 $18,433 $20,568 $21,305 $ 77,613
Gross profit............................ 3,979 4,282 4,837 5,130 18,228
Net income.............................. 227 283 249 1,476(a) 2,235
Net income per share(b)................. 0.01 0.02 0.02 0.07 0.13
1995
Revenues................................ $25,396 $27,235 $31,926 $32,936 $117,493
Gross profit............................ 5,853 6,180 6,525 7,340 25,898
Net income (loss)....................... 540 381 317 (234) 1,004
Net income (loss) per share(b).......... 0.02 0.02 0.01 (0.01) 0.05
</TABLE>

- ------------

<TABLE>
<C> <S>
(a) See footnote 12

(b) Each period is computed separately.
</TABLE>

F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
American Technical Services Group, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of American Technical Services Group, Inc.
(Successor), a Delaware corporation, for the year ended December 25, 1994 and
five months ended December 26, 1993 (Successor periods), and of American
Technical Services Group, Inc. (Predecessor), a Georgia corporation, for the
four months ended July 30, 1993 (Predecessor period). These consolidated
financial statements are the responsibility of the related Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the aforementioned Successor consolidated financial
statements present fairly, in all material respects, the consolidated results of
operations and cash flows for the Successor periods then ended, in conformity
with generally accepted accounting principles. Further, in our opinion, the
aforementioned Predecessor consolidated financial statements present fairly, in
all material respects, the consolidated results of operations and cash flows for
the Predecessor period, in conformity with generally accepted accounting
principles.

As described in Note 5, the Company filed for binding arbitration related to
a contract in progress at December 25, 1994, and the customer filed a
counterclaim against Company. Due to the early stages of arbitration, the
ultimate outcome is not presently determinable.

SMITH & HOWARD, P.C.

Atlanta, Georgia
February 9, 1995, except for Note 5, as to
which the date is April 27, 1995.

F-16
<PAGE>
AMERICAN TECHNICAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 2, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 11,349
Contracts receivable, net.................................................... 1,591,740
Costs and estimated earnings in excess of billings........................... 94,126
Other........................................................................ 19,381
-----------
Total current assets....................................................... 1,716,596
Property and equipment, net.................................................. 195,066
Excess of cost over fair value of net assets acquired, net................... 254,414
-----------
Total assets............................................................... $ 2,166,076
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................ $ 748,727
Billings in excess of costs and estimated earnings........................... 101,613
Accrual for loss contract.................................................... 15,709
-----------
Total current liabilities.................................................. 866,049
-----------
Commitments and Contingency

Stockholders' Equity:
Common stock, par value $0.01 per share. Authorized 2,000 shares; issued and
outstanding: 1,319 shares...................................................... 13
Additional paid-in capital................................................... 2,880,987
Accumulated deficit.......................................................... (1,580,973)
-----------
Total stockholders' equity................................................. 1,300,027
-----------
Total liabilities and stockholders' equity................................. $ 2,166,076
-----------
-----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-17
<PAGE>
AMERICAN TECHNICAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

F-18
<PAGE>
AMERICAN TECHNICAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREDECESSOR
STOCKHOLDERS'
COMMON STOCK ADDITIONAL ACCUMULATED EQUITY
AMOUNT PAID-IN CAPITAL DEFICIT (DEFICIT)
------------ --------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, April 1, 1993 (Predecessor).... -- -- -- $(255,353)
Net income for the four months ended
July 30, 1993........................... -- -- -- 509,344
-------------
Balance, July 30,1993................... -- -- -- 253,991
Acquisition by Successor on
July 31, 1993......................... $ 10 $ 2,327,490 -- (253,991)
Net loss for the five months ended
December 26, 1993....................... -- -- $ (714,415) --
--- --------------- ----------- -------------
Balance, December 26, 1993.............. 10 2,327,490 (714,415) --
Sale of common stock.................... 3 553,497 -- --
Net loss for the year ended December 25,
1994.................................... -- -- (516,865) --
--- --------------- ----------- -------------
Balance, December 25, 1994.............. 13 2,880,987 (1,231,280) --
Net loss (unaudited) for the three
months ended April 2, 1995............ -- -- (349,693) --
--- --------------- ----------- -------------
Balance, April 2, 1995 (unaudited)...... $ 13 $ 2,880,987 $(1,580,973) --
--- --------------- ----------- -------------
--- --------------- ----------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-19
<PAGE>
AMERICAN TECHNICAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FIVE MONTHS
FOUR MONTHS ENDED YEAR ENDED THREE MONTHS THREE MONTHS
ENDED DECEMBER 26, DECEMBER 25, ENDED ENDED
JULY 30, 1993 1993 1994 APRIL 3, 1994 APRIL 2, 1995
-------------- ------------ ------------ ------------- -------------
(PREDECESSOR) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................... $ 509,344 $ (714,415) $ (516,865) $ (76,677) $(349,693)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization.... 18,614 30,693 70,510 18,888 17,567
Forgiveness of indebtedness...... (544,839) -- -- -- --
Changes in operating assets and
liabilities:
Contracts receivable........... 1,154,816 (278,359) (635,111) (1,181,963) 158,822
Cost and estimated earnings in
excess of billings.................. (78,065) 128,440 (66,290) (82,652) (10,923)
Income taxes receivable........ 71,768 -- -- -- --
Accounts payable and accrued
expenses............................ (554,212) 182,650 (36,755) 424,775 153,524
Billings in excess of costs and
estimated earnings.................. (9,730) 19,474 51,726 170,556 7,308
Accrual for loss contracts..... -- -- 208,228 -- (192,520)
Other, net..................... 2,726 6,623 (14,084) (13,696) 14,984
-------------- ------------ ------------ ------------- -------------
Net cash provided by (used
in) operating activities... 570,422 (624,894) (938,641) (740,769) (200,931)
-------------- ------------ ------------ ------------- -------------
Cash flows from investing
activities--
Additions to property and
equipment........................... -- (8,272) (43,991) (20,394) (52,671)
-------------- ------------ ------------ ------------- -------------
Cash flows from financing
activities:
Net repayments under accounts
receivable agreement with
finance company................ (518,482) -- -- -- --
Repayments of other notes
payable............................. (24,283) -- -- -- --
Borrowings of (repayment of)
subordinated debt................... -- (117,509) (160,742) 1,276 --
Proceeds from sale of common
stock............................... -- -- 553,500 -- --
-------------- ------------ ------------ ------------- -------------
Net cash provided by operating
activities.......................... (542,765) (117,509) 392,758 1,276 --
-------------- ------------ ------------ ------------- -------------
Increase (decrease) in cash and
cash equivalents.................... 27,657 (750,675) (589,874) (759,887) (253,602)
Cash and cash equivalents, at
beginning of period................ 75,802 1,605,500 854,825 854,825 264,951
-------------- ------------ ------------ ------------- -------------
-------------- ------------ ------------ ------------- -------------
Cash and cash equivalents, at end of
period.............................. $ 103,459 $ 854,825 $ 264,951 $ 94,938 $ 11,349
-------------- ------------ ------------ ------------- -------------
-------------- ------------ ------------ ------------- -------------
Supplemental cash flow information:
Taxes paid....................... $ -- $ -- $ -- $ -- $ --
Interest paid.................... 73,304 -- -- -- --
</TABLE>

See accompanying notes to consolidated financial statements.

F-20
<PAGE>
AMERICAN TECHNICAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

American Technical Services Group, Inc. ("ATSG" or the "Successor"), through
its wholly owned subsidiaries, ATS Phoenix Inc. and National Technical Services
Group, Inc., is a supplier of process control and instrumentation services
throughout the United States.

Commencement of Operations

On July 31, 1993, ATSG acquired substantially all of the operating assets
and assumed certain liabilities of American Technical Services Group, Inc.
("Predecessor"), a Georgia corporation. The purchase price was approximately
$941,000, which was funded from part of the proceeds from the initial sale of
ATSG's Common Stock.

Basis of Consolidation

The consolidated financial statements include the accounts of ATSG and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

The periods for the Consolidated Statements of Operations are as follows:

ATSG (Successor):

Predecessor (audited):

Four months ended July 30, 1993 was for the period from the
Predecessors last fiscal year end to its last date of operations.

Audited

Year ended December 25, 1994 and five months ended December 26, 1993
was for fiscal periods which ended on the last Sunday of December.

Unaudited

Fourteen week fiscal quarters for the quarters ending April 3, 1994
and April 2, 1995.

In conjunction with this acquisition, liabilities assumed and refinanced
were:

<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired.................................. $1,413,539
Net cash paid.................................................. (722,000)
Issuance of notes payable...................................... (219,468)
----------
Liabilities assumed and refinanced............................. $ 472,071
----------
----------
</TABLE>

Revenue Recognition

Revenues on long-term contracts are recognized by the percentage of
completion method based on cost incurred as a percentage of the estimated total
costs of each contract. Revenues from time-and-material contracts are recognized
currently as the work is performed. Provision for estimated losses, if any, on
uncompleted contracts are made in the periods in which such losses are
determined.

F-21
<PAGE>
AMERICAN TECHNICAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using
the straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs are charged to expense. Major renewals and improvements
are capitalized and depreciated over the remaining useful life of the asset.

Excess of Cost Over Fair Value of Net Assets Acquired

Excess of cost over fair value of net assets acquired is being amortized on
a straight-line basis over forty years.

Income Taxes

ATSG has accumulated operating loss carryovers at December 25, 1994 for
income tax purposes available to offset future taxable income which expire if
unused as follows:

2008........................................................... $ 612,000
2009........................................................... 458,000
----------
$1,070,000
----------
----------

Differences between book and taxable income consist primarily of the excess
of depreciation for tax purposes over the amount for financial reporting
purposes, bad debts accounted for using the direct write off method for tax
reporting purposes and differences in recognition of losses on contracts.

Interim Financial Statements

The accompanying unaudited financial statements as of April 2, 1995 and the
fourteen week fiscal quarters ended April 2, 1994 and April 3, 1995 have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal,
recurring accruals) considered necessary for a fair presentation have been
included. Results for the interim periods are not necessarily indicative of the
results for an entire year.

NOTE 2--RENT EXPENSE

Rent expense was as follows:

<TABLE>
<CAPTION>
<S> <C>
Four months ended July 30, 1993................................. $ 59,160
Five months ended December 26, 1993............................. 40,196
Year ended December 25, 1994.................................... 182,388
</TABLE>

NOTE 3--PROFIT SHARING PLAN

ATSG has established a 401-K profit sharing plan for eligible employees.
ATSG's contributions to the Plan are at the discretion of its Board of
Directors. ATSG is obligated to pay expenses related to the Plan's
administration. There have been no contributions to the Plan since April 1,
1992.

F-22
<PAGE>
AMERICAN TECHNICAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 4--EXTRAORDINARY ITEM

A loan balance of $568,433 plus accrued interest of $51,406 under the
Amended Workout Agreement with a bank was sold by the bank to the Predecessors
principal stockholder for $75,000 in June 1993. This transaction resulted in
forgiveness of debt to the Predecessor of $544,839 which is recorded as an
extraordinary item for the four months ended July 31, 1993 in the Consolidated
Statements of Operations. The $75,000 loan, due to the Predecessor's principal
stockholder, was not assumed by the Successor.

NOTE 5--CONTINGENCY

Subsequent to December 25, 1994, ATSG filed for binding arbitration of a
dispute relating to work performed by ATSG in late 1994 and early 1995. The net
loss for the year ended December 25, 1994 includes a $250,000 loss for the
project that is the subject of the arbitration. The customer for whom the work
was performed filed a counterclaim against ATSG. Due to the early stages of the
arbitration proceedings, counsel representing ATSG in this matter cannot offer
an opinion as to the probable outcome. Management of ATSG believes that ATSG
will prevail in the arbitration and that the ultimate resolution will not have a
material adverse effect on ATSG's financial position.

F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Industrial Systems Associates, Inc.:

We have audited the accompanying statements of income, stockholders' equity,
and cash flows of Industrial Systems Associates, Inc. for the ten months ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements of Industrial Systems Associates,
Inc. referred to above present fairly, in all material respects, the results of
its operations and its cash flows for the ten months ended December 31, 1993, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1994

F-24
<PAGE>
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
STATEMENT OF INCOME
TEN MONTHS ENDED DECEMBER 31, 1993

<TABLE>
<S> <C>
Revenues...................................................... $22,137,984
Cost of sales................................................. 18,231,174
-----------
Gross profit.............................................. 3,906,810
Selling, general and administrative expenses.................. 3,088,646
-----------
Operating income.......................................... 818,164
Interest expense.............................................. 91,218
-----------
Income before provision for income taxes.................... 726,946
Provision for income taxes.................................... 303,833
-----------
Net income.................................................. $ 423,113
-----------
-----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-25
<PAGE>
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED TREASURY
SHARES AMOUNT EARNINGS STOCK
------ ------- ---------- ---------
<S> <C> <C> <C> <C>
Balance, February 28, 1993........................ 99,000 $42,060 $1,269,550 $(170,000)
Net income........................................ -- -- 423,113 --
------ ------- ---------- ---------
Balance, December 31, 1993........................ 99,000 $42,060 $1,692,663 $(170,000)
------ ------- ---------- ---------
------ ------- ---------- ---------
</TABLE>

See accompanying notes to financial statements.

F-26
<PAGE>
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
TEN MONTHS ENDED DECEMBER 31, 1993

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................................... $ 423,113
Adjustments to reconcile net income to net cash used in operating
activities-- depreciation.................................................. 89,979
Changes in operating assets and liabilities:
Accounts receivable.......................................................... 178,187
Inventory.................................................................... (1,385,077)
Prepaid expenses and other current assets.................................... 30,217
Accounts payable and accrued expenses........................................ 748,566
Income taxes payable......................................................... (271,598)
Other assets, net............................................................ 14,417
-----------
Net cash used in operating activities........................................ (172,196)
-----------
Cash flows from investing activities:
Additions to property and equipment.......................................... (111,110)
-----------
Net cash used in investing activities........................................ (111,110)
-----------
Cash flows from financing activities:
Proceeds from line of credit, net............................................ 412,045
Proceeds from loan payable--officer.......................................... (101,714)
Repayment of long-term debt, net............................................. (21,041)
-----------
Net cash provided by financing activities.................................. 289,290
-----------
Increase in cash......................................................... 5,984
Cash at beginning of period.................................................... 12,399
-----------
Cash at end of period.......................................................... $ 18,383
-----------
-----------
Supplemental cash flow information:
Interest paid................................................................ $ 100,979
Income taxes paid............................................................ 526,757
</TABLE>

See accompanying notes to financial statements.

F-27
<PAGE>
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Industrial System Associates, Inc. ("ISA") operates in-plant stores for the
distribution and sale of maintenance, repair and operations supplies (MRO) to
large industrial customers in the United States. ISA operates in one business
segment.

Effective March 1, 1993, ISA changed its fiscal year-end from February 28 to
December 31.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories:

Inventories of finished goods are stated at the lower of cost (first-in,
first-out basis) or market.

Property and Equipment:

Property and equipment are recorded at cost. Depreciation is computed using
accelerated methods for both financial reporting and income tax purposes.
Maintenance and repairs are charged to expense. Major renewals and improvements
are capitalized and depreciated over the remaining life of the asset. Estimated
useful lives of property and equipment generally range from five to seven years.

3. CUSTOMER CONCENTRATION

ISA operates under multi-year contracts with several customers. For the
period ended December 31, 1993, six customers represented 92% of ISA's sales.

4. INCOME TAXES

The provision for income taxes consist of the following:

<TABLE>
<S> <C>
Currently payable:.............................................. $229,526
Federal....................................................... 67,104
--------
State......................................................... 296,630
Deferred:
Federal....................................................... 7,203
State......................................................... --
--------
$303,833
--------
--------
</TABLE>

A reconciliation of the U.S. statutory federal income tax rate to the
effective rate is as follows:

<TABLE>
<S> <C>
Statutory tax rate................................................... 34.0%
State income taxes, net of federal income tax benefit................ 7.5
----
41.5%
----
</TABLE>

5. RENT EXPENSES

Total rent expense for all operating leases recorded for the ten months
ended December 31, 1993 was $68,101.

6. SUBSEQUENT EVENT

On January 4, 1994, Strategic Distribution, Inc. ("SDI") acquired all of the
outstanding capital stock of ISA. The purchase price paid to the shareholder of
ISA consisted of (i) $3,000,000 in cash, (ii) a promissory note in the amount of
$500,000 and (iii) 500,000 shares of SDI's common stock, par value $0.10 per
share.

F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Lufkin Industries, Inc.:

We have audited the accompanying statements of earnings and cash flows of
the Industrial Supplies Division of Lufkin Industries, Inc. (a Texas
corporation) and the related statement of changes in Lufkin's equity investment
for the year ended December 31, 1993. These financial statements are the
responsibility of management of Lufkin Industries, Inc. Our responsibility is to
express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
Industrial Supplies Division of Lufkin Industries, Inc. and the changes in
Lufkin's equity investment, each for the year ended December 31, 1993, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 31, 1994

F-29
<PAGE>
INDUSTRIAL SUPPLIES DIVISION OF
LUFKIN INDUSTRIES, INC.
STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1993

SALES......................................................... $13,288,527
COST OF SALES................................................. 10,063,206
-----------
GROSS PROFIT.................................................. 3,225,321
-----------
OPERATING EXPENSES:
Selling expenses............................................ 1,062,951
General and administrative expenses......................... 771,275
Allocated Corporate Expenses of Lufkin Industries, Inc...... 515,160
-----------
Total operating expenses.................................. 2,349,386
-----------
EARNINGS BEFORE INCOME TAXES.................................. 875,935
INCOME TAXES.................................................. 297,818
-----------
NET EARNINGS.................................................. $ 578,117
-----------
-----------

The accompanying notes are an integral part of these financial statements.

F-30
<PAGE>
INDUSTRIAL SUPPLIES DIVISION OF
LUFKIN INDUSTRIES, INC.
STATEMENT OF CHANGES IN LUFKIN'S EQUITY INVESTMENT
YEAR ENDED DECEMBER 31, 1993

<TABLE>
<S> <C>
BALANCE, DECEMBER 31, 1992..................................................... $3,411,612
NET EARNINGS FOR 1993.......................................................... 578,117
DECREASE IN LUFKIN'S EQUITY INVESTMENT, NET.................................... (763,042)
----------
BALANCE, DECEMBER 31, 1993..................................................... $3,226,687
----------
----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-31
<PAGE>
INDUSTRIAL SUPPLIES DIVISION OF
LUFKIN INDUSTRIES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993

<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net Earnings.................................................................. $ 578,117
Adjustments To Reconcile Net Earnings To Net Cash
Provided By Operating Activities:
Depreciation.................................................................. 156,841
Gain On Sale Of Assets........................................................ 29,221

Changes In Operating Assets And Liabilities:
Accounts Receivable........................................................... 30,904
Inventories................................................................... (117,827)
Prepaid Insurance............................................................. (794)
Accounts Payable.............................................................. 166,836
Accrued Liabilities........................................................... 5,080
---------
Net Cash Provided By Operating Activities....................................... 848,378
---------
Cash Flows From Investing Activities:
Capital Expenditures.......................................................... (86,136)
Proceeds From Sale Of Assets.................................................. 800
---------
Net Cash Used In Investing Activities........................................... (85,336)
---------
Net Cash Flows from Divisional Financing Activities Representing the Net
Decrease in Lufkin's Equity Investment........................................ $(763,042)
---------
---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-32
<PAGE>
INDUSTRIAL SUPPLIES DIVISION OF LUFKIN INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

The Industrial Supplies Division of Lufkin Industries, Inc. (the "Division")
was established in 1902 and during 1993 was a distributor of industrial products
including power transmission parts, valves, cutting and conveyor equipment and
parts, wire rope and plumbing fixtures and supplies. All products sold are
manufactured by unaffiliated companies. A significant amount of total sales are
to Lufkin Industries, Inc. (the "Parent"), and the Division also sells to
unaffiliated customers in the East Texas region, many of whom are involved in
the forest products and paper industries.

2. BASIS OF FINANCIAL STATEMENT PRESENTATION

In May 1994, Lufkin agreed to sell the inventory and property, plant and
equipment of the Division, except for land and office equipment having a net
carrying value of approximately $119,000 (unaudited), to Lewis Supply
(Delaware), Inc.

The accompanying financial statements represent the 1993 operations of the
Division. For purposes of preparing financial statements under generally
accepted accounting principles, certain allocations have been made in order to
report various assets and liabilities of the Division at their historical costs
less related liabilities. These allocations are considered reasonable by
management.

3. SUMMARY OF MAJOR ACCOUNTING POLICIES

Inventories

The Division uses the last-in, first-out (LIFO) method of determining
inventory cost, which was less than estimated net realizable value. Had the
first-in, first-out method been used for determining inventory values,
inventories would have been approximately the same at December 31, 1993.

Property, Plant and Equipment

The Division records investments in these assets at cost. Improvements are
capitalized, while repair and maintenance costs are charged to operations as
incurred. Gains or losses realized on the sale or retirement of these assets are
reflected in net earnings but were not significant during the period presented.
Depreciation for financial reporting purposes is provided on a straight-line or
double-declining balance method based upon the estimated useful lives of the
assets.

At December 31, 1993, assets with costs of $383,288 were being depreciated
using a double-declining balance method of depreciation.

Income Taxes

For federal income tax purposes, the Division's operating results have been
included in the Parent's federal income tax return. For financial reporting
purposes, the Division has provided federal income taxes as if it were a
stand-alone entity. However, since the Division is not a tax-paying entity with
respect to federal income taxes, deferred income taxes payable of approximately
$66,000 at December 31, 1993, have been included in Lufkin's equity investment
account. These deferred taxes payable result from differences in depreciation
methods used for book and for income tax purposes.

F-33
<PAGE>
INDUSTRIAL SUPPLIES DIVISION OF LUFKIN INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

4. RELATED-PARTY AND NONRECURRING TRANSACTIONS

During 1993, the Division recorded sales of $5,527,000 to its Parent, which
represented approximately 42 percent of total Division sales. The gross margin
resulting from these sales to the Parent was approximately $1,105,000. General
and administrative expenses for the Division include certain overhead charges
allocated to the Division based on specific activities performed for the
Division and other indirect expenses allocated on a proportionate basis. In
addition, the statement of earnings has been charged for allocated corporate
expenses of the Parent of $515,160. These corporate charges were made to cover
the various expenses incurred by the Parent to provide supporting administrative
services to the Division, including management direction, accounting, data
processing, human resources, etc. Management believes the allocations are
reasonable. Because of the relationship between the Division and its Parent, the
amount of these transactions reflected in the accompanying financial statements
may not have been the same as they would have been among unaffiliated parties.

Lufkin operates a treasury management system under which the Division's cash
needs have been funded by the Parent. Advances to and from Lufkin have been
included in Lufkin's equity investment account. For various reasons, including
the large number of intercompany transactions, it is not practicable to
determine the amount of gross advances and gross repayments settled through
Lufkin's equity investment account during the periods presented, nor is it
practicable to determine what portion of Lufkin's equity investment account
represents retained earnings of the Division.

During 1993, the Division sold approximately $422,000 of products directly
to Russia. These sales were in addition to various sales made to the Parent to
support business activities conducted by the Parent with Russia. The majority of
these sales represented products that are not carried in the Division's normal
inventory. The Division does not anticipate selling any additional products to
Russia in the future.

During 1993, the Division maintained a Pole Line product line for sales
relating to a contract with a local utility company. Sales of the product line
totaled approximately $747,000 and represented 6 percent of total Division
sales. During 1993, the contract with the utility company expired and the
Division discontinued this product line.

5. RETIREMENT BENEFITS

The Division is part of a Lufkin Industries, Inc. noncontributory pension
plan covering substantially all employees. The benefits provided by this plan
are measured by length of service, compensation and other factors and are
currently funded by a trust established under the plan. Funding of retirement
costs for this plan complies with the minimum funding requirements specified by
the Employee Retirement Income Security Act. Plan investment assets are invested
primarily in equity securities, United States Government securities and cash
equivalents.

The following table provides the detail of the components of pension expense
for the Division. It is not practicable to determine the funded status of the
portion of the plan which relates to the Division. On an overall basis, the
funded assets of the Lufkin Industries, Inc. Retirement Plan for Salaried
Employees was in excess of the projected benefit obligation as of December 31,
1993.

<TABLE>
<CAPTION>
<S> <C>
Components of pension expense--
Service cost................................................. $ 118,616
Interest cost................................................ 235,888
</TABLE>

F-34
<PAGE>
INDUSTRIAL SUPPLIES DIVISION OF LUFKIN INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. RETIREMENT BENEFITS--(CONTINUED)
<TABLE>
<S> <C>
Actual return on plan assets................................. (268,355)
Net amortization and deferral................................ (53,419)
---------
Net pension expense........................................ $ 32,730
---------
---------
</TABLE>

The Division is included in a Lufkin defined contribution thrift plan
covering substantially all of its employees. The Parent makes contributions of
75 percent of employee contributions during the year. All obligations of the
Division were funded through December 31, 1993. The allocated thrift expense
related to the Division for this plan totaled $22,511 for the year ended
December 31, 1993.

In addition, the Division is included in two Lufkin defined benefit
post-retirement plans that cover its employees. One plan provides medical
benefits and the other plan provides life insurance benefits. Both plans are
contributory, with retiree contributions adjusted periodically. The Division's
expense for these plans was $25,000, for the year ended December 31, 1993 and is
included with the allocated corporate expenses.

6. UNAFFILIATED SIGNIFICANT CUSTOMERS

For the year ended December 31 1993, one unaffiliated customer represented
11 percent of divisional sales.

F-35
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF INCOME
BASIS FOR PRESENTATION OF PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma statement of income includes the applicable pro
forma effect of the adjustment for the acquisition of American Technical
Services Group, Inc. ("ATSG"), acquired May 12, 1995, as if such acquisition
occurred on January 1, 1995.

The unaudited pro forma statement of income is not necessarily indicative of
what the actual results of operations would have been had the transaction
occurred at January 1, 1995, nor does it purport to be indicative of future
results of operations.

F-36
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENT
-----------------
DECEMBER 31, (NOTE) PRO FORMA
1995 ATSG COMBINED DEBIT CREDIT COMBINED
------------ ---------- ------------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $117,493,338 $2,771,396 $120,264,734 $120,264,734
Cost of sales............. 91,595,757 2,407,139 94,002,896 94,002,896
------------ ---------- ------------ ------------
Gross profit.............. 25,897,581 364,257 26,261,838 26,261,838
Selling, general and
administrative expenses... 23,938,649 924,349 24,862,998 $12,960 24,875,958
------------ ---------- ------------ ------------
Operating income(loss).... 1,958,932 (560,092) 1,398,840 1,385,880
Interest expense (income):
Interest expense........ 178,377 2,034 180,411 180,411
Interest (income)....... (80,371) -- (80,371) (80,371)
------------ ---------- ------------ ------------
Interest expense,
net....................... 98,006 2,034 100,040 100,040
------------ ---------- ------------ ------------
Income (loss) before
income taxes............ 1,860,926 (562,126) 1,298,800 1,285,840
Income tax expense........ 857,000 -- 857,000 857,000
------------ ---------- ------------ ------- ------ ------------
Net income (loss)......... $ 1,003,926 $ (562,126) $ 441,800 $12,960 $ -- $ 428,840
------------ ---------- ------------ ------- ------ ------------
------------ ---------- ------------ ------- ------ ------------
Net income per share...... $ 0.05 $ 0.02
------------ ------------
------------ ------------
Average number of shares
of common stock
outstanding............... 21,689,653 21,689,653
------------ ------------
------------ ------------
</TABLE>

F-37
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
NOTE TO PRO FORMA STATEMENT OF INCOME
(UNAUDITED)

PRO FORMA ADJUSTMENT

Purchase accounting adjustments to conform to Accounting Principles Board
Opinion No. 16, "Business Combination," relating to the amortization of excess
of cost over fair value of net assets acquired. Excess of cost over fair value
of net assets acquired is amortized on a straight-line basis over 20 years.
Historically, excess of cost over fair value of net assets acquired was
amortized on a straight-line basis over 40 years.

F-38
<PAGE>
STRATEGIC DISTRIBUTION LOGO

The Company's In-Plant Store(R) program is a comprehensive outsourcing
service through which the Company manages all aspects of industrial supply
procurement at 44 large industrial sites in North America. The Company also
offers several other proprietary industrial supply procurement programs, as well
as traditional distribution, to more than 19,000 customers through a network of
32 branches and ten sales and service offices located throughout the United
States and in Mexico.

<PAGE>

- ------------------------------------------- -----------------------------------
- ------------------------------------------- -----------------------------------

NO DEALER, SALESPERSON OR OTHER
8,200,000 SHARES
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING STOCKHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES STRATEGIC DISTRIBUTION, INC.
NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER COMMON STOCK
THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR SINCE THE DATES AS
OF WHICH INFORMATION IS SET FORTH HEREIN. -------------------
PROSPECTUS
-------------------
---------------

TABLE OF CONTENTS

PAGE
----
Prospectus Summary.................... 3
Investment Considerations............. 7
Use of Proceeds....................... 8
Dividend Policy....................... 8
Capitalization........................ 9
Price Range of Common Stock........... 10
DONALDSON, LUFKIN & JENRETTE
Selected Historical and Pro Forma SECURITIES CORPORATION
Consolidated Financial Data........... 11

Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................... 13
Business.............................. 17

SCHRODER WERTHEIM & CO.
Management............................ 28
Certain Transactions.................. 32
Principal and Selling Stockholders.... 34
Description of Capital Stock.......... 36

HANIFEN, IMHOFF INC.
Shares Eligible for Future Sale....... 37
Underwriting.......................... 39
Legal Matters......................... 40
Experts............................... 40
Available Information................. 40

Index to Financial Statements......... F-1, , 1996

- ------------------------------------------- ----------------------------------
- ------------------------------------------- ----------------------------------

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the Common Stock being registered, all of which will be paid by the Company.
All amounts are estimates except the registration fee and the NASD filing fee.

Registration Fee............................................... $ 19,916
NASD Filing Fee................................................ 6,276
NASD Listing Fee............................................... 17,500
Blue Sky Fees and Expenses..................................... 10,000
Accounting Fees and Expenses................................... 90,000
Legal Fees and Expenses........................................ 250,000
Transfer Agent and Registrar Fees.............................. 10,000
Printing and Engraving Expenses................................ 125,000
Miscellaneous Expenses......................................... 96,308
---------
Total.................................................... $ 625,000
---------
---------

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.

A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses (including attorneys' fees) which he or she actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under any corporation's by-laws, agreement, vote or otherwise.

In accordance with Section 145 of the DGCL, Article NINTH of the Company's
Restated Certificate of Incorporation, as amended (the "Restated Certificate")
provides that the Company shall indemnify each person who is or was a director,
officer, employee or agent of the Company (including the heirs, executors,
administrators or estate of such person) or is or was serving at the request of
the

II-1
<PAGE>
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted under Section 145 of the DGCL, as the same may be amended or
supplemented. The indemnification provided by the Restated Certificate shall not
be deemed exclusive of any other rights to which any of those seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

The foregoing statements are subject to the detailed provisions of Section
145 of the DGCL and Article NINTH of the Restated Certificate.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On August 11, 1994, the Company issued 5,250 shares of Common Stock to an
individual in return for services rendered to the Company. The Common Stock was
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Company, as amended through August 21,
1987 (incorporated by reference to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "fiscal 1995 10-K Report"))*
3.1(a) Amendment to Certificate of Incorporation of the Company filed August 21, 1987 with
the Secretary of State of Delaware (incorporated by reference to the fiscal 1995
10-K Report)*
3.1(b) Amendment to Certificate of Incorporation of the Company filed December 16, 1987
with the Secretary of State of Delaware (incorporated by reference to the fiscal
1995 10-K Report)*
3.1(c) Amendment to Certificate of Incorporation of the Company filed December 15, 1988
with the Secretary of State of Delaware (incorporated by reference to the fiscal
1995 10-K Report)*
3.1(d) Certificate of Stock Designations of the Company filed September 15, 1989 with the
Secretary of State of Delaware (incorporated by reference to the fiscal 1995 10-K
Report)*
3.1(e) Amendment to Certificate of Incorporation of the Company filed November 9, 1990 with
the Secretary of State of Delaware (incorporated by reference to the fiscal 1995
10-K Report)*
3.1(f) Amendment to Certificate of Incorporation of the Company filed April 8, 1996 with
the Secretary of State of Delaware*
3.2 Amended and Restated Bylaws of the Company dated July 24, 1986 (incorporated by
reference to the fiscal 1995 10-K Report)*
3.2(a) Amendment to Amended and Restated Bylaws of the Company dated April 25, 1988
(incorporated by reference to the fiscal 1995 10-K Report)*
4 Specimen of Common Stock certificate (incorporated by reference to Amendment No. 2
to the Company's Registration Statement on Form S-1, Registration No. 33-82906,
dated October 5 1994)*
5 Opinion of Willkie Farr & Gallagher regarding the legality of the Common Stock being
registered**
10.1 Form of Strategic Distribution, Inc., Amended and Restated 1990 Incentive Stock
Option Plan (incorporated by reference to the fiscal 1995 10-K Report)*
10.2 Securities Purchase Agreement, dated as of January 4, 1994, among the Company and
the Purchasers listed therein (incorporated by reference to the Company's January 4,
1994 Current Report on Form 8-K)*
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.3 Stock Purchase Agreement, dated as of January 4, 1994, between the Company and
George E. Krauter (incorporated by reference to the Company's January 4, 1994
Current Report on Form 8-K)*
10.4 Asset Purchase Agreement, dated as of June 14, 1994, between Lewis Supply
(Delaware), Inc. and Lufkin Industries, Inc. (incorporated by reference to the
Company's June 29, 1994 Current Report on Form 8-K)*
10.5 Stock Purchase Agreement, dated as of May 12, 1995, between the Company and the
selling shareholders parties thereto (incorporated by reference to the Company's May
12, 1995 Current Report on Form 8-K)*
10.6 Credit Agreement, dated as of December 31, 1995, between the Company and Bank of
America (incorporated by reference to the fiscal 1995 10-K Report)*
10.7 Services Agreement between the Company and Interlaken Capital, Inc.**
21 List of Subsidiaries of the Company (incorporated by reference to the fiscal 1995
10-K Report)*
23.1 Consent of KPMG Peat Marwick LLP, independent public accountants*
23.2 Consent of Smith & Howard, P.C., independent public accountants*
23.3 Consent of Coopers & Lybrand L.L.P., independent public accountants*
23.4 Consent of Arthur Andersen LLP, independent public accountants*
23.5 Consent of Willkie Farr & Gallagher (included in the opinion filed herewith as
Exhibit 5 hereto)**
24 Power of Attorney of the Board of Directors (included in Part II of the Registration
Statement)*
</TABLE>

- ------------

* Previously filed.

** To be filed by amendment.

(b) Financial Statement Schedules

None

II-3
<PAGE>
ITEM 17. UNDERTAKINGS

(1) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(2) The undersigned registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-1 and has duly caused this Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Greenwich, Connecticut, on April 25,
1996.

STRATEGIC DISTRIBUTION, INC.

By: /s/ ANDREW M. BURSKY
..................................
Andrew M. Bursky
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- ---------------
<S> <C> <C>

/s/ ANDREW M. BURSKY Chairman of the Board and Director April 25, 1996
..................................... (Principal Executive Officer)
Andrew M. Bursky

* /S/ THEODORE R. RIEPLE President and Director April 25, 1996
.....................................
Theodore R. Rieple

* /S/ CATHERINE B. JAMES Chief Financial Officer, Executive April 25, 1996
..................................... Vice President, Treasurer, Secretary
Catherine B. James and Director (Principal Financial
Officer)

* /S/ CHARLES J. MARTIN Vice President, Controller and Chief April 25, 1996
..................................... Accounting Officer (Principal
Charles J. Martin Accounting Officer)

* /S/ WILLIAM R. BERKLEY Director April 25, 1996
.....................................
William R. Berkley

..................................... Director April 25, 1996
Arnold W. Donald

* /S/ GEORGE E. KRAUTER Director April 25, 1996
.....................................
George E. Krauter

* /S/ MITCHELL I. QUAIN Director April 25, 1996
.....................................
Mitchell I. Quain

* /S/ JOSHUA A. POLAN Director April 25, 1996
.....................................
Joshua A. Polan
</TABLE>

*By: /s/ WILLIAM L. MAHONE
................................
William L. Mahone
Attorney-in-Fact

II-5
<PAGE>
APPENDIX A

The inside front cover page of the paper version of this filing will contain
a map showing the location of the Company's facilities and the inside back cover
page will contain a chart illustrating the differences between the Company's
In-Plant Store(R) program and traditional industrial supply distribution
methods.
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------- -----
<C> <S> <C>
1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Company, as amended through
August 21, 1987 (incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (the "fiscal 1995 10-K
Report"))*
3.1(a) Amendment to Certificate of Incorporation of the Company filed August 21, 1987
with the Secretary of State of Delaware (incorporated by reference to the
fiscal 1995 10-K Report)*
3.1(b) Amendment to Certificate of Incorporation of the Company filed December 16,
1987 with the Secretary of State of Delaware (incorporated by reference to the
fiscal 1995 10-K Report)*
3.1(c) Amendment to Certificate of Incorporation of the Company filed December 15,
1988 with the Secretary of State of Delaware (incorporated by reference to the
fiscal 1995 10-K Report)*
3.1(d) Certificate of Stock Designations of the Company filed September 15, 1989 with
the Secretary of State of Delaware (incorporated by reference to the fiscal
1995 10-K Report)*
3.1(e) Amendment to Certificate of Incorporation of the Company filed November 9,
1990 with the Secretary of State of Delaware (incorporated by reference to the
fiscal 1995 10-K Report)*
3.1(f) Amendment to Certificate of Incorporation of the Company filed April 8, 1996
with the Secretary of State of Delaware*
3.2 Amended and Restated Bylaws of the Company dated July 24, 1986 (incorporated
by reference to the fiscal 1995 10-K Report)*
3.2(a) Amendment to Amended and Restated Bylaws of the Company dated April 25, 1988
(incorporated by reference to the fiscal 1995 10-K Report)*
4 Specimen of Common Stock certificate (incorporated by reference to Amendment
No. 2 to the Company's Registration Statement on Form S-1, Registration No.
33-82906, dated October 5 1994)*
5 Opinion of Willkie Farr & Gallagher regarding the legality of the Common Stock
being registered**
10.1 Form of Strategic Distribution, Inc., Amended and Restated 1990 Incentive
Stock Option Plan (incorporated by reference to the fiscal 1995 10-K Report)*
10.2 Securities Purchase Agreement, dated as of January 4, 1994, among the Company
and the Purchasers listed therein (incorporated by reference to the Company's
January 4, 1994 Current Report on Form 8-K)*
10.3 Stock Purchase Agreement, dated as of January 4, 1994, between the Company and
George E. Krauter (incorporated by reference to the Company's January 4, 1994
Current Report on Form 8-K)*
10.4 Asset Purchase Agreement, dated as of June 14, 1994, between Lewis Supply
(Delaware), Inc. and Lufkin Industries, Inc. (incorporated by reference to the
Company's June 29, 1994 Current Report on Form 8-K)*
10.5 Stock Purchase Agreement, dated as of May 12, 1995, between the Company and
the selling shareholders parties thereto (incorporated by reference to the
Company's May 12, 1995 Current Report on Form 8-K)*
10.6 Credit Agreement, dated as of December 31, 1995, between the Company and Bank
of America (incorporated by reference to the fiscal 1995 10-K Report)*
10.7 Services Agreement between the Company and Interlaken Capital, Inc.**
21 List of Subsidiaries of the Company (incorporated by reference to the fiscal
1995 10-K Report)*
23.1 Consent of KPMG Peat Marwick LLP, independent public accountants*
23.2 Consent of Smith & Howard, P.C., independent public accountants*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------- -----
<C> <S> <C>
23.3 Consent of Coopers & Lybrand L.L.P., independent public accountants*
23.4 Consent of Arthur Andersen LLP, independent public accountants*
23.5 Consent of Willkie Farr & Gallagher (included in the opinion filed herewith as
Exhibit 5 hereto)**
24 Power of Attorney of the Board of Directors (included in Part II of the
Registration Statement)*
</TABLE>

- ------------

* Previously filed.

** To be filed by amendment.