<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
_________________________________________
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________________ to ________________________
Commission file number 0-5228
____________________________
STRATEGIC DISTRIBUTION, INC.
____________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 22-1849240
____________________________________________________________________________
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1635-D Bustleton Pike, Feasterville, PA 19047
____________________________________________________________________________
(Address of principal executive offices) (Zip Code)
215-396-3088
____________________________________________________________________________
(Registrant's telephone number, including area code)
____________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
______ ______
Number of Common Shares outstanding at July 30, 1997: 30,660,759
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM I PAGE NO.
Consolidated Financial Statements:
- Consolidated Balance Sheets - 1
June 30, 1997 (unaudited)
and December 31, 1996
- Consolidated Statements of Operations 2
(unaudited) - Three Months and
Six Months Ended June 30, 1997 and 1996
- Consolidated Statements of Cash Flows 3
(unaudited) - Six Months Ended June 30, 1997
and 1996
- Notes to Consolidated Financial Statements 4
(unaudited)
ITEM 2
Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
PART II - OTHER INFORMATION
ITEM 4
Submission of Matters to a Vote of Security Holders 14
ITEM 6
Exhibits and Reports on Form 8-K 15
Signatures 17
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except for share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(unaudited)
-----------
<S> <C> <C>
Assets
- --------------------------------------------------
Current assets:
Cash and cash equivalents $ 26,300 $ 35,498
Accounts receivable, net 25,423 17,910
Inventories 21,598 15,720
Prepaid expenses and other current assets 771 436
Notes receivable 256 -
Deferred tax asset 1,382 1,382
-------- --------
Total current assets 75,730 70,946
Notes receivable 2,769 -
Property and equipment, net 3,251 2,251
Net assets of discontinued operations 1,692 16,614
Excess of cost over fair value of net assets
acquired, net 2,464 2,525
Other intangible assets, net 6,301 -
Other assets 60 46
-------- --------
Total assets $ 92,267 $ 92,382
-------- --------
-------- --------
Liabilities and Stockholders' Equity
- -------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 27,018 $ 17,477
Current portion of long-term debt (related party
$500 in 1997) 511 22
-------- --------
Total current liabilities 27,529 17,499
Long-term debt (related party $500 in 1996) 87 587
Subordinated debt-related party 1,400 -
Deferred tax liability 342 342
-------- --------
Total liabilities 29,358 18,428
-------- --------
Stockholders' Equity:
Preferred stock, par value $.10 per share.
Authorized: 500,000 shares; issued and
outstanding: none - -
Common stock, par value $.10 per share.
Authorized 50,000,000 shares; issued:
30,650,203 and 29,523,361 shares 3,065 2,952
Additional paid-in capital 92,946 88,753
Accumulated deficit (32,052) (17,701)
Note receivable from related party (1,000) (50)
-------- --------
62,959 73,954
Treasury stock: 12,500 shares, at cost (50) -
-------- --------
Total stockholders' equity 62,909 73,954
-------- --------
Total liabilities and stockholders' equity $ 92,267 $ 92,382
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements
- 1 -
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except for share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 41,270 $ 19,518 $ 75,776 $ 36,026
Costs and expenses:
Cost of materials 32,935 15,544 60,504 28,873
Operating wages and benefits 3,589 1,784 6,919 3,193
Other operating expenses 1,511 317 2,415 592
Selling, general and administrative expenses 4,548 2,772 8,412 5,048
Acquired in-process technology - - 8,000 -
----------- ----------- ----------- -----------
Total costs and expenses 42,583 20,417 86,250 37,706
----------- ----------- ----------- -----------
Operating loss (1,313) (899) (10,474) (1,680)
Interest expense (income):
Interest expense 41 37 73 78
Interest (income) (321) (292) (696) (296)
----------- ----------- ----------- -----------
Interest expense (income), net (280) (255) (623) (218)
----------- ----------- ----------- -----------
Loss from continuing operations (1,033) (644) (9,851) (1,462)
Discontinued operations:
Loss from discontinued operations - (1,017) - (2,165)
Loss from sale of discontinued operations (4,500) - (4,500) -
----------- ----------- ----------- -----------
Net loss $ (5,533) $ (1,661) $ (14,351) $ (3,627)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per common share:
Loss from continuing operations $ (0.03) $ (0.03) $ (0.33) $ (0.06)
Loss from discontinued operations (0.15) (0.04) (0.15) (0.10)
----------- ----------- ----------- -----------
Net loss $ (0.18) $ (0.07) $ (0.48) $ (0.16)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average number of shares of common stock
outstanding 30,399,446 25,056,757 30,207,594 23,398,791
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
- 2 -
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (9,851) (1,462)
Adjustments to reconcile loss from continuing
operations to net cash used in operating
activities:
Depreciation and amortization 937 331
Acquired in-process technology 8,000 -
Changes in operating assets and liabilities,
net of effects of acquisition:
Accounts receivable (6,323) (1,662)
Inventories (5,878) (3,302)
Prepaid expenses and other current assets (358) (482)
Accounts payable and accrued expenses 8,474 5,021
Other, net (7) (14)
\ -------- -------
Net cash used in continuing operations (5,006) (1,570)
Discontinued operations:
Net loss (4,500) (2,165)
Decrease in net assets 4,440 2,803
-------- -------
Net cash used in operating activities (5,066) (932)
-------- -------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (10,769) -
Additions of property and equipment (1,060) (939)
Proceeds from sale of discontinued operations 7,458 -
-------- -------
Net cash used in investing activities (4,371) (939)
-------- -------
Cash flows from financing activities:
Proceeds from sale of common stock 900 55,429
Repayment of note payable (400) (4,445)
Repayment of loan to stockholders (250) -
Repayment of long-term obligations (11) (10)
-------- -------
Net cash provided by financing activities 239 50,974
-------- -------
Increase (decrease) in cash and cash
equivalents (9,198) 49,103
Cash and cash equivalents, at beginning of the period 35,498 362
-------- -------
Cash and cash equivalents, at end of the period $ 26,300 $49,465
-------- -------
-------- -------
Supplemental cash flow information:
Taxes paid $ 2 $ 112
Interest paid 60 151
</TABLE>
See accompanying notes to consolidated financial statements
- 3 -
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(dollars in thousands, except for share data)
(unaudited)
1. The accompanying unaudited consolidated financial statements include the
accounts of Strategic Distribution, Inc. and subsidiaries (the "Company").
These financial statements have been prepared in accordance with the
instructions of Form 10-Q. In the opinion of management, all adjustments
(consisting of a normal and recurring nature) considered necessary for a fair
presentation of the results of operations for the three months and six months
ended June 30, 1997 and 1996 have been included. The statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
2. On November 11, 1996, the Company announced its intention to sell two of
its subsidiaries, Strategic Supply, Inc. ("SSI") and American Technical
Services Group, Inc. ("ATSG"), in order to focus more directly on the
development of the Company's In-Plant Store-Registered Trademark- business.
On June 2, 1997, the Company, SSI and Coulson Technologies, Inc., a
wholly-owned subsidiary of SSI ("Coulson"), sold, conveyed, transferred and
assigned to DXP Acquisition, Inc., a Nevada corporation ("DXP Acquisition")
and a wholly-owned subsidiary of DXP Enterprises, Inc., a Texas corporation
("DXP"), substantially all of the assets and business of SSI and Coulson
(excluding, however, the accounts receivable of $5,669 which were retained by
SSI and Coulson). DXP Acquisition also assumed certain obligations and
liabilities of SSI and Coulson in connection with the disposition. The
disposition was made pursuant to the terms of that certain Asset Purchase
Agreement among the Company, SSI, Coulson, DXP Acquisition and DXP dated May
27, 1997 with the purchase price determined as of May 31, 1997. Total
consideration for the acquisition (subject to adjustment) consisted of $4,433
in cash, promissory notes from DXP Acquisition to SSI in the aggregate
principal amount of $3,025 and an earn-out (contingent payment) which could
result in additional compensation to SSI of up to $3,500.
The Company believes it will be possible to consummate the sale of ATSG
by December 31, 1997; there can be no guarantee, however, that the sale will
be consummated by that date. The results of operations of SSI and ATSG have
been presented in the Company's consolidated financial statements to conform
with discontinued operations treatment.
The presentation of the 1996 statement of operations has been
reclassified as a result of the discontinued operations.
3. On January 28, 1997, the Company acquired all of the outstanding common
stock of INTERMAT International Materials Management, Inc. ("INTERMAT"). The
purchase price consisted of $10,800 in cash, a $1,400 subordinated note, and
625,000 newly issued shares of the Company's
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common stock valued at $2,406. The source of the cash portion of the
purchase price was available cash and cash equivalents. The method of
accounting for this acquisition was the purchase accounting method.
Accordingly, the purchase price has been allocated to identifiable tangible
and intangible assets acquired and liabilities assumed based on their
estimated fair values and amounts allocated to acquired in-process technology
have been expensed at the time of acquisition. The results of operations of
INTERMAT are included in the Company's statements of operations from date of
acquisition.
Presented below are unaudited pro forma consolidated results of
operations for the six months ended June 30, 1997 and 1996. The applicable
pro forma adjustments give effect in 1997 and 1996 to the acquisition of
INTERMAT as if such acquisition occurred on January 1 of each period.
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
Revenues $76,154 $38,312
Loss from continuing operations $(9,996) $(2,524)
Net loss per common share from
continuing operations $ (0.33) $ (0.11)
The unaudited pro forma consolidated results of operations disclose the
results from continuing operations excluding charges or credits directly
attributable to the transaction.
One In-Plant Store-Registered Trademark- customer (with which the Company
operates under six separate contracts) represented approximately 18% and 22%
of pro forma revenues for the six months ended June 30, 1997 and 1996.
Another In-Plant Store customer (with which the Company operates under three
separate contracts) represented approximately 11% of pro forma revenues for
the six months ended June 30, 1996, but less than 10% for the six months
ended June 30, 1997. A third customer (with which the Company operates under
one contract) represented approximately 10% of pro forma revenues for the six
months ended June 30, 1996, but less than 10% for the six months ended June
30, 1997.
4. The sale of SSI resulted in aggregate consideration to the Company of an
amount in excess of the Company's carrying value of the divested assets.
However, because of the contingent nature of a portion of the consideration,
the Company has recorded a $3,500 charge to loss on sale of discontinued
operations. In addition, the Company has recorded a $1,000 charge to loss on
sale of discontinued operations which includes the estimated financial
results of ATSG through December 31, 1997. The Company anticipates that the
sale will be complete by December 31, 1997.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
GENERAL
Certain statements in this Item 2 constitute forward-looking statements
which involve risks and uncertainties. The Company's actual results in the
future could differ significantly from the results discussed or implied in such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the risk factors
set forth under "Investment Considerations" in the Company's prospectus, dated
May 20, 1996, filed under the Securities Act of 1933.
The Company provides proprietary industrial supply procurement and handling
solutions to industrial sites, primarily through its In-Plant Store-Registered
Trademark- program. The Company became a provider of the In-Plant Store program
on January 4, 1994. The Company conducts its operations primarily through its
subsidiaries Industrial Systems Associates, Inc. ("ISA") and INTERMAT
International Materials Management, Inc. ("INTERMAT"), which was acquired on
January 28, 1997. At June 30, 1997, the Company had 88 In-Plant Store
facilities.
In late 1995, the Company formed two subsidiaries to operate in Mexico,
Strategic Distribution Marketing de Mexico, S.A. de C.V. and Strategic
Distribution Services de Mexico, S.A. de C.V. (collectively "Mexico"). Mexico's
operations are conducted in U.S. dollars and therefore the Company is not
exposed to foreign currency translation adjustments. Mexico's revenues for the
three months and six months ended June 30, 1997 and 1996 represented less than
1% of the Company's consolidated revenues.
Two of the Company's subsidiaries, SafetyMaster Corporation
("SafetyMaster") and Lewis Supply (Delaware) Inc. were merged on May 24,
1996, with SafetyMaster the surviving corporation . SafetyMaster changed its
name to Strategic Supply, Inc. ("SSI") on May 24, 1996.
On November 11, 1996, the Company announced its intention to sell two of
its subsidiaries, SSI and American Technical Services Group, Inc. ("ATSG"),
in order to focus more directly on the development of the Company's In-Plant
Store business.
On June 2, 1997, the Company, SSI and Coulson Technologies, Inc., a
wholly-owned subsidiary of SSI ("Coulson"), sold, conveyed, transferred and
assigned to DXP Acquisition, Inc., a Nevada corporation ("DXP Acquisition")
and a wholly-owned subsidiary of DXP Enterprises, Inc., a Texas corporation
("DXP"), substantially all of the assets and business of SSI and Coulson
(excluding, however, the accounts receivable of $5,669 which were retained by
SSI and Coulson). DXP Acquisition also assumed certain obligations and
liabilities of SSI and Coulson in connection with the disposition. The
disposition was made pursuant to the terms of that certain Asset Purchase
Agreement among the Company, SSI, Coulson, DXP Acquisition and DXP dated May
27,1997 with the
6
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purchase price determined as of May 31, 1997. Total consideration for the
acquisition (subject to adjustment) consisted of $4,433 in cash, promissory
notes from DXP Acquisition to SSI in the aggregate principal amount of $3,025
and an earn-out (contingent payment) which could result in additional
compensation to SSI of up to $3,500.
The Company believes it will be possible to consummate the sale of ATSG by
December 31, 1997; there can be no guarantee, however, that the sale will be
consummated by that date. The results of operations of SSI and ATSG have been
presented in the Company's consolidated financial statements for the six months
ended June 30, 1997 and 1996 to conform with discontinued operations treatment.
The presentation of the 1996 statement of operations has been reclassified
as a result of the discontinued operations.
Cost of materials includes the cost of products. Operating wages and
benefits and other operating expenses are the operating costs of the In-Plant
Store facilities, as well as project related costs of INTERMAT. Selling,
general and administrative expenses are those expenses not directly associated
with operating activities.
RESULTS OF OPERATIONS
The following table of revenues and percentages sets forth selected items
of the results of operations.
Three Months Ended Six Months Ended
---------------------------------------
June 30, June 30,
-------- --------
1997 1996 1997 1996
----- ---- ---- -----
(dollars in thousands)
Revenues $ 41,270 $ 19,518 $75,776 $36,026
100.0% 100.0% 100.0% 100.00%
Cost of materials 79.8 79.6 79.8 80.1
Operating wages and benefits 8.7 9.1 9.1 8.9
Other operating expenses 3.7 1.6 3.2 1.6
Selling, general and
administrative expenses 11.0 14.2 11.1 14.0
Acquired in-process technology - - 10.6 -
Operating loss (3.2) (4.5) (13.8) (4.6)
Interest expense (income), net (0.7) (1.3) (0.8) (0.6)
Loss from continuing operations (2.5) (3.2) (13.0) (4.0)
Loss from discontinued operations - (5.3) - (6.1)
Loss on sale of discontinued operations (10.9) - (5.9) -
Net loss (13.4) (8.5) (18.9) (10.1)
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues for the three months ended June 30, 1997 increased 111% to $41,270
from $19,518 for the three months ended June 30, 1996. This growth resulted
primarily from the implementation of new In-Plant Store facilities and the
inclusion of the results of operations of INTERMAT. The number of In-Plant
Store facilities increased from 51 at June 30, 1996 to 88 at June 30, 1997. One
In-Plant Store customer (with which the Company operates under six separate
contracts) represented approximately 15% and 24% of
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revenues for the three months ended June 30, 1997 and 1996. Another In-Plant
Store customer (with which the Company operates under one contract)
represented approximately 11% of revenues for the three months ended June 30,
1996, but less than 10% for the three months ended June 30, 1997. A third
customer (with which the Company operates under three separate contracts)
represented approximately 10% of the revenues for the three months ended June
30, 1996, but less than 10% for the three months ended June 30, 1997.
Cost of materials as a percentage of revenues increased to 79.8% for the
three months ended June 30, 1997 from 79.6% in 1996. This increase is a
result of a higher cost of materials for ISA because of a change in product
mix to In-Plant Store facilities. The increase was partly offset by INTERMAT
having a lower cost of materials, as a percentage of revenues, than ISA.
This percentage may vary depending upon the relative sales of the two
subsidiaries.
Operating wages and benefits expense as a percentage of revenues
decreased to 8.7% for the three months ended June 30, 1997 from 9.1% in 1996.
This decrease is primarily a result of the percentage of revenues from more
mature In-Plant Store facilities as compared to the percentage of revenues
from new In-Plant Store facilities being greater for the three months ended
June 30, 1997 than in 1996. As new In-Plant Store facilities are added, the
operating wages and benefits expenses will continue to increase, however,
these expenses as a percentage of revenues will vary depending upon the rate
at which the Company adds new In-Plant Store facilities. During the start-up
phase of new facilities, these expenses generally increase at a higher rate
than revenues are recognized. The inclusion of INTERMAT's results of
operations, which reflect a higher percentage of these expenses than In-Plant
Store facilities, partially offset this decrease.
Other operating expenses as a percentage of revenue increased to 3.7% for
the three months ended June 30, 1997 from 1.6% in 1996. This increase resulted
primarily from the inclusion of INTERMAT's results of operations which reflect a
much higher percentage of these expenses than In-Plant Store operations.
Selling, general and administrative expenses as a percentage of revenues
decreased to 11.0% for the three months ended June 30, 1997 from 14.2% in 1996.
As the In-Plant Store program continues to expand, this expense will continue to
increase; however, as a percentage of revenue, it may decrease as the ratio of
new In-Plant Store facilities to more mature facilities decreases.
Interest income, net increased by $25 to $280 for the three months ended
June 30, 1997 when compared with the interest income, net of $255 in 1996. The
increase resulted primarily from the sale
8
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of 7,630,000 shares of Common Stock on May 23, 1996 and the interest on the
net proceeds.
Loss from discontinued operations was $1,017 for the three months ended
June 30, 1996. The Company has decided to sell ATSG, and has sold SSI in order
to focus on the growth of its In-Plant Store business. Results of operations of
SSI and ATSG for the three months ended June 30, 1997 have been included in the
provision for loss on sale of discontinued operations established at December
31, 1996.
The sale of SSI resulted in aggregate consideration to the Company of an
amount in excess of the Company's carrying value of the divested assets.
However, because of the contingent nature of a portion of the consideration,
the Company has recorded a $3,500 charge to loss on sale of discontinued
operations. In addition, the Company has recorded a $1,000 charge to loss on
sale of discontinued operations which includes the estimated financial
results of ATSG through December 31, 1997. The Company anticipates that the
sale will be completed by December 31, 1997.
Net loss for the three months ended June 30, 1997 was $5,533, compared to a
net loss of $1,661 in 1996, as a result of the items previously discussed.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues for the six months ended June 30, 1997 increased 110% to $75,776
from $36,026 for the six months ended June 30, 1996. This growth resulted
primarily from the implementation of new In-Plant Store facilities and the
inclusion of the results of operations of INTERMAT. The number of In-Plant
Store facilities increased from 51 at June 30, 1996 to 88 at June 30, 1997. One
In-Plant Store customer (with which the Company operates under six separate
contracts) represented approximately 18% and 24% of revenues for the six months
ended June 30, 1997 and 1996. Another In-Plant Store customer (with which the
Company operates under one contract) represented approximately 11% of revenues
for the six months ended June 30, 1996, but less than 10% for the six months
ended June 30, 1997. A third customer (with which the Company operates under
three separate contracts) represented approximately 11% of revenues for the six
months ended June 30, 1996, but less than 10% for the six months ended June 30,
1997.
Cost of materials as a percentage of revenues decreased to 79.8% for the
six months ended June 30, 1997 from 80.1% in 1996. This decrease is a result of
INTERMAT having a lower cost of materials, as a percentage of revenues, than
ISA. This percentage may vary depending upon the relative sales of the two
subsidiaries.
9
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Operating wages and benefits as a percentage of revenues increased to 9.1%
for the six months ended June 30, 1997 from 8.9% in 1996. This increase is
primarily a result of the percentage of revenues from new In-Plant Store
facilities as compared to the percentage of revenues from more mature In-Plant
Store facilities being greater for the six months ended June 30, 1997 than in
1996. As new In-Plant Store facilities are added, the operating wages and
benefits expenses will continue to increase, however, these expenses as a
percentage of revenues will vary depending upon the rate at which the Company
adds new In-Plant Store facilities. During the start-up phase of new
facilities, these expenses generally increase at a higher rate than revenues are
recognized. The inclusion of INTERMAT's results of operations, which reflect a
higher percentage of these expenses than In-Plant Store facilities, augumented
the increase in these expenses.
Other operating expenses as a percentage of revenue increased to 3.2% for
the six months ended June 30, 1997 from 1.6% in 1996. This increase resulted
primarily from the inclusion of INTERMAT's results of operations which
reflect a much higher percentage of these expenses than In-Plant Store
operations.
Selling, general and administrative expenses as a percentage of revenues
decreased to 11.1% for the six months ended June 30, 1997 from 14.0% in 1996.
As the In-Plant Store program continues to expand, this expense will continue
to increase; however, as a percentage of revenue, it may decrease as the
ratio of new In-Plant Store facilities to more mature facilities decreases.
The Company incurred a non-recurring charge of $8,000 for acquired
in-process technology in connection with the acquisition of INTERMAT.
Interest income, net increased by $405 to $623 for the six months ended
June 30, 1997 when compared with the interest income, net of $218 in 1996. The
increase resulted primarily from the sale of 7,630,000 shares of Common Stock on
May 23, 1996 and the interest on the net proceeds.
Loss from discontinued operations was $2,165 for the six months ended June
30, 1996. The Company has decided to sell ATSG and has sold SSI in order to
focus on the growth of its In-Plant Store business. Results of operations of
SSI and ATSG for the six months ended June 30, 1997 have been included in the
provision for loss on sale of discontinued operations established at December
31, 1996.
The sale of SSI resulted in aggregate consideration to the Company of an
amount in excess of the Company's carrying value of the divested assets.
However, because of the contingent nature of a
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portion of the consideration, the Company has recorded a $3,500 charge to
loss on sale of discontinued operations. In addition, the Company has
recorded a $1,000 charge to loss on sale of discontinued operations which
includes the estimated financial results of ATSG through December 31, 1997.
The Company anticipates that the sale will be completed by December 31, 1997.
Net loss for the six months ended June 30, 1997 was $14,351, compared to a
net loss of $3,627 in 1996, as a result of the items previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
Effective as of December 31, 1995, the Company entered into a revolving
bank credit agreement providing maximum borrowings of $20,000. The credit
agreement was amended on September 9, 1996 to reduce the permitted maximum
outstanding borrowings to $5,000. Borrowings bear interest at the prime rate
(8.50% as of June 30, 1997) and/or a Eurodollar rate, with a 3/8% commitment
fee on the unused portion of the credit available. The credit facility
expires on January 31, 2000. The amount which the Company may borrow under
the credit facility is based upon eligible accounts receivable. 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. As of December 31, 1996 and
June 30, 1997, there were no borrowings outstanding under the credit facility.
On June 2, 1997, the Company sold the operating assets excluding,
however, accounts receivable of $5,669, of SSI and Coulson. The
consideration for the sale (subject to adjustment) consisted of $4,433 in
cash, promissory notes from DXP Acquisition to SSI in the aggregate principal
amount of $3,025 and an earn-out (contingent payment) which could result in
additional compensation to SSI of up to $3,500. The sale resulted in an
increase in cash and an increase in notes receivable.
On January 28, 1997, the Company completed the acquisition of INTERMAT for
a purchase price consisting of $10,800 in cash, a $1,400 subordinated note and
625,000 newly issued shares of Common Stock. This acquisition resulted in a
decline in cash and cash equivalents, and an increase in indebtedness.
On May 23, 1996, the Company sold 7,630,000 shares of its common stock in
an underwritten public offering. The net proceeds to the Company were
approximately $55,332. A portion of the net proceeds were used to repay the
Company's bank indebtedness. The balance of the remaining net proceeds is
available for working
11
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capital, including the opening of In-Plant Store facilities, for general
corporate purposes and for possible acquisitions.
The net cash used in continuing operations was $5,006 for the six months
ended June 30, 1997 compared to $1,570 in 1996. The change resulted
primarily from an increase in net loss from continuing operations, accounts
receivable and inventories, which were partially offset by an increase in
accounts payable and accrued expenses. The increase in net loss from
continuing operations was offset primarily by the non-cash charge for
acquired in-process technology. Accounts receivable increased
primarily as a result of a few large customers not paying their balances
until early July 1997 and an increase in the number of In-Plant Store
facilities. Inventories increased primarily from the increase in the number
of In-Plant Store facilities. Accounts payable and accrued expenses
increased primarily from higher inventory levels.
The results of the discontinued operations for the six months ended June
30, 1997 have been included in the provision for loss on sale of discontinued
operations established at December 31, 1996. The sale of SSI resulted in
aggregate consideration to the Company of an amount in excess of the
Company's carrying value of the divested assets. However, because of the
contingent nature of a portion of the consideration, the Company has recorded
a $3,500 charge to loss on sale of discontinued operations. In addition, the
Company has recorded a $1,000 charge to loss on sale of discontinued
operations which includes the estimated financial results of ATSG through
December 31, 1997. The Company anticipates that the sale will be completed
by December 31, 1997.
The decrease in net assets of discontinued operations was $4,440 for the
six months ended June 30, 1997 compared to $2,803 in 1996. This change
resulted primarily from the sale of SSI to DXP Acquisition.
The net cash used in investing activities was $4,371 for the six months
ended June 30, 1997 compared to $939 in 1996. The increase resulted primarily
from the cash portion of the purchase price for the acquisition of INTERMAT
which was partially offset by the proceeds from the sale of discontinued
operations.
The net cash provided by financing activities was $239 for the three months
ended June 30, 1997 compared to $50,974 in 1996. The net decrease resulted
primarily from the sale of common stock offset by the repayment of the note
payable to the bank during May 1996.
The Company believes that cash on hand and cash from the Company's bank
credit facility will generate sufficient funds to
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permit the Company to support the anticipated expansion of the In-Plant Store
program for the next twelve months.
CHANGES IN ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 128, "Earnings per Share" which is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. SFAS 128 requires presentation of basic and diluted
per share amounts for income from continuing operations and net income. The
Company does not expect the adoption of the pronouncement to materially impact
earnings per share.
13
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PART II
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1997 Annual Meeting of Stockholders (the "1997 Annual Meeting")
was held on May 20, 1997. At the 1997 Annual Meeting, Jeffery O. Beauchamp,
William R. Berkley, Andrew M. Bursky, Arnold W. Donald, Catherine B. James,
George E. Krauter, Jack H. Nusbaum, Joshua A. Polan, Mitchell I. Quain and
John M. Sergey were elected to the Company's Board of Directors, to serve
until the next annual meeting of stockholders and until their successors are
elected and qualify. At the 1997 Annual Meeting, 25,985,046 shares were
voted for Mr. Beauchamp and 64,364 votes were withheld, 25,983,325 shares
were voted for Mr. Berkley and 66,085 votes were withheld, 25,978,284 shares
were voted for Mr. Bursky and 71,126 votes were withheld, 25,984,696 shares
were voted for Mr. Donald and 64,714 votes were withheld, 25,975,709 shares
were voted for Ms. James and 73,701 votes were withheld, 25,963,330 shares
were voted for Mr. Krauter and 86,080 votes were withheld, 25,985,046 shares
were voted for Mr. Nusbaum and 64,364 votes were withheld, 25,979,119 shares
were voted for Mr. Polan and 70,291 votes were withheld, 25,985,046 shares
were voted for Mr. Quain and 64,364 votes were withheld, and 25,980,046
shares were voted for Mr. Sergey and 69,364 votes were withheld.
At the 1997 Annual Meeting, holders of Common Stock were asked to (i) approve an
increase, to 3,000,000, of the number of shares of Common Stock which may be
subject to options granted under the Company's Amended and Restated 1990
Incentive Stock Option Plan ("Proposal II"); and (ii) ratify the appointment of
KPMG Peat Marwick LLP as independent auditors of the Company for the fiscal year
ending December 31, 1997 ("Proposal III").
The following table sets forth the shares of Common Stock voted for, against,
and abstaining with respect to each Proposal.
Proposal For Against Abstaining
-------- --- ------- ----------
Proposal II 23,623,974 2,364,057 29,881
Proposal III 26,025,831 17,012 6,567
In addition, there were 31,498 broker non-votes with respect to Proposal II and
6,567 broker non-votes with respect to Proposal III.
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PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
3.1 Second Restated Certificate of Incorporation of the Company filed
June 21, 1996 with the Secretary of State of Delaware
(incorporated by reference to Exhibit 3.2 of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1996).
3.2 Amended and Restated Bylaws of the Company, as amended
(incorporated by reference to Exhibits 3.2 and 3.2(a) of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
4.1 The instruments defining the rights of holders of the long-term
debt securities of the Company are omitted pursuant to Section
(b) (4) (iii) (A) of Item 601 of Regulation S-K. The Company
agrees to furnish supplementally copies of these instruments to
the Commission upon request.
10.1 Asset Purchase Agreement among Strategic Supply, Inc., Coulson
Technologies, Inc. and Strategic Distribution, Inc., DXP
Acquisition, Inc. and DXP Enterprises, Inc. dated May 27, 1997
(incorporated by reference to Exhibit 2.1 of the Company's June
2, 1997 Current Report on Form 8-K).
10.2 Executive Employment Agreement, dated as of April 11, 1997, by
and between Strategic Distribution, Inc. and John M. Sergey.
10.3 Employment letter, dated as of April 11, 1997, by and between
Strategic Distribution, Inc. and John M. Sergey.
10.4 Stock Purchase Agreement, dated as of April 11, 1997, by and
between Strategic Distribution, Inc. and John M. Sergey.
10.5 Amendment to Stock Purchase Agreement, dated as of May 5, 1997,
amending the Stock Purchase Agreement dated as of April 11, 1997,
by and between Strategic Distribution, Inc. and John M. Sergey.
10.6 Amended Loan and Pledge Agreement, dated as of May 5, 1997, by
and between Strategic Distribution, Inc. and John M. Sergey.
10.7 Secured Non-Recourse Promissory Note, dated May 20, 1997, made by
John M. Sergey in favor of Strategic Distribution, Inc.
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<PAGE>
10.8 Non-Qualified Stock Option Agreement, dated as of April 11, 1997,
by and between Strategic Distribution, Inc. and John M. Sergey.
(b). Reports on Form 8-K:
During the quarter ended June 30, 1997, the Company filed the following
Current Report on Form 8-K with the Securities and Exchange Commission:
On June 13, 1997, the Company filed a Current Report on Form 8-K
with respect to the sale of the operating assets of Strategic
Supply, Inc. and Coulson Technologies, Inc. to DXP Acquisition,
Inc., a Nevada corporation. This transaction was completed on
June 2, 1997.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Strategic Distribution, Inc.
Date: August 5,1997 By: /s/ JOHN M. SERGEY
-------------------------
John M. Sergey
President and Chief
Executive Officer
Date: August 5,1997 By: /s/ CHARLES J. MARTIN
-------------------------
Charles J. Martin,
Vice President, Controller and
Chief Accounting Officer
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EXHIBIT INDEX
PAGE NO.
IN MANUALLY
SIGNED COPY
3.1 Second Restated Certificate of Incorporation
of the Company filed June 21, 1996 with the
Secretary of State of Delaware (incorporated
by reference to Exhibit 3.2 of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1996). --
3.2 Amended and Restated Bylaws of the
Company, as amended (incorporated by
reference to Exhibits 3.2 and 3.2(a) of the
Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995). --
10.1 Asset Purchase Agreement among Strategic Supply, Inc.,
Coulson Technologies, Inc. and Strategic Distribution, Inc.,
DXP Acquisition, Inc. and DXP Enterprises, Inc. dated May
27, 1997 (incorporated by reference to Exhibit 2.1 of the
Company's June 2, 1997 Current Report
on Form 8-K). --
10.2 Executive Employment Agreement, dated as of April 11, 1997,
by and between Strategic
Distribution, Inc. and John M. Sergey. 22
10.3 Employment letter, dated as of April 11, 1997, by and
between Strategic Distribution, Inc. and
John M. Sergey. 33
10.4 Stock Purchase Agreement, dated as of April 11, 1997, by and
between Strategic
Distribution, Inc. and John M. Sergey. 37
10.5 Amendment to Stock Purchase Agreement, dated as of May 5,
1997, amending the Stock Purchase Agreement dated as of
April 11, 1997, by and between Strategic Distribution,
Inc. and John M. Sergey. 47
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10.6 Amended Loan and Pledge Agreement, dated as of May 5, 1997,
by and between Strategic
Distribution, Inc. and John M. Sergey. 48
10.7 Secured Non-Recourse Promissory Note, dated May 20, 1997,
made by John M. Sergey in
favor of Strategic Distribution, Inc. 52
10.8 Non-Qualified Stock Option Agreement, dated as of April 11,
1997, by and between Strategic
Distribution, Inc. and John M. Sergey. 54
19
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT is made and entered into between
Strategic Distribution, Inc., a Delaware corporation (the "COMPANY"), and John
M. Sergey (the "EXECUTIVE"), as of April 11, 1997.
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to accept employment with the Company, on the terms and
conditions set forth herein;
NOW, THEREFORE, on the basis of the foregoing premises and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby agrees to employ the
Executive and the Executive hereby accepts employment with the Company, on the
terms and subject to the conditions hereinafter set forth. Subject to such
terms and conditions, the Executive shall serve as President and Chief Executive
Officer of the Company and, in such capacity, shall report directly to the Board
of Directors of the Company (the "BOARD OF DIRECTORS") and shall have such
duties, functions, responsibilities and authority as are consistent with the
Executive's position as the senior executive officer in charge of the general
management, business and affairs of the Company and subsidiaries of the Company
including, but not limited to, the development and implementation of strategies
and goals and internal policies and program designed to achieve the profit,
market share and product mix goals of the Company and its subsidiaries, together
with such additional duties, functions, responsibilities and authority
including, without limitation, serving as an officer and/or director of any
subsidiary of the Company, commensurate with the Executive's position as set
forth in this Agreement, as may be assigned to the Executive from time to time
by the Board of Directors. The Company shall use best efforts to have the
Executive nominated to the Board of Directors. The Executive shall generally
perform his duties at and from the Company's headquarters.
SECTION 2. TERM. Subject to the provisions and conditions of this
Agreement (including Section 6), the Executive's employment hereunder shall
commence on May 1, 1997 (the "Employment Commencement Date") and shall continue
during the period ending on the third anniversary of the Employment Commencement
Date (the "EMPLOYMENT TERM").
<PAGE>
SECTION 3. COMPENSATION.
(a) SALARY. As compensation for the performance of the Executive's
services hereunder, the Company shall pay to the Executive a base salary (the
"SALARY") of Three Hundred Sixty Thousand Dollars ($360,000) per annum with
increases, if any, as may be approved in writing by the Board of Directors. The
Salary shall be payable in accordance with payroll practices of the Company as
the same shall exist from time to time. In no event shall the Salary be
decreased during the Employment Term.
(b) BONUS PLAN. The Executive shall be entitled to receive bonus
compensation consisting of cash and/or common stock of the Company ("BONUS") in
accordance with any management incentive plan or plans (including, without
limitation, any shared earnings plan) which may be established by the Board of
Directors of the Company for its executive officers and management.
Notwithstanding the foregoing, the Executive shall be entitled to receive a cash
bonus of not less than One Hundred Eighty Thousand Dollars ($180,000) in
consideration of services to be rendered to the Company in 1997.
(c) BENEFITS. In addition to the Salary and Bonus, the Executive
shall be entitled to participate in or to receive the same health, insurance,
pension, automobile allowance, severance, vacation, holiday, sick leave,
disability, profit sharing, 401(k) savings and other benefits as shall be
provided to executive officers of the Company generally, or as otherwise agreed
to by the parties.
(d) PAYING ENTITY. The Company may cause any one or more of its
subsidiaries to provide the salary and benefits to the Executive as are required
by this Agreement.
SECTION 4. EXCLUSIVITY. During the Employment Term, the Executive
shall devote substantially all of his time to the business of the Company, shall
faithfully serve the Company, shall in all respects conform to and comply with
the lawful directions and instructions given to him by the Board of Directors or
its designee in accordance with the terms of this Agreement, shall use his best
efforts to promote and serve the interests of the Company and shall not engage
in any other business activity, whether or not such activity shall be engaged in
for pecuniary profit, except that the Executive may engage in personal investing
and charitable activities that do not interfere in any material respect with the
services to be provided by the Executive hereunder. Notwithstanding the
foregoing, it is understood and agreed that the Executive is serving or
committed to serve, and will continue to serve (at his discretion), on the
boards of directors of GAF Materials Corporation and Zurn Industries; to the
extent that the Executive wishes to serve on the board of directors of any other
for profit
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corporation, he will first obtain the consent of the Executive
Committee of the Board of Directors.
SECTION 5. REIMBURSEMENT FOR EXPENSES. The Company shall promptly
reimburse the Executive for all reasonable out-of-pocket travel, entertainment
and other business expenses incurred by the Executive during the term of this
Agreement and in the performance of his duties hereunder in accordance with the
Company's reimbursement policies in effect from time to time.
SECTION 6. TERMINATION.
(a) DEATH. This Agreement shall automatically terminate upon the
death of the Executive and upon such event, the Executive's estate shall be
entitled to receive the amounts specified in Section 6(f) below.
(b) DISABILITY. If the Executive is unable to perform the duties
required of him under this Agreement because of physical or mental disability,
this Agreement shall remain in full force and effect and the Company shall pay
all compensation required to be paid to the Executive hereunder, unless the
Executive is unable, as a result of injuries or illnesses that are substantially
related to each other, to perform the duties required of him under this
Agreement for an aggregate of ninety (90) days (whether or not consecutive)
during any twelve (12) month period during the term of this Agreement, in which
event this Agreement (other than Sections 7, 8, 9 and 12 hereof), including, but
not limited to, the Company's obligations to pay any Salary or to provide any
privileges under this Agreement, shall, upon written notice by the Company to
the Executive to such effect, terminate; PROVIDED, HOWEVER, that the foregoing
shall not prejudice the Executive's rights to continuing, existing insurance
benefits for which he is otherwise eligible, including disability benefits. In
case of any dispute as to whether the Executive is disabled within the meaning
of this Section 6(b), the determination of such disability for the period
specified shall be certified by a physician reasonably acceptable to both the
Company and the Executive, which physician's determination shall be final and
binding on the parties hereto. The Company shall be permitted to hire a
replacement of the Executive, so long as this Agreement shall remain in effect,
to serve in the event and for so long as the Executive shall be unable to
perform the duties required of him hereunder due to his disability for an
aggregate of thirty (30) days during any 12-month period during the term of this
Agreement.
(c) CAUSE. The Company may terminate this Agreement (other than
Sections 7, 8, 9 and 12 hereof) for "Cause." For purposes of this Agreement,
"CAUSE" shall mean: (i) the Executive's willful failure, gross neglect or
willful refusal to perform his duties hereunder which failure, neglect or
refusal shall not have been corrected by the Executive within thirty (30)
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<PAGE>
days of receipt by the Executive of written notice from the Company of such
failure, neglect or refusal, which notice shall set forth the nature of said
failure, neglect or refusal; (ii) conviction of the Executive for the
commission of a felony; or (iii) the commission by the Executive of a proven
act of fraud or embezzlement against the Company. If the Executive's
employment is terminated for Cause, the Executive shall be entitled to
receive the amounts specified in Section 6(f) hereof. In the event of any
termination pursuant to this Section 6(c),the Company shall deliver to the
Executive written notice setting forth the basis for such termination, which
notice shall set forth the nature of the Cause, and the facts and
circumstances in connection therewith, which is the reason for such
termination.
(d) GOOD REASON. The Executive may terminate this Agreement for
"GOOD REASON" following a Substantial Breach (as defined below) if such
Substantial Breach shall not have been corrected by the Company within thirty
(30) days of receipt by the Company of written notice from the Executive of the
occurrence of such Substantial Breach, which notice shall specifically set forth
the nature of the Substantial Breach which, if not corrected, will entitle the
Executive at any time after such thirty (30) day notice period and by subsequent
written notice to terminate this Agreement. In the event of resignation by the
Executive following a Substantial Breach, the Executive shall be entitled to
receive the amounts specified in Section 6(f) hereof. An election by the
Executive to terminate his employment under this paragraph shall not be a breach
of this Agreement. The term "SUBSTANTIAL BREACH" means any material breach by
the Company of its obligations hereunder consisting of: (i) the failure of the
Company to pay the Executive the Salary or Bonus, if any, in accordance with
Section 3(a) and (b) hereof; (ii) the failure by the Company to substantially
maintain and continue the Executive's participation in benefit plans as provided
in Section 3(c) hereof; (iii) any material diminishment in the duties or
responsibilities of the Executive described in Section 1 including without
limitation a change in the functions which report, directly or indirectly, to
the Executive; (iv) any relocation of the Company's headquarters to a location
more than fifty (50) miles from the current headquarters of the Company without
the written consent of the Executive; (v) a merger, reorganization or other
business combination involving the Company if the Company is not the surviving
corporation; (vi) a sale of all or substantially all of the Company's assets; or
(vii) the acquisition, by a person (as such term is used in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Act"))
other than a shareholder identified in the Company's most recent proxy
statement, of beneficial ownership (as such term is used in Rule 13d-3
promulgated under the Act) of thirty-three percent (33%) or more of the issued
and outstanding common stock of the Company; PROVIDED, HOWEVER, that the term
"SUBSTANTIAL BREACH" shall not include a termination of the Executive's
employment hereunder pursuant to Section 6(b) or
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<PAGE>
(c) hereof. The date of termination of the Executive's employment under this
Section 6(d) shall be the effective date of any resignation specified in
writing by the Executive, which shall not be less than sixty (60) days after
receipt by the Company of written notice of such resignation, PROVIDED that
any resignation by the Executive shall not be effective pursuant to this
Section 6(d) if such Substantial Breach shall have been corrected by the
Company during the thirty (30) day period following notice by the Executive
of the existence thereof or if corrected thereafter prior to the date of
resignation by the Executive.
(e) WITHOUT CAUSE. The Company, by action of its Board of
Directors, may terminate this Agreement (other than Sections 7, 8, 9 and 12
hereof) without Cause upon the giving to the Executive of thirty (30) days'
prior written notice of such termination. If the Executive's employment is
terminated by the Company without Cause, the Executive shall be entitled to
receive the amounts specified in Section 6(f) hereof.
(f) PAYMENTS. In the event that the Executive's employment
hereunder terminates for any reason, the Company shall promptly pay to the
Executive all amounts accrued but unpaid hereunder through the date of
termination in respect of the Salary and for reimbursement of any expenses
pursuant to Section 5 hereof, and, in the case of any termination by reason
of death or physical or mental disability of the Executive pursuant to
Section 6(a) or 6(b) hereof, a pro rated portion of the Bonus, if any, which
the Executive would have been otherwise entitled to receive under Section
3(b) for the calendar year in which such termination occurs, such pro rated
portion being the portion of such Bonus corresponding to the period
commencing on January 1 of such year and ending on the date of termination.
In the event that the Executive's employment has been terminated by the
Company for Cause, the Company shall have no obligations to the Executive for
Salary, Bonus or other benefits herein provided accruing on or after the date
of termination except as set forth in the preceding sentence or as may be
otherwise provided by law. In the event that the Executive's employment with
the Company is terminated by the Company during the term of this Agreement or
thereafter without Cause or by the Executive with Good Reason, in addition to
the amounts specified in the first sentence of this Section 6(f), the
Executive shall continue to receive the Salary at the rate in effect
hereunder on the date of such termination periodically, in accordance with
the Company's prevailing payroll practices, until the last date of the
Employment Term or until the first anniversary of the termination date, if
longer, PLUS (i) the cost of the Executive's premiums for health care
benefits under COBRA or the cost of the Executive's premiums under any
replacement health insurance coverage obtained by the Executive containing
substantially the same coverage as provided to the Executive at such time,
which premiums shall be payable as and when the Salary would otherwise have
been payable as provided in this Agreement; and (ii) a pro rated portion of
the Bonus, if
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any, which the Executive would have otherwise been entitled to receive under
Section 3(b) for the calendar year in which the Executive is terminated pro
rated in the same manner as set forth in the first sentence of this Section
6(f). Without intending to limit the generality of Section 7, in the event
that the Executive accepts other employment or engages in his own business
prior to the last date of the Employment Term, the Executive shall forthwith
notify the Company and the Company shall be entitled to set off from amounts
due the Executive under this Section 6(f) in respect of his Salary the
amounts paid to the Executive in respect of such other employment or business
activity. Upon any termination of this Agreement, all of the rights,
privileges and duties of the Executive hereunder shall cease except for any
rights under this Section 6(f) and any obligations under Sections 7, 8, 9 and
12 hereunder.
SECTION 7. SECRECY AND NON-COMPETITION.
(a) NO COMPETING EMPLOYMENT. The Executive acknowledges that the
agreements and covenants contained in this Section 7 are essential to protect
the value of the Company's business and assets and that by virtue of his
employment with the Company, the Executive will obtain Confidential
Information and there is a substantial probability that such Confidential
Information could be used to the substantial advantage of a competitor of the
Company or its subsidiaries and to the Company's or its subsidiaries'
substantial detriment. Therefore, the Executive agrees that except in
connection with his employment hereunder or as required by legal process, he
shall not disclose to any person or entity or use, during the Employment Term
or at any time thereafter, any information not in the public domain or
generally known in the industry, in any form acquired by the Executive while
employed by the Company or, if acquired following the Employment Term, such
information which, to the Executive's knowledge, has been acquired, directly,
or indirectly, from any person or entity owing, to the Executive's knowledge,
a duty of confidentiality to the Company or any of its subsidiaries or
affiliates, relating to the Company, its subsidiaries or affiliates,
including but not limited to information regarding customers, vendors,
suppliers, trade secrets, training programs, manuals or materials, technical
information, contracts, systems, procedures, mailing lists, know-how, trade
names, improvements, price lists, financial or other data (including the
revenues, costs or profits associated with any of the Company's products or
services), business plans, code books, invoices and other financial
statements, computer programs, software systems, databases, discs and
printouts, plans (business, technical or otherwise), customer and industry
lists, correspondence, internal reports, personnel files, sales and
advertising material, telephone numbers, names, addresses or any other
compilation of information, written or unwritten, which is or was used in the
business of the Company or any of its subsidiaries or affiliates
(collectively, "CONFIDENTIAL
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INFORMATION"). The Executive agrees and acknowledges that all Confidential
Information, in any form, and copies and extracts thereof, are and shall
remain the sole and exclusive property of the Company and upon termination of
his employment with the Company, the Executive shall return to the Company
the originals and all copies of any Confidential Information provided to or
acquired by the Executive in connection with the performance of his duties
for the Company, and shall return to the Company all files, correspondence
and/or other communications received, maintained and/or originated by the
Executive during the course of his employment.
(b) NO INTERFERENCE. During the term of this Agreement and for a
period of two (2) years following the date of the termination of the
Executive's employment with the Company (the "Restricted Period"), the
Executive shall not, whether for his own account or for the account of any
other individual, partnership, firm, corporation or other business
organization (other than the Company), directly or indirectly, solicit,
endeavor to entice away from the Company, its affiliates or subsidiaries, or
otherwise directly interfere with the relationship of the Company, its
affiliates or subsidiaries with any person who, to the knowledge of the
Executive, is employed by or otherwise engaged to perform services for the
Company, its affiliates or subsidiaries during the term of the Executive's
employment with the Company (including, but not limited to, any independent
distributor or sales representative or organization).
(c) INVENTIONS. The Executive hereby sells, transfers and
assigns to the Company, or to any person or entity designated in writing by
the Company, all of the right, title and interest of the Executive in and to
all inventions, sales materials, software, training materials, disclosures
and improvements, whether patented or unpatented, and copyrightable material,
made or conceived by the Executive, solely or jointly, in whole or in part,
during his employment with the Company which are not generally known to the
public or the industry or recognized as standard practice and which (i)
relate to services, trade names, methods, ideas, apparatus, designs,
products, processes or devices which may be sold, leased, used or under
construction or development by the Company, or any franchise affiliated with
the Company and (ii) arise (wholly or partly) from the efforts of the
Executive during and in the course of his employment with the Company (an
"INVENTION"). The Executive shall communicate promptly and disclose to the
Company, in such form as the Company reasonably requests, all information,
details and data pertaining to any such Invention. With respect to all
Inventions which are to be assigned pursuant to this Section 7, the Executive
will assist the Company in any reasonable manner to obtain for the Company's
benefit patents thereon, including, but not limited to, executing patent
applications, transfers or assignments thereof to the Company and any and all
other documents reasonably deemed necessary by the Company. The Company
shall pay all costs
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incident to the preparation, execution and delivery of such patent
applications, transfers, assignments and other documents. Any Invention by
the Executive within six (6) months following the termination of his
employment hereunder shall be presumed to fall within the provisions of this
Section 7(c) unless the Executive bears the burden of proof of showing that
the Invention was first conceived and made following such termination.
SECTION 8. INJUNCTIVE RELIEF. Without intending to limit the
remedies available to the Company, the Executive acknowledges that a breach
of any of the covenants contained in Section 7 hereof may result in material
irreparable injury to the Company or it subsidiaries or affiliates for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such a breach
or threat thereof, the Company shall be entitled to seek a temporary
restraining order and/or a preliminary or permanent injunction, restraining
the Executive from engaging in activities prohibited by Section 7 hereof or
such other relief as may be required specifically to enforce any of the
covenants in Section hereof.
SECTION 9. EXTENSION OF RESTRICTED PERIOD. In addition to the
remedies the Company may seek and obtain pursuant to Section 8 of this
Agreement, the Restricted Period shall be extended by any and all periods
during which the Executive shall be found by a court to have been in
violation of the covenants contained in Section 7 hereof.
SECTION 10. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES.
This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors and assigns, including, but
not limited to, the Executive's heirs and personal representatives of the
Executive's estate; PROVIDED, HOWEVER, that neither party shall assign or
delegate any of the obligations created under this Agreement without the
prior written consent of the other party. Notwithstanding the foregoing, the
Company shall have the unrestricted right to assign this Agreement and to
delegate all or any part of its obligations hereunder to any of its
subsidiaries, so long as such assignment does not diminish the duties,
function, responsibility or authority of the Executive or result in any
assignment of duties or responsibilities materially inconsistent with those
set forth in this Agreement (unless consented to by the Executive) but in
such event such assignee shall expressly assume all obligations of the
Company hereunder and the Company shall remain fully liable for the
performance of all such obligations in the manner prescribed in this
Agreement. Nothing in this Agreement shall confer upon any person or entity
not a party to this Agreement, or (unless otherwise expressly provided
herein) the legal representatives of such person or entity, any rights or
remedies of any nature or kind whatsoever under or by reason of Agreement.
In the event the Executive commences an action to enforce his rights under
this Agreement,
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<PAGE>
the Company shall pay all of the Executive's reasonable fees and expenses
(including, without limitation, reasonable attorneys' fees) should the
Executive prevail in such action.
SECTION 11. WAIVER AND AMENDMENTS. Any waiver, alteration,
amendment or modification of any of the terms of this Agreement shall be
valid only if made in writing and signed by the parties hereto. No waiver by
either of the parties hereto of their rights hereunder shall be deemed to
constitute a waiver with respect to any subsequent occurrences or
transactions hereunder unless such waiver specifically states that it is to
be construed as a continuing waiver.
SECTION 12. SEVERABILITY AND GOVERNING LAW. The Executive
acknowledges and agrees that the covenants set forth in Section 7 hereof are
reasonable and valid in all respects. Each party hereto acknowledges and
agrees that if any of such covenants or other provisions of this Agreement
are found to be invalid or unenforceable by a final determination of a court
of competent jurisdiction (a) the remaining terms and provisions hereof shall
be unimpaired and (b) the invalid and unenforceable term or provision shall
be deemed replaced by a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
unenforceable term or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
PENNSYLVANIA WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF.
SECTION 13. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made if delivered personally or sent by registered or certified
mail (postage prepaid, return receipt requested), or sent by facsimile
transmission or overnight courier service, addressed in the case of the
Company, Strategic Distribution, Inc., 1615 Bustleton Pike, Feasterville,
Pennsylvania 19053, Attention: President, fax (215) 396-7206, with a copy to
Interlaken Capital, Inc., 165 Mason Street, Greenwich, Connecticut 06830,
Attention: Chairman of the Board, fax: (203) 629-8554 and, in the case of the
Executive, the Executive's address set forth on the signature page hereof or,
in each case, to such other address as may be designated to the other party
from time to time as provided above. All notices so given shall be effective
when received at the designated address.
SECTION 14. CAPTIONS AND SECTION HEADINGS. Captions and section
headings herein are solely for convenience of reference and shall not affect
the meaning or interpretation of this Agreement or of any term or provision
hereof.
SECTION 15. ENTIRE AGREEMENT. This Agreement, together with the
letter agreement, dated the date hereof, between the Executive and the
Company, constitute the entire
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understanding and agreement of the parties hereto regarding the employment of
the Executive. This Agreement supersedes all prior negotiations,
discussions, correspondence, communications, understandings and agreements
between the parties relating to the subject matter of this Agreement, all of
which are merged into this Agreement.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
STRATEGIC DISTRIBUTION, INC.
By: /s/ ANDREW M. BURSKY
--------------------------------
Name:
Title:
EXECUTIVE
/s/ JOHN M. SERGEY
-----------------------------------
John M. Sergey
767 Peach Tree Lane
Franklin Lakes, NJ 07417
fax: (201) 891-3114
<PAGE>
[letterhead]
[logo]
VIA FACSIMILE
(201) 891-3114
April 11, 1997
Mr. John Sergey
767 Peach Tree Lane
Franklin Lakes, New Jersey 07417
Dear John:
On behalf of the Board of Directors of Strategic Distribution, Inc., I am
pleased to provide the following offer for your review.
Title: President, Chief Executive Officer and a Director of
Strategic Distribution, Inc. ("SDI" or the "Company")
Base Compensation: $360,000
Annual increases subject to recommendation and approval
by Compensation Committee of the Board of Directors.
Incentive Compensation: The Incentive Compensation target will be 100% of Base
Compensation, payable upon full achievement of
financial targets established in consultation with the
Compensation Committee. Details of 1997 Incentive
Compensation to be established by mutual agreement.
In 1997 only, $180,000 of Incentive Compensation will
be guaranteed.
Equity Participation: Sergey will execute his Executive Employment Agreement
on or before the date upon which the Company makes a
public announcement regarding Mr. Sergey's employment
(the "Signing Date"). Mr. Sergey's employment will
commence shortly thereafter as specified in the
Employment Agreement (the "Employment Commencement
Date"). On the Signing Date, Sergey will execute a
Stock Purchase Agreement pursuant to which Sergey and
SDI will agree that within forty-five days after the
Signing Date SDI will sell to Sergey, and Sergey will
purchase from SDI, 400,000 shares of Common Stock (the
"Common Stock") of SDI for consideration equal
to the fair market value of the Common
<PAGE>
John Sergey
April 11, 1997
Page 2
Stock on the Signing Date. Sergey shall pay $700,000
of the purchase price for the Common Stock in
Cash, and Sergey shall pay the remainder of the
purchase price by delivering to the Company
Sergey's secured nonrecourse promissory note
(as described below) in the principal amount of
the remainder of the purchase price. The
principal amount of the note will become due
and payable at the earlier of i) five years
from the date of Sergey's purchase of the
Common Stock and ii) the sale by Sergey of
sufficient shares of Common Stock to repay the
amount owing. If Sergey sells any shares of
Common Stock for proceeds insufficient to pay,
on an after tax basis, the full amount of the
principal and accrued interest on the note, the
full amount of such proceeds shall be used to
reduce principal and a pro rata portion of
accrued interest on the note. Interest on the
unpaid portion of the note will accrue at the
rate of 7% per annum and will be due and
payable at the same time as the principal. The
note will be secured by the Common Stock and
apart from the Common Stock the Company will
have no recourse to any assets of Sergey in
respect of the note. The Common Stock will not
be registered under the Securities Act of 1933,
as amended, or under any other Federal or state
securities law, but the Company will grant to
Sergey one demand right to register some or all
of the Common Stock, subject to the Company's
compliance with applicable securities laws.
In connection with his employment by the
Company, Sergey will receive a total of 500,000
stock options, exercisable at market on the
date of grant. Of this total, 400,000 stock
options will be Non-Qualified Stock Options
granted to Sergey on the Signing Date. The
Non-Qualified Options will not be granted
pursuant to SDI's 1990 Incentive Stock Option
Plan, but will be granted upon terms
substantially identical to those governing the
1990 Incentive Stock Option Plan. The
Non-Qualified Options will vest ratably on each
of the first four anniversaries of the Signing
Date. The remaining 100,000 stock options will
be Incentive Stock Options, granted on the
Employment Commencement Date pursuant to SDI's
1990 Incentive Stock Option Plan. These
options will become exercisable annually in a
quantity limited to that which would avoid
rendering such options non-qualified. The
agreements governing the Non-Qualified
<PAGE>
John Sergey
April 11, 1997
Page 3
Options and the Incentive Stock Options will provide
that the options will become vested and
immediately exercisable in full upon
stockholder approval of a merger,
reorganization or other business combination
where the Company will not be the surviving
corporation, or upon a sale of all or
substantially all of the Company's assets.
In addition, Sergey will participate in future
stock option grants from time to time, as
determined by the Compensation Committee of the
Board.
Life Insurance and LTD: SDI will provide a $2 million term life insurance
policy through the period of Sergey's
employment, with Sergey and/or his estate the
named beneficiary. SDI will provide a long
term disability benefit through the period of
Sergey's employment which will pay a $20,000
monthly benefit to age 65, commencing after a
180 day waiting period. The Company may choose
to self-insure part or all of this benefit.
Other Board Matters: 1. Sergey will be named to the Executive Committee
of the Board, which will consist of Sergey, William
Berkley and Andrew Bursky.
2. Sergey will be named to the Nominating Committee
of the Board and will have the opportunity to assist
in the identification and selection of outside
Directors. It is the current intention of the Board
to add (or replace) certain Directors so that as many
as three additional outside Directors are added over
time.
Other Matters: 1. Three year employment contract (form attached)
2. Automobile allowance: $20,000 per year
3. Moving allowance: i) 100% reimbursement of moving
and relocation expenses, including all transaction and
closing costs on sale and purchase of primary dwelling,
ii) temporary living and commuting expenses for Sergey
and immediate family for a period not beyond
December 31, 1997, iii) coverage of duplicate
costs for a period not beyond December 31, 1997
should employee's present primary dwelling not
sell within 30 days of purchase of new
<PAGE>
John Sergey
April 11, 1997
Page 4
primary dwelling, and iv) an additional $25,000
relocation allowance upon family move.
4. Start date May 1, 1997
John, if you accept the terms of this offer, please so indicate by
signing this letter in the space provided below and returning a copy of this
letter to me at your earliest convenience. Please contact me should you have
any questions.
Sincerely,
/s/ ANDREW M. BURSKY
Andrew M. Bursky
Chairman of the Board,
Strategic Distribution, Inc.
Agreed to and accepted this
11 day of April, 1977
/s/ JOHN M. SERGEY
______________________
John M. Sergey
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of April 11, 1997
(the "Agreement"), between Strategic Distribution, Inc., a Delaware
corporation (the "Company"), and John M. Sergey (the "Purchaser").
WHEREAS, pursuant to the Executive Employment Agreement
(the "Employment Agreement"), dated as of the date hereof, between the
Company and the Purchaser, the Company has agreed to employ the Purchaser,
and the Purchaser has agreed to be employed by the Company upon and subject
to the terms therein;
WHEREAS, in connection with the Purchaser's employment by
the Company pursuant to the Employment Agreement, the Company desires to sell
400,000 shares (the "Shares") of the common stock, par value $0.10 per share,
of the Company (the "Common Stock") to the Purchaser; and
WHEREAS, the Purchaser desires to purchase the Shares
upon the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual terms,
conditions and other agreements set forth herein, the parties hereto hereby
agree as follows:
Section 1. SALE AND PURCHASE OF SECURITIES. (a) Subject to the
terms and conditions set forth herein, on the Closing Date (as defined
herein), the Company shall sell to the Purchaser and the Purchaser shall
purchase from the Company the Shares for an aggregate amount of $2,050,000
(the "Purchase Price"). The Purchaser shall pay $700,000 of the Purchase
Price in cash on the Closing Date and the remainder of the Purchase Price
shall be evidenced by a promissory note issued by the Purchaser to the
Company pursuant to the Loan and Pledge Agreement, dated the date hereof,
between the Purchaser and the Company, in the form of Exhibit A attached
hereto.
(b) The sale and purchase of the Shares shall be effected by
the Company's execution and delivery to the Purchaser of a duly executed
stock certificate evidencing the Shares registered in his name, and by the
delivery by the Purchaser to the Company of the Purchaser's check in the
amount of the purchase price of the Shares.
(c) The closing of the transactions hereunder (the "Closing")
shall take place on such day on or prior to the forty-fifth (45) day (or if
not a business day the next succeeding business day) after the date hereof as
shall be mutually agreed upon by the Company and the Purchaser (the "Closing
Date").
<PAGE>
Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Purchaser as follows:
(a) ORGANIZATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite power and authority to
execute, deliver and perform this Agreement and to issue, sell and deliver
the Shares hereunder.
(b) AUTHORIZATION, ENFORCEABILITY. All corporate action on
the part of the Company necessary for the authorization, execution and
delivery of this Agreement and the issuance, sale and delivery of the Shares
hereunder has been taken. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of
equity.
(c) FINANCIAL STATEMENTS. The audited consolidated balance
sheet of the Company as at December 31, 1996 fairly presents the consolidated
financial position of the Company as at the date thereof, and the related
consolidated statement of operations, stockholders' equity and cash flows for
the fiscal period ended on such date fairly presents the results of
operations of the Company and its subsidiaries for the period indicated. All
such financial statements, including the schedules and notes thereto, were
prepared in accordance with generally accepted accounting principles applied
consistently throughout the periods involved.
(d) NO CONSENTS. The execution, delivery and performance by
the Company of this Agreement does not require any consent or approval of any
person or entity, except as may be required under applicable state securities
or blue sky laws or by the National Association of Securities Dealers, Inc.
in connection with the issuance and listing of the Shares.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby represents and warrants as follows:
(a) VALIDITY OF AGREEMENT. This Agreement has been duly
executed by the Purchaser and constitutes the valid and legally binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
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<PAGE>
the enforcement of creditors' rights generally and general principles of
equity.
(b) NO CONSENTS. The execution, delivery and performance by
the Purchaser of this Agreement does not require any consent or approval of
any person or entity.
(c) INVESTMENT REPRESENTATIONS.
(i) The Purchaser is acquiring the Shares solely
for his own account as principal, for investment purposes only, and
not with a view to, or for, subdivision, resale, distribution or
fractionalization thereof, in whole or in part, or for the account,
in whole or in part, of others, and no other person or entity has a
direct or indirect beneficial interest in the Shares; further, the
Purchaser intends to hold the Shares as an investment and does not
presently anticipate any change in circumstances or other
particular occasion or event that would cause him to attempt to
sell any of the Shares;
(ii) the Purchaser understands that no federal or
state agency has made any finding or determination as to the
fairness of this investment and that the sale of the Shares is
intended to be exempt from registration both under the Securities
Act of 1933, as amended (the "Securities Act"), and any applicable
state securities law, and, in furtherance thereof, the Purchaser
represents and warrants to, and agrees with, the Company that he
has the financial ability to bear the economic risk of his
investment, and has adequate means for providing for his current
needs and personal contingencies and has no need for liquidity with
respect to his investment in the Shares;
(iii) the Purchaser has been given the opportunity to
ask questions of, and receive information and answers from, the
Company concerning matters pertaining to the Company and its
business and affairs and this investment, and all such questions
have been answered, and all such information has been provided, to
his satisfaction and he has determined that the Shares are a
suitable investment for him and that at this time he could bear the
complete loss of his investment;
(iv) the Purchaser is not relying on the Company in
regard to the tax and other personal financial considerations
related to this investment, and the Purchaser has, to the extent he
deems it necessary, relied on the advice of, or has consulted with,
only his own advisors;
(v) the Purchaser will not sell or otherwise transfer
the Shares without registration under the Securities Act, and
applicable state securities laws, unless the Company has received
an appropriate opinion of counsel
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<PAGE>
reasonably acceptable to it that registration thereunder is not
required, and fully understands and agrees that he must bear the
economic risk of his purchase for an indefinite period of time
because, among other reasons, the Shares have not been registered
under the Securities Act or under any applicable state securities
laws and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless they are subsequently registered under
the Securities Act and any applicable state securities laws or an
exemption from such registration is available. Subject to Section 5
hereof, the Purchaser understands that the Company is under no
obligation to register the Shares on his behalf or to assist him in
complying with any exemption from registration under the Securities
Act or any state securities laws; and
(vi) the Purchaser is a resident of the state specified for the
Purchaser in Section 7 hereof.
Section 4. LEGEND. Until such time as the Shares shall become
freely tradable pursuant to the provisions of Rule 144(k) under the
Securities Act, certificates evidencing the Shares shall bear the following
legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be transferred or sold except pursuant to an effective
registration statement under the Act or in a transaction which, in the
opinion of counsel reasonably satisfactory to Strategic Distribution,
Inc., qualifies as an exempt transaction under the Act and the rules
and regulations promulgated thereunder."
Section 5. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive from the
Purchaser a written request that the Company effect any registration with
respect to all or a part of the Shares, the Company will, as soon as
practicable, use its diligent best efforts to effect such registration
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of such Shares as are specified in such request; PROVIDED that the Company
shall not be obligated to effect, or take any action to effect, any such
registration pursuant to this Section 5(a):
(i) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless the Company is
already
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<PAGE>
subject to service in such jurisdiction and except as may be
required by the Securities Act or applicable rules or regulations
thereunder;
(ii) After the Company has effected one (1) such registrations
pursuant to this Section 5(a) and such registration has been declared
or ordered effective and the sales of such Shares pursuant to such
registrations shall have closed; or
(iii) Within 180 days of the effective date of any registration
statement filed by the Company provided that the Purchaser had an
opportunity to include Shares in such registration.
The registration statement filed pursuant to the request of the
Purchaser may include other securities of the Company which are held by
persons who, by virtue of agreements with the Company, are entitled to
include their securities in any such registration ("Other Holders").
(b) EXPENSES OF REGISTRATION. All expenses incurred by the
Company pursuant to this Section 5, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration
("Registration Expenses") shall be borne by the Company, and all selling
commissions applicable to the sale of the Shares and all fees and
disbursements of counsel for the Purchaser shall be borne by the Purchaser;
PROVIDED, HOWEVER, that the Company shall not be required to pay any
Registration Expenses if the Purchaser withdraws its request for
registration, in which case the Purchaser shall bear such Registration
Expenses, and PROVIDED FURTHER that such registration shall not be counted as
a registration pursuant to Section 5(a).
(c) REGISTRATION PROCEDURES. In the case of any registration
effected by the Company pursuant to this Section 5, the Company will keep the
Purchaser advised in writing as to the initiation of the registration and as
to the completion thereof. At its expense, the Company will:
(i) keep such registration effective for a period of one hundred
twenty (120) days or until the Purchaser has completed the distribution
described in the registration statement relating thereto, whichever first
occurs; and
(ii) furnish such number of prospectuses and other documents
incident thereto as the Purchaser from time to time may reasonably
request.
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<PAGE>
(d) INDEMNIFICATION.
(i) The Company will indemnify the Purchaser with respect to the
registration which has been effected pursuant to this Section 5, and each
underwriter, if any, and each person who controls any underwriter, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
the Securities Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and
will reimburse the Purchaser, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, PROVIDED that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Company by the Purchaser or the underwriter and stated to be specifically
for use therein.
(ii) The Purchaser will (a) indemnify the Company, each of its
directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who
controls the Company or such underwriter, each Other Holder and each of
their officers, directors, and partners, and each person controlling such
Other Holder against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document
made by the Purchaser relating to the Purchaser or the Purchaser's
ownership of stock, or any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements by the Purchaser relating to the Purchaser or the Purchaser's
ownership of stock therein not misleading, and (b) will reimburse the
Company and such Other Holders, directors, officers, partners, persons,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, in the
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case of (a) or (b) above, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document
in reliance upon and in conformity with written information furnished
to the Company by the Purchaser and stated to be specifically for use
therein; PROVIDED, HOWEVER, that the obligations of the Purchaser
hereunder shall be limited to an amount equal to the net proceeds to
the Purchaser of securities sold as contemplated herein.
(iii) Each party entitled to indemnification under this Section 5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; PROVIDED that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld) and the
Indemnified Party may participate in such defense at such party's expense
(unless the Indemnified Party shall have reasonably concluded that there
may be a conflict of interest between the Indemnifying Party and the
Indemnified Party in such action, in which case the fees and expenses of
counsel shall be at the expense of the Indemnifying Party), and PROVIDED
FURTHER that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 5 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 5 is held
by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense
referred to herein, then the Indemnifying Party, in lieu of indemnifying
such Indemnified Party hereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect
the relative fault
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<PAGE>
of the Indemnifying Party on the one hand and of the Indemnified Party
on the other in connection with the statements or omissions which
resulted in such loss, liability, claim, damage or expense, as well as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue (or alleged
untrue) statement of a material fact or the omission (or alleged
omission) to state a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(v) The foregoing indemnity agreement of the Company and the
Purchaser is subject to the condition that, insofar as they relate to any
loss, claim, liability or damage made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the
Securities and Exchange Commission at the time the registration statement
in question becomes effective or the amended prospectus filed with the
Securities and Exchange Commission pursuant to Securities and Exchange
Commission Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of the Purchaser or any underwriter if a
copy of the Final Prospectus was furnished to the Purchaser or such
underwriter, as the case may be, and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
(e) INFORMATION BY THE PURCHASER. The Purchaser shall
furnish to the Company such information regarding the Purchaser and the
distribution proposed by the Purchaser as the Company may reasonably
request in writing and as shall be reasonably required in connection with
any registration, qualification or compliance referred to in this Section 5.
Section 6. CONDITION TO OBLIGATIONS OF THE PARTIES. The
obligations of the Company and the Purchaser to consummate the transactions
contemplated by this Agreement are subject to the continued effectiveness
of the transactions contemplated by the Employment Agreement as of the
Closing Date.
Section 7. NOTICES. All communications under this Agreement
shall be in writing and shall be delivered by hand, by facsimile or by
overnight courier or by registered or certified mail, postage prepaid: (i)
if to the Company, at 165 Mason Street, Greenwich, Connecticut 06830,
Attention: William L. Mahone, facsimile number 203-629-8554; and (ii) if
to the Purchaser at 767 Peach Tree Lane, Franklin Lakes, New Jersey 07417.
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Section 8. FEES AND EXPENSES. All costs, fees and expenses
incurred in connection with this Agreement ("Costs") shall be paid by the
party incurring such Costs.
Section 9. ENTIRE AGREEMENT. Except for the Employment
Agreement and the Loan and Pledge Agreement, this Agreement represents the
entire agreement and understanding of the parties with reference to the
transactions set forth herein and no representations or warranties have
been made in connection with this Agreement other than those expressly set
forth herein. This Agreement supersedes all prior negotiations,
discussions, correspondence, communications, understandings and agreements
between the parties relating to the subject matter of this Agreement, all
of which are merged into this Agreement.
Section 10. AMENDMENTS. This Agreement may be amended,
modified or supplemented only by a written instrument executed by the
parties hereto.
Section 11. COUNTERPARTS. This Agreement may be executed in
two counterparts, each of which shall be deemed an original and all of
which together shall be considered one and the same agreement.
Section 12. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY
BENEFICIARIES. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective successors and assigns,
including, but not limited to, the heirs and personal representatives of
the Purchaser's estate, PROVIDED, HOWEVER, that neither party shall assign
or delegate any of the obligations created under this Agreement without the
prior written consent of the other party. In the event the Purchaser
commences an action to enforce his rights under this Agreement, the Company
shall pay all of the Purchaser's reasonable fees and expenses (including,
without limitation, reasonable attorneys' fees) should the Purchaser
prevail in such action.
Section 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW PROVISIONS THEREOF.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
STRATEGIC DISTRIBUTION, INC.
By: /s/ ANDREW M. BURSKY
-----------------------------
Name:
Title:
/s/ JOHN M. SERGEY
--------------------------------
John M. Sergey
-10-
<PAGE>
AMENDMENT TO STOCK PURCHASE AGREEMENT
This AMENDMENT TO STOCK PURCHASE AGREEMENT, dated as of May 5, 1997
(the "Amendment Agreement"), is by and between Strategic Distribution, Inc., a
Delaware corporation (the "Company"), and John M. Sergey (the "Purchaser").
WHEREAS, the Company and the Purchaser are parties to a Stock Purchase
Agreement, dated as of April 11, 1997 (the "Stock Purchase Agreement"), pursuant
to which, among other things, the Company agreed to sell to the Purchaser and
the Purchaser agreed to buy from the Company 400,000 shares of the common stock,
par value $0.10 per share, of the Company.
WHEREAS, the Company and the Purchaser desire to amend the Stock
Purchase Agreement in the manner set forth in this Amendment Agreement.
NOW THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the parties hereto hereby agree as follows:
1. The definition of Purchase Price set forth in Section 1 of the
Stock Purchase Agreement is hereby amended from $2,050,000 to $1,700,000.
2. The Loan and Pledge Agreement referred to in Section 1 of the
Stock Purchase Agreement shall be in the form of the Amended Loan and Pledge
Agreement attached as Exhibit A to this Amendment Agreement.
3. Except as set forth in this Amendment Agreement, the Stock
Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
Agreement as of the date first above written.
STRATEGIC DISTRIBUTION, INC.
By: /s/ ANDREW M. BURSKY
_________________________
Name:
Title:
/s/ JOHN M. SERGEY
____________________________
John M. Sergey
<PAGE>
AMENDED LOAN AND PLEDGE AGREEMENT
This Amended Loan and Pledge Agreement, dated as of May 5, 1997,
is by and between Strategic Distribution, Inc., a Delaware corporation (the
"Company"), and John M. Sergey ("Sergey").
1. The Company hereby agrees to loan to Sergey an amount equal to
$1,000,000, which is equal to (a) the purchase price of shares of common
stock, par value $0.10 per share, of the Company (collectively, the
"Shares") purchased by Sergey pursuant to the Stock Purchase Agreement,
dated as of April 11, 1997, as amended, between Sergey and the Company less
(b) $700,000.
2. The loan shall be evidenced by a non-recourse promissory note
dated the date of such loan in the form of Annex A attached hereto (the
"Note"). The Note shall be secured solely by a pledge of the Shares as set
forth below and the Company shall have no recourse to any other property or
assets of Sergey.
3. The entire unpaid principal amount of the Note shall be due,
together with all interest accrued but unpaid thereon, on the fifth
anniversary of the issuance of the Note. Sergey may prepay the Note in
whole or from time to time, in part, without premium or penalty.
4. In the event Sergey sells any Shares or otherwise realizes any
cash or other consideration in respect of such Shares prior to repayment in
full of the Note, whether pursuant to a dividend, private sale, public
offering, merger, recapitalization, liquidation or dissolution of the
Company (each, a "Realization Event"), Sergey shall within ten days of the
Realization Event, make a mandatory prepayment of the Note in an amount
equal to the lesser of (i) 100% of the net after tax proceeds received by
or for the account of Sergey in respect of the Realization Event and (ii)
the aggregate amount then outstanding under the Note, such amount to be
applied pro rata to accrued interest and principal on the Note.
5. Sergey hereby grants to the Company a first priority security
interest in the Shares, as collateral security for the due and punctual
payment of the Note in accordance with its terms and the performance by
Sergey of his obligations under the Note (which Shares shall include any
other securities or property receivable or distributable with respect
thereto after the date hereof). The certificates representing the Shares,
together with a stock power attached thereto in blank, shall be
1
<PAGE>
delivered
to the Company and shall be retained by the Company until all obligations
under the Note have been paid in full. At such time, the Company shall
return to Sergey the certificates representing the Shares, together with
the stock power attached thereto.
6. Upon the occurrence of an Event of Default, the Company shall
have and may exercise all rights and remedies afforded to a secured party
under the New York Uniform Commercial Code applicable thereto, including,
without limitation, the right to sell the Shares at a public or private
sale (provided that the Company shall give Sergey at least 15 days prior
written notice of the date in which any public sale is to be held or the
date after which any private sale may be made), at which sale the Company
may purchase such Shares (free from any right of redemption by Sergey,
which right is hereby waived and released) and have the right to retain the
Shares in partial or full satisfaction of Sergey's obligations under the
Note in accordance with the provisions of the New York Uniform Commercial
Code. The Company's recovery upon an Event of Default shall be limited to
the Shares, and no judgment, order or execution entered in any suit, action
or proceeding, whether legal or equitable, on this Agreement or the Note
shall be obtained or enforced against Sergey or any other property or asset
of Sergey. If there is a foreclosure of the Company's lien on the Shares,
by power of sale or otherwise, no judgment for any deficiency shall be
brought or obtained by the Company against Sergey or any other property or
asset of Sergey.
7. Each of Sergey and the Company has all power and authority
necessary to enter into and consummate the transactions contemplated by
this Agreement and this Agreement is valid and enforceable against each of
the Company and Sergey in accordance with its terms. Sergey has not
created or permitted any lien or encumbrance to attach to the Shares, other
than the pledge set forth in this Agreement.
8. If any of the following events ("Events of Default") shall
occur:
(a) Sergey shall default in the payment of interest or principal
on the Note when the same shall become due and payable, whether at
maturity, by acceleration or otherwise and such default continues for more
than ten days after receipt of written notice from the Company;
(b) Sergey shall default in the performance or compliance with
any other term or provision contained in this Agreement and such default
continues for more than 30 days after receipt of written notice from the
Company; or
2
<PAGE>
(c) If any of the Shares shall be encumbered, pledged, attached
or levied upon or seized at any legal proceeding, except as contemplated by
this Agreement, and such encumbrance, pledge, attachment or levy remains
uncured for more than 15 days;
then the holder of the Note may at any time by written notice to Sergey (or
without such notice with respect to subsection (c) above), declare the
entire unpaid principal of and the interest then accrued on the Note to be
forthwith due and payable, without other notices or demands of any kind,
all of which are hereby waived by Sergey.
9. Sergey will do, execute, acknowledge, deliver, file and record
all such further acts, conveyances, transfers and assurances as the Company
may deem necessary or advisable to perform, preserve, protect and continue
the pledge granted by this Agreement.
10. All notices and communications provided for herein shall be
delivered or mailed by registered or certified mail, postage prepaid, or
telegraphed, addressed as follows:
If to the Company:
165 Mason Street
Greenwich, Connecticut 06830
Facsimile No.: (203) 629-8554
Attention: William L. Mahone
If to Sergey:
John M. Sergey
767 Peach Tree Lane
Franklin Lakes, New Jersey 07417
or such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
11. All representations and warranties made by Sergey and the
Company herein shall survive the making of the loan and the delivery of the
Note hereunder.
12. No delay on the part of the Company in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude other or further exercise thereof, or the exercise of any other
right, power or privilege.
3
<PAGE>
13. This Agreement and the Note shall be governed by and
interpreted and enforced in accordance with the laws of the State of
Delaware without giving effect to the choice-of-law provisions thereof.
14. This Agreement shall be binding upon the successors and
assigns of the parties hereto.
15. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall
be considered on and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
STRATEGIC DISTRIBUTION, INC.
By: /s/ ANDREW M. BURSKY
----------------------------
Name:
Title:
/s/ JOHN M. SERGEY
---------------------------
John M. Sergey
4
<PAGE>
SECURED NON-RECOURSE PROMISSORY NOTE
$1,000,000 May 20, 1997
FOR VALUE RECEIVED, John M. Sergey ("Maker" or "Sergey") hereby
promises to pay to the order of Strategic Distribution, Inc., a Delaware
corporation ("the Company"), at 165 Mason Street, Greenwich, Connecticut, or
such address as the Company or the holder of this Note shall have given to the
Maker, the principal sum of One Million Dollars ($1,000,000) on the fifth
anniversary of the date hereof, with interest (computed on a 360-day year of
twelve 30-day months) from the date hereof on the unpaid balance thereof at the
rate of 7.00% per annum, until the principal hereof shall have been paid.
Interest shall accrue from the date hereof and shall be payable on the fifth
anniversary of the date hereof.
Any payments of principal and/or interest shall be made in such
currency of the United States at the time of payment shall be legal tender for
the payment of public and private debts.
This Note evidences a non-recourse loan made by the Company under the
Amended Loan and Pledge Agreement, dated as of May 5, 1997, between the Company
and Sergey (the "Agreement") which provides, among other things, for the
securing of the Note by a pledge of the Shares, as defined in the Agreement, for
the mandatory prepayment of this Note under certain circumstances and for the
acceleration of the maturity of this Note following an Event of Default, all on
the terms set forth in the Agreement.
This Note may be prepaid in whole or in part at any time and from time
to time without penalty or premium. Any voluntary or mandatory prepayment of
this Note shall be applied pro rata to accrued interest and principal on this
Note.
Upon the occurrence of an Event of Default (as defined in the
Agreement), this Note shall become due and payable as set forth in the
Agreement. The Company's recovery upon an Event of Default shall be limited to
the Shares, and no judgment, order or execution entered in any suit, action or
proceeding, whether legal or equitable, on this Note shall be obtained or
enforced against the Maker or any other property or asset of the Maker. If
there is a foreclosure of the Company's lien on the Shares, by power of sale or
otherwise, no judgment for any deficiency shall
<PAGE>
be brought or obtained by the Company against the Maker or any other
property or asset of the Maker.
The Maker hereby forever waives presentment, demand, presentment for
payment, protest, notice of protest, notice of dishonor of this Note and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
This Note shall be governed and construed in accordance with the laws
of the State of Delaware applicable to agreements made and to be performed
entirely in such State and shall be binding upon the heirs or legal
representatives of the Maker and shall inure to the benefit of the successors
and assigns of the Company.
/s/ JOHN M. SERGEY
-------------------------
John M. Sergey
2
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE
STRATEGIC DISTRIBUTION, INC. 1990 INCENTIVE STOCK OPTION PLAN
THIS AGREEMENT, made this 11th day of April, 1997, by and between
STRATEGIC DISTRIBUTION, INC., a Delaware corporation (the "Company") and John M.
Sergey (the "Optionee").
WITNESSETH:
WHEREAS, the Optionee will be providing services to the Company
pursuant to the terms of an Employment Agreement with the Company of even date
herewith, and the Company desires to have the Optionee continue to provide such
services and to afford the Optionee the opportunity to acquire, or enlarge, the
Optionee's stock ownership in the Company so that the Optionee may have a direct
proprietary interest in the Company's success;
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set forth
herein, the Company hereby grants to the Optionee the right and option (the
"Option") to purchase from the Company, in compliance with the exercise schedule
set forth in Section 2 of this Agreement, during the period commencing on the
date of this Agreement (the "Grant Date") and ending ten (10) years from the
date hereof (the "Termination Date"), at a price of $5.12 per share, up to, but
not exceeding in the aggregate, Four Hundred Thousand (400,000) shares of the
Company's Common Stock (the "Stock"). The option granted hereunder shall not be
an "incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Option is not being granted
under the Company's Amended and Restated 1990 Incentive Stock Option Plan (the
"Plan"), but shall be subject to the general terms and conditions of the Plan as
if it were granted thereunder.
2. EXERCISE OF OPTION. Subject to the terms and conditions set
forth herein, the Optionee may purchase One Hundred Thousand (100,000) shares of
Stock commencing on the first anniversary of the Grant Date, an additional One
Hundred Thousand (100,000) shares of Stock commencing on the second anniversary
of the Grant Date, an additional One Hundred Thousand (100,000) shares of Stock
commencing on the third anniversary of the Grant Date and an additional One
Hundred Thousand (100,000) shares of Stock commencing on the fourth anniversary
of the Grant Date. Nothwithstanding the foregoing, the Option shall become
immediately exercisable with respect to all shares of Stock upon (i) shareholder
approval of a merger, reorganization, or other business combination involving
the Company if the Company is not the surviving corporation; (ii) shareholder
approval of a sale, of all or substantially all of the Company's assets; or
(iii) the
<PAGE>
acquisition, by a person (as such term is used in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Act"))
other than a shareholder identified in the Company's most recent proxy
statement, of beneficial ownership (as such term is used in Rule 13d-3
promulgated under the Act) of thirty-three percent (33%) or more of the issued
and outstanding common stock of the Company.
3. TERMINATION OF EMPLOYMENT. (a) If, prior to the Termination
Date, the Optionee shall cease to be employed by Strategic Distribution, Inc. or
a subsidiary thereof for any reason other than death, disability or for cause,
this Option will remain exercisable by the Optionee for a period of three (3)
months after the date of cessation of employment, but in no event later than the
Termination Date, to the extent the Option was exercisable at the date of
cessation of employment. If, prior to the Termination Date, the Optionee shall
cease to be employed by Strategic Distribution, Inc. or a subsidiary thereof for
reasons of death or disability, the Option will remain exercisable by the
Optionee or, in the event of his death, by the person or persons to whom the
Optionee's rights under the Option would pass by will or the applicable laws of
descent and distribution for a period extending one (1) year after the date of
death or disability, but in no event later than the Termination Date, to the
extent the Option was exercisable at the date of death or disability. If, prior
to the Termination Date, the Optionee shall cease to be employed by Strategic
Distribution, Inc. or a subsidiary thereof by reason of termination of
employment for "Cause" (as defined in the Executive Employment Agreement, dated
of even date herewith, by and between the Optionee and the Company), this Option
shall terminate immediately.
(b) Whether employment has been terminated for the purposes of this
Agreement and the reasons therefor shall be determined by the Stock Option and
Compensation Committee of the Company's Board of Directors (the "Stock Option
Committee"), whose determination shall be final, binding and conclusive.
4. METHOD OF EXERCISING OPTION. The Optionee may exercise the
Option by delivering to the Company a written notice stating the number of
shares of Stock that the Optionee has elected to purchase at that date from the
Company and full payment of the purchase price of the shares of Stock then to be
purchased. Payment of the purchase price of the shares of Stock shall be made
by certified or bank cashier's check payable to the order of the Company, by the
surrender to the Company of shares of the Company's Common Stock or by any
combination thereof. Any shares surrendered by the Optionee to the Company in
accordance with this Section 3 will be valued by the Stock Option Committee
based upon a good faith attempt to determine the fair market value of the
shares.
2
<PAGE>
5. ISSUANCE OF SHARES. As promptly as practical after receipt of
such written notification and full payment of such purchase price and any
required income tax withholding amount, the Company shall issue or transfer to
the Optionee the number of shares of Stock with respect to which the Option has
been so exercised, and shall deliver to the Optionee a certificate or
certificates therefor, registered in the Optionee's name.
6. COMPANY. The term "Company" as used in this Agreement with
reference to employment shall include subsidiaries of the Company. The term
"subsidiary" as used in this Agreement shall mean any subsidiary of the Company
as defined in Section 424(f) of the Internal Revenue Code of 1986.
7. NON-TRANSFERABILITY. The Option is not transferable by the
Optionee and is exercisable, during the lifetime of the Optionee, only by him.
No assignment or transfer of the Option, or of the rights represented thereby,
whether voluntary or involuntary, by operation of law or otherwise, except by
will or the laws of descent and distribution as set forth in Section 2 herein,
shall vest in the assignee or transferee any interest or right herein
whatsoever, but immediately upon such assignment or transfer the Option shall
terminate and become of no further effect.
8. RIGHTS OF STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any share of Stock covered by the Option until he
shall have become the holder of record of such share of Stock, and no adjustment
shall be made for dividends or distributions or other rights in respect of such
share of Stock for which the record date is prior to the date upon which he
shall become the holder of record thereof.
9. RECAPITALIZATION, REORGANIZATIONS, ETC. (a) The existence of the
Option shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of stock
or of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks ahead of or affecting the Stock or the
rights thereof or convertible into or exchangeable for stock, or the dissolution
or liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
(b) The shares with respect to which the Option is granted are shares
of stock of the Company as presently constituted, but if, and whenever, prior to
the delivery by the Company of all of the shares of Stock with respect to which
the Option is granted, the Company shall effect a subdivision or
3
<PAGE>
consolidation of shares of the stock outstanding, without receiving
consideration therefor, the number and price per share of shares remaining
under the Option shall be appropriately adjusted. Such adjustment shall be
made by the Stock Option Committee under the Plan whose determination as to
what adjustment shall be made, and the extent thereof, shall be final,
binding and conclusive. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become subject to
the Option.
(c) After a merger of one or more corporations into the Company
or of the Company into one or more corporations, or after a reorganization
or other business combination of the Company with one or more corporations
after which the Company shall be the surviving corporation, the Optionee
shall, at no additional cost be entitled upon any exercise of the Option,
to receive (subject to any required action by stockholders) in lieu of the
number of shares as to which the Option shall then be so exercised, the
number and class of shares of stock or other securities to which the
Optionee would have been entitled pursuant to the terms of the agreement or
merger, reorganization or other business combination, if immediately prior
to such merger, reorganization or other business combination the Optionee
had been the holder of record of a number of shares of Stock of the Company
equal to the total number of shares as to which this Option may be
exercised. Such adjustment shall be made by the Stock Option Committee,
whose determination as to what adjustment shall be made, and the extent
thereof, shall be final, binding and conclusive. Any such adjustment may
provide for the elimination of any fractional share which might otherwise
become subject to the Option. Anything herein contained to the contrary
notwithstanding, upon any merger, reorganization or other business
combination in which the Company is not the surviving corporation or a
dissolution or liquidation of the Company or a sale of all or substantially
all of its assets, the Option shall terminate and become of no further
effect.
(d) Except as hereinbefore expressly provided, the issue by the
Company of shares of stock of any class, or securities convertible into or
exchangeable for shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of options,
rights or warrants to subscribe therefor, or to purchase the same, or upon
conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Stock subject to the Option.
10. COMPLIANCE WITH LAW. Notwithstanding any of the provisions
hereof, the Optionee hereby agrees that the Company will not be obligated to
issue or transfer any shares to the Optionee hereunder, if the issuance or
transfer of such shares shall constitute a violation by the Optionee or the
Company of any provisions of any law or regulation of any governmental
authority.
4
<PAGE>
Any determination in this connection by the Stock Option Committee shall be
final, binding and conclusive. The Company shall in no event be obliged to
register any securities pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended) or to take any other affirmative action in
order to cause the issuance or transfer of shares of Stock pursuant hereto
to comply with any law or regulation of any governmental authority.
11. NOTICE. Every notice or other communication relating to
this Agreement shall be in writing, and shall be mailed to or delivered to
the party for whom it is intended at such address as may from time to time
be designated by it in notice mailed or delivered to the other party as
herein provided; provided that unless and until some other address be so
designated, all notices or communications by the Optionee to the Company
shall be mailed or delivered to the Company at its office at 165 Mason
Street, Greenwich, CT 06830, and all notices or communications by the
Company to the Optionee may be given to the Optionee personally or may be
mailed to him at the address shown below his signature to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
STRATEGIC DISTRIBUTION, INC.
By: /s/ ANDREW M. BURSKY
------------------------------
Andrew M. Bursky, Chairman
OPTIONEE
/s/ JOHN M. SERGEY
- ---------------------------
John M. Sergey
Address of Optionee:
767 Peach Tree Lane
Franklin Lakes, NJ 07417
5
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<PAGE>
<ARTICLE> 5
<CIK> 0000073822
<NAME> STRATEGIC DISTRIBUTION, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 26,300
<SECURITIES> 0
<RECEIVABLES> 25,423
<ALLOWANCES> 0
<INVENTORY> 21,598
<CURRENT-ASSETS> 75,730
<PP&E> 3,251
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<CURRENT-LIABILITIES> 27,529
<BONDS> 1,487
0
0
<COMMON> 3,065
<OTHER-SE> 92,946
<TOTAL-LIABILITY-AND-EQUITY> 92,267
<SALES> 75,776
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<INTEREST-EXPENSE> (623)
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