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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from _________ to _________
Commission file Number 0-5228
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Strategic Distribution, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-1849240
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1615 Bustleton Pike, Feasterville, PA 19053
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 629-3080
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any amendment to this Form
10-K. [ ]
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The aggregate market value of the Registrant's Common Stock, par value $.10
per share (the "Common Stock"), held by non-affiliates on March 17, 1997 was
approximately $80,096,862, based upon the last sale price of the Common Stock on
such date as reported on the Nasdaq National Market. For purposes of this
calculation, the Registrant has defined "affiliate" to include persons who are
directors or executive officers of the Registrant and persons who singly, or as
a group, beneficially own 10% or more of the issued and outstanding Common
Stock.
As of March 17, 1997, the Registrant had outstanding 30,210,924 shares of
Common Stock, which is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934 (the "1934 Act"). The Common Stock is sometimes referred
to herein as the "Voting Stock" of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders is incorporated by reference in Part III of this Annual Report on
Form 10-K.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
Strategic Distribution, Inc. (the "Company") is a Delaware corporation which
was organized in 1968. The Company began its industrial distribution business
on July 9, 1990, with the acquisition of substantially all of the assets and the
assumption of certain liabilities of the Safety Distribution Division and the
Coulson Technical Services Division (together, the "Safety Divisions") of Master
Protection Corporation. The Safety Divisions distribute a variety of safety
products to industrial and commercial customers in the western United States.
The Company contributed the Safety Divisions to its SafetyMaster Corporation
("SafetyMaster") subsidiary which, in turn, contributed the Coulson Technical
Services Division to its Coulson Technologies, Inc. ("Coulson Technologies")
subsidiary. SafetyMaster and Coulson Technologies were formed as Delaware
corporations in June 1990. SafetyMaster became a subsidiary of the Company on
July 2, 1990 and Coulson Technologies became a subsidiary of SafetyMaster on the
same date.
On August 28, 1992, the Company's wholly-owned subsidiary, T Supply, Inc., a
Delaware corporation ("T Supply"), acquired substantially all of the operating
assets and assumed certain specified liabilities of Lewis Supply, Inc., a Texas
corporation engaged in the distribution of a broad range of maintenance, repair
and operations ("MRO") supplies, replacement parts and selected classes of
production materials, which are described collectively as industrial supplies.
T Supply was formed as a Delaware corporation
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on August 20, 1992 and became a subsidiary of the Company on August 27, 1992.
On September 4, 1992, T Supply changed its name to Lewis Supply (Delaware),
Inc. ("Lewis Supply").
On January 4, 1994, the Company acquired Industrial Systems Associates,
Inc. ("ISA"). ISA is a provider of In-Plant Store-Registered Trademark-
programs for the distribution and sale of industrial supplies to large
industrial customers in the United States.
On June 16, 1994, Lewis Supply acquired certain assets of the Industrial
Supplies Division of Lufkin Industries, Inc. (the "Lufkin Division").
On May 12, 1995, the Company acquired all of the outstanding common stock of
American Technical Services Group, Inc. ("ATSG"). ATSG is one of the largest
independent suppliers of instrumentation services in the United States.
SafetyMaster and Lewis were merged on May 24, 1996, with SafetyMaster the
surviving corporation (the "Merger"). SafetyMaster changed its name to
Strategic Supply, Inc. ("SSI") on May 24, 1996.
On January 28, 1997, the Company acquired INTERMAT International
Materials Management Engineers, Inc., a Texas corporation ("Old INTERMAT").
In order to accomplish the acquisition, Old INTERMAT was merged into the
Company's newly formed INTERMAT Acquisition Corp. subsidiary ("New
INTERMAT"). New INTERMAT was formed as a Delaware corporation on January 23,
1997, and became a subsidiary of the Company on January 28, 1997. On
February 6, 1997, New INTERMAT changed its name to INTERMAT International
Materials Management, Inc. ("INTERMAT-Registered Trademark"). INTERMAT
provides cataloging services and develops and supplies software for MRO
inventory cataloging.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Not applicable.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
The Company recently announced its intention to sell its SSI and ATSG
subsidiaries in order to focus more directly on the development of the Company's
In-Plant-Store business. See "Discontinued Operations." In line with this
strategy, the Company recently acquired INTERMAT which has developed proprietary
MRO inventory cataloging services. The Company believes that INTERMAT's
services provide an excellent complement to the Company's In-Plant-Store
program.
The In-Plant Store program permits industrial sites to outsource all
aspects of their MRO procurement, storage and internal distribution; the
Company takes responsibility for purchasing, receiving, stocking, issuing and
delivering MRO supplies at the industrial site. INTERMAT's proprietary
software helps industrial customers create standardized descriptions of their
MRO inventory,
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permitting customers to eliminate redundancies, identify obsolescence, better
access MRO items, and locate alternative sourcing for MRO items. The Company
believes that its In-Plant-Store customers are likely to recognize, and be
excellent prospects for, the MRO cataloging tools and services provided by
INTERMAT. Similarly, the Company believes that INTERMAT's customers are
likely to recognize, and be excellent prospects for, the MRO outsourcing
services provided by the In-Plant-Store program.
IN-PLANT STORE-Registered Trademark- PROGRAM
The Company provides proprietary industrial supply procurement and handling
solutions to industrial sites, primarily through its In-Plant Store program.
The Company sells a broad range of MRO supplies, replacement parts and selected
classes of production materials, which are described collectively as industrial
supplies. Industrial supplies are frequently low price but critical items which
historically have been characterized by high procurement costs due to inherent
inefficiencies in traditional industrial supply distribution methods. The
Company's In-Plant Store program, in which large industrial sites outsource the
procurement and handling of industrial supplies to the Company, substantially
mitigates these inefficiencies by reducing both the process and product costs
associated with industrial supply procurement and handling. The Company's In-
Plant Store program also helps customers achieve operational improvements, such
as reduced plant down-time resulting from unavailable parts and manufacturing
process improvements due to better tracking of critical parts. The Company
believes that its In-Plant Store program is superior to both traditional and
other alternative methods of industrial supply distribution in that the In-Plant
Store program allows customers to get out of the industrial supply distribution
and handling business and concentrate on their core businesses.
The Company believes that increased recognition of the inefficiencies
associated with the traditional industrial supply distribution process has
rapidly increased the demand for the Company's In-Plant Store program in recent
years. From January 1, 1996 to December 31, 1996, the number of In-Plant Store
sites operated by the Company increased from 31 to 72.
The In-Plant Store program is a comprehensive outsourcing service through
which the Company manages all aspects of industrial supply procurement and
handling at a customer's industrial site. Prior to the implementation of an In-
Plant Store, the industrial site would typically obtain industrial supplies from
as many as 500 traditional industrial distributors. Through the In-Plant Store
program, the Company becomes responsible for servicing all of its customer's
industrial supply needs by establishing a dedicated, fully integrated store
within the customer's plant. The customer, in turn, generally purchases all of
its industrial supplies from the In-Plant Store. The Company staffs the In-
Plant Store with its own trained industrial procurement professionals, installs
proprietary software designed specifically for industrial procurement and
identifies appropriate inventory levels based on the supply needs of each site.
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Upon implementation, the In-Plant Store purchases, receives, inventories and
issues industrial supplies directly to plant personnel, delivers ongoing
technical support and provides the customer with a comprehensive invoice
twice per month, thereby reducing the administrative burden of traditional
industrial supply. In addition, with the In-Plant Store program the customer
generally consumes industrial supplies before paying for them, as opposed to
traditional industrial supply that often requires the customer to invest in
substantial industrial supply inventory.
CATALOGING SERVICES
INTERMAT-Registered Trademark- provides cataloging services and develops
and supplies software for MRO inventory cataloging. INTERMAT's customers are
located primarily in the United States and in the Middle East, including Abu
Dhabi, Saudi Arabia and the United Arab Emirates.
STANDARD MODIFIER DICTIONARY-Registered Trademark-
INTERMAT's Standard Modifier Dictionary is an electronic dictionary with over
2,000 formats for building standardized descriptions of MRO items. INTERMAT
has used these formats to describe over 1.5 million separate MRO items for
its customers, enabling customers to describe and maintain their MRO
inventories in an organized and consistent fashion. INTERMAT's customers
have typically found that this systemization process turns up significant
redundancies in their MRO inventory. For example, the same MRO item may be
used in several different departments at a manufacturing site; each
department describes the part differently and, therefore, the different
departments do not realize that they are using the same part. Once all MRO
parts are systematically described and redundancies are identified, the
customer is able to consolidate and reduce inventories, thereby reducing its
capital investment. The customer can also reduce handling and other expenses
related to MRO procurement and gain better pricing by consolidating purchases.
INTERMAT has developed other proprietary software which will scan a
customer's existing MRO database and automatically convert as many items as
possible to the Standard Modifier Dictionary formats. This automatic
conversion process can save customers substantial time and resources by
reducing the number of items that need to be manually converted to Standard
Modifier Dictionary formats.
DEFINITY-TM- MATERIALS CATALOGING SOFTWARE
INTERMAT's DEFINITY software enables customers to manipulate the Standard
Modifier Dictionary formats to create a customized MRO catalog. Initially,
INTERMAT helps its new customers create a catalog of MRO items using the
Standard Modifier Dictionary formats, as well as item descriptions already
developed for and included in the Standard Modifier Dictionary. As MRO items
are added or deleted from a customer's inventory, the customer is able to add
or delete items from its MRO catalog. DEFINITY has many powerful cataloging
features, including search tools, list making capabilities, standard
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and custom reporting features, mainframe interfacing and network capabilities.
BENEFITS OF INTERMAT-Registered Trademark- SERVICES
The initial and immediate benefit of INTERMAT's cataloging services is the
identification and elimination of redundant and obsolete inventory. In
addition, over time, customers are able to achieve significant value by (i)
more quickly and easily identifying and locating MRO items needed by
different departments at an industrial site, or by different industrial sites
operated by the same company, and (ii) helping customers locate alternative
sources for different MRO items. Once all MRO items are described using
Standard Modifier Dictionary formats, a customer may realize that different
departments have been purchasing equivalent parts from different suppliers at
different costs. This realization enables the customer to choose the best
source and the best price. In addition, Standard Modifier Dictionary formats
enable the customer to more easily locate new sources for a given product,
since Standard Modifier Dictionary formats give purchasing personnel the
information they need to obtain price quotes from new suppliers.
CUSTOMERS
At December 31, 1996, the Company operated 72 In-Plant Store facilities
for 35 individual customers. INTERMAT provides its cataloging services to a
wide variety of customers in the United States and abroad. For the year
ended December 31, 1996, Westinghouse Electric Corporation (with which the
Company operates under six separate contracts) represented approximately 23%
of the Company's revenues.
PRODUCTS
The Company, through the In-Plant Store program, provides a broad range
of MRO supplies, replacement parts and selected classes of production
materials, including the following:
- - Abrasives - Hoses, pipe fittings and valves
- - Adhesives - HVAC and plumbing equipment
- - Coatings, lubricants and - Janitorial supplies
compounds - Material handling products
- - Cutting, hand, pneumatic and - Measuring instruments
power tools - Power transmission equipment
- - Electrical supplies - Respiratory products
Fasteners - Replacement parts
- - Fire protection equipment and - Safety products
clothing - Welding materials
Because of the broad range of products sold by the Company, no single
product or class of products accounted for more than 10% of the Company's
revenues in 1996.
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SUPPLIERS
The Company purchases products for its In-Plant Store program from
numerous manufacturers and specialty distributors. The Company has
distribution agreements with numerous manufacturers and suppliers, all of
which can be canceled by the respective manufacturers and suppliers upon
notice of one year or less. Because no manufacturer or supplier provides
products that account for as much as 10% of the Company's revenues and
because the Company believes that it could quickly find alternative sources
of supply if any distribution contract were canceled, the Company does not
believe that the loss of any one distribution contract, or any small group of
distribution contracts, would have a material adverse impact on the Company's
business.
COMPETITION
The Company's business is highly competitive. The Company competes with
a wide variety of traditional industrial supply distributors. Most of such
distributors are small enterprises selling to customers in a limited
geographic area. The Company also competes with several integrated supply
consortiums, direct mail suppliers and large warehouse stores, some of which
have significantly greater financial resources than the Company. The primary
areas of competition include price, breadth and quality of product lines
distributed, ability to fill orders promptly, technical knowledge of sales
personnel and, in certain product lines, service and repair capability. The
Company believes that its ability to compete effectively is dependent upon
its ability to deliver value-added procurement solutions to its customers
through its In-Plant Store program, to respond to the needs of its customers
through quality service and to be price-competitive. The Company believes
that other companies may develop and implement programs which offer services
similar to, and which compete with, the Company's In-Plant Store program.
The Company also competes to some extent with the manufacturers of
industrial supplies. The Company believes, however, that most of such
manufacturers sell their products through traditional industrial
distributors, because the limited range of products that a manufacturer
offers cannot compete effectively with the broad product lines and additional
services offered by traditional industrial distributors and industrial supply
service providers such as the Company.
The Company's cataloging services are built upon proprietary computer
software developed by INTERMAT. The Company is aware of a few companies that
have developed competing software, and it is possible that one or more larger
software companies will create competing software at some point in the future.
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GOVERNMENT REGULATION
In recent years, governmental and regulatory bodies have promulgated
numerous standards and regulations designed, among other things, to assure
the quality of certain classes of MRO items, to protect workers' well-being
and to make the work place safer. The Company reviews regulations governing
its customers in order to be able to distribute products that meet its
customers' needs, and some of the Company's past growth has been as a result
of its customers' compliance with this increasing level of regulation. The
Company cannot predict the level or direction of future regulation, but
believes these trends will continue to contribute to the Company's growth.
EMPLOYEES
As of December 31, 1996, the Company had approximately 630 employees, of
whom approximately 110 were employed in selling and administrative capacities
and approximately 520 were involved in operations. None of the Company's
employees were covered under collective bargaining agreements. The Company
considers its employee relations to be good.
INSURANCE
The Company maintains liability and other insurance that it believes to
be customary and generally consistent with industry practice. The Company is
also named as an additional insured under the products liability policies of
many of its suppliers and manufacturers and, with respect to In-Plant Store
facilities, many of its customers. The Company believes that such insurance
is adequate to cover potential claims relating to its existing business
activities.
DISCONTINUED OPERATIONS
On November 11, 1996, the Company announced its intention to sell its
SSI and ATSG subsidiaries in order to focus more directly on the development
of the Company's In-Plant Store business. The Company believes it will be
possible to consummate the sale of these two companies by June 30, 1997;
there can be no guarantee, however, that the sales will be consummated by
June 30, 1997. The results of operations of SSI and ATSG have, therefore,
been presented in the Company's consolidated financial statements for the
three years ended December 31, 1996 to conform with discontinued operations
treatment ("Discontinued Operations"). See Item 8, "Financial Statements and
Supplementary Data -- Notes to Consolidated Financial Statements," Footnote
No. 10.
SSI provides industrial distribution services to over 19,000 customers
through a network of 21 branches and a number of sales and service offices
located throughout the western United States. This network is able to
deliver traditional distribution services, as well as a number of proprietary
services including the Value Managed
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Supply-SM- program. SSI has located most branches in smaller cities which
are less well supplied by traditional industrial distributors and where
competition is more moderate than in larger industrial cities.
ATSG is one of the largest independent suppliers of instrumentation
services in the United States. These services, as well as process control
services, are provided through a network of five sales offices located across
the United States.
ITEM 2. PROPERTIES.
The Company leases its corporate headquarters located in Feasterville,
Pennsylvania, as well as several small warehouses located at In-Plant Store
sites. The Company does not own or lease the space for its other In-Plant
Store facilities. The Company has the right to renew some of these leases.
The Company believes that the properties which are currently under lease are
adequate to serve the Company's business operations for the foreseeable
future. The Company believes that if it were unable to renew the lease on any
of these facilities, it could find other suitable facilities with no adverse
effect on the Company's business.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently involved in certain legal proceedings incidental
to the normal conduct of its business. The Company does not believe that any
liabilities relating to such proceedings are likely to be, individually or in
the aggregate, material to its consolidated financial position and results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"STRD". As of March 17, 1997, there were approximately 1,500 holders of record
of the Common Stock.
QUARTER ENDED HIGH SALES PRICE LOW SALES PRICE
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March 31, 1995............ 5 3 3/4
June 30, 1995............. 4 15/16 3 1/16
September 30, 1995........ 6 3/8 4 1/16
December 31, 1995......... 7 7/8 5 5/8
March 31, 1996............ 8 1/4 5 5/8
June 30, 1996............. 9 1/8 5 3/4
September 30, 1996........ 7 7/8 4 3/8
December 31, 1996......... 8 1/2 4 11/16
The Company has paid no cash dividends on the Common Stock for the years
ended December 31, 1995 and 1996 and does not intend to declare any cash
dividends in the foreseeable future. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources".
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ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
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YEARS ENDED DECEMBER 31,
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1992 1993 1994 1995 1996
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STATEMENT OF OPERATIONS DATA:
Revenues $ - $ - $31,247 $52,915 $92,423
Operating income (loss) (234) (634) 573 312 (3,956)
Income (loss) from continuing operations
before income taxes (198) (608) 408 337 (2,589)
Income tax expense (benefit) - - (850) 149 -
Income (loss) from continuing operations (198) (608) 1,258 188 (2,589)
Income (loss) from discontinued
operations, net of tax 426 910 977 816 (6,519)
Net income (loss) 228 302 2,235 1,004 (9,108)
PER SHARE DATA:
Income (loss) from continuing operations (0.02) (0.05) 0.07 0.01 (0.10)
Income (loss) from discontinued
operations, net of tax 0.04 0.07 0.06 0.04 (0.24)
Net income (loss) 0.02 0.02 0.13 0.05 (0.34)
AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING 12,541,784 12,684,911 16,993,971 21,689,653 26,449,079
OTHER DATA:
Number of In-Plant Store facilities - - 17 31 72
DECEMBER 31,
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1992 1993 1994 1995 1996
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BALANCE SHEET DATA:
Working capital $ 903 $ 929 $10,693 $12,252 $53,448
Total assets 4,314 3,510 29,992 40,014 92,382
Long-term debt obligations - - 632 5,054 587
Stockholders' equity 3,116 3,448 24,721 27,391 73,954
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The Company has paid no cash dividends on its Common Stock for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996. On December 6, 1995 the
Company declared a three percent stock dividend to the holders of record on
December 18, 1995. The payment date was December 29, 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this Item 7 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 program.
The Company became a provider of the In-Plant Store program on January 4, 1994.
The Company conducts its operations primarily through its subsidiary Industrial
Systems Associates, Inc. ("ISA"). At December 31, 1996, the Company had 72 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
year ended December 31, 1996 represented less than 1% of consolidated revenues.
Two of the Company's subsidiaries, SafetyMaster Corporation
("SafetyMaster") and Lewis Supply (Delaware) Inc. ("Lewis"), were merged on May
24, 1996, with SafetyMaster the surviving corporation (the "Merger").
SafetyMaster changed its name to Strategic Supply, Inc. on May 24, 1996.
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 business. The Company believes it will be possible to
consummate the sale of these two companies by June 30, 1997; there can be no
guarantee, however, that the sales will be consummated by June 30, 1997. The
results of operations of SSI and ATSG have, therefore, been presented in the
Company's consolidated financial statements for the three years ended December
31, 1996 to conform with discontinued operations treatment.
The presentation of the statements 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. Selling, general and
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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.
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Year ended December 31,
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1994 1995 1996
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(dollars in thousands)
<S> <C> <C> <C>
Revenues $31,247 $52,915 $92,423
------- ------- -------
------- ------- -------
100.0% 100.0% 100.0%
Cost of materials 81.1 81.0 81.0
Operating wages and benefits 8.0 7.8 9.4
Other operating expenses 1.4 1.1 1.9
Selling, general and administrative expenses 7.7 9.5 12.0
Operating income (loss) 1.8 .6 (4.3)
Interest expense (income), net .5 -- (1.5)
Income (loss) from continuing operations before taxes 1.3 .6 (2.8)
Income tax expense (benefit) (2.7) .2 --
Income (loss) from continuing operations 4.0 .4 (2.8)
Income (loss) from discontinued operations, net of tax 3.2 1.5 (4.9)
Loss on sale of discontinued operations -- -- (2.2)
Net income (loss) 7.2 1.9 (9.9)
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues for the year ended December 31, 1996 increased 74.7% to
$92,422,964 from $52,914,568 in 1995. This growth resulted primarily from
the implementation of new In-Plant Store facilities. The number of In-Plant
Store facilities increased from 31 at December 31, 1995 to 72 at December 31,
1996. One In-Plant Store customer (with which the Company operates under six
separate contracts) represented approximately 23% and 19% of the revenues for
the years ended December 31, 1996 and 1995, but less than 10% for the year
ended December 31, 1994.
Cost of materials as a percentage of revenues remained at 81.0% for the
years ended December 31, 1996 and 1995.
Operating wages and benefits expense as a percentage of revenues
increased to 9.4% for the year ended December 31, 1996 from 7.8% in 1995.
Other operating expenses as a percentage of revenues increased to 1.9% for
the year ended December 31, 1996 from 1.1% in 1995. These increases resulted
from operating expenses for new In-Plant Store facilities, as a percentage of
revenues, being higher than those of more mature facilities. During the
start-up phase of new facilities, operating expenses generally increase at a
higher rate than revenues are recognized. As new In-Plant Store facilities
are added, the Company will continue to incur these high start-up costs, and
operating expenses as a percentage of revenues may continue to
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increase, depending upon the rate at which the Company adds new In-Plant
Store facilities.
Selling, general and administrative expenses as a percentage of revenues
increased to 12.0% for the year ended December 31, 1996 from 9.5% in 1995. This
increase resulted primarily from expenses incurred by the Company in connection
with its expansion of the systems and personnel necessary to support the
operations and marketing of the In-Plant Store program. As the In-Plant Store
program continues to expand, this expense will continue to increase; however, as
a percentage of revenue, it should decrease as the ratio of new In-Plant Store
facilities to more mature facilities decreases.
Interest income, net increased by $1,342,105 to $1,367,140 for the year
ended December 31, 1996 from $25,035 in 1995. The increase resulted primarily
from the sale of 7,630,000 shares of Common Stock on May 23, 1996 and the
interest income earned on the net proceeds.
Loss from discontinued operations was $4,519,383 for the year ended
December 31, 1996 and income from discontinued operations was $815,491 for the
year ended December 31, 1995. The Company has decided to sell SSI and ATSG in
order to focus exclusively on the growth of its In-Plant Store business. The
loss from discontinued operations for the year ended December 31, 1996 includes
a restructuring charge, one-time expenses associated with the Merger and branch
closing expenses of approximately $1,362,000. This amount consists primarily
of employee termination benefits, asset write-offs and lease payments.
Loss on sale of discontinued operations includes the estimated financial
results of SSI and ATSG through June 30, 1997, (the anticipated date of sale
of SSI and ATSG), and anticipated transaction costs related to the sale of
SSI and ATSG.
Income tax expense decreased by $149,000 to $0 for the year ended December
31, 1996. An income tax benefit was not recorded for the loss incurred in the
year ending December 31, 1996, as the Company did not believe there was a
sufficient basis for benefit recognition.
Net loss for the year ended December 31, 1996 was $9,108,157, compared to
net income of $1,003,926 in 1995, as a result of the items previously discussed.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues for the year ended December 31, 1995 increased 69.3% to
$52,914,568 from $31,246,855 in 1994. This growth resulted primarily from the
implementation of new In-Plant Store facilities. The number of facilities
increased from 17 at December 31, 1994 to 31 at December 31, 1995.
One In-Plant Store customer (with which the Company operates under four
separate contracts) represented approximately 36% and 22% of revenues for the
years ended December 31, 1994 and 1995, but less
13
<PAGE>
than 10% for the year ended December 31, 1996. Another In-Plant Store
customer (with which the Company operates under one contract) represented
approximately 21% and 15% of revenues for the years ended December 31, 1994
and 1995, but less than 10% for the year ended December 31, 1996. A third
customer (with which the Company operates under three separate contracts)
represented approximately 15% and 13% of revenues for the years ended
December 31, 1994 and 1995, but less than 10% in the year ended December 31,
1996.
Cost of materials as a percentage of revenues was flat from 1994 to 1995.
Operating wages and benefits expense as a percentage of revenues decreased
to 7.8% for the year ended December 31, 1995 from 8.0% in 1994. Other operating
expenses as a percentage of revenues decreased to 1.1% for the year ended
December 31, 1995 from 1.4% in 1994. These decreases result from a larger base
of more mature facilities in 1995 than 1994. During the start-up phase of new
facilities, operating expenses generally increase at a higher rate than revenues
are recognized.
Selling, general and administrative expenses, as a percentage of revenues
increased to 9.5% for the year ended December 31, 1995 from 7.7% in 1994. This
increase resulted primarily from expenses incurred by the Company in connection
with its expansion of the In-Plant Store program.
Interest income, net increased by $189,919 to $25,035 for the year ended
December 31, 1995 from interest expense, net of $164,884 in 1994. The increase
in interest income, net resulted primarily from the repayment of the Company's
bank indebtedness in the amount of approximately $13,300,000 with net proceeds
from the sale of 5,750,000 shares of Common Stock on October 13, 1994.
Income from discontinued operations was $815,491 for the year ended
December 31, 1995 and $976,678 for the comparable period in 1994.
Income tax expense increased by $999,000 to $149,000 for the year ended
December 31, 1995 from an income tax benefit of $850,000 in 1994. The tax
benefit in 1994 resulted from a reevaluation of the realizability of future tax
benefits arising from the utilization of a net operating loss carryforward and
other deferred tax assets.
Net income for the year ended December 31, 1995 was $1,003,926, compared to
net income of $2,234,820 in 1994, as a result of 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 $20,000,000. The credit
agreement was amended on September 9, 1996 to reduce the permitted maximum
outstanding borrowings to $5,000,000. Borrowings bear interest at the prime
rate (8.25% as of December 31,
14
<PAGE>
1996) 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
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, 1995 and 1996 borrowings
outstanding under the credit facility were $4,445,000 and $0.
On May 23, 1996, the Company sold 7,630,000 shares of Common Stock in an
underwritten public offering. The net proceeds to the Company were
approximately $55,331,600. A portion of the net proceeds were used to repay the
Company's bank indebtedness. The balance of the net proceeds is available for
working capital, including the opening of In-Plant Store facilities, for general
corporate purposes and for possible acquisitions.
On January 28, 1997, the Company completed the acquisition of INTERMAT for
a purchase price consisting of $10,800,000 in cash, a $1,400,000 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.
The net cash used in continuing operations was $8,058,241 for the year
ended December 31, 1996, compared to $3,319,208 for the year ended December 31,
1995. The increase resulted primarily from an increase in accounts receivable
and inventories and an increase in the loss from continuing operations, which
were partially offset by an increase in accounts payable and accrued expenses.
Accounts receivable and 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 change in net assets of discontinued operations was a decrease of
$475,514 for the year ended December 31, 1996 compared to an increase of
$3,928,393 for 1995. The decrease was a result of a smaller increase in working
capital in 1996 as compared to 1995.
The net cash used in investing activities increased to $1,848,385 for the
year ended December 31, 1996 from $457,214 for the comparable period in 1995.
The increase resulted primarily from additions of computer systems and related
equipment.
The net cash provided by financing activities was $51,086,753 for the year
ended December 31, 1996, compared to $4,489,294 for the year ended December 31,
1995. The net increase resulted primarily from the proceeds from the sale of
common stock offset by the repayment of the note payable to the bank.
The Company believes that cash on hand, cash generated from future
operations, and cash from the Company's bank credit facility will generate
sufficient funds to permit the Company to support the anticipated expansion of
the In-Plant Store program.
15
<PAGE>
INFLATION
The Company believes that any impact of general inflation has not had a
material effect on its results of operations. The Company's current policy is
to attempt to reduce any impact of inflation through price increases and cost
reductions.
SEASONALITY
The Company does not believe that its business is seasonal in nature.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of the Company are listed on the accompanying Index to
Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
16
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE NO.
--------
Independent Auditors' Report. F-2
Consolidated Balance Sheets as of December 31,
1995 and 1996. F-3
Consolidated Statements of Operations for
the Years Ended December 31, 1994, 1995
and 1996. F-4
Consolidated Statement of Stockholders' Equity
for the Years Ended December 31, 1994, 1995 and 1996. F-5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1995 and 1996. F-6
Notes to Consolidated Financial Statements. F-7
Schedules which are not included have been omitted because either they are
not required or are not applicable because the required information has been
included elsewhere in the consolidated financial statements or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Strategic Distribution, Inc.:
We have audited the accompanying consolidated balance sheets of Strategic
Distribution, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates, made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Strategic
Distribution, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
March 24, 1997
F-2
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
December 31,
-------------------------------
1995 1996
----------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 362,031 $ 35,498,289
Accounts receivable, net 9,844,683 17,910,400
Inventories 7,545,046 15,719,959
Prepaid expenses and other current assets 331,488 435,842
Deferred tax asset 1,389,000 1,382,000
----------- ------------
Total current assets 19,472,248 70,946,490
Property and equipment, net 811,092 2,250,793
Net assets of discontinued operations 17,089,477 16,613,963
Excess of cost over fair value of net assets acquired, net 2,612,341 2,525,388
Other assets 29,126 45,657
----------- ------------
Total assets $40,014,284 $ 92,382,291
----------- ------------
----------- ------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 7,200,720 $ 17,477,131
Current portion of long-term debt 19,894 21,542
----------- ------------
Total current liabilities 7,220,614 17,498,673
Long-term debt (related party $500,000 - 1995 and 1996) 608,730 587,188
Note payable 4,445,000 -
Deferred tax liability 349,000 342,000
----------- ------------
Total liabilities 12,623,344 18,427,861
----------- ------------
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 and outstanding:
21,716,662 and shares 29,523,361 2,171,666 2,952,336
Additional paid-in capital 33,861,694 88,752,671
Accumulated deficit (8,592,420) (17,700,577)
Note receivable from related party (50,000) (50,000)
----------- ------------
Total stockholders' equity 27,390,940 73,954,430
----------- ------------
Total liabilities and stockholders' equity $40,014,284 $ 92,382,291
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
Years ended December 31,
------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 31,246,855 $ 52,914,568 $ 92,422,964
Costs and expenses:
Cost of materials 25,353,109 42,874,266 74,841,500
Operating wages and benefits 2,496,947 4,124,699 8,644,072
Other operating expenses 437,341 561,018 1,809,152
Selling, general and administrative expenses 2,386,432 5,042,185 11,084,154
------------ ------------ ------------
Total costs and expenses 30,673,829 52,602,168 96,378,878
------------ ------------ ------------
Operating income (loss) 573,026 312,400 (3,955,914)
Interest expense (income):
Interest expense 230,902 55,336 97,971
Interest (income) (66,018) (80,371) (1,465,111)
------------ ------------ ------------
Interest expense (income), net 164,884 (25,035) (1,367,140)
------------ ------------ ------------
Income (loss) from continuing operations before income taxes 408,142 337,435 (2,588,774)
Income tax expense (benefit) (850,000) 149,000 -
------------ ------------ ------------
Income (loss) from continuing operations 1,258,142 188,435 (2,588,774)
Discontinued operations:
Income (loss) from discontinued operations, net of tax 976,678 815,491 (4,519,383)
Loss on sale of discontinued operations - - (2,000,000)
------------ ------------ ------------
Net income (loss) $ 2,234,820 $ 1,003,926 $ (9,108,157)
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per common share:
Primary:
Income (loss) from continuing operations $ 0.07 $ 0.01 $ (0.10)
Income (loss) from discontinued operations 0.06 0.04 (0.24)
------------ ------------ ------------
Net income (loss) $ 0.13 $ 0.05 $ (0.34)
------------ ------------ ------------
------------ ------------ ------------
Fully diluted:
Income from continuing operations $ 0.07 $ 0.01
Income from discontinued operations 0.06 0.03
------------ ------------
Net income $ 0.13 $ 0.04
------------ ------------
------------ ------------
Average number of shares of common stock outstanding 16,993,971 21,689,653 26,449,079
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
Additional
Common paid-in Accumulated Note
stock capital deficit receivable
---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Balance December 31, 1993 $1,236,012 $ 9,981,530 $ (7,719,667) $(50,000)
Net income - - 2,234,820 -
Issuance of 505,250 shares 50,525 595,475 - -
Exercise of stock options 517 4,649 - -
Sale of 8,150,000 shares, net 815,000 17,572,385 - -
---------- ----------- ------------ --------
Balance December 31, 1994 2,102,054 28,154,039 (5,484,847) (50,000)
Net income - - 1,003,926 -
Exercise of stock options 6,407 59,442 - -
Tax benefit of stock options exercised - 43,000 - -
Value of options issued in connection with acquisition - 1,560,100 - -
Stock dividend (including cash paid for fractional shares) 63,205 4,045,113 (4,111,499) -
---------- ----------- ------------ --------
Balance December 31, 1995 2,171,666 33,861,694 (8,592,420) (50,000)
Net loss - - (9,108,157) -
Exercise of stock options 16,237 203,810 - -
Issuance of 14,328 shares 1,433 118,567 - -
Sale of 7,630,000 shares, net 763,000 54,568,600 - -
---------- ----------- ------------ --------
Balance December 31, 1996 $2,952,336 $88,752,671 $(17,700,577) $(50,000)
---------- ----------- ------------ --------
---------- ----------- ------------ --------
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
Years ended December 31,
---------------------------------------------
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 1,258,142 $ 188,435 $ (2,588,774)
Adjustments to reconcile income (loss) from continuing
operations to net cash used in operating activities:
Depreciation and amortization 270,432 481,946 691,025
Deferred taxes (886,000) 614,000 -
Noncash directors compensation - - 120,000
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable (1,684,619) (5,115,927) (8,065,717)
Inventories (1,912,043) (1,950,839) (8,174,913)
Prepaid expenses and other current assets (153,329) (295,815) (299,742)
Accounts payable and accrued expenses (173,691) 2,771,596 10,276,412
Other, net (219) (12,604) (16,532)
------------ ----------- ------------
Net cash used in continuing operations (3,281,327) (3,319,208) (8,058,241)
Discontinued operations:
Net income (loss) 976,678 815,491 (6,519,383)
(Increase) decrease in net assets (9,556,696) (3,928,393) 475,514
------------ ----------- ------------
Net cash used in operating activities (11,861,345) (6,432,110) (14,102,110)
------------ ----------- ------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (2,981,617) - -
Additions of property and equipment (333,704) (457,214) (1,848,385)
------------ ----------- ------------
Net cash used in investing activities (3,315,321) (457,214) (1,848,385)
------------ ----------- ------------
Cash flows from financing activities:
Proceeds from sale of common stock, net 18,392,551 65,849 55,551,647
Cash paid in lieu of fractional shares of stock dividend - (3,181) -
Proceeds from (repayment of) note payable (1,327,045) 4,445,000 (4,445,000)
Repayment of long-term obligations (80,493) (18,374) (19,894)
------------ ----------- ------------
Net cash provided by financing activities 16,985,013 4,489,294 51,086,753
------------ ----------- ------------
Increase (decrease) in cash and cash equivalents 1,808,347 (2,400,030) 35,136,258
Cash and cash equivalents, at beginning of the year 953,714 2,762,061 362,031
------------ ----------- ------------
Cash and cash equivalents, at end of the year $ 2,762,061 $ 362,031 $ 35,498,289
------------ ----------- ------------
------------ ----------- ------------
Supplemental cash flow information:
Taxes paid $ 215,200 $ 89,365 $ 67,392
Interest paid 245,189 65,968 160,462
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) DESCRIPTION OF BUSINESS
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 it operations
primarily through its subsidiary Industrial Systems Associates, Inc. ("ISA").
At December 31, 1996, the Company had 72 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 year ended December 31, 1996 represented less than 1% of consolidated
revenues.
Two of the Company's subsidiaries, SafetyMaster Corporation
("SafetyMaster") and Lewis Supply (Delaware), Inc. ("Lewis"), were merged (the
"Merger") on May 24, 1996, with SafetyMaster the surviving corporation.
SafetyMaster changed its name to Strategic Supply, Inc. on May 24, 1996.
On November 11, 1996, the Company announced its intention to sell its
SSI and ATSG subsidiaries in order to focus more directly on the development
of the Company's In-Plant Store business. The results of operations of SSI
and ATSG have, therefore been presented in the Company's consolidated
financial statements for the three years ended December 31, 1996 to conform
with discontinued operations treatment.
(2) SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Strategic
Distribution, Inc. and subsidiaries (ISA and Mexico). All significant
intercompany accounts and transactions have been eliminated. The preparation of
the consolidated financial statements requires estimates and assumptions that
affect amounts reported and disclosed in the financial statements and related
notes. Actual results could differ from these estimates.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. At December 31, 1995 and
December 31, 1996 the Company had investments in cash equivalents of
approximately $203,000 and $35,000,000.
F-7
<PAGE>
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments approximate fair
value due to their short maturity and variable interest rate feature.
INVENTORIES
Inventories, which consisted solely of finished goods, are stated at the
lower of cost (first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the remaining life of the asset or the lease term. Maintenance and repairs
are charged to expense. Major renewals and improvements are capitalized and
depreciated over the remaining useful lives of the assets. Estimated useful
lives are as follows:
Office equipment 5 years
Leasehold improvements 5 years
Transportation equipment 5 years
INTANGIBLE ASSETS
Excess of cost over fair value of net assets acquired is amortized on the
straight-line method over 25 years. The Company periodically reviews the value
of its intangible assets to determine if any impairment has occurred. The
Company measures the potential impairment by the projected undiscounted future
operating cash flows. An impairment would be recorded based on the estimated
fair value.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share of common stock is computed using the weighted
average number of shares and common stock equivalents outstanding during the
respective years. The fully diluted net income per share for the year ended
December 31, 1995 is based on 22,621,384 shares of common stock and common stock
equivalents. Fully diluted net loss per share for the year ended December 31,
1996 is not shown because it is antidilutive.
Assuming that the 5,750,000 shares of Common Stock issued by the Company on
October 13, 1994 were outstanding for the entire year ended December 31, 1994,
net income per common share would have been $0.12.
F-8
<PAGE>
STOCK OPTIONS
Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting
for Stock - Based Compensation" defines a fair value based method of accounting
for employee stock options. This statement gives companies a choice of
recognizing related compensation expense by adopting the new fair value based
method or to continue to measure compensation using the intrinsic value approach
prescribed under Accounting Principles Board ("APB") Opinion No. 25, the former
standard. The Company has elected to continue to measure compensation using the
intrinsic value approach. SFAS No. 123 requires supplemented disclosure to show
the effect of using the new measurement criteria. By continuing the use of the
measurement presented by APB Opinion No. 25, there will be no effect on the
Company's financial position.
RECLASSIFICATIONS
The presentation of the statements of operations and balance sheets 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. Selling, general and administrative expenses are those
expenses not directly associated with operating activities.
(3) ACCOUNTS RECEIVABLE
Accounts receivable is net of an allowance for doubtful accounts of $20,000
and $2,000 at December 31, 1995 and 1996.
(4) PROPERTY AND EQUIPMENT
DECEMBER 31,
---------------------------
1995 1996
---------- ----------
Office equipment $ 964,883 $2,724,106
Leasehold improvements 126,642 186,705
Transportation equipment 423,831 364,116
---------- ----------
1,515,356 3,274,927
Less: accumulated depreciation
and amortization 704,264 1,024,134
---------- ----------
$ 811,092 $2,250,793
---------- ----------
---------- ----------
(5) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Excess of cost over fair value of net assets acquired is net of accumulated
amortization of $282,000 and $369,000 at December 31, 1995 and December 31,
1996.
(6) NOTE PAYABLE TO BANK
Effective as of December 31, 1995, the Company entered into a revolving
bank credit agreement providing maximum borrowings of $20,000,000. The credit
agreement was amended on September 9, 1996 to reduce the permitted maximum
outstanding borrowings to $5,000,000. Borrowings bear interest at the prime rate
(8.25% as of December 31, 1996) and/or a Eurodollar rate, with a 3/8% commitment
fee on the unused portion of the credit available. The credit facility expires
on
F-9
<PAGE>
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, 1995 and 1996 borrowings
outstanding under the credit facility were $4,445,000 and $0.
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31,
--------------------------
1995 1996
---------- -----------
Accounts payable $6,067,255 $15,439,380
Accrued expenses 762,604 959,731
Payroll and related expenses 370,861 1,078,020
---------- -----------
$7,200,720 $17,477,131
---------- -----------
---------- -----------
(8) LONG-TERM DEBT
Long-term debt consists of several loans with weighted average interest
rates of 6.6% and 6.4% at December 31, 1995 and 1996.
Principal payments due on long-term obligations during each of the next
five years are: 1997: $21,542; 1998: $518,804; 1999: $20,365; 2000: $22,055;
2001: $23,886; and thereafter: $2,078.
(9) ACQUISITIONS
On January 4, 1994, the Company acquired all of the outstanding common
stock of ISA. The purchase price consisted of: (i) $3,000,000 in cash, (ii) a
promissory note in the amount of $500,000 and (iii) 500,000 shares of Common
Stock. The source of the cash portion of the purchase price was borrowings
under a revolving bank facility. The stock issued was valued at fair market
value.
On June 16, 1994, Lewis acquired certain assets of the Industrial Supplies
Division of Lufkin Industries, Inc (the "Lufkin Division"). The purchase price
consisted of: (i) $2,040,000 in cash and (ii) a mortgage note in the amount of
$600,000. The source of the cash portion of the purchase price was borrowings
under a revolving bank facility.
On May 12, 1995, the Company acquired all of the outstanding common stock
of ATSG. The purchase price consisted of options to purchase an aggregate of
1,036,711 shares of Common Stock at a price of $5.82 per share. The fair market
value of these options, as determined by an independent investment bank, was
$1,560,100.
The method of accounting for these acquisitions was the purchase
accounting method. The results of operations of the acquired companies are
included in the Company's statements of operations from their dates of
acquisition.
(10) DISCONTINUED OPERATIONS
On November 11, 1996, the Company announced its intention to sell SSI and
ATSG. The Company anticipates that the sales will be completed by June 30,
1997.
F-10
<PAGE>
Discontinued operations are summarized as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
Revenues $46,366,524 $64,578,770 $58,535,496
----------- ----------- -----------
----------- ----------- -----------
Income (loss) from operations:
Income (loss) before taxes $ 1,058,678 $ 1,523,491 $(4,519,383)
Income tax expense 82,000 708,000 --
----------- ----------- -----------
Income (loss) from operations $ 976,678 $ 815,491 $(4,519,383)
----------- ----------- -----------
----------- ----------- -----------
Loss on sale of operations $ -- $ -- $(2,000,000)
----------- ----------- -----------
----------- ----------- -----------
The net assets of discontinued operations are summarized as follows:
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
Current assets $18,671,636 $17,640,222
Property and equipment, net 2,541,856 2,617,734
Excess of cost over fair value of
net assets acquired, net 3,253,350 3,069,071
Other assets 727,995 597,179
----------- -----------
Total assets $25,194,837 $23,924,206
----------- -----------
----------- -----------
Current liabilities $ 7,255,689 $ 4,800,039
Estimated loss on sale
of discontinued operations -- 2,000,000
Long-term obligations 849,671 510,204
----------- -----------
Total liabilities 8,105,360 7,310,243
----------- -----------
Net assets of discontinued operations $17,089,477 $16,613,963
----------- -----------
----------- -----------
The net loss from operations for the year ended December 31, 1996
reflects a restructuring charge, one-time expenses associated with the Merger
and branch closing expenses totaling approximately $1,362,000. This amount
primarily consists of employee termination benefits, asset write-offs and
lease payments. As of December 31, 1996, the remaining restructuring
liability was approximately $131,000, which represented unpaid leases.
The historical results for the discontinued operations include an
allocation for the Company's corporate and interest expense. Interest
expense is allocated based upon the pro rata share of the intercompany
borrowings. Corporate and interest expense allocated amounted to $71,000,
$270,000 and $573,000 for the years ended December 31, 1994, 1995 and 1996.
The anticipated loss on sale of operations includes the estimated
financial results of SSI and ATSG through June 30, 1997,(the anticipated date
of sale of SSI and ATSG), and anticipated transaction costs related to the
sales of SSI and ATSG.
F-11
<PAGE>
(11) RETIREMENT PLAN
The Company has a qualified defined contribution plan (the "Retirement
Savings Plan") for employees who meet certain eligibility requirements.
Contributions to the Retirement Savings Plan are at the discretion of the
Board of Directors of the Company (the "Board") and are limited to the amount
deductible for Federal income tax purposes. The expense for the Retirement
Savings Plan was $14,604, $23,422 and $31,500 for the years ended December
31, 1994, 1995 and 1996.
(12) INCOME TAXES
The income tax expense(benefit)from continuing operations in the
Consolidated Statements of Operations is as follows:
1994 1995 1996
---------- --------- ---------
Current
Federal $ 6,000 $(498,000) $ -
State 30,000 33,000 -
Deferred
Federal (828,000) 609,000 -
State (58,000) 5,000 -
---------- --------- ---------
$(850,000) $ 149,000 $ -
---------- --------- ---------
---------- --------- ---------
A reconciliation of the expected Federal income tax expense from continuing
operations at the statutory rate to the Company's income tax expense follows:
1994 1995 1996
----------- -------- ---------
Expected tax expense $ 139,000 $115,000 $(880,000)
Increase (reduction) in tax expense
resulting from:
State taxes (18,000) 25,000 -
Valuation allowance (1,076,000) - 818,000
Goodwill 42,000 28,000 30,000
Other 63,000 (19,000) 32,000
----------- -------- ---------
$ (850,000) $149,000 $ -
----------- -------- ---------
----------- -------- ---------
The components of the net deferred tax asset were as follows:
1995 1996
---------- -----------
Deferred tax assets:
Net operating loss carryforward
(expires during period ending 2007) $ 632,000 $ 2,545,000
Accounts receivable 55,000 99,000
Inventories 249,000 633,000
Accrued expenses 243,000 221,000
Vacation accrual 80,000 120,000
Estimated loss on sale of
discontinued operations - 800,000
Other 130,000 295,000
Valuation allowance - (3,331,000)
---------- -----------
Total deferred tax asset 1,389,000 1,382,000
---------- -----------
Deferred tax liabilities:
Property and equipment 155,000 194,000
Other assets 181,000 135,000
Goodwill 13,000 13,000
---------- -----------
Total deferred tax liability 349,000 342,000
---------- -----------
Net deferred tax asset $1,040,000 $ 1,040,000
---------- -----------
---------- -----------
F-12
<PAGE>
The valuation allowance for deferred tax assets as of January 1, 1994
was $1,794,000 of which $332,000 was to be allocated to reduce goodwill.
During the fourth quarter of 1994, the valuation allowance was eliminated
resulting from the Company's reevaluation of the realizability of future
income tax benefits resulting from the 1994 acquisitions of ISA and the
Lufkin Division. The reversal of the valuation allowance for deferred tax
assets in 1994 which was allocated to reduce goodwill was $718,000. At
December 31, 1995 and 1996, valuation allowances were established, when
necessary, to reduce deferred tax assets to amounts that are more likely than
not to be realized.
(13) STOCKHOLDERS' EQUITY
The Company has authorized 500,000 shares of Preferred Stock, par value
$0.10 per share. No shares of Preferred Stock are currently issued or
outstanding. The Board may at any time fix by resolution any of the powers,
preferences and rights, and the qualifications, limitations, and restrictions
of the Preferred Stock, which may be issued in series, the designation of
each such series to be fixed by the Board. At this time the Board has not
fixed any powers, preferences or rights for any of the shares of Preferred
Stock.
On January 4, 1994, the Company sold an aggregate of 2,400,000 shares of
Common Stock for $3,000,000.
On October 13, 1994, the Company sold 5,750,000 shares of Common Stock
in an underwritten public offering. The net proceeds to the Company were
$15,405,500.
On December 6, 1995 the Company declared a three percent stock dividend
to holders of record on December 18, 1995. The payment date was December 29,
1995. The Company had accumulated net income of $4,148,000 since July 1,
1990, when it became a leading provider of industrial supply services to
industrial and commercial customers in the western United States.
On May 23, 1996, the Company sold 7,630,000 shares of Common Stock in an
underwritten public offering. The net proceeds to the Company were
$55,331,600. The Company's bank indebtedness was repaid and the balance of
the proceeds was available for working capital and for general corporate
purposes.
(14) STOCK COMPENSATION PLAN
The Company has an Incentive Stock Option Plan (the "Plan") under which
the Board is authorized to grant certain directors, executives, key
employees, consultants and advisers, options for the purchase of up to
2,060,000 shares of Common Stock. The Plan provides for the granting of both
incentive stock options and options that do not qualify as incentive stock
options. In the case of each incentive stock option granted under the Plan,
the option price must not be less than the fair market value of the Company's
Common Stock at the date of grant. To date, all options granted under the
Plan are exercisable at not less than the fair market value of the Common
Stock at the date of grant. A significant portion of the options granted
under the Plan are exercisable at various rates from 25% to 33.3% per year
beginning on the first anniversary of the date of grant, and a significant
portion of the options granted under the Plan are exercisable at 33.3% per
year
F-13
<PAGE>
beginning on the third anniversary of the date of grant. A smaller
portion of the options granted under the Plan were exercisable at date of
grant.
The Company has a Non-Employee Director Stock Plan (the "Director Plan")
under which the Board is authorized to grant 150,000 shares of Common Stock.
On June 30, 1996, the Company issued 14,328 shares of Common Stock under the
Director Plan. On December 31, 1996, the Company granted options for 28,000
shares of Common Stock under the Director Plan. The exercise price of the
options granted on December 31, 1996 is $8.00 per share. They are
immediately exercisable and expire in December 31, 2001.
The Company has an Executive Compensation Plan (the "Executive Plan")
under which the Board is authorized to grant up to 500,000 shares of Common
Stock. No shares of Common Stock have been issued under the Executive Plan.
The following table summarizes the option information for options
granted under the Plan (as adjusted for the stock dividend):
<TABLE>
Weighted Average
Number of Shares Exercise Prices
---------------- ---------------
<S> <C> <C>
Options outstanding, December 31, 1993 721,773 $0.97
Options granted during 1994 369,616 $1.75
Options canceled or expired (83,812) $1.16
Options exercised (5,321) $0.97
---------
Options outstanding, December 31, 1994 1,002,256 $1.25
---------
Options granted during 1995 352,399 $3.47
Options canceled or expired (99,815) $1.74
Options exercised (45,087) $1.02
---------
Options outstanding, December 31, 1995 1,209,753 $1.87
---------
Options granted during 1996 396,500 $6.88
Options canceled or expired (124,060) $4.01
Options exercised (162,371) $1.36
---------
Options outstanding, December 31, 1996 1,319,822 $3.24
---------
---------
Options exercisable 713,666 $1.52
---------
---------
</TABLE>
The following table summarizes information about stock options granted
under the Plan and the Director Plan, outstanding at December 31, 1996.
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
- ----------- ----------- ----------- -------- ----------- --------
$0.97-$2.00 644,007 2.8 $1.03 582,801 $1.01
$2.01-$4.00 305,857 3.5 $3.45 116,157 $3.45
$4.01-$8.00 397,958 8.3 $6.94 42,708 $7.55
--------- -------
1,347,822 4.6 $3.32 741,666 $1.77
--------- -------
--------- -------
The weighted average fair value of options granted for the years ended
December 31, 1995 and 1996 as of the dates of the grants was $1.86 and $4.45.
F-14
<PAGE>
The expiration dates for options granted to employees of SSI and ATSG, is
June 30, 1997, the anticipated date of sale, for the Black-Scholes model
calculation.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation expense has been recognized for the Plan and the
Director Plan. Had compensation expense for the Plan and the Director Plan been
determined based on the fair value prescribed by SFAS No. 123, the Company's pro
forma net income (loss) and pro forma net income (loss) per share would have
been the amounts indicated below:
Year Ended December 31,
-----------------------
1995 1996
---- ----
Net income (loss) - as reported $1,003,926 ($9,108,157)
Net income (loss) - pro forma $871,281 ($9,788,364)
Net income (loss) per share - as reported $0.05 ($0.34)
Net income (loss) per share - pro forma $0.04 ($0.37)
Pro forma net income (loss) reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to January 1, 1995 is not
considered.
The fair value of the options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
1995 1996
---- ----
Expected life (years) 3.30 6.00
Interest rate 6.25% 6.61%
Volatility 89.93% 72.31%
Dividend yield 0.00% 0.00%
Warrants to purchase 38,625 shares of Common Stock for 1.46 per share were
outstanding at December 31, 1996 and expire in 1999.
(15) LEASE COMMITMENTS
The Company leases equipment and real estate for initial terms of five to
eight years. The minimum future rental payments for operating leases with
initial noncancellable lease terms in excess of one year as of December 31, 1996
are as follows:
1997 $ 472,140
1998 389,067
1999 159,807
2000 56,799
2001 31,855
Rental expense for the years ended December 31, 1994, 1995 and 1996, was
$88,271, $125,013, and $318,657.
F-15
<PAGE>
(16) SUPPLEMENTAL CASH FLOW INFORMATION
In conjunction with the acquisition of ISA in 1994, liabilities assumed and
refinanced were:
Fair value of assets acquired $10,394,463
Net cash 2,981,617
Common stock issued 625,000
-----------
Liabilities assumed $ 6,787,846
-----------
-----------
(17) Customer Business Data
One In-Plant Store customer (with which the Company operated under six
separate contracts in 1996 and two in 1995) represented approximately 19% and
23% of revenues for the years ended December 31, 1995 and 1996, but less than
10% for the year ended December 31, 1994. Another In-Plant Store customer
(with which the Company operates under four separate contracts) represented
approximately 36% and 22% of revenues for the years ended December 31, 1994
and 1995, but less than 10% for the year ended December 31, 1996. A third
In-Plant Store customer (with which the Company operates under one contract)
represented approximately 21% and 15% of revenues for the years ended
December 31, 1994 and 1995, but less than 10% for the year ended December 31,
1996. A fourth customer (with which the Company operates under three
separate contracts) represented approximately 15% and 13% of revenues for the
years ended December 31, 1994 and 1995, but less than 10% in the year ended
December 31, 1996.
(18) QUARTERLY DATA (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) -
UNAUDITED
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter Year
- ---- ------- ------- ------- -------- -------
Revenues $10,978 $11,318 $14,858 $15,761 $52,915
Income (loss) from
continuing operations 168 162 (64) (78) 188
Income (loss)from
discontinued operations 372 219 375 (150) 816
Net income (loss) 540 381 311 (228) 1,004
Net income (loss) per
common share:
Income from
continuing operations .01 .01 -- -- .01
Income (loss) from
discontinued operations .02 .01 .02 (.01) .04
--- --- --- ---- ---
Net income (loss) (a) .03 .02 .02 (.01) .05
--- --- --- ---- ---
--- --- --- ---- ---
F-16
<PAGE>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter Year
- ---- ------- ------- ------- ------- -------
Revenues $16,508 $19,518 $25,700 $30,697 $92,423
Loss from
continuing operations (817) (645) (313) (814) (2,589)
Loss from
discontinued operations (1,148) (1,017) (1,007) (1,347) (4,519)
Loss on sale of
discontinued operations -- -- -- (2,000) (2,000)
Net loss (1,965) (1,662) (1,320) (4,161) (9,108)
Net loss per common
share:
Loss from continuing
operations (.04) (.03) (.01) (.03) (.10)
Loss from discontinued
operations (.05) (.04) (03) (.11) (.24)
---- ---- ---- ---- ----
Net loss (a) (.09) .(07) (.04) (.14) (.34)
---- ---- ---- ---- ----
---- ---- ---- ---- ----
(a) Each period is computed separately.
(b) The preceding data has been restated from amounts previously reported due to
the 1996 discontinuance of SSI and ATSG. See Note 10.
(19) RELATED PARTY TRANSACTIONS
The Company entered into an agreement, effective from March 1, 1996 through
December 31, 1996, with a company of which the Company's Chairman of the Board
and Chief Financial Officer are officers and one director is the sole owner and
another director is an officer. The agreement provided for consulting services
at a fee of $400,000 for the ten months, plus expenses.
(20) SUBSEQUENT EVENT
On January 28, 1997, the Company announced the acquisition of INTERMAT
International Materials Management Engineers, Inc., a leading provider of
cataloging services that also develops and supplies software for maintenance,
repair and operations inventory cataloging. The purchase price consisted of
$10,800,000 in cash, a $1,400,000 subordinated note, and 625,000 newly issued
shares of the Company's common stock. The transaction will be accounted for as
a purchase.
It is anticipated that the Company will record a charge of approximately
$8,000,000 in the first quarter of 1997 as a result of the write off of in
process research and development relating to the acquisition.
F-17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information contained in the Company's Proxy Statement for the 1997
Annual Meeting of Stockholders, which will be filed not later than 120 days
after December 31, 1996 (the "Proxy Statement") under the captions "Election of
Directors" and "Identification of Executive Officers" is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information contained in the Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the Proxy Statement under the captions
"Executive Compensation" and "Transactions with Affiliates" is incorporated
herein by reference.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY. Consolidated
Financial Statements of Company filed with this Report are listed on the
accompanying Index to Financial Statements.
(a) 2. FINANCIAL STATEMENT SCHEDULES. Financial Statement Schedules of
the Company filed with this Report are listed on the accompanying Index to
Financial Statements.
(a) 3. EXHIBITS (References below to an exhibit being filed with a
previous filing made by the Company are included for the purpose of
incorporating such previously filed exhibit by reference to such filing.
Previously unfiled exhibits are those marked with an asterisk.)
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
the 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, --
dated July 24, 1986, 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 Form of Strategic Distribution, Inc. --
Amended and Restated 1990 Incentive
Stock Option Plan (incorporated by
reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.2 Form of Strategic Distribution, Inc. *
Executive Compensation Plan.
10.3 Form of Amended and Restated Strategic *
Distribution, Inc. 1996 Non-Employee
Director Stock Plan.
18
<PAGE>
10.4 Asset Purchase Agreement, dated as of June 14, --
1994, between Lewis Supply (Delaware), Inc.
and Lufkin Industries, Inc. (incorporated by
reference to the Company's June 29, 1994
Current Report on Form 8-K).
10.5 Stock Purchase Agreement, dated as of May 12, --
1995, between the Company and the selling
shareholders parties thereto (incorporated
by reference to the Company's May 12, 1995
Current Report on Form 8-K).
10.6 Credit Agreement, dated as of December 31, --
1995, between Bank of America Illinois and
the Company (incorporated by reference to
Exhibit 10.6 of the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1995).
10.7 First Amendment to Credit Agreement, dated --
as of May 28, 1996, amending the Credit
Agreement described in Exhibit 10.6
(incorporated by reference to Exhibit 10.2
of the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1996).
10.8 Second Amendment to Credit Agreement, dated --
as of September 9, 1996, amending the
Credit Agreement described in Exhibit 10.6
(incorporated by reference to Exhibit 10.3
of the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1996).
10.9 Third Amendment to Credit Agreement, dated *
as of December 20, 1996, amending the
Credit Agreement described in Exhibit 10.6.
21. List of Subsidiaries of the Company *
23. Consent of KPMG Peat Marwick LLP *
27. Financial Data Schedule *
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of
1996.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, this
24th day of March, 1997.
Strategic Distribution, Inc.
By: /s/ ANDREW M. BURSKY
-----------------------------
Andrew M. Bursky
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons in the
capacities and on the date(s) indicated.
/s/ ANDREW M. BURSKY Chairman of the Board and
- ---------------------------- Director
Andrew M. Bursky March 24, 1997
/s/ THEODORE R. RIEPLE President and
- ---------------------------- Director
Theodore R. Rieple March 24, 1997
Executive Vice President
/s/ CATHERINE B. JAMES and Chief Financial Officer
- ---------------------------- Director
Catherine B. James March 24, 1997
/s/ CHARLES J. MARTIN Vice President, Controller and
- ---------------------------- Chief Accounting Officer
Charles J. Martin March 24, 1997
/s/ JEFFERY O. BEAUCHAMP
- ---------------------------- Director
Jeffery O. Beauchamp March 24, 1997
/s/ WILLIAM R. BERKLEY
- ---------------------------- Director
William R. Berkley March 24, 1997
/s/ ARNOLD W. DONALD
- ---------------------------- Director
Arnold W. Donald March 24, 1997
/s/ JACK H. NUSBAUM
- ---------------------------- Director
Jack H. Nusbaum March 24, 1997
/s/ JOSHUA A. POLAN
- ---------------------------- Director
Joshua A. Polan March 24, 1997
/s/ MITCHELL I. QUAIN
- ---------------------------- Director
Mitchell I. Quain March 24, 1997
20
<PAGE>
APPENDIX II
STRATEGIC DISTRIBUTION, INC.
EXECUTIVE COMPENSATION PLAN
(As proposed to be adopted)
I. PURPOSE
The purpose of the Plan is to provide management employees of the Company and
its Subsidiaries with long-term, equity-based incentives to maximize the equity
value of the Company.
II. DEFINITIONS
"Bonus Award" means the bonus award granted to a Participant, as determined by
the Committee.
"Bonus Pool" means the aggregate amount of Bonus Awards payable to employees of
a Participating Employer in respect of a Plan Year.
"Committee" means the committee selected by the Board of Directors of the
Company to administer the Plan, consisting of at least three individuals, each
of whom is a "disinterested person" within the meaning of Rule 16b-3 promulgated
under the Exchange Act.
"Common Stock" means common stock, $0.10 par value per share, of Strategic
Distribution, Inc.
"Company" means Strategic Distribution, Inc., a Delaware corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Long-Term Disability" means the inability of the Participant to substantially
perform his or her duties to the Company by reason of physical or mental
disability, as determined by the Committee in its reasonable discretion.
"Participant" means any management employee of a Participating Employer selected
by the Committee to participate in the Plan.
"Participating Employers" means the Company and the Subsidiaries.
"Performance Goals" means the performance goals set for each Participating
Employer and/or each Participant by the Committee.
"Plan" means the Strategic Distribution, Inc. Executive Compensation Plan.
"Plan Year" means a calendar year during which the Plan is in effect.
<PAGE>
"Subsidiary" means each subsidiary corporation of the Company designated by the
Committee to participate in the Plan.
III. ELIGIBILITY; SELECTION OF PARTICIPANTS
All management employees of the Participating Employers shall be eligible to
participate in the Plan. Participants for each Plan Year shall be selected by
the Committee from among the eligible employees. No employee shall at any time
have the right to be selected as a Participant nor, having been selected as a
Participant for one Plan Year, to be selected as a Participant in any other Plan
Year.
IV. ADMINISTRATION
Except as otherwise provided herein, full power and authority to construe,
interpret, and administer the Plan shall be vested in the Committee. The
Committee may at any time adopt such rules, regulations, policies, or practices
which it determines to be necessary or appropriate for the administration of, or
the performance of its responsibilities under, the Plan. The Committee may at
any time amend, modify, suspend, or terminate such rules, regulations, policies,
or practices.
V. DETERMINATION OF BONUS AWARDS
The Committee will annually approve Performance Goals and Bonus Pools for each
Participating Employer. The Committee will also establish formulas and criteria
for calculating Bonus Awards for each Participant based on achievement of
Performance Goals. The Committee shall determine the level of attainment of
Performance Goals for each Participant and the Bonus Awards to be paid to each
Participant for each Plan Year.
VI. PAYMENT OF BONUS AWARDS; VESTING
Payment of Bonus Awards may be made in the form of cash or shares of Common
Stock, as determined by the Committee. The date of payment, as well as the
per-share price at which the portion of a Bonus Award payable in Common Stock
shall be converted into Common Stock, shall be determined by the Committee.
Such per share price shall be the mean between the last quoted bid and ask
prices reported for the Common Stock on the NASDAQ National Market System on the
date immediately preceding the date on which such Bonus Award is made or, if
prices for the Common Stock are not quoted on such date, then on the last
preceding date on which such prices were quoted.
The cash portion of any Bonus Awards shall be vested upon payment. The portion
of any Bonus Awards payable in Common Stock may be deferred and subject to
vesting conditions and/or issued
2
<PAGE>
and subject to transfer restrictions and forfeiture, as determined by the
Committee.
Except as described in Article VIII below, in order to be eligible for payment
of a Bonus Award for any year, a Participant must be actively employed by a
Participating Employer on the date such payment is scheduled to be made.
VII. SHAREHOLDER APPROVAL; REGULATORY RESTRICTIONS
The Plan is subject to shareholder approval at the Company's annual meeting of
shareholders in May, 1996.
No more than 500,000 shares of Common Stock may be issued under the Plan.
Any Participant subject to the restrictions of Section 16(b) of the Exchange Act
may not sell those shares of Common Stock constituting a portion of his or her
Bonus Award for at least six months following the final determination by the
Committee of the amount of such Bonus Award, and the number of such shares of
Common Stock.
VIII. TERMINATION OF EMPLOYMENT
In the event of termination of a Participant's employment with a Participating
Employer by reason of death or Long-Term Disability after the end of a Plan Year
and before the payment of a Bonus Award with respect to such Plan Year, such
Bonus Award shall be paid to the Participant on the date specified by the
Committee. In the event of a Participant's death, such payment shall be made to
the Participant's designated beneficiary, or if there is none living, to the
estate of the Participant.
In the event of a Participant's termination of employment with a Participating
Employer for any reason other than death or Long-Term Disability, such
Participant shall have no right to any unpaid Bonus Awards, unless the Committee
specifically determines that such amounts are to be paid.
The portion of any Bonus Awards payable in shares of Common Stock which either
have not been issued or have not vested as of the date of any termination of a
Participant's employment shall be forfeited upon such termination, unless the
Committee specifically provides otherwise.
3
<PAGE>
IX. REORGANIZATION OR DISCONTINUANCE
The obligations of the Company under the Plan shall be binding upon any
successor corporation or organization resulting from merger, consolidation or
other reorganization of the Company, or upon any successor corporation or
organization succeeding to substantially all of the assets and business of the
Company. The Company will make appropriate provision for the preservation of
Participants' rights under the Plan in any agreement or plan which it may enter
into or adopt to effect any such merger, consolidation, reorganization or
transfer of assets.
X. NON-ALIENATION OF BENEFITS
A Participant may not assign, sell, encumber, transfer or otherwise dispose of
any rights or interests under the Plan except by will or the laws of descent and
distribution. Any attempted disposition in contravention of the preceding
sentence shall be null and void.
XI. NO CLAIM OF RIGHT UNDER THE PLAN
No employee or other person shall have any claim or right to be selected as a
Participant under the Plan. Neither the Plan nor any action taken pursuant to
the Plan shall be construed as giving any employee any right to be retained in
the employ of any Participating Employer.
XII. TAXES
The Company shall deduct from all amounts paid under the Plan all federal,
state, local and other taxes required by law to be withheld with respect to such
payments.
XIII. PAYMENTS TO PERSONS OTHER THAN THE PARTICIPANT
If the Committee shall find that any person to whom any amount is payable under
the Plan is unable to care for his or her affairs because of illness or
accident, or is a minor, or has died, then any payment due to such person or his
or her estate (unless a prior claim therefore has been made by a duly appointed
legal representative) may, if the Committee so directs, be paid to his or her
spouse, a child, a relative, an institution maintaining or having custody of
such person, or any other person deemed by the Committee, in its sole
discretion, to be a proper recipient on behalf of such person otherwise entitled
to payment. Any such payment shall be a complete discharge of the liability of
the Company therefor.
4
<PAGE>
XIV. NO LIABILITY OF COMMITTEE MEMBERS
No member of the Committee shall be personally liable by reason of any contract
or other instrument related to the Plan executed by such member or on his or her
behalf in his or her capacity as a member of the Committee, nor for any mistake
made in good faith, and the Company shall indemnify and hold harmless each
employee, officer, or director of the Company to whom any duty or power relating
to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including legal fees) or liability
(including any sum paid in settlement of a claim with the approval of the Board
of Directors) arising out of any act or omission to act in connection with the
Plan unless arising out of such person's own fraud or bad faith.
XV. TERMINATION OR AMENDMENT OF THE BONUS PLAN
The Committee may amend, suspend or terminate the Bonus Plan at any time,
provided that no such action may increase the total number of shares of Common
Stock which may be granted under the Bonus Plan without the approval of the
Company's shareholders.
XVI. UNFUNDED PLAN
Participants shall have no right, title, or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
under the Plan. Notwithstanding anything contained herein to the contrary, to
the extent that any person acquires a right to receive payments from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company.
The Plan is not intended to be subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). To the extent the Plan is
determined to be so subject, it is intended to constitute a "plan which is
unfunded and is maintained by the employer primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees," as such phrase is used in ERISA, and the terms of the
Plan shall be interpreted consistent with such intent.
XVII. RESTRICTIONS
The Committee shall have the right to impose such conditions and restrictions on
grants of Bonus Awards as it deems appropriate. Without limitation, the
Committee may provide that Bonus Awards will be granted only to eligible persons
who have entered into appropriate agreements, approved by the Committee,
relating to non-competition, non-solicitation of customers and/or employees,
protection of confidential information, and other matters that
5
<PAGE>
the Committee deems appropriate. Such agreements need not be identical in
scope, duration or content, and may provide that Participants who violate
such restrictions will be required to pay back to the Company the value of
all or a portion of any Bonus Awards previously paid to the Participant under
the Plan.
XVIII. GOVERNING LAW
The terms of the Plan and all rights thereunder shall be governed by and
construed in accordance with the laws of the state of Delaware, without
reference to principles of conflict of laws.
XIX. EFFECTIVE DATE
The effective date of the Plan is January __, 1996.
6
<PAGE>
AMENDED AND RESTATED
STRATEGIC DISTRIBUTION, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK PLAN
1. PURPOSE. This Amended and Restated 1996 Non-Employee Director Stock
Plan (the "Plan") is intended to promote the interests of Strategic
Distribution, Inc. (the "Company") by promoting ownership of Company stock by
the non-employee members of the Company's Board of Directors (the "Board").
2. SHARES TO BE GRANTED. Under the Plan, options ("Options") to purchase
shares of common stock, par value $.10, of the Company ("Common Stock") are
granted to non-employee members of the Board ("Non-Employee Directors") on an
annual basis. The number of Options so granted is determined in each instance
in accordance with the terms of the Plan. Options granted under the Plan are
not intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code.
3. AVAILABLE SHARES. The total number of shares of Common Stock to be
granted shall not exceed 150,000, subject to adjustment in accordance with
Section 12 hereof. Shares subject to the Plan are authorized but unissued
shares or shares that were once issued and subsequently reacquired by the
Company.
4. ADMINISTRATION. The Plan shall be administered by the Board. The
Board shall have the power to construe the Plan and to adopt and amend such
rules and regulations for the administration of the Plan as it may deem
desirable.
5. ELIGIBILITY AND LIMITATIONS. Options shall be granted pursuant to the
Plan only to Non-Employee Directors.
6. FAIR MARKET VALUE. For purposes of the Plan, the Fair Market Value of
a share of Common Stock on any date shall be the mean of the closing bid and
asked quotations in the over-the-counter market on such date, as reported by the
National Association of Securities Dealers, through NASDAQ. In the event the
shares are listed on any exchange or on the NASDAQ National Market System, the
Fair Market Value shall be the closing sale price on such exchange or in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. through NASDAQ, on such date or, if there are no sales on such
date, the mean of the bid and asked price for the shares on such exchange or in
the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc., through NASDAQ, at the close of business on such date.
7. GRANT OF OPTIONS. On December 31 of each calendar year commencing
with calendar year 1996, each person who is a Non-
<PAGE>
Employee Director as of such date shall be granted without further action by
the Board an Option to purchase 4,000 shares of Common Stock, with a per
share exercise price equal to the Fair Market Value of a share of Common
Stock on such date. Each such Option shall be fully vested on the date of
grant, shall have a maximum term of five years, and shall be subject to such
other terms and conditions as the Board shall approve. Each Non-Employee
Director shall enter into a customary stock option agreement with respect to
each Option granted under the Plan.
8. TRANSFERABILITY; SHARE CERTIFICATES. Options may not be sold,
transferred, assigned, pledged or otherwise encumbered by a Non-Employee
Director other than by will or the laws of descent and distribution. At the
time a Non-Employee Director's Options are exercised, a certificate for shares
of Common Stock covered by the Options shall be registered in the Non-Employee
Director's name and delivered to the Non-Employee Director (or to such Non-
Employee Director's legal representative or designated beneficiary in the event
of the Non-Employee Director's death).
9. SHAREHOLDER RIGHTS. A Non-Employee Director shall have no rights as a
shareholder with respect to shares of Common Stock covered by Options until the
time such Options are exercised and certificates for such shares are registered
in the Non-Employee Director's name.
10. EXERCISE OF OPTIONS. Options granted under the Plan may be exercised
by written notice to the Company in such form as the Board may designate,
accompanied by full payment of the exercise price therefor. The exercise price
may be paid (i) in cash or cash equivalents, (ii) by tendering shares of Stock
previously owned for at least six months, having a Fair Market Value equal to
the exercise price, and (iii) by any other means approved by the Board.
11. LEGENDS. The certificates representing shares granted under the Plan
shall carry such appropriate legends, and such written instructions shall be
given to the Company's Transfer Agent, as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the
Securities Act of 1933 or any state securities laws.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS. In the
event that the outstanding shares of Common Stock are changed into or exchanged
for a different number or kind of shares or other securities of the Company or
of another corporation by reason of any reorganization, merger, consolidation,
recapitalization or reclassification, or in the event of a stock split,
combination of shares or dividends payable in capital stock, the Board shall
equitably adjust (i) the number and kind of available shares set forth in
Section 3 hereof, (ii) the number and kind of shares subject to each outstanding
Option, and (iii) the per share exercise price applicable to each outstanding
Option.
2
<PAGE>
13. RESTRICTIONS ON ISSUANCE OF SHARES. Any other provision of this Plan
notwithstanding, the Company shall have no obligation to deliver any certificate
or certificates for shares until the following conditions have been satisfied:
(i) The shares to be granted are at the time of the issuance of such
shares effectively registered under applicable Federal and state
securities acts as now in force or hereafter amended; or
(ii) Counsel for the Company shall have determined that such shares are
exempt from registration under Federal and state securities acts as
now in force or hereafter amended;
and the Company has complied with all applicable laws and regulations, including
without limitation all regulations required by any stock exchange upon which the
Common Stock is then listed.
The Company shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to cause a registration statement or a post-effective
amendment to any registration statement to be prepared at its expense solely for
the purpose of covering the issuance of shares under the Plan.
14. REPRESENTATIONS. The Company may require any Non-Employee Director to
deliver written warranties and representations upon delivery of shares that are
necessary to show compliance with Federal and state securities laws including to
the effect that an acquisition of shares under the Plan is made for investment
and not with a view to distribution (as that term is used in the Securities Act
of 1933).
15. TERMINATION AND AMENDMENT OF PLAN. The Board may at any time
terminate the Plan or make such modification or amendment thereof as it deems
advisable, PROVIDED, HOWEVER, that the Board may not, without approval by the
affirmative vote of the holders of a majority of the shares present in person or
by proxy and entitled to vote at a meeting of stockholders, increase the maximum
number of shares that may be granted under the Plan.
3
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT, dated as of December 20, 1996, amends and modifies
a certain Credit Agreement, dated as of December 31, 1995, as amended by a
First Amendment to Credit Agreement, dated as of May 28, 1996, and a Second
Amendment to Credit Agreement and Promissory Note, dated as of September 9,
1996 (as so amended, the "CREDIT AGREEMENT"), between STRATEGIC DISTRIBUTION,
INC. (the "COMPANY") and BANK OF AMERICA ILLINOIS (the "BANK"). Capitalized
terms not otherwise expressly defined herein shall have the meanings set
forth in the Credit Agreement.
PRELIMINARY STATEMENT
The Company and the Bank desire to amend the Credit Agreement as
hereinafter set forth.
NOW THEREFORE, for value received, the Company and the Bank agree as
follows.
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 SECTION 1. Section 1 of the Credit Agreement (Certain Definitions)
is hereby amended as of the date hereof as follows:
(a) CASH AND CASH EQUIVALENTS. The following definition of "Cash
and Cash Equivalents" is added to Section 1 of the Credit Agreement in proper
alphabetical sequence:
"'CASH AND CASH EQUIVALENTS': In each case not subject to any
lien, security interest, right of offset, or other incumbrance:
(i) securities and/or obligations issued by or guaranteed by the
U.S. government and its federal agencies; (ii) corporate securities
including commercial paper, rated A1/P1 or better, and corporate debt
instruments including auction floating rate notes and medium term
notes issued by foreign or domestic corporations which pay in U.S.
dollars and carry a rating of A or better; (iii) time deposits,
certificates of deposit and bankers' acceptances, including eurodollar
denominated and Yankee issues (rated A1/P1 or better); (iv) auction-
rate perferred stocks (industrial auction-rate preferred must be rated
A or better); (v) repurchase agreements with member banks of the
Federal Reserve System and primary dealers limited to U. S. government
securities. The market value of the securities used as collateral
must equal or exceed the principal and interest due under the
agreement; (vi) cash management funds that strictly invest in the
above."
(b) COMPUTATION PERIOD. The definition of "Computation Period"
set forth in Section 1 of the Credit Agreement is amended to read in its
entirety as follows:
"'COMPUTATION PERIOD' means any period of four consecutive Fiscal
Quarters of the Company ending on the last day of a Fiscal Quarter;
PROVIDED, HOWEVER, that for purposes of SECTION 10.7.5, Computation
Period means (i) for the period ending on March 31, 1997, the three-
month period beginning on January 1, 1997 and ending on March 31,
1997, (ii) for the period ending on June 30,
<PAGE>
1997, the six-month period beginning on January 1, 1997 and ending
on June 30, 1997, and (iii) for the period ending on September 30,
1997, the nine-month period beginning on January 1, 1997 and ending
on September 30, 1997."
1.2 SECTION 5.1. Section 5.1 of the Credit Agreement (Commitment Fee)
is hereby amended as of the date hereof to read in its entirety as follows:
"SECTION 5.1 COMMITMENT FEE. The Company agrees to pay to the Bank a
commitment fee for the period from and including the date of the Third
Amendment hereto to the Revolving Termination Date of 3/8 of 1% per annum
on the daily average of the unused amount of the Commitment (as reduced
from time to time pursuant to SECTION 6.1). Such commitment fee shall be
payable in arrears on the last day of each calendar quarter and on the
Revolving Termination Date for any period then ending for which such
commitment fee shall not have been theretofore paid. The commitment fee
shall be computed for the actual number of days elapsed on the basis of a
365/366-day year."
1.3 SECTION 10.7. Section 10.7 of the Credit Agreement (Financial
Covenants) is hereby amended as of the date hereof to read in its entirety as
follows:
"SECTION 10.7 CASH AND CASH EQUIVALENTS; FINANCIAL COVENANTS. Maintain
not less than $15,000,000 in Cash or Cash Equivalents; PROVIDED, HOWEVER,
that if the Company fails to maintain such Cash or Cash Equivalents, the
Company agrees to comply with the following additional financial covenants:
10.7.1 COMPANY'S NET WORTH. Not permit the Net Worth of the
Company, on a consolidated basis, to at any time be less than (a) on or
before December 31, 1996, $25,000,000 plus 80% of the net proceeds of any
public offering made by the Company, (b) after December 31, 1996 but on or
before December 31, 1997, $26,500,000 plus 80% of the net proceeds of any
public offering made by the Company, and (c) after December 31, 1997, the
sum of (x) $26,500,000 plus (y) 80% of the consolidated net earnings of the
Company and its Subsidiaries for each Fiscal Quarter ending after December
31, 1997 (excluding any Fiscal Quarter in which consolidated net earnings
is not positive) plus (z) 80% of the net proceeds of any public offering
made by the Company.
10.7.2 CONSOLIDATED NET WORTH. (a) Not permit at any time the
Tangible Net Worth of the Company and its Subsidiaries on a consolidated
basis to be less than $1.
(b) Not permit the Net Worth of any Significant Borrowing Subsidiary
to at any time be less than $1.
10.7.3 LIABILITIES TO NET WORTH RATIO. Not permit the ratio of (a)
the consolidated total liabilities of the Company and its Subsidiaries to
(b) the consolidated Net Worth of the Company and its Subsidiaries to at
any time exceed 2.50 to 1.00.
-2-
<PAGE>
10.7.4 CAPITAL EXPENDITURES. Not permit the Company and its
consolidated Subsidiaries to purchase or otherwise acquire (including,
without limitation, acquisition by way of Capitalized Lease), or commit
to purchase or otherwise acquire, any fixed asset if, after giving effect
to such purchase or other acquisition, the aggregate cost of all fixed
assets purchased or otherwise acquired by the Company and its consolidated
Subsidiaries on a consolidated basis in any one Fiscal year would exceed
the greater of (i) $2,500,000 and (ii) 150% of the amount of depreciation
taken by the Company and its Subsidiaries in such Fiscal Year.
10.7.5 FIXED CHARGE COVERAGE. Not permit the ratio of (a) (x) the
consolidated net earnings of the Company and its consolidated Subsidiaries
before the sum of (i) consolidated interest expense, plus (ii) consolidated
provision for Taxes, plus (iii) consolidated depreciation expense,
amortization expense and other noncash charges, plus (iv) rental and lease
expense for any Computation Period minus (y) costs for such Computation
Period in respect of the purchase or other acquisition of fixed assets to
(b) (x) the consolidated interest expense of the Company and its
consolidated Subsidiaries for such Computation Period, plus (y) rental and
lease expense of the Company and its consolidated Subsidiaries for such
Computation Period, plus (z) all scheduled payments of principal made with
respect to Indebtedness during such Computation Period to be less than 1.50
to 1.0 for any Computation Period ending on or after March 31, 1997.
For purposes of this Section 10.7.5, (i) net earnings shall not
include any gains on the sale or other disposition of Investments or fixed
assets and any extraordinary items of income to the extent that the
aggregate of all such gains and extraordinary items of income exceeds the
aggregate of losses on such sale or other disposition and extraordinary
charges, and (ii) interest expense shall include, without limitation,
implicit interest expense on Capitalized Leases."
1.4 CONSTRUCTION. All references in the Credit Agreement to "this
Agreement," "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and maintain
the Loans under the Credit Agreement as amended hereby, the Company hereby
warrants and represents to the Bank that it is duly authorized to execute and
deliver this Amendment, and to perform its obligations under the Credit
Agreement as amended hereby, and that this Amendment constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with
its terms.
ARTICLE III - CONDITIONS PRECEDENT
This Amendment shall become effective on the date first set forth above,
PROVIDED, HOWEVER, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
-3-
<PAGE>
3.1 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in SECTION 9 of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that
are permitted by the terms of the Credit Agreement. The execution by the
Company of this Amendment shall be deemed a representation that the Company
has complied with the foregoing condition.
3.2 DEFAULTS. Before and after giving effect to this Amendment, no
Event of Default and no Unmatured Event of Default shall have occurred and be
continuing under the Credit Agreement. The execution by the Company of this
Amendment shall be deemed a representation that the Company has complied with
the foregoing condition.
3.3 DOCUMENTS. The Company shall have executed and delivered this
Amendment.
3.4 FEES. The Company shall have delivered to the Bank an amendment
fee in the amount of $5,000.
ARTICLE IV - GENERAL
4.1 EXPENSES. The Company agrees to reimburse the Bank upon demand for
all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by this Bank in the preparation, negotiation and execution
of this Amendment and any other document required to be furnished herewith,
and in enforcing the obligations of the Company hereunder, and to pay and
save the Bank harmless from all liability for, any stamp or other taxes which
may be payable with respect to the execution or delivery of this Amendment or
the issuance of the Note hereunder, which obligations of the Company shall
survive any termination of the Credit Agreement.
4.2 COUNTERPARTS. This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed,
shall be deemed an original but all such counterparts shall constitute but
one and the same instrument.
4.3 SEVERABILITY. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
4.4 LAW. This Amendment shall be a contract made under the laws of the
State of Illinois, which laws shall govern all the rights and duties
hereunder.
4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon
the Company and the Bank and their respective successors and assigns, and
shall inure to the benefit of the Company and the Bank and the successors and
assigns of the Bank. Except as hereby amended, the Credit Agreement shall
remain in full force and effect and is hereby ratified and confirmed in all
respects.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Chicago, Illinois by their respective officers thereunto duly
authorized as of the date first written above.
BANK OF AMERICA ILLINOIS
By: /s/ RANDOLPH T. KOHLER
-----------------------------
Title: Senior Vice President
--------------------------
STRATEGIC DISTRIBUTION, INC.
By: /s/ CHARLES J. MARTIN
-----------------------------
Title: Vice President
--------------------------
-5-
<PAGE>
EXHIBIT 21
----------
Wholly-Owned United States State of
Subsidiaries of the Company Incorporation
- --------------------------- -------------
Strategic Supply, Inc. Delaware
Coulson Technologies, Inc.
(wholly-owned subsidiary of
Strategic Supply, Inc.) Delaware
FastenMaster Corporation, Inc.
(wholly-owned subsidiary of
Strategic Supply, Inc.) Delaware
Industrial Systems Associates, Inc. Pennsylvania
American Technical Services Group, Inc. Delaware
ATS Phoenix, Inc.
(wholly-owned subsidiary of
American Technical Services
Group, Inc.) Delaware
National Technical Services Group, Inc.
(wholly-owned subsidiary of
American Technical Services
Group, Inc.) Delaware
Wholly-Owned Foreign
Subsidiaries of the Company Country
- --------------------------- -------
Strategic Distribution Services De
Mexico, S. A. De C. V. Mexico
Strategic Distribution Marketing De
Mexico, S. A. De C. V. Mexico
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Strategic Distribution, Inc.:
We consent to incorporation by reference in the registration statements
(No. 33-57578, No. 333-01715 and No. 333-06973) on Form S-8 of Strategic
Distribution, Inc. of our report dated March 24, 1997 relating to the
consolidated balance sheets of Strategic Distribution, Inc. and subsidiaries
as of December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996, appearing on page F-2 in this
Annual Report on Form 10-K.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 35,498,289
<SECURITIES> 0
<RECEIVABLES> 17,910,400
<ALLOWANCES> 0
<INVENTORY> 15,719,959
<CURRENT-ASSETS> 70,946,490
<PP&E> 2,250,793
<DEPRECIATION> 0
<TOTAL-ASSETS> 92,382,291
<CURRENT-LIABILITIES> 17,498,673
<BONDS> 587,188
0
0
<COMMON> 2,952,336
<OTHER-SE> 88,752,671
<TOTAL-LIABILITY-AND-EQUITY> 92,382,291
<SALES> 67,308,572
<TOTAL-REVENUES> 92,422,964
<CGS> 74,841,500
<TOTAL-COSTS> 85,294,724
<OTHER-EXPENSES> 11,084,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,367,140)
<INCOME-PRETAX> (2,588,774)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,588,774)
<DISCONTINUED> (6,519,383)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,108,157)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
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