<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Strategic Distribution, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
STRATEGIC DISTRIBUTION, INC.
3220 Tillman Drive, Suite 200
Bensalem, Pennsylvania 19020
-------------------------
NOTICE & PROXY STATEMENT
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
To Strategic Distribution Shareholders:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders
of Strategic Distribution, Inc. ("SDI" or the "Company"), a Delaware
corporation, will be held on May 21, 1998, at 2:00 p.m., local time, at the
Company's headquarters, 3220 Tillman Drive, Suite 200, Bensalem, Pennsylvania,
for the following purposes, as more fully described in the accompanying Proxy
Statement:
1. To elect ten (10) directors to serve for the ensuing year
and until their successors are elected ("Proposal I");
2. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors of SDI for the fiscal year ending December 31, 1998
("Proposal II"); and
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on April
9, 1998 are entitled to receive notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting
in person. However, to assure your representation at the meeting, you are
encouraged to complete, date, sign and mail the enclosed proxy card as promptly
as possible in the envelope provided. Shareholders attending the meeting may
vote in person even if they have returned a proxy.
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THE PROPOSED
ACTIONS ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES AS DIRECTORS AND FOR PROPOSAL
II.
By order of the Board of Directors
/s/Andrew M. Bursky
Andrew M. Bursky
Chairman of the Board
April 10, 1998
--------------------------
IMPORTANT: Please complete, date, sign and mail promptly the enclosed proxy in
the postage-paid envelope provided to assure that your shares are represented at
the meeting. If you attend the meeting, you may vote in person if you wish to do
so even though you have sent in your proxy.
<PAGE>
STRATEGIC DISTRIBUTION, INC.
3220 Tillman Drive, Suite 200
Bensalem, Pennsylvania 19020
Phone: (215) 396-3088
-------------------------
PROXY STATEMENT
-------------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Strategic Distribution,
Inc. ("SDI" or the "Company"), for use at the annual meeting of shareholders to
be held on May 21, 1998 at the Company's headquarters, 3220 Tillman Drive, Suite
200, Bensalem, Pennsylvania and at any adjournment or postponement thereof (the
"Meeting"). The Company's 1997 Annual Report, which accompanies this Proxy
Statement, is being sent, on or about April 17, 1998, to persons who were
shareholders of record on April 9, 1998.
Written communications to the Company should be sent to the
Company's office at 3220 Tillman Drive, Suite 200, Bensalem, Pennsylvania 19020.
The Company can be reached by telephone at (215) 396-3088.
Matters to be Considered at the Meeting
At the Meeting, the holders of shares of Common Stock, par
value $.10 per share (the "Common Stock"), of the Company will be asked to
consider and vote upon two proposals described in this Proxy Statement and on
any other matters properly brought before the Meeting.
The following is a brief summary of the two proposals. The
summary is not intended to be a complete statement of all material features of
the proposals and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement. The members of the Board of
Directors unanimously recommend a vote in favor of the nominees as directors and
in favor of the ratification of the Company's independent auditors.
Proposal I
Proposal I concerns the election of a board of ten (10)
directors, all of whom are currently serving as members of the Board of
Directors.
Proposal II
Proposal II concerns the ratification of the appointment of
KPMG Peat Marwick LLP, Certified Public Accountants, as the Company's
independent auditors.
<PAGE>
Voting at the Meeting
The Board of Directors has fixed the close of business on
April 9, 1998 as the record date for the Meeting, and only holders of record of
the Common Stock at the close of business on that date are entitled to notice
of, and to vote at, the Meeting. On that date, there were outstanding and
entitled to vote 31,137,884 shares of the Common Stock, held by approximately
1,500 holders of record. The holders of a majority of the Common Stock
outstanding and entitled to vote who are present either in person or represented
by proxy constitute a quorum for the Meeting.
The election of the Board of Directors requires the
affirmative vote of a plurality of the shares of the Common Stock present and
voting at the Meeting. "Plurality" means that the individuals who receive the
largest number of votes cast "for" are elected as directors up to the maximum
number of directors to be chosen at the Meeting. The approval of Proposal II
requires the affirmative vote of a majority of the shares of the Common Stock
present, in person or by proxy, and entitled to vote at the Meeting. In
accordance with Delaware law, abstentions will, while broker nonvotes will not,
be treated as present for purposes of the preceding sentence. A broker nonvote
is a proxy submitted by a broker in which the broker fails to vote on behalf of
a client on a particular matter for lack of instruction when such instruction is
required. William R. Berkley currently owns approximately 23.21% of the
outstanding shares of the Common Stock and has advised the Company that he
intends to vote such shares in favor of the proposals described herein.
2
<PAGE>
Proxies
If the enclosed proxy is properly executed and returned in
time for the Meeting, the shares of stock represented thereby will be voted in
accordance with the instructions given thereon. If no instructions are given,
such shares will be voted "for" each nominee as director and "for" Proposal II.
Proxies will extend to, and be voted at, any adjournment of the Meeting.
The Board of Directors does not intend to bring before the
Meeting any business other than as set forth in this Proxy Statement and has not
been informed that any other business is to be presented at the Meeting.
However, should any other matter properly come before the Meeting, the proxies
confer discretionary authority with respect to acting thereon and it is the
intention of the persons named as proxies in the accompanying proxy or their
duly authorized and constituted substitutes to vote or act thereon in accordance
with their best judgment.
Any shareholder who has executed and returned a proxy and who
for any reason desires to revoke such proxy may do so at any time before the
proxy is exercised by giving written notice to the Secretary of the Company at
the above address, by voting the shares represented by such proxy in person at
the Meeting or by giving a later dated proxy at any time before the voting.
Attendance at the Meeting will not, by itself, revoke a proxy.
Expenses of Solicitation
The costs of the solicitation of proxies will be borne by the
Company. Such costs include preparation, printing and mailing of the Notice of
Annual Meeting of Shareholders, this Proxy Statement and the enclosed proxy and
the reimbursement of brokerage firms and others for reasonable expenses incurred
by them in connection with the forwarding of proxy solicitation materials to
beneficial owners. The solicitation of proxies will be conducted primarily by
mail, but may include telephone or other communications by directors, officers
or regular employees of the Company acting without special compensation.
DESCRIPTION OF OUTSTANDING CAPITAL STOCK
The Common Stock is the only class of capital stock of the
Company outstanding and entitled to vote. As of April 9, 1998 there were issued
and outstanding 31,137,884 shares of the Common Stock. Warrants to purchase
38,625 shares of the Common Stock for $1.46 per share, which Warrants expire in
1999, remain outstanding. As of April 9, 1998, there were outstanding options
issued under the Company's Amended and Restated 1990 Incentive Stock Option Plan
(the "1990 Stock Option Plan") to purchase a total of 999,866 shares of the
Common Stock at prices ranging from $.97 to $6.94 per share, and options issued
under the Company's Amended and Restated 1996 Non-Employee Director Stock Plan
(the "Non-Employee Director Stock Plan") to purchase a total of 56,000 shares of
the Common Stock at prices ranging from $4.50 to $8.00 per share. In addition,
non-qualified options issued to an officer of the Company to purchase a total of
400,000 shares of the Common Stock at a price of $5.12 per share, and options
issued pursuant to certain Stock Option Agreements to purchase 1,036,708 shares
of the Common Stock for $5.82 per share, remained outstanding.
Each share of the Common Stock is entitled to one vote.
3
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL I)
Introduction
The Board of Directors unanimously recommends that
shareholders vote FOR the election as directors of the nominees referred to in
this section.
The following table sets forth each nominee's name, age and
the year in which such nominee first became a director:
<TABLE>
<CAPTION>
Year First
Name Position(s) Age Became Director
---- ----------- --- ---------------
<S> <C> <C> <C>
Jeffery O. Beauchamp Director of the
Company and Executive
Vice President of the
Company 55 1997
William R. Berkley Director of the
Company 52 1994
Andrew M. Bursky Director of the
Company and Chairman
of the Board of
Directors 41 1988
Arnold W. Donald Director of the
Company 43 1995
Catherine B. James Director of the
Company 45 1990
George E. Krauter Director of the
Company and Executive
Vice President of the
Company 66 1994
Jack H. Nusbaum Director of the
Company 57 1996
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Joshua A. Polan Director of the
Company 50 1988
Mitchell I. Quain Director of the
Company 46 1995
John M. Sergey Director of the
Company and President
and Chief Executive Officer 55 1997
of the Company
</TABLE>
Directors are elected to serve for one year or until the next
annual meeting of shareholders.
The ten individuals set forth in the above table are all of
the nominees for election as directors at the Meeting. All of the nominees
have consented to being named as such in this Proxy Statement and have agreed
to serve if elected. If any nominee should become unavailable, the persons
voting the proxies solicited hereby may in their discretion vote for a
substitute nominee. The Board of Directors has no reason to believe that any
substitute nominee or nominees will be required.
Background of Nominees
The following is a brief account of the business experience of
each of the nominees for election as a director. Except as indicated below,
there are no family relationships or special understandings pursuant to which
such persons have been nominated as directors of the Company. None of the
nominees has any substantial interest in any matter to be acted upon.
Mr. Beauchamp has been a member of the Board of Directors of
the Company since February 1997. He serves as Executive Vice President of the
Company and Chairman Emeritus of INTERMAT, Inc. ("INTERMAT"), which was founded
by Mr. Beauchamp in 1978 and was acquired by the Company in January 1997. From
November 1978 until January 1997, Mr. Beauchamp served as Chairman of INTERMAT.
Mr. Beauchamp is also the President and Chief Executive Officer of the Utility
Supply Management Alliance, a nonprofit educational industry association. Mr.
Beauchamp is being nominated as a Director in accordance with the terms of the
Agreement and Plan of Merger, dated as of January 28, 1997, by and among the
Company, Mr. Beauchamp, INTERMAT and the other parties thereto.
Mr. Berkley has been a member of the Board of Directors of the
Company since 1994. He serves as Chairman of the Board of several companies
which he controls or founded. These include W.R. Berkley Corporation, a property
and casualty insurance company, Pioneer Companies, Inc. which, through its
indirect wholly owned subsidiaries is engaged in the business of manufacturing
and distributing chlorine and caustic soda and related products, The Greenwich
Bank & Trust Company, a Connecticut chartered commercial bank, and Interlaken
Capital, Inc., a private investment firm that is an affiliate of the Company
("Interlaken Capital"). Mr. Berkley is Vice-Chairman of the Board of Trustees of
the University of Connecticut, a Director of Georgetown University, a Trustee of
New York University and a member of the Board of Overseers of New York
University Stern School of Business.
5
<PAGE>
Mr. Bursky has been a member of the Board of Directors and
Chairman of the Board of Directors since July 1988. He was President of the
Company from November 1989 to December 1990. He has been an executive officer of
Interlaken Capital since May 1980, currently serving as a Managing Director. Mr.
Bursky is a director of Pioneer Companies, Inc.
Mr. Donald has been a member of the Board of Directors of the
Company since 1995. Mr. Donald, as Senior Vice President of Monsanto Company,
focuses on the company's growth, globalization and technology initiatives around
the world and has been associated with Monsanto in various capacities since
1977. Mr. Donald currently serves on the executive boards of John Burroughs
School, Fair St. Louis and the American Crop Protection Association. Mr. Donald
also serves on the boards of the National FFA Organization, National 4-H
Council, Lindenwood College, Jackson Laboratories, Opera Theatre of St. Louis,
Carleton College and the Municipal Theater Association of St. Louis. Mr. Donald
is a member of the advisory board of the Junior League of St. Louis and serves
on the National Advisory Council for Washington University's School of
Engineering and is a member of the board of directors of Oil-Dri Corporation.
Mr. Donald is a past president of The Leadership Center of Greater St. Louis and
has served on the boards of the U.S.-Russia Business Council, Eurasia Foundation
and the British-American Project.
Ms. James has been a member of the Board of Directors of the
Company since 1990. Ms. James has served as Chief Financial Officer of Fine Host
Corporation, a contract food service company, since April 1997. Ms. James served
as Chief Financial Officer of the Company from February 1996 to April 1997,
served as Executive Vice President of the Company from January 1989 to April
1997, and served as Secretary and Treasurer of the Company from December 1989 to
April 1997. She was Chief Financial Officer of the Company from January 1989 to
September 1993. From 1990 to April 1997, Ms. James served as a Managing Director
of Interlaken Capital, Inc. and from 1982 through 1988, was employed by Morgan
Stanley & Co. Incorporated, serving as a Managing Director in the corporate
finance area during the last two years of her tenure. Ms. James is a director of
Fine Host Corporation.
Mr. Krauter has been a member of the Board of Directors of the
Company since 1994. Mr. Krauter is currently Executive Vice President of the
Company and Chairman Emeritus of Industrial Systems Associates, Inc. ("ISA"),
which was acquired by the Company in January 1994. He was President of ISA from
March 1971 to January 1997. Mr. Krauter is being nominated as a Director in
accordance with the terms of the Employment Agreement, dated January 4, 1994,
between Mr. Krauter and ISA. See "Executive Compensation-Employment Contracts,
Termination of Employment and Change in Control Agreements".
Mr. Nusbaum has been a member of the Board of Directors since
1996. He is Chairman of the New York law firm of Willkie Farr & Gallagher where
he has been a partner for more than the last five years. He also is a director
of W.R. Berkley Corporation, Fine Host Corporation, Pioneer Companies, Inc.,
Prime Hospitality Corp. and The Topps Company, Inc.
Mr. Polan has been a member of the Board of Directors of the
Company since 1988. He has been an executive officer of Interlaken Capital since
June 1988, currently serving as a Managing Director. For more than the five
years prior to June 1988, Mr. Polan was a partner in the accounting firm of
Touche Ross & Co.
6
<PAGE>
Mr. Quain has been a member of the Board of Directors of the
Company since 1995. Mr. Quain has been an Executive Vice President of Furman &
Selz LLC since May 1997 and for more than five years prior thereto was a
Managing Director of Schroder Wertheim & Company. Mr. Quain is a director of
Allied Products Corporation, a director of Mechanical Dynamics, Inc. and a
director of DeCrane Aircraft Holdings, Inc., a member of the Board of Overseers
of the School of Engineering and Applied Sciences at the University of
Pennsylvania where he also serves on the President's Council, and is a member of
the Board of Trustees and the executive committee of St. Luke's Academy, a
college preparatory school in New Canaan, Connecticut.
Mr. Sergey has been a member of the Board of Directors of the
Company since May 1997, at which time he was also elected President and Chief
Executive Officer of the Company. From May 1996 until May 1997, Mr. Sergey
operated his own consulting business. From 1989 to May 1996, he was the
President and Chief Executive Officer of GAF Materials Corporation, a
manufacturer and marketer of roofing and other building materials products.
During the same period, Mr. Sergey was Executive Vice President and a member of
the Board of Directors of GAF Corporation, the parent of GAF Materials
Corporation. Mr. Sergey is a director of Zurn Industries, Inc., a manufacturer
of plumbing and HVAC products and fire protection systems, and a provider of
water resources construction. Mr. Sergey is being nominated as a Director in
accordance with the terms of the Employment Agreement, dated April 11, 1997,
between Mr. Sergey and the Company. See "Executive Compensation-Employment
Contracts, Termination of Employment and Change in Control Agreements".
Mr. Bursky, Ms. James and Mr. Polan were executive officers of
Idle Wild Farm, Inc., a privately owned company that was formerly engaged in the
manufacture of frozen foods which, in October 1993, filed a Chapter 11 petition
for reorganization under Federal bankruptcy laws. Mr. Bursky was an executive
officer of Blue Lustre Products, Inc., a privately owned company which was
engaged in the sale and leasing of carpet cleaning equipment and other carpet
cleaning products which, in October 1995, filed a Chapter 11 petition for
reorganization under Federal bankruptcy laws.
The Board of Directors recommends that shareholders vote FOR
the election of each of the nominees as Directors.
7
<PAGE>
APPROVAL OF INDEPENDENT AUDITORS
(PROPOSAL II)
The Board of Directors unanimously recommends that
shareholders vote FOR this Proposal II.
KPMG Peat Marwick LLP has been appointed by the Board of
Directors as independent certified public accountants to audit the financial
statements of the Company for the fiscal year ending December 31, 1998. The
Board of Directors is submitting this matter to a vote of shareholders in order
to ascertain their views. If the appointment of KPMG Peat Marwick LLP is not
ratified at the Meeting, the Board of Directors will reconsider its action and
will appoint auditors for the 1998 fiscal year without further shareholder
action. Further, even if the appointment of auditors is ratified by shareholder
action, the Board of Directors may at any time in the future in its discretion
reconsider the appointment of auditors without submitting the matter to a vote
of shareholders. The audit for the Company for fiscal 1997 was conducted by KPMG
Peat Marwick LLP.
A representative of KPMG Peat Marwick LLP is expected to
attend the Meeting and will have the opportunity to make a statement and/or
respond to appropriate questions from shareholders present at the Meeting.
The Board of Directors recommends that shareholders vote FOR
this Proposal II.
8
<PAGE>
COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997, the Board of
Directors of the Company held six meetings and acted by unanimous written
consent two times. Each of the Directors attended at least 75% of the total
number of meetings of the Board and meetings of the Committees of which the
Director was a member.
Nominees for Directors are selected by the entire Board of
Directors rather than any committee of the Board. The Board has three standing
committees: the Executive Committee, the Stock Option and Compensation Committee
and the Audit Committee.
The Executive Committee, composed of William R. Berkley,
Andrew M. Bursky and John M. Sergey, has the authority, with the authorization
of the Board of Directors, to exercise all of the powers and authority of the
Board to the extent permitted under the laws of the State of Delaware and the
Company's Certificate of Incorporation and By-laws. The Executive Committee did
not meet or act during 1997.
The Stock Option and Compensation Committee, composed of
Andrew M. Bursky and Joshua A. Polan, administers the 1990 Stock Option Plan,
the Company's Executive Compensation Plan and the Non-Employee Director Stock
Plan. The Stock Option and Compensation Committee held six meetings in 1997.
The Audit Committee, composed of William R. Berkley, Joshua A.
Polan and Mitchell I. Quain, makes recommendations concerning the engagement of
independent public accountants, the plans and results of the audit engagement,
approves professional services provided by the independent public accountants,
considers audit and non-audit fees, and reviews the adequacy of the Company's
internal accounting controls. The Audit Committee held two meetings in 1997.
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1997, each of the
non-employee members of the Board of Directors received, under the Non-Employee
Director Stock Plan, non-qualified options to purchase 4,000 shares of the
Common Stock in consideration of services rendered during 1997. In the future,
on December 31 of each year, under the Non-Employee Director Stock Plan, each of
the Company's Directors who is not an employee of the Company will be granted an
option to purchase 4,000 shares of the Common Stock. All options are granted at
a price equal to the fair market value of the Common Stock on the date of grant,
and have a maximum term of five years. In January 1997, each non-employee
director of the Company received a cash fee of $12,000 from the Company in
consideration of services rendered to the Company during 1996. In addition,
during 1997 each non-employee director of the Company received a cash fee of
$3,000 in consideration of each meeting of the Board attended by the Director.
During 1998, each non-employee director of the Company will receive a cash fee
of $1,500 in consideration of each meeting of the Board attended by the
Director, and each non-employee director who remains a director at the end of
1998 will receive an additional cash fee of $6,000. During the fiscal year ended
December 31, 1997, the Company was obligated to reimburse its Board members for
all reasonable expenses incurred in connection with their attendance at
Directors' meetings, but no Director made any claim for reimbursement.
9
<PAGE>
IDENTIFICATION OF EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Executive
Position and Officer Term
Name Offices Held Since Expires Age
---- ------------ ------- ------- ---
<S> <C> <C> <C> <C>
Andrew M. Bursky Chairman of 1988 1998 41
Board of
Directors
John M. Sergey President and Chief 1997 1998 55
Executive Officer
Jeffery O. Beauchamp Executive Vice 1997 1998 55
President
Michael F. Devine III Chief Financial 1997 1998 39
Officer, Secretary
and Treasurer
George E. Krauter Executive Vice 1997 1998 66
President
David L. Courtright Controller and 1998 1998 44
Chief Accounting
Officer
</TABLE>
Background of Executive Officers
The following is a brief account of the business experience of
each of the persons listed in the foregoing table. There are no family
relationships or special understandings pursuant to which such persons have been
elected as officers of the Company except as described below. None of the
officers have any substantial interest in any matter to be acted upon, other
than the election of Directors in the case of Mr. Bursky, Mr. Sergey, Mr.
Beauchamp and Mr. Krauter.
Mr. Bursky has been Chairman of the Board of Directors of the
Company since July 1988. He was President of the Company from November 1989 to
December 1990. He has been an executive officer of Interlaken Capital since May
1980, currently serving as a Managing Director. Mr. Bursky is a director of
Pioneer Companies, Inc.
10
<PAGE>
Mr. Sergey has served as President and Chief Executive Officer
of the Company since May 1997. From May 1996 until May 1997, Mr. Sergey operated
his own consulting business. From 1989 to May 1996, he was the President and
Chief Executive Officer of GAF Materials Corporation, a manufacturer and
marketer of roofing and other building materials products. During the same
period, Mr. Sergey was Executive Vice President and a member of the Board of
Directors of GAF Corporation, the parent of GAF Materials Corporation. Mr.
Sergey is a director of Zurn Industries, Inc., a manufacturer of plumbing and
HVAC products and fire protection systems, and a provider of water resources
construction.
Mr. Beauchamp is currently Executive Vice President of the
Company and Chairman Emeritus of INTERMAT, which was founded by Mr. Beauchamp in
1978 and was acquired by the Company in January 1997. From November 1978 until
January 1997, Mr. Beauchamp served as Chairman of INTERMAT. Mr. Beauchamp is
also the President and Chief Executive Officer of the Utility Supply Management
Alliance, a nonprofit educational industry association.
Mr. Devine has been Chief Financial Officer, Secretary and
Treasurer of the Company since April 1997. He has been Chief Financial Officer
of ISA since July 1995. From 1989 to 1993 he served as Director of Finance and
from 1993 to July 1995 as Director of Operations at McMaster-Carr Supply
Company, a distributor of industrial supplies.
Mr. Krauter has served as Executive Vice President of the
Company since April 1997. Mr. Krauter is also Chairman Emeritus of ISA, which
was acquired by the Company in January 1994. He was President of ISA from March
1971 to January 1997.
Mr. Courtright was elected Controller and Chief Accounting
Officer of the Company in March 1998. During the five-year period prior to
joining the Company, he operated his own financial consulting business,
primarily providing services related to business mergers, acquisitions and
divestitures.
11
<PAGE>
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee of the Board of Directors (the
"Committee") establishes the general compensation policies of the Company and
the specific compensation level for the Company's executive officers. The
Committee also reviews the levels of compensation of senior officers of the
Company's subsidiaries. The Committee is composed of Andrew M. Bursky and Joshua
A. Polan.
CEO Compensation
Compensation of the Company's Chief Executive Officer is governed by the
terms of his employment agreement dated April 11, 1997 (the "CEO Employment
Agreement"). The Committee established the Chief Executive Officer's salary and
other compensation by considering the compensation packages of CEO's of
comparably-sized companies, and by considering the type of compensation package
that would be necessary in order to attract a Chief Executive Officer with the
skills and experience necessary to achieve the goals that the Board of Directors
had established for the Company. The terms of the CEO Employment Agreement are
set forth under "Executive Compensation - Employment Contracts, Termination of
Employment and Change in Control Agreements".
Compensation of Executive Officers Generally
The Committee believes that the compensation of executive officers of the
Company should be heavily influenced by Company performance, as measured by
operating, financial and strategic objectives. It further believes that Company
performance should be viewed both from a short-term and a long-term perspective.
The compensation levels of the Company's executive officers and of the senior
officers of the Company's subsidiaries are set with a view to aligning
compensation with the Company's business objectives and performance. The
Committee believes it is important to use compensation to enable the Company to
attract and reward officers who contribute to the Company's long-term success by
demonstrated, sustained performance. To this end, the Company relies on cash
compensation consisting of base salary and individual bonus awards and stock
based compensation. Bonuses for 1997 were awarded to executive officers of the
Company, and to senior officers of the Company's subsidiaries, based on the
achievement of performance goals established by management and confirmed by the
Committee.
Stock options are granted to executive officers based on an evaluation of
the executives' ability to influence the Company's long-term growth and
profitability. In the case of senior officers employed by subsidiaries, the
subsidiary's financial performance and potential future contributions to overall
corporate profitability are also taken into account. During 1997, Mr. Sergey
received options to purchase 500,000 shares of the Common Stock pursuant to the
CEO Employment Agreement, and Mr. Devine received options to purchase 25,000
shares of the Common Stock.
12
<PAGE>
Because none of the executive officers of the Company has
received annual compensation in excess of $1 million, the Committee has not yet
formulated a policy with respect to the annual deduction limit of $1 million for
compensation paid to executive officers, which limit is set forth in Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Deductibility of compensation is one of the factors considered by the Committee
when making compensation decisions; however, the Committee does not believe it
would be prudent to adopt a policy precluding payment of nondeductible
compensation without regard to other considerations. Of the options granted to
Mr. Sergey under the CEO Employment Agreement, 400,000 options were granted
outside of the 1990 Stock Option Plan as an inducement to Mr. Sergey's entering
into the Agreement. Compensation attributable to such options will be subject to
the $1 million deduction limit, assuming the options are exercised in a taxable
year for which Mr. Sergey is serving as a named executive officer on the last
day of such taxable year. The remaining 100,000 options granted to Mr. Sergey
are "incentive stock options" under Section 422 of the Code, as to which Sr.
Sergey will not recognize ordinary income and the Company will not be entitled
to a deduction, provided Mr. Sergey satisfies certain holding period
requirements with respect to the underlying stock.
Stock Option and Compensation Committee
Andrew M. Bursky
Joshua A. Polan
April 10, 1998
The previous reports of the Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Andrew M. Bursky is Chairman of the Company's Board of Directors and Joshua
A. Polan is a Director of the Company. Mr. Bursky has served as Chairman of the
Board of Directors since 1988 and was President of the Company from November
1989 to December 1990. See "Transactions with Affiliates" for a description of
certain transactions between the Company and certain companies of which Mr.
Bursky, Mr. Polan and William R. Berkley are officers, directors and/or
shareholders.
13
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all the cash and non-cash
compensation for the fiscal year ended December 31, 1997, and for each of the
prior two fiscal years, awarded to or earned by the President, the Executive
Vice Presidents, the Chief Financial Officer, and the Vice President, Controller
and Chief Accounting Officer of the Company. No other executive officer of the
Company earned more than $100,000 in salary and bonus in any of the three fiscal
years ended December 31, 1997. Mr. Bursky did not receive any compensation from
the Company but was an executive officer of and was compensated by Interlaken
Capital, which is party to a services agreement with the Company pursuant to
which Interlaken Capital received fees of approximately $465,000 during 1997.
See "Transactions with Affiliates."
Mr. Martin, shown as the Vice President, Controller and Chief
Accounting Officer of the Company in the tables below, resigned as an officer of
the Company in March 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation Awards
Annual Compensation -----------------------------
Name and Principal Position ------------------- Other Annual Number of Securities All Other
of Executive Officer Year Salary Bonus Compensation Underlying Options Granted (#) Compensation
--------------------------- ---- ------ ----- ------------ ------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John M. Sergey 1997 $240,000(1) $180,000 $138,955 (2) 500,000 $12,496 (3)
President, Chief Executive
Officer
Jeffery O. Beauchamp 1997 137,500 -0- -0- 4,235 (4)
Executive Vice President
George E. Krauter 1997 150,000 65,000 -0- -0-
Executive Vice President 1996 135,000 78,500 -0- -0-
1995 110,000 43,300 -0- -0-
Michael F. Devine, III 1997 145,000 70,000 25,000 -0-
Chief Financial Officer 1996 135,000 75,000 25,000 -0-
1995 59,900 40,000 12,875 -0-
Charles J. Martin 1997 74,300(5) 30,000 -0- 464(4)
Vice President, 1996 142,097 43,250 40,000 1,066 (4)
Controller and Chief 1995 -0- -0- 1,236
Accounting Officer
</TABLE>
(1) Mr. Sergey's employment with the Company commenced on May 1, 1997.
(2) Represents relocation expenses ($80,722), amounts reimbursed for the payment
of taxes ($44,900) and an automobile allowance ($13,333).
(3) Represents premiums paid for term life and disability insurance.
(4) These amounts represent contributions to the Company's Retirement Savings
Plan.
(5) Mr. Martin ceased being paid by the Company on July 1, 1997, but remained an
officer of the Company until March 1998.
14
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth all options granted during 1997
to the persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Number of % of Total Exercise or Price Appreciation for Option Term
Securities Underlying Options Granted Base Price Expiration ----------------------------------
Name Options Granted (#) to Employees ($/Sh) Date 5% ($) 10% ($)
---- --------------------- --------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
John M. Sergey 400,000(1) 43.64% $5.12 4/11/2007 $1,288,000 $3,264,000
100,000(1) 10.91% $3.98 5/1/2007 $ 250,000 $ 634,000
Jeffery O. Beauchamp 0 0 0 0 0 0
George E. Krauter 0 0 0 0 0 0
Michael F. Devine III 25,000(2) 2.73% $3.94 3/6/2007 $ 62,000 $ 157,000
Charles J. Martin 0 0 0 0 0 0
</TABLE>
(1) These options were granted on April 11, 1997 and May 1, 1997
and vest in four equal installments on the first four
anniversaries of the respective grant dates.
(2) These options were granted on March 6, 1997 and vest in three
equal installments, on the third, fourth and fifth
anniversaries of the grant date.
15
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
The following table indicates, for all persons named in the Summary
Compensation Table, the value of in-the-money unexercised options at December
31, 1997. None of these individuals exercised any options in 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at FY-End (#) Options at FY-End ($)
Acquired on Value ----------------------------- -------------------------------------
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable (1) Unexercisable (1)
---- ------------ ------------ ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
John M. Sergey 0 0 0 500,000 0 $52,000(2)
Jeffrey O Beauchamp 0 0 0 0 0 0
George E. Krauter 0 0 0 0 0 0
Michael F. Devine III 0 0 8,582 54,293 $9,011 $18,508(3)
Charles J. Martin 0 0 11,236 30,000 0 0
</TABLE>
(1) The fiscal year-end closing price of the Common Stock was $4.50. The
amounts in these columns were calculated using the difference between the
exercise price and fiscal year-end closing price.
(2) Value based on 100,000 unexercisable options in-the-money at December 31,
1997. Remaining options were not in-the money at December 31, 1997.
(3) Value based on 29,293 unexercisable options in-the-money at December 31,
1997. Remaining options were not in-the-money at December 31, 1997.
Employment Contracts, Termination of Employment and
Change in Control Agreements
On April 11, 1997, the Company entered into a three year Executive
Employment Agreement with Mr. Sergey, pursuant to which, beginning on May 1,
1997, Mr. Sergey became President and Chief Executive Officer of the Company
for base compensation of not less than $360,000 per year. Mr. Sergey is
eligible for bonus compensation based upon the achievement of goals
established by the Committee, which bonus was guaranteed to be not less than
$180,000 in 1997. In addition, as an inducement to enter into the Executive
Employment Agreement, Mr. Sergey was granted non-qualified options to purchase
up to 400,000 shares of the Common Stock at an exercise price of $5.12 per
share (which the Committee determined to be the fair market value of the
Common Stock on the date of grant) and, upon commencement of his employment
with the Company, Mr. Sergey was granted incentive stock options under the
1990 Stock Option Plan to purchase up to 100,000 shares of the Common Stock at
an exercise price of $3.98 per share. In addition, the Company sold Mr. Sergey
400,000 shares of the Common Stock (the "Purchased Shares") for an aggregate
amount of $1,700,000 (an amount which the Committee determined to be the fair
market value of the Common Stock on the date the agreement was executed). The
purchase price for the Purchased Shares was paid $700,000 in cash and the
remainder was evidenced by a five year promissory note from Mr. Sergey to the
Company that is secured by the Purchased Shares and recourse only to the
Purchased Shares. In addition, Mr. Sergey will receive certain life insurance
benefits, disability benefits, car allowance and moving expenses. If Mr.
Sergey's employment is terminated by the Company without "Cause" (as defined
in the Executive Employment Agreement), or by Mr. Sergey for "Good Reason"
(which, as defined in the Executive Employment Agreement, includes a change in
control of the Company), Mr. Sergey will continue to receive his salary and
reimbursement for the cost of health benefits until the balance of
16
<PAGE>
the employment term or one year, if longer, subject to setoff by amounts earned
by Mr. Sergey from subsequent employment during such period. Upon a change in
control of the Company, all of Mr. Sergey's outstanding options will become
exercisable in full.
Mr. Beauchamp was appointed an Executive Vice President of the Company in
accordance with the terms of an Employment Agreement, dated as of January 28,
1997, by and among the Company, INTERMAT and Mr. Beauchamp. The term of the
Employment Agreement is three years, and Mr. Beauchamp is entitled to receive a
salary of not less than $150,000 per annum.
Mr. Krauter is party to an Employment Agreement, dated as of January 4,
1994, by and between Mr. Krauter and ISA. The term of the Employment Agreement
is five years, and Mr. Krauter is entitled to receive a salary of not less than
$100,000 per annum.
17
<PAGE>
COMPANY STOCK PERFORMANCE GRAPH
Set forth below is a graph comparing, for a period of five years ended
December 31, 1997, the yearly cumulative total shareholder return on the
Company's Common Stock with the yearly cumulative total shareholder return of
the NASDAQ Market Index and an index of a group of peer companies selected by
the Company. The comparison of total shareholder returns assumes that $100 was
invested on December 31, 1992 in each of the Company, the NASDAQ Market Index
and the peer group index, and that dividends were reinvested when and as paid.
The companies in the peer group are Lawson Products, Inc. ("Lawson"), Noland
Company ("Noland"), and MSC Industrial Direct Co., Inc. ("MSC"). The Company has
deleted Arden Industrial Products Inc. ("Arden") from the peer group this year
because Arden is no longer publicly traded and, therefore, information regarding
Arden shareholder returns is no longer available to the Company. The Company
intends to add JLK Direct Distribution, Inc. ("JLK") and Industrial Distribution
Group, Inc. ("IDG") to the peer group in future years, but cannot add these
companies to the peer group this year because they both became publicly traded
in 1997 and, therefore, year to year returns are not yet available. JLK is a
supplier of metalworking consumables and related products through direct
marketing and integrated industrial supply programs. IDG is a national supplier
of maintenance, repair, operating and production products, emphasizing
abrasives, cutting tools, hand and power tools, coolants, lubricants and
adhesives. The company intends to include JLK and IDG in the peer group because
the Company believes that a peer group consisting of five companies as opposed
to three is a better representative sample for comparative purposes. The Company
is not included in the peer group. In calculating the yearly cumulative total
shareholder return of the peer group index, the shareholder returns of the
companies included in the peer group are weighted according to the stock market
capitalizations of such companies at the beginning of each period for which a
return is indicated. Of the companies included in the peer group, the stock of
Lawson and Noland has been publicly traded for the entire five-year period
covered by the performance graph, and the stock of MSC has been publicly traded
since December 1995. The shareholder returns of MSC are first included in the
calculation of cumulative total shareholder return of the peer group index for
1996.
[Graph]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Strategic Distribution, Inc. 100 100 513 950 950 543
NASDAQ 100 115 111 155 191 232
Peer Group 100 128 140 139 160 162
</TABLE>
18
<PAGE>
From December 31, 1992 through December 31, 1993, there was no
active market for the Common Stock, and the Common Stock was not regularly
quoted on any national market quotation system. Therefore, the prices of the
Common Stock for 1992 through 1993, as set forth in the Performance Graph, are
based on (i) prices at which the Company issued the Common Stock in private
sales, and (ii) exercise prices of options to purchase the Common Stock granted
by the Company (which exercise prices were deemed to be greater than or equal to
the fair market value of the Common Stock on the date of grant). Persons
controlling the Company were among those purchasing Common Stock in many of the
private sales. The Common Stock began trading on the NASDAQ Small Cap Market on
March 16, 1994 and began trading on the NASDAQ National Market on October 6,
1994. The price of the Common Stock on December 31, 1997, as set forth in the
Performance Graph, represents the last reported sale price of the Common Stock
on the NASDAQ National Market on December 31, 1997, the last trading date in
1997.
19
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information, as of April 9, 1998,
concerning beneficial ownership of the Company's Common Stock (calculated based
on 31,137,884 shares outstanding) by (i) each person known by the Company to own
beneficially more than five percent of the outstanding shares of the Common
Stock, (ii) each director of the Company and each nominee to become a director,
(iii) each executive officer of the Company named in the Summary Compensation
Table and (iv) all director and executive officers of the Company as a group.
Unless otherwise indicated, all amounts reflected in the table represent shares
the beneficial owners of which have sole voting and investment power.
<TABLE>
<CAPTION>
Amount and
Nature of
Title of Name and Address of Beneficial Percent
Class Beneficial Owner(a) Ownership of Class
- -------- ------------------- ---------- --------
<S> <C> <C> <C>
Common Stock Jeffery O. Beauchamp 218,750 *
Director, Executive
Vice President
Common Stock William R. Berkley
Director 8,174,996 (b) 25.48%(b)
Common Stock Andrew M. Bursky
Director, Chairman of
the Board 1,103,251 (c) 3.54% (c)
Common Stock Arnold W. Donald
Director 16,418 (d) *
Common Stock Catherine B. James
Director 768,541 (e) 2.45% (e)
Common Stock George E. Krauter
Director, Executive 206,000 *
Vice President
Common Stock Jack H. Nusbaum
Director 18,000 (f) *
Common Stock Joshua A. Polan
Director 182,169 (g) *
Common Stock Mitchell I. Quain
Director 35,488 (h) *
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Title of Name and Address of Beneficial Percent
Class Beneficial Owner(a) Ownership of Class
- -------- ------------------- ---------- --------
<S> <C> <C> <C>
Common Stock John M. Sergey 554,000 (i) 1.77% (i)
Director, President
and Chief Executive Officer
Common Stock Michael F. Devine, III 12,875 (j) *
Chief Financial Officer,
Secretary and Treasurer
Common Stock Charles J. Martin
Former Vice President,
Controller and Chief
Accounting Officer 11,236 (k) *
Common Stock The Capital
Group Companies, Inc. 1,890,000 (l) 6.07%
Common Stock Dimensional Fund Advisors, Inc. 1,572,540 (m) 5.05%
Common Stock Barry R. Feirstein 1,597,200 (n) 5.13%
Common Stock T. Rowe Price Associates,
Inc./T. Rowe Price New
Horizons Fund, Inc. 2,410,000 (o) 7.74%
Common Stock Wellington
Management Company 2,689,260 (p) 8.64%
Common Stock All executive officers
and directors as a
group (12 persons) 11,301,724 (q) 34.78%
</TABLE>
________________
*Owns less than 1% of the outstanding shares of the Common Stock.
(a) The business address of William R. Berkley is 165 Mason
Street, Greenwich, Connecticut 06830. The business address of
The Capital Group Companies, Inc. is set forth in footnote
(l). The business address of Dimensional Fund Advisors, Inc.
is set forth in footnote (m). The business address of Barry R.
Feirstein is set forth in footnote (n). The business address
of T. Rowe Price Associates, Inc. and T. Rowe Price New
Horizons Fund, Inc. is set forth in footnote (o). The business
address of the Wellington Management Company is set forth in
footnote (p).
(b) Includes (i) 45,000 shares of the Common Stock held by the
Berkley Family Limited Partnership, (ii) 8,000 shares of the
Common Stock which are subject to currently exercisable stock
options held by Mr. Berkley, (iii) 19,649 shares of the Common
Stock which are subject to currently exercisable stock options
held by The Berkley Family Limited Partnership, and (iv)
919,600 shares of the Common Stock which are subject to
currently exercisable stock options held by Interlaken
Investment Partners, L.P. Mr. Berkley is a general partner of
The
21
<PAGE>
Berkley Family Limited Partnership and is the sole owner of a
company that indirectly controls Interlaken Investment
Partners, L.P.; as such, he may be deemed to be the beneficial
owner of shares of the Common Stock and/or options to purchase
the Common Stock held by those entities. The number of
outstanding shares used for calculating percent of class is
32,085,133.
(c) Includes 36,295 shares of the Common Stock which are subject
to currently exercisable stock options held by Mr. Bursky. The
number of outstanding shares used for calculating percent of
class is 31,174,179.
(d) Includes 8,000 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Donald.
(e) Includes (i) 172,466 shares of the Common Stock which are
subject to currently exercisable stock options and (ii) 16,667
shares of the Common Stock which are subject to stock options
held by Ms. James that will become exercisable within 60 days.
The number of outstanding shares used for calculating percent
of class is 31,327,017.
(f) Includes 8,000 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Nusbaum.
(g) Includes 8,000 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Polan.
(h) Includes 8,000 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Quain.
(i) Includes (i) 100,000 shares of the Common Stock which are
subject to currently exercisable stock options and (ii) 25,000
shares of the Common Stock which are subject to Stock Options
held by Mr. Sergey that will become exercisable within sixty
days. The number of outstanding shares used for calculating
percent of class is 31,262,884.
(j) Includes (i) 8,582 shares of the Common Stock which are
subject to currently exercisable stock options and (ii) 4,293
shares of the Common Stock which are subject to Stock Options
held by Mr. Devine that will become exercisable in sixty days.
(k) Includes 11,236 shares of the Common Stock which are subject
to currently exercisable stock options held by Mr. Martin.
(l) The business address of The Capital Group Companies, Inc.
("Capital Group") is 333 South Hope Street, Los Angeles,
California 90071. Information regarding Capital Group has been
obtained by the Company from a Schedule 13G filed by Capital
Group with the Securities and Exchange Commission on or about
February 10, 1998. Capital Research and Management Company
("Capital Research"), a registered investment adviser that is
a subsidiary of Capital Group, has sole dispositive power with
respect to these shares. SMALLCAP World Fund, Inc., a
registered investment company, has sole voting power with
respect to these shares. Capital Group and Capital Research
disclaim beneficial ownership of these shares.
22
<PAGE>
(m) The business address of Dimensional Fund Advisors, Inc.
("Dimensional") is 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401. Information regarding Dimensional has been
obtained by the Company from a Schedule 13G filed by
Dimensional with the Securities and Exchange Commission on or
about February 9, 1998. Dimensional, a registered investment
advisor, is deemed to have beneficial ownership of 1,572,540
shares of the Common Stock as of December 31, 1997, all of
which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional Fund Advisors
Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(n) The business address of Barry R. Feirstein ("Feirstein") is
767 Third Avenue, 28th Floor, New York, NY 10017. Information
regarding Feirstein has been obtained by the Company from a
Schedule 13G filed by Feirstein with the Securities and
Exchange Commission on or about April 9, 1998. Feirstein had
sole voting power and sole investment power over 1,597,200
shares of the Common Stock as of April 3, 1998.
(o) The business address of T. Rowe Price Associates, Inc. and T.
Rowe Price New Horizons Fund, Inc. is 100 E. Pratt Street,
Baltimore, Maryland 21202. Information regarding T. Rowe Price
Associates, Inc. and T. Rowe Price New Horizons Fund, Inc. has
been obtained by the Company from a Schedule 13G filed by T.
Rowe Price Associates, Inc. and T. Rowe Price New Horizons
Fund, Inc. with the Securities and Exchange Commission on or
about February 12, 1998. The securities are owned by various
individual and institutional investors (including T. Rowe
Price New Horizons Fund, Inc. ("Horizons Fund") which owns
1,761,000 shares) which T. Rowe Price Associates, Inc. ("Price
Associates") serves as investment adviser with power to direct
investments and/or sole power to vote the securities. Price
Associates has sole dispositive power over 2,410,000 shares
and sole voting power over 649,000 shares. Horizons Fund
beneficially owns and has sole voting power over 1,761,000
shares. For purposes of reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to
be a beneficial owner of all such securities; however, Price
Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities.
(p) The business address of Wellington Management Company is 75
State Street, Boston, Massachusetts, 02109. Information
regarding Wellington Management Company has been obtained by
the Company from a Schedule 13G filed by Wellington Management
Company with the Securities and Exchange Commission on or
about January 17, 1998. Wellington Management Company has
shared investment power over 2,689,260 shares of the Common
Stock and shared voting power over 1,544,260 shares of the
Common Stock. Wellington Management Company does not have sole
voting or investment power over any shares of Common Stock.
(q) Includes 1,353,788 shares of the Common Stock which are
subject to options held by executive officers and directors of
the Company that are currently exercisable or will become
exercisable within 60 days. The number of outstanding shares
used for calculating percent of class is 32,491,672.
23
<PAGE>
TRANSACTIONS WITH AFFILIATES
The Company has entered into an agreement (the "Services
Agreement") with Interlaken Capital pursuant to which Interlaken Capital will
provide the Company with certain corporate and administrative services including
but not limited to services relating to accounting and internal legal advice.
Mr. Berkley is the sole shareholder of Interlaken Capital. Messrs. Berkley and
Bursky are the sole directors of Interlaken Capital. Mr. Bursky and Mr. Polan
are employees and executive officers of Interlaken Capital. The fee to be paid
by the Company pursuant to the Services Agreement is $12,500 per month plus
expenses incurred by Interlaken Capital (the "Interlaken Monthly Fee"). In
addition, the Company will pay Interlaken Capital a fee in connection with the
sale of American Technical Services, Inc. equal to 2% of the purchase price paid
to the Company. Any such fee received by Interlaken will reduce future
Interlaken Monthly Fees otherwise payable by the Company. Besides providing
services to the Company, Interlaken Capital provides legal, accounting and other
services to companies engaged in such businesses as fire protection, infants'
clothing manufacturing and chemical manufacturing. The term of the Services
Agreement extends from June 1, 1997 through May 31, 2000, but will automatically
renew for additional one year terms unless either party gives notice of
termination at least thirteen months prior to the termination date otherwise in
effect. The terms of the Services Agreement were approved by the Company's
disinterested directors. The Company entered into a similar Services Agreement
with Interlaken Capital during January through May 1997, pursuant to which the
Company paid an aggregate of $200,000 to Interlaken Capital. In addition,
Interlaken Capital received $265,000 from the Company for services provided in
connection with the sale of the Company's Strategic Supply, Inc. subsidiary in
1997.
The Company issued a subordinated note, which was due and paid
on January 4, 1998, to Mr. Krauter in the principal amount of $500,000. The note
bore interest at the rate of 6% per annum. The Company issued this note on
January 4, 1994 in connection with its acquisition from Mr. Krauter of all of
the issued and outstanding stock of ISA.
The Company issued $1,400,000 aggregate principal amount of
subordinated notes to the former shareholders of INTERMAT in connection with the
Company's acquisition of INTERMAT in January 1997. Subsequent to the
acquisition, all of the subordinated notes, which are due in the year 2000 and
bear interest at the rate of 9% per annum, were acquired by Mr. Beauchamp and
his wife, who continue to hold all of the subordinated notes.
The Company believes that the foregoing transactions were on
terms no less favorable to the Company than those available from unaffiliated
parties. In the future, the Company will engage in transactions with affiliated
parties only if they satisfy the foregoing criteria.
SHAREHOLDER PROPOSALS
Securities and Exchange Commission regulations permit
shareholders to submit proposals for consideration at annual meetings of
shareholders. Any such proposals for SDI's Annual Meeting of Shareholders to be
held in 1999 must be submitted to SDI on or before December 22, 1998, and must
comply with applicable regulations of the Securities and Exchange Commission in
order to be included in proxy materials relating to that meeting. Proposals
should be sent to: Strategic Distribution,
24
<PAGE>
Inc., c John M. Sergey, President and Chief Executive Officer, 3220 Tillman
Drive, Suite 200, Bensalem, Pennsylvania 19020.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, each person who at any time during
1997 was a director, officer or beneficial owner of more than ten percent of the
Common Stock filed on a timely basis all reports required by Section 16(a) of
the Exchange Act.
MISCELLANEOUS
A copy of the Company's Annual Report for the year ended
December 31, 1997, as filed with the Securities and Exchange Commission, has
been delivered free of charge to shareholders with this solicitation. A copy of
the Company's Annual Report on Form 10-K, including exhibits if requested, will
be furnished upon the payment of a reasonable fee to cover the Company's expense
in reproducing and mailing same, to each shareholder who mails a written request
therefor to: Strategic Distribution, Inc., 3220 Tillman Drive, Suite 200,
Bensalem, Pennsylvania 19020.
___________________________
Please complete, date, sign and mail promptly the accompanying
proxy in the postage-paid envelope enclosed for your convenience. The signing of
the proxy will not prevent your attending the Meeting and voting in person.
Bensalem, Pennsylvania
April 10, 1998
25
<PAGE>
STRATEGIC DISTRIBUTION, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS, MAY 21, 1998
The undersigned stockholder(s) of Strategic Distribution, Inc. (the
"Company") hereby appoint Michael F. Devine III, William L. Mahone and David
L. Courtright (collectively, the "Proxies"), and each or either of them, the
true and lawful agents and attorneys-in-fact for the undersigned, with power
of substitution, to attend the meeting and to vote the stock owned by or
registered in the name of the undersigned, as instructed below, at the Annual
Meeting of Shareholders to be held at the Company's headquarters, 3220
Tillman Drive, Suite 200, Bensalem, Pennsylvania on May 21, 1998 at 2:00
p.m., local time, and at any adjournments thereof, for the transaction of the
following business:
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL PROPOSALS
PROPOSAL I. Please indicate your vote for the election of Directors. The
nominees are Jeffery O. Beauchamp, William R. Berkley, Andrew M.
Bursky, Arnold W. Donald, Catherine B. James, George E. Krauter,
Jack H. Nusbaum, Joshua A. Polan, Mitchell I. Quain and John M.
Sergey.
Election of Directors FOR / / WITHHELD / /
For all nominees, except those entered below:
____________________________________________________________________________
PROPOSAL II. To ratify the appointment of KPMG Peat Marwick LLP, Certified
Public Accountants, as the Company's independent auditors for the
fiscal year ending December 31, 1998.
FOR / / AGAINST / / ABSTAIN / /
(CONTINUED ON OTHER SIDE)
<PAGE>
WHEN PROPERLY EXECUTED, THE PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS, JUST SIGN BELOW. YOU NEED NOT MARK ANY BOXES. IF NO
SPECIFICATION IS MADE, THE PROXIES INTEND TO VOTE "FOR" EACH PROPOSAL AND IN
THEIR DISCRETION FOR ANY OTHER MATTERS COMING BEFORE THE MEETING. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders to be held on May 21, 1998 and the Proxy Statement dated April 10,
1998.
Date: _____________________________
Signature: ________________________
Date: _____________________________
Signature: ________________________
Please sign exactly as your name
appears hereon. Joint owners should
each sign. When signing as
attorney, executor, trustee or
guardian, please give full title as
such.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY, USING THE ENCLOSED
ENVELOPE.
