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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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OR
/x/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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.)
3220 TILLMAN DRIVE, SUITE 200, BENSALEM, PA 19020
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(Address of principal executive offices) (Zip Code)
215-396-3088
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Number of Common Shares outstanding at August 6, 1999: 30,986,285
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TABLE OF CONTENTS
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Page No.
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PART I - FINANCIAL INFORMATION
ITEM 1
Consolidated Financial Statements:
- Consolidated Balance Sheets - 1
June 30, 1999 (unaudited)
and December 31, 1998
- Consolidated Statements of Operations 2
(unaudited) - Three Months and Six
Months Ended June 30, 1999 and 1998
- Consolidated Statements of Cash Flows 3
(unaudited) - Six Months Ended
June 30, 1999 and 1998
- Notes to Consolidated Financial Statements 4
(unaudited)
ITEM 2
Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
ITEM 3
Quantitative and Qualitative Disclosures About
Market Risk 12
PART II - OTHER INFORMATION
ITEM 2
Changes in Securities and Use of Proceeds 13
ITEM 4
Submission of Matters to a Vote of Security
Holders 13
ITEM 6
Exhibits and Reports on Form 8-K 14
Signatures 15
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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(unaudited)
ASSETS
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,725 $ 1,322
Accounts receivable, net 51,163 41,819
Current portion of notes receivable 32 361
Inventories 37,187 31,060
Prepaid expenses and other current assets 537 401
Deferred income taxes 1,165 1,165
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Total current assets 91,809 76,128
Notes receivable 2,470 2,486
Property and equipment, net 15,999 12,854
Intangible assets, net 6,754 7,279
Other assets 844 697
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Total assets $ 117,876 $ 99,444
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable and accrued expenses $ 42,250 $ 27,966
Current portion of long-term debt 21 20
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Total current liabilities 42,271 27,986
Long-term debt 12,037 7,548
Subordinated debt to related party 1,400 1,400
Net liabilities of discontinued operations 1,079 797
Deferred income taxes 125 125
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Total liabilities 56,912 37,856
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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: 31,374,285 and 31,294,285 shares 3,137 3,129
Additional paid-in capital 94,424 94,255
Accumulated deficit (34,354) (34,443)
Notes receivable from related parties (1,374) (1,303)
Treasury stock, at cost (388,000 and 12,500 shares) (869) (50)
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Total stockholders' equity 60,964 61,588
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Total liabilities and stockholders' equity $ 117,876 $ 99,444
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</TABLE>
See accompanying notes to consolidated financial statements.
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues $ 73,292 $ 52,404 $ 138,275 $ 102,862
Costs and expenses:
Cost of materials 57,867 40,612 108,809 80,490
Operating wages and benefits 5,613 4,378 10,982 8,627
Other operating expenses 2,065 1,878 3,916 3,547
Selling, general and administrative expenses 7,535 5,524 14,208 11,516
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Total costs and expenses 73,080 52,392 137,915 104,180
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Operating income (loss) 212 12 360 (1,318)
Interest income (expense):
Interest expense (274) (33) (420) (66)
Interest income 76 214 149 521
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Interest income (expense), net (198) 181 (271) 455
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Income (loss) before income taxes 14 193 89 (863)
Income tax expense - - - -
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Net income (loss) $ 14 $ 193 $ 89 $ (863)
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Net income (loss) per common share -
basic and diluted $ 0.00 $ 0.01 $ 0.00 $ (0.03)
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Weighted average number of shares of
common stock outstanding:
Basic 31,007,329 31,212,298 31,124,959 31,178,814
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 31,102,375 31,670,300 31,222,107 31,178,814
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</TABLE>
See accompanying notes to consolidated financial statements.
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
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1999 1998
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Cash flows from operating activities:
Income (loss) from continuing operations $ 89 $ (863)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 1,837 1,201
Changes in operating assets and liabilities:
Short-term investments - 2,997
Accounts receivable (9,344) (4,518)
Inventories (6,127) (3,766)
Prepaid expenses and other current assets (136) (21)
Accounts payable and accrued expenses 14,284 (4,966)
Other, net 91 (425)
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Net cash provided by (used in) continuing operations 694 (10,361)
Increase in net liabilities of discontinued operations 238 327
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Net cash provided by (used in) operating activities 932 (10,034)
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Cash flows from investing activities:
Proceeds from sale of discontinued operations 44 700
Additions of property and equipment (4,350) (3,507)
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Net cash used in investing activities (4,306) (2,807)
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Cash flows from financing activities:
Sale (repurchase) of common stock, net (713) 398
Proceeds from notes payable 4,500 -
Repayment of long-term obligations (10) (510)
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Net cash provided by (used in) financing activities 3,777 (112)
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Increase (decrease) in cash and cash equivalents 403 (12,953)
Cash and cash equivalents, beginning of the period 1,322 15,941
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Cash and cash equivalents, end of the period $ 1,725 $ 2,988
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Supplemental cash flow information:
Taxes paid $ 129 $ 18
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Interest paid $ 298 $ 66
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</TABLE>
See accompanying notes to consolidated financial statements.
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
1. The accompanying unaudited consolidated financial statements include the
accounts of Strategic Distribution, Inc. and subsidiaries (the "Company"). These
financial statements have been prepared in accordance with the instructions of
Form 10-Q. In the opinion of management, all adjustments (consisting of a normal
and recurring nature) considered necessary for a fair presentation of the
results of operations for the three months and six months ended June 30, 1999
and 1998 have been included. The statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
results for the three months and six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for a full fiscal
year.
2. On November 11, 1996, the Company announced its intention to sell its
Strategic Supply, Inc. subsidiary ("SSI") (which was sold in 1997) and its
American Technical Services Group, Inc. subsidiary ("ATSG") in order to focus
more directly on the development of the Company's In-Plant Store(R) business.
The Company has reflected SSI and ATSG as discontinued operations in the
accompanying financial statements. On June 4, 1998, the Company sold
substantially all of the assets and certain liabilities of ATSG. Consideration
for the sale approximated the carrying value of the net assets sold, and
consisted of $1,069,000 in cash. The sale agreement also provides for an
earn-out (contingent payment), which could result in additional compensation to
the Company. Due to the contingent nature of the earn-out, no benefit has been
recognized related to this portion of the consideration.
3. Effective as of May 8, 1998, the Company entered into a revolving Loan and
Security Agreement (the "credit facility") with its bank, providing maximum
borrowings of $50,000,000. Borrowings bear interest at the bank's reference rate
(7.75% as of June 30, 1999) and/or a Eurodollar rate, with a commitment fee
during the term of the agreement which ranges from 0.125% to 0.25% per annum on
the unused portion of the credit available. The credit facility expires on May
8, 2001. The amount that the Company may borrow under the credit facility is
based upon eligible accounts receivable and inventories. 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 June 30, 1999, there was $12,000,000 of
borrowings outstanding under the credit facility at a weighted average interest
rate of 6.49%.
4. For the three months ended June 30, 1999 and 1998 and the six months ended
June 30, 1999, the weighted average number of shares used to calculate diluted
net income per common share includes the assumed exercise of stock options
equivalent to 95,046, 458,002 and 97,148
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shares respectively, under the treasury stock method. Options to purchase
approximately 3,965,000 shares at prices ranging from $2.50 to $8.00 per share
were outstanding during the three months ended June 30, 1999, but were not
included in the computation of diluted net income per common share because the
market price of the common shares did not exceed the options' exercise prices
for substantially all of the three consecutive months ending on June 30, 1999.
Net loss per common share - basic and diluted are equal for the six months ended
June 30, 1998, because the effect of the assumed issuance of common shares is
antidilutive. As of June 30, 1999 and 1998, there were stock options outstanding
for approximately 4,142,000 and 3,100,000 common shares.
5. The Company operates in one reportable segment and substantially all of its
revenues are derived from the procurement, handling and data management of MRO
supplies for large industrial customers. The Company provides inventory
management technology and services ("data management services") to In-Plant
Store customers and to industrial users other than In-Plant Store customers.
Total revenues derived from data management services is not determinable because
fees charged to In-Plant Store customers do not differentiate data management
services from other In-Plant Store services. During the three months ended June
30, 1999 and 1998, revenues from data management services to customers other
than In-Plant Store customers amounted to $1,880,000 and $2,431,000. During the
six months ended June 30, 1999 and 1998, revenues from data management services
to customers other than In-Plant Store customers amounted to $3,778,000 and
$3,872,000.
6. Effective March 11, 1999, the Company adopted an Incentive Stock Option Plan
(the "1999 Plan"). Under the 1999 Plan, the Board is authorized to grant certain
directors, executives and key employees options for the purchase of up to
1,500,000 shares of common stock.
On March 11, 1999, the Company granted to an officer of the Company,
nonqualified options under the 1999 Plan for 400,000 shares of common stock with
an exercise price of $2.81 per share. The options may be exercised in amounts
not to exceed 25.0% per year beginning on the first anniversary of the date of
grant, if the per share selling price of the Company's common stock exceeds
certain benchmarks. The options granted become exercisable in any case on
December 16, 2005.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Certain statements in this Form 10-Q 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 related to the Company's
ability to manage growth, termination of contracts by the Company's customers,
competition in the Company's business, the Company's dependence on key
personnel, the Company's ability to deal with problems associated with the Year
2000 issue and the effects of recession on the Company and its customers. In the
event of an economic downturn, the Company could experience reduced volume of
business from its existing customers, as well as lost volume due to plant
shutdowns or consolidations by the Company's customers.
The Company provides proprietary maintenance, repair and operating
("MRO") supply procurement, handling and data management solutions to
industrial sites, primarily through its In-Plant Store-Registered Trademark-
program. The Company became a provider of the In-Plant Store program in 1994
and conducts its operations primarily through its wholly-owned subsidiaries,
Industrial Systems Associates, Inc.-Registered Trademark- ("ISA-Registered
Trademark-") and INTERMAT, Inc. ("INTERMAT-Registered Trademark-"). At June
30, 1999, the Company had 153 In-Plant Store facilities.
RESULTS OF OPERATIONS
The following table of revenues and percentages sets forth selected
items of the results of operations.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
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1999 1998 1999 1998
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(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues 73,292 $ 52,404 $ 138,275 $ 102,862
100.0% 100.0% 100.0% 100.0%
Cost of materials 78.9 77.5 78.7 78.3
Operating wages and benefits 7.7 8.4 7.9 8.4
Other operating expenses 2.8 3.6 2.8 3.4
Selling, general and administrative
expenses 10.3 10.5 10.3 11.2
Operating income (loss) 0.3 -- 0.3 (1.3)
Interest income (expense), net (0.3) 0.3 (0.2) 0.5
Net income (loss) -- 0.3 0.1 (0.8)
</TABLE>
6
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THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues for the three months ended June 30, 1999 increased 39.9% to
$73,292,000 from $52,404,000 for the three months ended June 30, 1998. This
growth resulted primarily from the maturation of In-Plant Store facilities
opened over the last six quarters in the United States and Mexico. In-Plant
Store facilities operated in Mexico increased to approximately 5% of revenues
for the three months ended June 30, 1999 from less than 1% for the three months
ended June 30, 1998. The number of In-Plant Store facilities increased from 121
at June 30, 1998 to 153 at June 30, 1999. One In-Plant Store customer
represented approximately 11% of revenues for the three months ended June 30,
1998, but no customer represented more than 10% for the three months ended June
30, 1999.
Cost of materials as a percentage of revenues increased to 78.9% for
the three months ended June 30, 1999 from 77.5% in 1998. The increase was
primarily due to growth in the Company's Mexican In-Plant Store facilities,
which have a higher percentage of material costs than stores operated in the
United States. The increase was partially offset by lower material costs sold to
United States In-Plant Store customers by leveraging the Company's expanding
purchasing power.
Operating wages and benefits expenses as a percentage of revenues
decreased to 7.7% for the three months ended June 30, 1999 from 8.4% in 1998.
This decrease is primarily a result of the percentage of revenues from more
mature In-Plant Store facilities as compared to the percentage of revenues from
new In-Plant Store facilities being greater for the three months ended June 30,
1999 than in 1998. As new In-Plant Store facilities are added, the operating
wages and benefits expenses will continue to increase, however, these expenses
as a percentage of revenues will vary depending upon the rate at which the
Company adds new In-Plant Store facilities. During the start-up phase of new
facilities, these expenses generally increase at a higher rate than revenues are
recognized.
Other operating expenses as a percentage of revenues decreased to 2.8%
for the three months ended June 30, 1999 from 3.6% in 1998. The decrease
reflects a smaller percentage of the Company's revenues generated from external
sales of data management services by its INTERMAT subsidiary for the 1999 period
as compared to 1998. INTERMAT's results of operations have a much higher
percentage of these expenses than In-Plant Store operations.
Selling, general and administrative expenses as a percentage of
revenues decreased to 10.3% for the three months ended June 30, 1999 from 10.5%
in 1998. Increases in costs related to changes in the Company's employee
benefits and implementation of In-Site-TM- (see Liquidity and Capital Resources)
were more than offset as a percentage of revenues, as the Company leveraged the
overall growth of the business.
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Interest expense, net was $198,000 for the three months ended June 30,
1999 compared to interest income, net of $181,000 for the three months ended
June 30, 1998. In late 1998 the Company began borrowing against its credit
facility as funds available to earn interest income were depleted. Funds were
used to finance the working capital requirements of new In-Plant Store
facilities and for capital expenditures.
Growth in the Company's operations resulted in increased operating
income of $212,000 for the three months ended June 30, 1999 compared to $12,000
in 1998. After interest coverage, net income for the three months ended June 30,
1999 was $14,000, compared to net income of $193,000 in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues for the six months ended June 30, 1999 increased 34.4% to
$138,275,000 from $102,862,000 for the six months ended June 30, 1998. This
growth resulted primarily from the maturation of In-Plant Store facilities
opened over the last six quarters in the United States and Mexico. In-Plant
Store facilities operated in Mexico increased to approximately 5% of revenues
for the six months ended June 30, 1999 from less than 1% for the six months
ended June 30, 1998. The number of In-Plant Store facilities increased from
121 at June 30, 1998 to 153 at June 30, 1999. One In-Plant Store customer
represented approximately 11% of revenues for the six months ended June 30,
1998, but no customer represented more than 10% for the six months ended
June 30, 1999.
Cost of materials as a percentage of revenues increased to 78.7% for
the six months ended June 30, 1999 from 78.3% in 1998. The increase was
primarily due to growth in the Company's Mexican In-Plant Store facilities,
which have a higher percentage of material costs than stores operated in the
United States. The increase was partially offset by lower material costs sold to
United States In-Plant Store customers by leveraging the Company's expanding
purchasing power.
Operating wages and benefits expenses as a percentage of revenues
decreased to 7.9% for the six months ended June 30, 1999 from 8.4% in 1998. This
decrease is primarily a result of the percentage of revenues from more mature
In-Plant Store facilities as compared to the percentage of revenues from new
In-Plant Store facilities being greater for the six months ended June 30, 1999
than in 1998. As new In-Plant Store facilities are added, the operating wages
and benefits expenses will continue to increase, however, these expenses as a
percentage of revenues will vary depending upon the rate at which the Company
adds new In-Plant Store facilities. During the start-up phase of new facilities,
these expenses generally increase at a higher rate than revenues are recognized.
Other operating expenses as a percentage of revenues decreased to 2.8%
for the six months ended June 30, 1999 from 3.4% in 1998. The
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decrease reflects a smaller percentage of the Company's revenues generated from
sales of data management services by its INTERMAT subsidiary for the 1999 period
as compared to 1998. INTERMAT's results of operations have a much higher
percentage of these expenses than In-Plant Store operations.
Selling, general and administrative expenses as a percentage of
revenues decreased to 10.3% for the six months ended June 30, 1999 from 11.2% in
1998. Increases in costs related to changes in the Company's employee benefits
and implementation of In-Site-TM- (see Liquidity and Capital Resources) were
more than offset as a percentage of revenues, as the Company leveraged the
overall growth of the business. Recruiting costs were also higher in 1998, as
the Company invested in management talent to meet the needs of its clients and
the expansion of the In-Plant Store program.
Interest expense, net was $271,000 for the six months ended June 30,
1999 compared to interest income, net of $455,000 for the six months ended June
30, 1998. In late 1998 the Company began borrowing against its credit facility
as funds available to earn interest income were depleted. Funds were used to
finance the working capital requirements of new In-Plant Store facilities and
for capital expenditures.
Growth in the Company's operations resulted in increased operating
income of $360,000 for the six months ended June 30, 1999 compared to an
operating loss of $(1,318,000) in 1998. After interest coverage, net income for
the six months ended June 30, 1999 was $89,000, compared to a net loss of
$(863,000) in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Effective as of May 8, 1998, the Company entered into the credit
facility providing maximum borrowings of $50,000,000. As of June 30, 1999, there
was $12,000,000 of borrowings outstanding under the credit facility bearing
interest at a weighted average rate of 6.49%. Borrowings under the facility are
expected to be used primarily to fund working capital requirements for the
expansion of the In-Plant Store program.
On June 4, 1998, the Company sold substantially all of the assets and
certain liabilities of ATSG. Consideration for the sale consisted of $1,069,000
in cash. The sale agreement also provides for an earn-out (contingent payment),
which could result in additional compensation to the Company.
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The net cash provided by operating activities was $932,000 for the six
months ended June 30, 1999 compared to net cash used of $10,034,000 in 1998. The
increase in cash provided by operations resulted primarily from the increase in
net income and lower net working capital requirements in 1999 as compared to
1998, for the Company's In-Plant Store program. In 1998, the Company also used
available funds to reduce accounts payable.
The net cash used in investing activities was $4,306,000 for the six
months ended June 30, 1999 compared to $2,807,000 in 1998. The increase reflects
higher expenditures for computer systems and related equipment in 1999.
The net cash provided by financing activities was $3,777,000 for the
six months ended June 30, 1999 compared to net cash used of $112,000 in 1998. In
1999, cash was provided primarily from the Company's new credit facility.
$819,000 of the cash was used to repurchase 375,500 shares of the Company's
common stock at prevailing market prices under a common stock repurchase program
initiated in 1998. The net cash used in 1998 included payment of a $500,000 note
to an officer of the Company.
The Company is in the process of implementing a resystemization of its
operating and financial data processing systems, referred to as In-Site-TM-.
During 1998, central system hardware and software was acquired and development
of the operating and financial systems commenced. Financial systems were
operational effective January 1, 1999. Development of the operating systems was
substantially completed in the second quarter of 1999. Communications
installations, acquisition of additional hardware, deployment of the operating
systems to the Company's In-Plant Store sites and integration with the financial
systems commenced in the second quarter and is expected to be complete by the
end of 1999. At June 30, 1999, the total additional capital spending necessary
to complete this project was estimated to be approximately $1,000,000.
The Company believes that cash on hand, cash generated from future
operations, and cash from the credit facility will generate sufficient funds to
permit the Company to support the anticipated expansion of the In-Plant Store
program and completion of the In-Site project.
YEAR 2000 ISSUE
The Year 2000 issue arises from the fact that many existing computer
software programs use only two digits to identify the year in date fields and,
as such, could fail or create erroneous results by or at the Year 2000.
1. The Company's State of Readiness
In late 1997, the Company began a planned project to replace its
operating and financial data processing systems, in order to provide
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better access to business information, to meet the service requirements of its
customers and to allow for the expansion of its In-Plant Store program. This
initiative is using Year 2000 compliant software. The system replacement project
is currently on schedule. Financial systems were operational effective January
1, 1999. Development of the operating systems was substantially completed in the
second quarter of 1999. Communications installations, acquisition of additional
hardware, deployment of the operating systems to the Company's In-Plant Store
sites and integration with the financial systems commenced during the second
quarter and is expected to be complete by the end of 1999.
In addition to the systems replacement project, the Company is in the
process of evaluating Year 2000 compliance for its computer hardware, its
non-technology systems and for major third parties with which the Company
conducts business. Computer hardware testing was substantially complete as of
September 30, 1998. The Company used the YMARK2000 test to assist in its
evaluation. Hardware requiring replacement or upgrade is expected to be
completed in a timeframe consistent with the deployment of the In-Site operating
systems. The Company has no buildings or other fixed plant with embedded
technology and is not highly dependent on its own non-technology systems. The
Company commenced identification and testing in the third quarter of 1998 and
substantially completed its evaluation and remediation, where necessary, by June
30, 1999. As of June 30, 1999, the Company had not found any major
non-technology system under its control to be Year 2000 deficient and the
Company does not believe that any of these systems create material risks for the
Company.
The Company's In-Plant Stores are located at its customers' industrial
sites, the Company leases office space from third parties and the Company relies
on its suppliers and its telecommunications links to conduct business. The
Company contacted each of its customers and lessors to determine their Year 2000
readiness. The Company completed this process as of June 30, 1999 and found no
significant Year 2000 issues. The Company surveyed its top 100 suppliers
(covering in excess of 30% of the Company's 1998 purchases) in the fourth
quarter of 1998 and believes they will be able to continue to supply the Company
with MRO parts into the Year 2000. The Company conducted a survey of its
remaining suppliers, with particular emphasis on existing "single source"
suppliers. As of June 30, 1999, the Company was approximately 75% complete in
evaluating the results of the survey and has found no significant Year 2000
issues. The Company has contacted its telecommunications providers and has been
advised that their systems are Year 2000 compliant.
2. The Costs to Address the Company's Year 2000 Issues
Costs associated with the Company's Year 2000 compliance effort, which
exclude its planned systems replacement project, are not expected to be
material. Upgrade or replacement of Year 2000 deficient computers will be
completed during 1999. Salaries, benefits and other costs of the Company's
personnel evaluating its Year 2000 readiness have not been measured and have
been expensed as incurred.
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3. The Risks of the Company's Year 2000 Issues
Failure to identify and correct Year 2000 problems could result in
interruptions in, or failures of, certain normal business activities. Factors
that could cause or contribute to such failures include, but are not limited to,
failure to complete the Company's systems replacement project as scheduled,
inability to procure critical parts from suppliers, telecommunications failures,
and plant shutdowns related to Year 2000 problems with customer systems. Such
failures could have a material adverse effect on the Company's results of
operations and financial condition.
4. The Company's Contingency Plans
The Company performed Year 2000 compliance testing on its existing
In-Plant Store operating system and believes the system to be Year 2000
compliant. Therefore, the Company expects to be able to use this system in the
event of a delay in the systems replacement project. The Company is in the
process of identifying "single source" suppliers that may not be Year 2000
compliant and, where necessary, developing alternative supply sources and
expects to have this plan completed by September 30, 1999. No manufacturer or
supplier provides products that account for as much as 10% of the Company's
revenues and the Company believes that it could quickly find alternative sources
of supply. With customer agreement, increases in inventory may also be
considered if no alternate source can be developed. The Company's
telecommunications network combines the use of dedicated lines and a data
exchange network provided by a national telecommunications company. In the event
of a failure in a segment of its telecommunications network, the Company has the
ability to transfer data using standard modem technology. The Company believes
business interruptions resulting from failures of its customers' systems are
beyond its control.
The Company believes that its efforts to ensure Year 2000 readiness, in
conjunction with its systems replacement project, will significantly reduce the
risk associated with Year 2000 systems failures. However, due primarily to
uncertainties surrounding the Year 2000 readiness of third parties, there can be
no assurance that Year 2000 systems failures will not occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk
associated with activities in derivative financial instruments, other financial
instruments and derivative commodity instruments.
12
<PAGE>
PART II
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On June 4, 1999, the Company sold 80,000 shares of its Common Stock
(the "Shares") to an officer of a subsidiary of the Company in
accordance with a Stock Purchase Agreement dated March 22,
1999. The purchase price for the shares was $2.22 per share which was
the fair market value of the Common Stock on March 22, 1999. $106,560
of the purchase price was paid in cash, and the remainder of the
purchase price was paid with a Secured Non-Recourse Promissory Note,
bearing interest at the rate of 7% per annum, with recourse only to the
Shares. The Shares were not registered under the Securities Act of
1933 (the "Securities Act"), in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting of Stockholders (the "1999
Annual Meeting") was held on May 18, 1999. At the 1999 Annual
Meeting, William R. Berkley, Andrew M. Bursky, Arnold W. Donald,
Catherine B. James, Robert D. Neary, Jack H. Nusbaum, Joshua A.
Polan, Mitchell I. Quain and John M. Sergey were elected to the
Company's Board of Directors, to serve until the next annual
meeting of stockholders and until their successors are elected and
qualify. At the 1999 Annual Meeting, 24,628,942 shares were voted
for Mr. Berkley and 604,183 votes were withheld, 25,185,983 shares
were voted for Mr. Bursky and 47,142 votes were withheld,
24,628,993 shares were voted for Mr. Donald and 604,132 votes were
withheld, 25,186,934 shares were voted for Ms. James and 46,191
votes were withheld, 25,186,934 shares were voted for Mr. Neary
and 46,191 votes were withheld, 24,628,993 shares were voted for
Mr. Nusbaum and 604,132 votes were withheld, 25,186,934 shares
were voted for Mr. Polan and 46,191 votes were withheld,
25,186,934 shares were voted for Mr. Quain and 46,191 votes were
withheld, 25,186,034 shares were voted for Mr. Sergey and 47,091
votes were withheld.
At the 1999 Annual Meeting, holders of Common Stock were asked to
(i) approve the Company's 1999 Incentive Stock Option Plan
("Proposal II"), and (ii) ratify the appointment of KPMG LLP as
independent auditors of the Company for the fiscal year ending
December 31, 1999 ("Proposal III"). The following table sets forth
the shares of Common Stock voted for, against, and abstaining with
respect to Proposal II and Proposal III. There were no broker
non-votes with respect to either Proposal II or Proposal III.
<TABLE>
<CAPTION>
Proposal For Against Abstaining
-------- --- ------- ----------
<S> <C> <C> <C>
Proposal II 23,506,682 1,709,475 16,968
Proposal III 24,786,680 444,379 2,066
</TABLE>
13
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
3.1 Second Restated Certificate of
Incorporation of the Company filed June
21, 1996 with the Secretary of State of
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).
4.1 The instruments defining the rights of
holders of the long-term debt securities of
the Company are omitted pursuant to
Section (b)(4)(iii)(A) of Item 601 of
Regulation S-K. The Company agrees to
furnish supplementary copies of these
instruments to the Commission upon request.
10.1 Form of Strategic Distribution, Inc. 1999
Incentive Stock Option Plan
27 Financial Data Schedule
(b). Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the second
quarter of 1999.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Strategic Distribution, Inc.
Date: August 10, 1999 By: /s/ John M. Sergey
-------------------------
John M. Sergey
President and Chief
Executive Officer
Date: August 10, 1999 By: /s/ David L. Courtright
---------------------------
David L. Courtright,
Controller and
Chief Accounting Officer
15
<PAGE>
EXHIBIT INDEX
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).
4.1 The instruments defining the rights of
holders of the long-term debt securities of
the Company are omitted pursuant to
Section (b)(4)(iii)(A) of Item 601 of
Regulation S-K. The Company agrees to
furnish supplementary copies of these
instruments to the Commission upon request.
10.1 Form of Strategic Distribution, Inc. 1999
Incentive Stock Option Plan
27 Financial Data Schedule
<PAGE>
Exhibit 10.1
STRATEGIC DISTRIBUTION, INC.
1999 INCENTIVE STOCK OPTION PLAN
* * *
ARTICLE I
PURPOSE
The Strategic Distribution, Inc. 1999 Incentive Stock Option
Plan (the "Plan") is intended as an incentive to improve the performance,
encourage the continued employment, and increase the proprietary interest of
certain directors, officers and key employees of Strategic Distribution, Inc.
(the "Company") participating in the Plan. The Plan is designed to grant such
directors, officers and key employees the opportunity to share in the Company's
long-term success through stock ownership and to afford them the opportunity for
additional compensation related to the value of the Company's stock.
The word "Company", when used in the Plan with reference to
employment, shall include subsidiaries of the Company. The word "subsidiary",
when used in the Plan, shall mean any subsidiary corporation of the Company
within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
It is intended that certain options granted under the Plan and
designated as incentive stock options in the option agreements qualify as
"incentive stock options" under Section 422 of the Code.
For purposes of the Plan, the term "Effective Date" shall mean
March 11, 1999, the date of adoption of the Plan by the Board of Directors of
the Company (the "Board").
<PAGE>
ARTICLE II
ADMINISTRATION
The Plan shall be administered by a committee (the
"Committee") appointed by the Board from among its members and shall consist of
not less than two members thereof.
Subject to the provisions of the Plan, the Committee shall
have sole authority, in its absolute discretion: (a) to determine, subject to
approval of the Board as provided in ARTICLE IV and ARTICLE VI, which of the
eligible Participants (as hereinafter defined) shall be granted options; (b) to
authorize the granting of both incentive stock options and non-qualified stock
options; (c) to determine the times when options shall be granted and the number
of shares to be subject to options; (d) to determine the option price of the
shares subject to each option, which price shall be not less than the minimum
specified in ARTICLE V; (e) to determine the time or times when each option
becomes exercisable, the duration of the exercise period and any other
restrictions on the exercise of options issued hereunder; (f) to prescribe the
form or forms of the option agreements under the Plan (which forms shall be
consistent with the terms of the Plan but need not be identical and may contain
such terms as the Committee may deem appropriate to carry out the purposes of
the Plan); (g) to determine the nature of any rights and restrictions to be
imposed on shares subject to options issued hereunder; (h) to adopt, amend and
rescind such rules and regulations as, in its opinion, may be advisable in the
administration of the Plan; (i) to construe and interpret the Plan, the option
agreements under
2
<PAGE>
the Plan and the rules and regulations adopted from time to time, if any; and
(j) to make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations and interpretations of
the Committee shall be final and binding on all optionees.
ARTICLE III
STOCK
The stock to be subject to options granted under the Plan
shall be shares of authorized but unissued common stock, par value $0.10 (the
"Stock"), of the Company, or previously issued shares of such Stock reacquired
by the Company and held in its treasury, as determined by the Board. Under the
Plan, the total number of shares of Stock which may be purchased pursuant to
options hereunder shall not exceed, in the aggregate, 1,500,000 shares, except
as such number of shares shall be adjusted in accordance with the provisions of
ARTICLE X hereof. Options for no more than 500,000 shares of Stock may be
granted to any individual optionee during any calendar year that the Plan is in
effect, except as such number shall be adjusted in accordance with the
provisions of ARTICLE X hereof.
Each option granted under the Plan shall be evidenced by an
option agreement between the Company and the optionee containing such provisions
as may be determined by the Committee, but shall be subject to the following
terms and conditions:
(a) Each share of Stock purchased through the exercise of an
option shall be paid for in full at the time of the exercise; and
3
<PAGE>
(b) Each option shall become exercisable by the optionee in
accordance with any vesting schedule established by the Committee pursuant to
ARTICLE VI of the Plan.
The number of shares of Stock available for grant of options
under the Plan shall be decreased by the sum of the number of shares with
respect to which options have been issued and are then outstanding and the
number of shares issued upon exercise of options. In the event that any
outstanding option for any reason expires, lapses, or is cancelled prior to the
end of the period during which options may be granted, the shares of Stock
called for by the unexercised portion of such option may again be subject to an
option under the Plan.
ARTICLE IV
ELIGIBILITY OF PARTICIPANTS
Subject to ARTICLE VII, directors, officers and employees of
the Company, together with consultants and advisers to the Company, who have
been selected by the Committee as participants (collectively referred to as
"Participants" and individually as a "Participant") shall be eligible to receive
grants of options under the Plan; provided, however, that notwithstanding any
other provision of the Plan to the contrary, no director of the Company, and no
person who is not an officer or employee of the Company, shall be eligible to
receive incentive stock options. Participation in the Plan shall be limited to
eligible Participants who have entered into option agreements with the Company.
No Participant, however, shall at any
4
<PAGE>
time have a right to be selected for participation in the Plan.
ARTICLE V
OPTION PRICE
The option price of each option granted under the Plan shall
be determined by the Committee; provided, however, that in the case of each
incentive stock option granted under the Plan, the option price shall not be
less than the fair market value at the time the option is granted. In no event
shall the option price of any option be less than the par value per share of
Stock on the date an option is granted.
At any time when the Stock is quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
fair market value shall be deemed to be the mean between the last quoted bid and
asked prices on NASDAQ on the date immediately preceding the date on which the
option is granted, or, if not quoted on that day, then on the last preceding
date on which such stock is quoted. If the Stock is listed on one or more
national securities exchanges, the fair market value shall be deemed to be the
mean between the highest and lowest sale prices reported on the principal
national securities exchange on which such stock is listed and traded on the
date immediately preceding the date on which the option is granted, or, if there
is no such sale on that date, then on the last preceding date on which such a
sale was reported. If the Stock is not quoted on NASDAQ or listed on an
exchange, or representative quotes are not otherwise available, the fair
5
<PAGE>
market value of the Stock shall mean the amount determined by the Committee to
be the fair market value based upon a good faith attempt to value the Stock
accurately and computed in accordance with applicable regulations of the
Internal Revenue Service.
ARTICLE VI
TERMS AND CONDITIONS OF OPTIONS
The Committee shall determine the dates after which options
may be exercised, in whole or in part. If an option is exercisable in
installments, installments or portions thereof which are exercisable and not
exercised shall remain exercisable.
Any other provision of the Plan notwithstanding and subject to
ARTICLE VII, no option shall be granted after the date which is ten years from
the Effective Date (the "Termination Date") nor shall any option, if granted, be
exercised after the date which is ten years after the option is granted.
Options granted hereunder may provide that if prior to the
Termination Date an optionee shall cease to be employed by the Company for any
reason other than death, disability or for cause, the option will remain
exercisable by the optionee for a period after the date of cessation of
employment as determined by the Committee, but in no event later than the
Termination Date, to the extent it was exercisable at the time of cessation of
employment. Options granted hereunder may provide that if prior to the
Termination Date an optionee shall cease to be employed by the Company for
reasons of death or disability, the option will remain exercisable by the
optionee or, in the event of his death, by the person or persons to whom the
optionee's rights under the
6
<PAGE>
option would pass by will or the applicable laws of descent and distribution,
for a period after the date of death or disability as determined by the
Committee, but in no event later than the Termination Date, to the extent it was
exercisable at the time of death or disability. Options granted hereunder may
provide that if prior to the Termination Date an optionee shall cease to be
employed by the Company by reason of termination of employment by the Company
for cause, or by voluntary termination at a time when the Company is entitled to
terminate such optionee's employment for cause, the option shall terminate
immediately. For purposes of the Plan, the Company shall have "cause" to
terminate an optionee's employment hereunder upon (i) the commission by the
optionee of a proven act of fraud or embezzlement against the Company, (ii) the
engaging by the optionee in willful misconduct or gross negligence which is
demonstrably and materially injurious to the Company, monetarily or otherwise,
(iii) failure of the optionee to render services to the Company in accordance
with such optionee's duties as an employee of the Company or (iv) the optionee
being convicted of a misdemeanor involving an act of moral turpitude or a
felony.
For purposes of the Plan, in the case of a Participant who is
a director, references to employment herein shall be deemed to refer to such
director's service to the Company in such capacity.
Notwithstanding the foregoing, stock options granted hereunder
shall provide that no option shall be exercisable after the optionee's cessation
of employment with the Company if at the
7
<PAGE>
time of exercise the By-Laws of the Company limit the ownership of common stock
of the Company to selected persons, including employees of the Company.
Article VII
SPECIAL PROVISIONS APPLICABLE
ONLY TO INCENTIVE STOCK OPTIONS
To the extent the aggregate fair market value (determined at
the time the option is granted) of the Stock with respect to which incentive
stock options may be exercisable for the first time by an optionee during any
calendar year (under this Plan and any other stock option plan of the Company
and any parent or subsidiary thereof) exceeds $100,000, such incentive stock
options shall be treated as options which are non-qualified stock options.
No incentive stock option may be granted to an individual who,
at the time the option is granted, owns directly, or indirectly within the
meaning of Section 424(d) of the Code, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of any
parent or subsidiary thereof, unless such option (i) has an option price of at
least 110% of the fair market value of the Stock on the date of the grant of
such option; and (ii) such option by its terms cannot be exercised more than
five years after the date it is granted.
Each optionee who receives an incentive stock option must
agree to notify the Company in writing immediately after the optionee makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
incentive stock option. A
8
<PAGE>
disqualifying disposition is any disposition (including any sale) of such Stock
before the later of (a) two years after the date the optionee was granted the
incentive stock option or (b) one year after the date the optionee acquired
Stock by exercising the incentive stock option.
ARTICLE VIII
PAYMENT FOR SHARES
Payment for shares of Stock acquired pursuant to an option
granted hereunder shall be made in full, upon exercise of the options (i) in
immediately available funds in United States dollars, by certified or bank
cashier's check, (ii) by surrender to the Company of shares of Stock which have
been held by the optionee for at least six months, (iii) by a combination of
cash and shares of Stock, or (iv) by any other means approved by the Committee.
For purposes of this ARTICLE VIII, the shares of Stock surrendered in payment of
the option price shall be valued as of the exercise date of the option. Payment
in full shall include payment of any amounts required under paragraph (b) of
ARTICLE XIX.
ARTICLE IX
NON-TRANSFERABILITY OF OPTION RIGHTS
During the lifetime of the optionee, the option shall be
exercisable only by the optionee. No option shall be transferable, except by
will or the laws of descent and distribution.
9
<PAGE>
ARTICLE X
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
The aggregate number of shares of Stock which may be purchased
or acquired pursuant to options granted hereunder, the maximum number of shares
of Stock for which Options may be granted to any individual optionee during any
calendar year, the number of shares of Stock covered by each outstanding option
and the price per share thereof in each such option shall be appropriately
adjusted for any increase or decrease in the number of outstanding shares of
Stock resulting from a stock split or other subdivision or consolidation of
shares of Stock or for other capital adjustments or payments of stock dividends
or distributions or other increases or decreases in the outstanding shares of
Stock effected without receipt of consideration by the Company. Any adjustment
shall be conclusively determined by the Committee.
If the Company shall be the surviving corporation in any
merger or reorganization or other business combination, any option granted
hereunder shall cover the securities or other property to which a holder of the
number of shares of Stock covered by the unexercised portion of the option would
have been entitled pursuant to the terms of the merger. Upon any merger or
reorganization or other business combination in which the Company shall not be
the surviving corporation, or a dissolution or liquidation of the Company, or a
sale of all or substantially all of the Company's assets, all outstanding
options shall terminate, subject to the right of the surviving or resulting
corporation to
10
<PAGE>
grant the Company substitute options to purchase its shares on such terms and
conditions, both as to the number of shares and otherwise, which the Committee
shall deem appropriate.
Stock option agreements under the Plan may, at the discretion
of the Committee, provide that upon stockholder approval of a merger,
reorganization or other business combination, whether or not the Company is the
surviving corporation, or a sale of all or substantially all of the Company's
assets, all unmatured installments of the stock option shall vest and become
immediately exercisable in full.
The foregoing adjustments and the manner of application of the
foregoing provisions, including the issuance of any substitute options, shall be
determined by the Committee in its sole discretion. Any such adjustment may
provide for the elimination of any fractional share which might otherwise become
subject to an option.
ARTICLE XI
NO OBLIGATION TO EXERCISE OPTION
Granting of an option shall impose no obligation on the
recipient to exercise such option.
ARTICLE XII
USE OF PROCEEDS
The proceeds received from the sale of Stock pursuant to the
Plan shall be used for general corporate purposes.
11
<PAGE>
ARTICLE XIII
RIGHTS AS A STOCKHOLDER
An optionee shall have no rights as a stockholder with respect
to any share covered by his option until such person shall have become the
holder of record of such share, and such person shall not be entitled to any
dividends or distributions or other rights in respect of such share for which
the record date is prior to the date on which such person shall have become the
holder of record thereof, except as otherwise provided in ARTICLE X.
ARTICLE XIV
EMPLOYMENT RIGHTS
No provision in the Plan or in any option granted hereunder
shall confer on any optionee any right to continue in the employ of the Company,
or to interfere in any way with the right of the Company to terminate the
optionee's employment at any time.
ARTICLE XV
COMPLIANCE WITH LAW
The Company is relieved from any liability for the
non-issuance or non-transfer or any delay in the issuance or transfer of any
shares of Stock subject to options under the Plan which results from the
inability of the Company to obtain, or from any delay in obtaining, from any
regulatory body having jurisdiction or authority, any requisite approval to
issue or transfer any such shares if counsel for the Company deems such approval
necessary for lawful issuance or transfer thereof.
12
<PAGE>
Each option granted under the Plan is subject to the
requirement that if at any time the Board determines, in its discretion, that
the listing, registration or qualification of shares of Stock issuable upon
exercise of options is required by any securities exchange or under any state or
Federal law, or that the consent or approval of any governmental regulatory body
is necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of Stock, no shares of Stock shall be issued,
in whole or in part, unless such listing, registration, qualification, consent
or approval has been effected or obtained free of any conditions or with such
conditions as are acceptable to the Board.
In the event the disposition of shares of Stock acquired
pursuant to the Plan is not covered by a then-current registration statement
under the Securities Act of 1933, as amended, the shares of Stock shall be
restricted against transfer to the extent required by the Securities Act of
1933, as amended, or regulations thereunder, and the Board may require the
optionee (or transferee pursuant to ARTICLE IX), as a condition precedent to
receipt of such shares of Stock, to represent in writing that the shares of
Stock acquired by such person are acquired for investment only and not with a
view to distribution. Appropriate legends may be placed on the stock
certificates evidencing shares issued upon exercise of options to reflect any
transfer restrictions.
13
<PAGE>
ARTICLE XVI
CANCELLATION OF OPTIONS
The Committee, in its discretion, may, with the consent of any
optionee, cancel any outstanding option hereunder.
ARTICLE XVII
EXPIRATION DATE OF PLAN
The expiration date of the Plan, after which no option may be
granted hereunder, shall be the tenth (10th) anniversary of the Effective Date.
ARTICLE XVIII
AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may terminate, amend or modify the Plan in its sole
discretion at any time or from time to time after the Effective Date.
Notwithstanding the preceding provisions of this ARTICLE XVIII, no such action
shall, without shareholder approval, increase the aggregate number of shares as
to which options may be granted under the plan, or change the class of employees
eligible to receive incentive stock options under the new Plan.
ARTICLE XIX
MISCELLANEOUS
(a) Options shall be evidenced by option agreements (which
need not be identical) in such forms as the Committee may from time to time
approve. Such agreements shall conform to the terms and conditions of the Plan
and may provide that the grant of any option under the Plan and Stock acquired
pursuant to the Plan shall also be subject to such other conditions (whether or
14
<PAGE>
not applicable to the option or Stock received by any other optionee) as the
Committee determines appropriate, including, without limitation, provisions to
assist the optionee in financing the purchase of Stock through the exercise of
options, provisions for the forfeiture of, or restrictions on, resale or other
disposition of shares under the Plan, provisions giving the Company the right to
repurchase shares acquired under the Plan in the event the participant elects to
dispose of such shares, and provisions to comply with Federal and state
securities laws and Federal and state income tax withholding requirements.
(b) The Company may, in its discretion, require that an
optionee pay to the Company, at the time of exercise, such amount as the Company
deems necessary to satisfy its obligations to withhold Federal, state, or local
income or other taxes incurred by reason of the exercise or the transfer of
shares thereupon.
(c) Each optionee shall file with the Committee a written
designation of one or more persons as beneficiary, who shall be entitled to
exercise options which are exercisable, if any, or to receive shares of Stock
distributable, if any, under the Plan upon the optionee's death. An optionee
may, from time to time, revoke or change his beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the Committee.
The last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the optionee's death,
15
<PAGE>
and in no event shall it be effective as of a date prior to such receipt.
(d) If the Committee shall find that any person to whom any
amount is payable under the Plan is unable to care for his affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative), may, if the Committee so directs the Company,
be paid to his spouse, child, relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee 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 Committee and
the Company therefor.
(e) No member of the Committee shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Committee nor for any mistake of
judgment made in good faith, and the Company shall indemnify and hold harmless
each member of the Committee and each other 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 counsel fees) or liability (including any sum paid in
settlement of a claim) 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;
provided, however, that approval of the Board shall be required for the
16
<PAGE>
payment of any amount in settlement of a claim against any such person. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or By-Laws, as a matter of law, or otherwise, or
any power that the Company may have to indemnify them or hold them harmless.
(f) The Plan shall be governed by and construed in accordance
with the internal laws of the State of Delaware without reference to the
principles of conflicts of law thereof.
(g) No provision of the Plan shall require the Company, for
the purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Optionees shall
have no rights under the Plan other than as unsecured general creditors of the
Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.
(h) Each member of the Committee and each member of the Board
shall be fully justified in relying, acting or failing to act, and shall not be
liable for having so relied, acted or failed to act in good faith, upon any
report made by the independent public accountant of the Company and upon any
other
17
<PAGE>
information furnished in connection with the Plan by any person or persons other
than such member.
(i) Except as otherwise specifically provided in the relevant
plan document, no payment under the Plan shall be taken into account in
determining any benefits under any pension, retirement, profit-sharing, group
insurance or other benefit plan of the Company.
(j) The expenses of administering the Plan shall be borne by
the Company.
(k) Masculine pronouns and other words of masculine gender
shall refer to both men and women.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,725
<SECURITIES> 0
<RECEIVABLES> 51,163
<ALLOWANCES> 0
<INVENTORY> 37,187
<CURRENT-ASSETS> 91,809
<PP&E> 15,999
<DEPRECIATION> 0
<TOTAL-ASSETS> 117,876
<CURRENT-LIABILITIES> 42,271
<BONDS> 13,437
0
0
<COMMON> 3,137
<OTHER-SE> 94,424
<TOTAL-LIABILITY-AND-EQUITY> 117,876
<SALES> 138,275
<TOTAL-REVENUES> 138,275
<CGS> 108,809
<TOTAL-COSTS> 123,707
<OTHER-EXPENSES> 14,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> 89
<INCOME-TAX> 0
<INCOME-CONTINUING> 89
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
