<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:
------------------------------------------------------------------------
(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.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<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 17, 2000
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 17, 2000, at 12:00 noon, local time, at the
offices of Willkie Farr & Gallagher, the Company's counsel, 787 Seventh Avenue,
38th Floor, New York, New York 10019-6099, for the following purposes, as more
fully described in the accompanying Proxy Statement:
1. To elect nine (9) directors to serve for the ensuing year
and until their successors are elected ("Proposal I");
2. To increase to 275,000 the number of shares of Common Stock
of the Company which may be subject to options granted under the Company's
Amended and Restated 1996 Non-Employee Director Stock Plan ("Proposal II").
3. To ratify the appointment of KPMG LLP as independent
auditors of SDI for the fiscal year ending December 31, 2000 ("Proposal III");
and
4. 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
4, 2000 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
PROPOSALS II AND III.
By order of the Board of Directors
/s/ William R. Berkley
William R. Berkley
Chairman of the Board
April 7, 2000
--------------------------
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) 633-1900
-------------------------
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
17, 2000 at the offices of Willkie Farr & Gallagher, the Company's counsel, 787
Seventh Avenue, 38th Floor, New York, New York 10019-6099, and at any
adjournment or postponement thereof (the "Meeting"). The Company's 1999 Annual
Report, which accompanies this Proxy Statement, is being sent, on or about April
14, 2000, to persons who were shareholders of record on April 4, 2000.
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) 633-1900.
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 three proposals described in this Proxy Statement and on any other
matters properly brought before the Meeting.
The following is a brief summary of the three 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, IN
FAVOR OF APPROVAL OF THE INCREASE IN THE NUMBER OF SHARES OF THE COMMON STOCK
WHICH MAY BE SUBJECT TO OPTIONS GRANTED UNDER THE COMPANY'S AMENDED AND RESTATED
1996 NON-EMPLOYEE DIRECTOR STOCK PLAN AND IN FAVOR OF THE RATIFICATION OF THE
COMPANY'S INDEPENDENT AUDITORS.
<PAGE>
PROPOSAL I
Proposal I concerns the election of a board of nine (9) directors, all
of whom are currently serving as members of the Board of Directors.
PROPOSAL II
Proposal II concerns increasing to 275,000 the number of shares of the
Common Stock which may be subject to options granted under the Company's Amended
and Restated 1996 Non-Employee Director Stock Plan.
PROPOSAL III
Proposal III concerns the ratification of the appointment of KPMG LLP
as the Company's independent auditors.
VOTING AT THE MEETING
The Board of Directors has fixed the close of business on April 4, 2000
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
30,912,210 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 will 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 greatest 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 Proposals II and III require 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 23.38% 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 the Common 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" Proposals II
and III. 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 shares are voted at the
Meeting. 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 preparing, printing and mailing the Notice of Annual Meeting
of Shareholders, this Proxy Statement and the enclosed proxy and reimbursing
brokerage firms and others for reasonable expenses incurred by them in
connection with forwarding 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 4, 2000, there were issued and
outstanding 30,912,210 shares of the Common Stock. As of April 4, 2000, there
were outstanding options issued under the Company's Amended and Restated 1990
Incentive Stock Option Plan (the "1990 Plan") to purchase a total of 1,911,436
shares of the Common Stock at prices ranging from $.97 to $6.94 per share,
options issued under the Company's 1999 Incentive Stock Option Plan (the "1999
Plan") to purchase a total of 402,500 shares of the Common Stock at prices
ranging from $2.78 to $2.81 per share, and options issued under the Company's
Amended and Restated 1996 Non-Employee Director Stock Plan to purchase a total
of 116,000 shares of the Common Stock at prices ranging from $1.44 to $8.00 per
share. In addition, non-qualified options issued to an officer of the Company
and to two officers of a subsidiary of the Company to purchase a total of
492,000 shares of the Common Stock at prices ranging from $2.81 to $5.12 per
share, and options issued pursuant to certain stock option agreements to
purchase a total of 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>
William R. Berkley Director of the Company and Chairman of the 54 1994
Board of Directors
Andrew M. Bursky Director of the Company 43 1988
Arnold W. Donald Director of the Company 45 1995
Catherine B. James Director of the Company 47 1990
Robert D. Neary Director of the Company 66 1999
Jack H. Nusbaum Director of the Company 59 1996
Joshua A. Polan Director of the Company 51 1988
Mitchell I. Quain Director of the Company 48 1995
John M. Sergey Director of the Company and President and 57 1997
Chief Executive Officer of the Company
</TABLE>
Directors are elected to serve for one year or until the next annual
meeting of shareholders.
The nine 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
4
<PAGE>
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. Berkley has been a member of the Board of Directors of the Company
since 1994, and was elected Chairman of the Board of Directors in March 2000. He
serves as Chairman of the Board of several other 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; Associated Community Bancorp,
Inc., a bank holding company which owns all of the issued and outstanding
capital stock of The Greenwich Bank & Trust Company, a Connecticut chartered
commercial bank, and Westport National Bank, a Federally chartered commercial
bank; and Interlaken Capital, Inc., a private investment firm ("Interlaken
Capital"). Mr. Berkley is Vice-Chairman of the Board of Trustees of the
University of Connecticut, a Trustee of New York University and Vice Chairman of
the Board of Overseers of New York University Stern School of Business.
Mr. Bursky has been a member of the Board of Directors since July 1988.
From July 1988 to March 2000, he served as Chairman of the Board of Directors.
He was President of the Company from November 1989 to December 1990. He has been
a Managing Partner of Pegasus Investors, L.P., a private investment firm, since
June 1999. For more than five years prior to June 1999, Mr. Bursky served as a
Managing Director of Interlaken Capital. 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. He recently became Chairman and Chief Executive Officer of Merisant
Company, whose products include the leading global tabletop sweetener brands
Equal(R) and Canderel(R). For more than five years prior to joining Merisant, he
was an executive officer of Monsanto Company, serving most recently as President
of Monsanto's Nutrition & Consumer Sector. Mr. Donald serves on the boards of
Fair St. Louis, Carleton College, Jackson Laboratories, Opera Theatre of St.
Louis, and the Municipal Theatre Association of St. Louis, and is a member of
the board of directors of Oil-Dri Corporation and Crown Cork & Seal Company. In
November 1998, Mr. Donald was appointed by President Clinton to serve on the
President's Export Council for International Trade.
Ms. James has been a member of the Board of Directors of the Company
since 1990. She has been working full time as a Director of Enterprise Asset
Management, Inc. since June 1999. Ms. James served as Executive Vice President
and Chief Financial Officer of Fine Host Corporation, a contract food service
company, from April 1997 to September 1998. She 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 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.
Mr. Neary has been a member of the Board of Directors of the Company
since January 1999. He is retired Co-Chairman of Ernst & Young, and currently is
Chairman of the Boards of
5
<PAGE>
Trustees of the Armada Funds and of the Parkstone Mutual Funds. Mr. Neary is a
director of Cold Metal Products, Inc. and is Chairman of the American Institute
of Certified Public Accounts' Quality Control Inquiry Committee.
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, Neuberger Berman Inc., 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.
Mr. Quain has been a member of the Board of Directors of the Company
since 1995. He is presently Global Head of the Industrial Manufacturing Group at
ING Barings LLC and, since May 1997, has been Executive Vice President of ING
Barings LLC. For more than five years prior to May 1997, Mr. Quain was a
Managing Director of Schroder Wertheim & Company. Mr. Quain is a director of
Allied Products Corporation, a director of MagneTek, Inc., a director of
Mechanical Dynamics, Inc. and a director of Titan International, Chairman of the
Board of Overseers of the School of Engineering and Applied Sciences at the
University of Pennsylvania where he also serves on the Board of Trustees, and is
a member of the Board of Trustees 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. He serves on the Board
of Overseers of the School of Engineering and Applied Sciences at the University
of Pennsylvania. Mr. Sergey is being nominated as a Director in accordance with
the terms of the Employment Agreement, dated April 11, 1997, as amended, between
Mr. Sergey and the Company. See "Executive Compensation-Employment Contracts,
Termination of Employment and Change in Control Agreements".
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.
Fine Host Corporation, of which Ms. James was Executive Vice President and Chief
Financial Officer from April 1997 to September 1998, filed a Chapter 11 petition
for reorganization under Federal bankruptcy laws in January 1999.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES AS DIRECTORS.
6
<PAGE>
PROPOSAL TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
SUBJECT TO THE NON-EMPLOYEE DIRECTOR STOCK PLAN
(PROPOSAL II)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THIS PROPOSAL II.
The Board of Directors unanimously recommends that shareholders vote
for this Proposal II, which would approve the proposed increase, to 275,000
shares, in the number of shares of the Common Stock which may be subject to
options granted under the Company's Amended and Restated 1996 Non-Employee
Director Stock Plan (the "Director Stock Plan").
The Director Stock Plan was adopted by the Company's shareholders at
the Company's annual meeting of shareholders held on May 24, 1996. At that time,
150,000 shares of the Common Stock were authorized to be granted under the
Director Stock Plan. In June 1996, six non-employee directors each received a
grant of 2,388 shares of the Common Stock under the Director Stock Plan.
Thereafter, the Director Stock Plan was amended to provide that instead of
making stock grants under the Director Stock Plan, stock options would be
granted thereunder. On December 31, 1996, 1997, 1998 and 1999, each non-employee
director of the Company received an option under the Director Stock Plan to
purchase 4,000 shares of the Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant. To date, a total of
14,328 shares of the Common Stock have been granted to non-employee directors
under the Director Stock Plan, and options for a total of 116,000 shares of the
Common Stock have been granted to non-employee directors thereunder. The Board
of Directors is now seeking the approval of the Company's shareholders to
increase by 125,000, to a total of 275,000, the number of shares of the Common
Stock which may be subject to options under the Director Stock Plan.
Under the Director Stock Plan, on December 31 of each calendar year,
each person who is a non-employee director of the Company as of such date will
be granted an option to purchase 4,000 shares of the Common Stock, with a per
share exercise price equal to the fair market value of a share of the Common
Stock on the date of grant. Each such option will be fully vested on the date of
grant, and will have a maximum term of five years.
The Director Stock Plan is administered by the Stock Option and
Compensation Committee of the Board of Directors. In the event of certain
corporate transactions such as a recapitalization, reclassification, stock split
or stock dividend, the Board of Directors may make adjustments to the number and
kind of shares available under the Director Stock Plan, the number and kind of
shares subject to outstanding options and the per share exercise price
applicable to outstanding options. The Board of Directors may at any time amend
or terminate the Director Stock Plan, provided that the Board may not increase
the maximum number of shares of the Common Stock that may be issued under the
Director Stock Plan without the approval of the Company's shareholders. On April
4, 2000, the closing price for the Common Stock, as quoted on Nasdaq, was $1.94.
At present, eight persons are eligible to participate in the Director Stock
Plan, including the Chairman of the Board of Directors of the Company.
An option granted under the Director Stock Plan is taxed for United
States federal income tax purposes in accordance with the Internal Revenue Code
of 1986, as amended (the "Code") and
7
<PAGE>
regulations issued thereunder. For such purposes, the following general rules
are applicable under existing law to directors who receive and exercise options
pursuant to the Director Stock Plan and to the Company, based upon the
assumption that the options do not have a readily ascertainable value at the
date of grant.
The director will not recognize any income upon the grant of an option,
and the Company is not allowed a business expense deduction by reason of such
grant. The director will recognize ordinary compensation income at the time of
exercise of the option in an amount equal to the excess, if any, of the fair
market value of the shares of Common Stock on the date of exercise over the
exercise price. When the director sells the shares acquired by exercise of the
option, he will recognize a capital gain or loss in an amount equal to the
difference between the amount realized upon the sale of the shares and his basis
in the shares (i.e., the exercise price plus the amount taxed to the director as
compensation income as a result of his exercise of the option). If the director
holds the shares for longer than one year, this gain or loss will be a long-term
capital gain or loss. In general, the Company will be entitled to a tax
deduction in the year in which compensation income is recognized by the director
in the amount of such compensation income.
As a result of the rules under Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and depending upon the particular
exemption from the provisions of Section 16(b) utilized, directors may not
receive the same tax treatment as set forth above with respect to the grant
and/or exercise of options. Generally, directors will not be subject to taxation
until the expiration of any period during which they are subject to the
liability provisions of Section 16(b) of the Exchange Act with respect to any
particular option.
The following table sets forth the number of shares of the Common Stock
subject to options to be granted to the following non-employee directors on
December 31, 2000 if Proposal II is approved by the shareholders.
<TABLE>
<CAPTION>
Name Dollar Value Number of Units
- ---- ------------ ---------------
<S> <C> <C>
William R. Berkley N/A 4,000
Andrew M. Bursky N/A 4,000
Arnold W. Donald N/A 4,000
Catherine B. James N/A 4,000
Robert D. Neary N/A 4,000
Jack H. Nusbaum N/A 4,000
Joshua A. Polan N/A 4,000
Mitchell I. Quain N/A 4,000
--- -----
Non-Employee Director Group N/A 32,000
</TABLE>
As noted above, option grants in these same amounts will be made
annually for so long as these individuals continue as non-employee directors.
The Company believes that the granting of options plays an important role in the
Company's ability to attract and retain directors of outstanding ability, and
that the amendment of the Director Stock Plan to provide for the granting of
options for an additional 125,000 shares of the Common Stock is necessary to
ensure that the Company can continue to attract and retain such directors. As of
April 4, 2000, only 29,672 shares of the Common Stock remained available for
grant under the Director Stock Plan.
8
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THIS PROPOSAL II.
APPROVAL OF INDEPENDENT AUDITORS
(PROPOSAL III)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THIS PROPOSAL III.
KPMG 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, 2000. The Board of Directors is
submitting this matter to a vote of shareholders in order to ascertain their
views. If the appointment of KPMG LLP is not ratified at the Meeting, the Board
of Directors will reconsider its action and will appoint auditors for the 2000
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 1999 was conducted by KPMG LLP.
A representative of KPMG 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 III.
9
<PAGE>
COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1999, the Board of Directors
held five meetings and acted once by unanimous written consent. 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 four standing committees:
the Executive Committee, the Stock Option and Compensation Committee, the Audit
Committee and the Section 162(m) 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
during 1999, but acted once by unanimous written consent.
The Stock Option and Compensation Committee, composed of Andrew M.
Bursky and Joshua A. Polan, establishes the general compensation policies of the
Company and the specific compensation level for the Company's executive
officers. The Stock Option and Compensation Committee also administers the
Director Stock Plan and, prior to the formation of the Section 162(m) Committee,
administered the 1990 Plan. The Stock Option and Compensation Committee did not
hold any official meetings or act by unanimous written consent in 1999.
The Audit Committee, composed of William R. Berkley, Robert D. Neary,
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
1999.
The Section 162(m) Committee, which was formed in March 1999, is
composed of Arnold W. Donald and Robert D. Neary, and has the authority to
administer the 1990 Plan and approve all options granted thereunder, as well as
all options granted under the 1999 Plan. The Section 162(m) Committee held two
meetings in 1999 and acted twice by unanimous written consent.
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1999, each of the
non-employee members of the Board of Directors received, under the Director
Stock Plan, non-qualified options to purchase 4,000 shares of the Common Stock
in consideration of services rendered during 1998. If the proposal to increase
the number of shares which may be subject to options granted under the Director
Stock Plan is approved at the Meeting, in the future, on December 31 of each
year, under the 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. During 1999, each non-employee director of the Company received a cash
fee of $1,500 in consideration of each meeting of the Board attended by the
director, and each non-employee director who remained a director
10
<PAGE>
at the end of 1999 received an additional cash fee of $6,000. In addition, each
non-employee director who served on a committee of the Board during 1999, and
who remained a director at the end of 1999, received a cash fee of $1,000.
During 2000, each non-employee director of the Company will received a cash fee
of $3,000 in consideration of each meeting of the Board attended by the
director. In addition, each non-employee director who serves on a committee of
the Board during 2000, and who remains a director at the end of 2000, will
receive a cash fee of $1,000. The Company also has a general policy to reimburse
members of the Board of Directors for all reasonable expenses incurred in
connection with their attendance at directors' meetings.
IDENTIFICATION OF EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
EXECUTIVE POSITION AND OFFICER TERM
NAME OFFICES HELD SINCE EXPIRES AGE
---- ------------ ------- ------- ---
<S> <C> <C> <C> <C>
William R. Berkley Chairman of Board of Directors 2000 2000 54
John M. Sergey President and Chief Executive Officer 1997 2000 57
George E. Krauter Executive Vice President 1997 2000 68
David L. Courtright Chief Accounting Officer, Controller and 1998 2000 46
Assistant Treasurer
</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 has any
substantial interest in any matter to be acted upon, other than the election of
Directors in the case of Mr. Berkley and Mr. Sergey.
Mr. Berkley has been Chairman of the Board of Directors of the Company
since March 2000, and has served as a Director of the Company since 1994. He
serves as Chairman of the Board of several other 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; Associated Community Bancorp,
Inc., a bank holding company which owns all of the issued and outstanding
capital stock of The Greenwich Bank & Trust Company, a Connecticut chartered
commercial bank, and Westport National Bank, a Federally chartered commercial
bank; and Interlaken Capital. Mr. Berkley is Vice-Chairman of the Board of
Trustees of the University of Connecticut, a Trustee of New York University and
Vice Chairman of the Board of Overseers of New York University Stern School of
Business.
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
11
<PAGE>
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. He serves on the Board of Overseers of the School
of Engineering and Applied Sciences at the University of Pennsylvania.
Mr. Krauter has served as Executive Vice President of the Company since
April 1997. Mr. Krauter is also 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. From 1994 until January 1,
1999, Mr. Krauter was a Director of the Company.
Mr. Courtright was elected Chief Accounting Officer and Controller of
the Company in March 1998. From 1991 until joining the Company in September
1997, Mr. Courtright operated his own financial consulting business, primarily
providing services related to business mergers, acquisitions and divestitures.
From April 1987 until December 1990, Mr. Courtright served as Assistant
Corporate Controller of the Pullman Company, a diversified manufacturer of
industrial products. For twelve years prior to joining the Pullman Company, Mr.
Courtright practiced as a certified public accountant, most recently as Senior
Manager with Coopers & Lybrand.
12
<PAGE>
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee of the Board of Directors
(the "Compensation Committee") establishes the general compensation policies of
the Company and the specific compensation level for the Company's executive
officers. The Compensation Committee also reviews the levels of compensation of
senior officers of the Company's subsidiaries. The Compensation 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, as amended (the
"CEO Employment Agreement"). The Compensation 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
Compensation Committee relied on its general knowledge of the industry and made
a subjective determination based thereon. 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 Compensation 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 Compensation 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 1999 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 Compensation Committee.
Stock options are granted to executive officers based on an evaluation
of the executive's 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 1999, Mr. Sergey
received options to purchase 400,000 shares of the Common Stock and Mr.
Courtright received options to purchase 2,500 shares of the Common Stock.
Because none of the executive officers of the Company has received
annual compensation in excess of $1 million, the Compensation Committee has not
addressed all issues related to the annual deduction limit of $1 million for
compensation paid to executive officers, which limit is set forth in
13
<PAGE>
Section 162(m) of the Code. In March 1999, however, the Board of Directors
formed the Section 162(m) Committee, which Committee has the authority to
approve all options granted under the 1990 Plan and the 1999 Plan. All
compensation received by executive officers as a result of the exercise of
options approved by the Section 162(m) Committee will be exempt from the
deduction limit set forth in Section 162(m) of the Code. The Compensation
Committee believes that in today's competitive environment, it may be necessary
to consider factors other than the deductibility of compensation in attracting
and retaining qualified executive officers to serve with the Company and
therefore remains flexible in this regard.
STOCK OPTION AND COMPENSATION COMMITTEE
Andrew M. Bursky
Joshua A. Polan
April 7, 2000
The previous report of the Stock Option and Compensation 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, as amended, or under the Exchange Act, 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 and Joshua A. Polan are directors of the Company. Mr.
Bursky served as Chairman of the Board of Directors from 1988 to March 2000, 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.
EXECUTIVE COMPENSATION
The following table sets forth all the cash and non-cash compensation
for the fiscal year ended December 31, 1999, and for each of the prior two
fiscal years, awarded to or earned by the President, the Executive Vice
President, and the Controller and Chief Accounting Officer of the Company, as
well as for an Executive Vice President and a Chief Financial Officer of the
Company whose employment with the Company terminated in January 2000. 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, 1999. Mr. Bursky did not
receive any compensation from the Company for the fiscal year ended December 31,
1999 (other than the same compensation as was received by other non-employee
directors of the Company) but was an executive officer of and was compensated by
Interlaken Capital during the period January 1, 1999 to June 30, 1999.
Interlaken Capital is party to a services agreement
14
<PAGE>
with the Company pursuant to which Interlaken Capital received fees of $100,000
during 1999. See "Transactions with Affiliates."
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 1999 $400,000 -0- $20,000(6) 425,000 $115,824(9)
President and Chief Executive Officer 1998 353,000 65,000 68,788(7) 75,000 12,986(10)
1997 240,000(3) 180,000 138,955(8) 500,000 12,496(11)
JEFFERY O. BEAUCHAMP (1) 1999 150,000 -0- -0- 4,500(12)
Executive Vice President 1998 147,000 -0- -0- 4,410(12)
1997 137,500(4) -0- -0- 4,235(12)
GEORGE E. KRAUTER 1999 150,000 -0- -0- -0-
Executive Vice President 1998 147,000 40,000 -0- -0-
1997 150,000 65,000 -0- -0-
MICHAEL F. DEVINE, III (2) 1999 167,000 -0- 12,000(6) 15,000 1,700(12)
Chief Financial Officer 1998 151,000 42,500 53,000 371(12)
1997 145,000 70,000 25,000 -0-
DAVID L. COURTRIGHT 1999 100,000 15,600 2,500 2,500(12)
Chief Accounting Officer and 1998 89,000 10,000 8,600 1,968(12)
Controller
1997 23,000(5) 5,000 -0- -0-
</TABLE>
(1) Mr. Beauchamp's employment with the Company terminated on January 28,
2000.
(2) Mr. Devine's employment with the Company terminated on February 4,
2000.
(3) Mr. Sergey's employment with the Company commenced on May 1, 1997.
(4) Mr. Beauchamp's employment with the Company commenced on January 28,
1997.
(5) Mr. Courtright's employment with the Company commenced on September 15,
1997.
(6) Represents an automobile allowance.
(7) Represents 1998 relocation expenses ($48,788) and an automobile
allowance ($20,000).
(8) Represents 1997 relocation expenses ($80,722), amounts reimbursed for
the payment of taxes ($44,900) and an automobile allowance ($13,333).
(9) Represents contributions to the Company's Retirement Savings Plan
($2,500) and compensation attributable to a supplemental life insurance
policy ($113,324).
(10) Represents premiums paid for term life and disability insurance
($10,452) and contributions to the Company's Retirement Savings Plan
($2,534).
(11) Represents premiums paid for term life and disability insurance.
(12) Represents contributions to the Company's Retirement Savings Plan.
15
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all options granted during 1999 to the
persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS GRANTED EXERCISE OR ASSUMED ANNUAL RATES OF STOCK
SECURITIES UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION PRICE APPRECIATION FOR OPTION TERM
NAME OPTIONS GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------------- -------------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
John M. Sergey 400,000(1) 41.48% $2.81 12/16/2008 $685,081 $1,725,108
25,000(2) 2.59% $2.50 03/11/2009 39,306 99,609
Jeffery O. Beauchamp 0 0 0 0 0 0
George E. Krauter 0 0 0 0 0 0
Michael F. Devine III 15,000(2) 1.55% $2.50 03/11/2009 23,584 59,765
David L. Courtright 2,500(2) * $2.50 03/11/2009 3,931 9,961
</TABLE>
-----------------------
*Less than 1%
(1) These options were granted on March 11, 1999, and vest in four equal
installments on December 16, 1999, December 16, 2000, December 16, 2001
and December 16, 2002. In addition, the first 200,000 options may not
be exercised until after the Company's stock has traded at or above
$6.00 per share for thirty consecutive trading days, and the remaining
200,000 options may not be exercised until after the Company's stock
has traded at or above $9.00 per share for thirty consecutive trading
days. The options will vest in any case on December 16, 2005 and upon a
change in control of the Company.
(2) These options were granted on March 11, 1999, and vest in four equal
installments on the first four anniversaries of the grant date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table indicates, for all persons named in the Summary
Compensation Table, their year-end option holdings and the value of in-the-money
unexercised options at December 31, 1999. None of these individuals exercised
any options in 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
---------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE (1) UNEXERCISABLE (1)
---- ----------- ------------ ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
John M. Sergey 0 0 266,250 733,750 0 0
Jeffery O. Beauchamp 0 0 0 0 0 0
George E. Krauter 0 0 0 0 0 0
Michael F. Devine III 0 0 37,624 78,251 0 0
David L. Courtright 0 0 2,657 8,443 0 0
</TABLE>
(1) The fiscal year-end closing price of the Common Stock was $1.44. No
options were in-the-money at December 31, 1999.
16
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL AGREEMENTS
On April 11, 1997, the Company entered into a three year Executive
Employment Agreement (the "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. The Executive Employment Agreement was amended on March 11,
1999 (the "1999 Employment Agreement Amendment") in order to, among other
things, extend the term of the Executive Employment Agreement through May 1,
2003 and increase Mr. Sergey's base compensation to not less than $400,000 per
annum effective January 1, 1999. Pursuant to the Executive Employment Agreement,
Mr. Sergey is eligible for bonus compensation based upon the achievement of
goals established by the Compensation Committee. 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 Compensation 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 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 Compensation
Committee determined to be the fair market value of the Common Stock on the date
of the Executive Employment Agreement). The purchase price for the Purchased
Shares was paid $700,000 in cash and the remainder was evidenced by a five year
promissory note bearing interest at the rate of 7% per annum from Mr. Sergey to
the Company that is secured by the Purchased Shares and recourse only to the
Purchased Shares (the "Purchase Note"). In addition, Mr. Sergey will receive
certain life insurance benefits, disability benefits, a 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
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.
Pursuant to the 1999 Employment Agreement Amendment, the Company agreed
to recommend that the Section 162(m) Committee grant Mr. Sergey 400,000
non-qualified stock options (the "March 1999 Sergey Options") under the 1999
Plan. The Section 162(m) Committee approved the March 1999 Sergey Options on
March 11, 1999. The March 1999 Sergey Options vest in four equal installments on
December 16 of 1999, 2000, 2001 and 2002; provided, however, that vesting of the
first 200,000 of the March 1999 Sergey Options will be delayed until December
16, 2005 unless the Common Stock trades at or above $6.00 per share for thirty
consecutive trading days prior to December 16, 2005, and the vesting of the
second 200,000 of the March 1999 Sergey Options will be delayed until December
16, 2005 unless the Common Stock trades at or above $9.00 per share for thirty
consecutive trading days prior to December 16, 2005. The options will vest in
any case on December 16, 2005 and upon a change in control of the Company. The
1999 Employment Agreement Amendment also eliminated the Company's obligation to
provide Mr. Sergey with term life insurance in exchange for the Company's
obligation to fund a portion of the cost of a whole life insurance policy, the
beneficiary of which is a
17
<PAGE>
family trust created by Mr. Sergey. At the time the 1999 Employment Agreement
Amendment was executed, the terms of the Purchase Note were also amended to
extend the due date of the Purchase Note from May 20, 2002 to May 1, 2003, and
to provide that some or all of the principal and interest on the Purchase Note
may be forgiven in the event that there is a change in control of the Company
prior to May 1, 2003; the amount of the principal and interest to be forgiven
depends upon the date of the change in control and the trading price of the
Common Stock on the date of the change in control.
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, a former subsidiary of the Company and Mr.
Beauchamp. The Employment Agreement, which terminated on January 28, 2000,
provided for a salary of not less than $150,000 per annum.
Mr. Krauter was party to an Employment Agreement, dated as of January
4, 1994, by and between Mr. Krauter and ISA. The Employment Agreement, which
terminated on January 4, 1999, provided for a salary of not less than $100,000
per annum.
18
<PAGE>
COMPANY STOCK PERFORMANCE GRAPH
Set forth below is a graph comparing 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 30, 1994 in each of the
Companies, 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"), MSC Industrial Direct Co.,
Inc. ("MSC"), Arden Industrial Products Inc. ("Arden"), JLK Direct Distribution,
Inc. and Industrial Distribution Group, Inc. 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. Arden no longer
trades publicly; the company was acquired by a third-party in 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DEC-94 DEC-95 DEC-96 DEC-97 DEC-98 DEC-99
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Strategic Distribution Inc. $100 $158 $158 $90 $49 $29
- --------------------------------------------------------------------------------------------------------------------------------
Nasdaq US $100 $141 $174 $213 $300 $542
- --------------------------------------------------------------------------------------------------------------------------------
Custom Composite Index (6 Stocks) $100 $94 $115 $135 $112 $78
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The price of the Common Stock on December 31, 1999, 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, 1999, the last trading date in
1999.
19
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information, as of April 4,
2000, concerning beneficial ownership of the Common Stock (calculated based on
30,912,210 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 directors 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>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner (a) Beneficial Ownership Percent of Class
- -------------- -------------------- -------------------- ----------------
<S> <C> <C> <C>
Common Stock William R. Berkley 8,182,996 (b) 25.68% (b)
Director, Chairman of the Board
Common Stock Andrew M. Bursky 1,127,251 (c) 3.64% (c)
Director
Common Stock Arnold W. Donald 24,418 (d) *
Director
Common Stock Catherine B. James 793,208 (e) 2.55% (e)
Director
Common Stock Robert D. Neary 24,000 (f) *
Director
Common Stock Jack H. Nusbaum 26,000 (g) *
Director
Common Stock Joshua A. Polan 190,169 (h) *
Director
Common Stock Mitchell I. Quain 148,488 (i) *
Director
Common Stock John M. Sergey 986,900 (j) 3.15% (j)
Director, President and
Chief Executive Officer
Common Stock Jeffery O. Beauchamp (k) 218,750 *
Executive Vice President
20
<PAGE>
Common Stock Michael F. Devine, III (l) 37,624 (l) *
Chief Financial Officer, Secretary
and Treasurer
Common Stock George E. Krauter 206,000 *
Executive Vice President
Common Stock David L. Courtright 5,316 (m) *
Controller and Chief Accounting
Officer
Common Stock Dimensional Fund Advisors, Inc. 2,488,428 (n) 8.05%
Common Stock Barry R. Feirstein 3,100,000 (o) 10.03%
Common Stock Formula Growth Limited 2,200,000 (p) 7.12%
Common Stock All executive officers and
directors as a group (13 persons) 11,971,120 (q) 36.67% (q)
</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 Dimensional Fund
Advisors, Inc. is set forth in footnote (n). The business address of
Barry R. Feirstein is set forth in footnote (o). The business address
of Formula Growth Limited is set forth in footnote (p).
(b) Includes (i) 45,000 shares of the Common Stock held by the Berkley
Family Limited Partnership, (ii) 16,000 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
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 beneficially owned by those entities. The number of outstanding
shares used for calculating percent of class is 31,867,459.
(c) Includes (i) 1,000 shares of the Common Stock held by an IRA in Mr.
Bursky's name, (ii) 12,000 shares of the Common Stock held by a Keogh
Plan in Mr. Bursky's name and (iii) 44,295 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 30,956,505.
(d) Includes 16,000 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Donald.
21
<PAGE>
(e) Includes 213,800 shares of the Common Stock which are subject to
currently exercisable stock options held by Ms. James. The number of
outstanding shares used for calculating percent of class is 31,126,010.
(f) Includes 4,000 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Neary.
(g) Includes 16,000 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Nusbaum.
(h) Includes 16,000 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Polan.
(i) Includes (i) 10,000 shares of the Common Stock held by the Samuel Quain
Trust, (ii) 10,000 shares of the Common Stock held by the Rhonda Quain
Trust, (iii) 10,000 shares of the Common Stock held by the Michelle
Quain Trust, (iv) 10,000 shares of the Common Stock held by the Jacob
Quain Trust (collectively, the "Trusts") and (v) 16,000 shares of the
Common Stock which are subject to currently exercisable stock options
held by Mr. Quain. Mr. Quain is Trustee of the Trusts and, as such, may
be deemed to be beneficial owner of the shares held by the Trusts.
(j) Includes (i) 282,500 shares of the Common Stock which are subject to
currently exercisable stock options and (ii) 125,000 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 31,319,710.
(k) Mr. Beauchamp's employment with the Company terminated on January 28,
2000.
(l) Includes 37,624 shares of the Common Stock which are subject to
currently exercisable stock options held by Mr. Devine. Mr. Devine's
employment with the Company terminated on February 4, 2000 and his
options will terminate on May 4, 2000.
(m) Includes (i) 4,949 shares of the Common Stock which are subject to
currently exercisable stock options and (ii) 367 shares of the Common
Stock which are subject to stock options held by Mr. Courtright that
will become exercisable within 60 days.
(n) 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 3, 2000. Dimensional, a registered investment
advisor, is deemed to have beneficial ownership of 2,488,428 shares of
the Common Stock as of December 31, 1999, all of which shares are held
by advisory clients of Dimensional, no one of which, to the knowledge
of Dimensional, owns more than 5% of the class. Dimensional disclaims
beneficial ownership of all such shares.
(o) 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
22
<PAGE>
Schedule 13G filed by Feirstein with the Securities and Exchange
Commission on or about February 15, 2000. As of December 31, 1999,
Feirstein had sole voting and dispositive power over 970,000 shares of
the Common Stock and shared voting and dispositive power over 2,130,000
shares of the Common Stock. Feirstein Capital Management, L.L.C. and
Feirstein Partners, L.P. each have shared voting and dispositive power
over 2,130,000 shares of the Common Stock.
(p) The business address of Formula Growth Limited ("FGL") is 1010
Sherbrooke Street West, Suite 1408, Montreal, Quebec, Canada H3A 2R7.
Information regarding FGL has been obtained by the Company from a
Schedule 13D filed by FGL with the Securities and Exchange Commission
on or about August 13, 1999. FGL manages and controls Formula Growth
Fund, a Canadian mutual fund ("FGF"), and Formula Unit Trust, a
Canadian mutual fund ("FUT"). FGF and FUT purchased the Common Stock
reported by FGL. FGF and FUT possess both voting and investment power
over the Common Stock reported by FGL, and FGL disclaims beneficial
ownership of such shares.
(q) Includes 1,731,784 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 32,643,994.
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 and one of two directors of Interlaken Capital.
Mr. Polan is an employee and executive officer of Interlaken Capital and Mr.
Bursky was an employee and executive officer of Interlaken Capital from January
1, 1999 to June 30, 1999. 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"). Interlaken Capital is also entitled to
receive transaction fees under the Services Agreement in connection with the
divestiture of certain discontinued Company businesses (the "Transaction Fees").
Interlaken Monthly Fees will be reduced by any Transaction Fees received by
Interlaken Capital. During 1999, the Company paid Interlaken Capital $100,000
under the Services Agreement. Besides providing services to the Company,
Interlaken Capital provides legal, accounting and other services to companies
engaged in such businesses as fire protection, banking 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 issued $1,400,000 aggregate principal amount of
subordinated notes to the former shareholders of a former subsidiary of the
Company in connection with the Company's acquisition of that company in January
1997. Subsequent to the acquisition, all of the subordinated notes were acquired
by Mr. Beauchamp and his wife. The subordinated notes were paid in full on
January 28, 2000.
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 2001 must be
submitted to SDI on or before December 11, 2000, 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, Inc., c/o John M. Sergey, President and Chief Executive Officer,
3220 Tillman Drive, Suite 200, Bensalem, Pennsylvania 19020.
24
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, each person who at any time during 1999 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, except that (i) Mr. Neary, who became a director of the Company on
January 1, 1999, filed an initial report with respect to his ownership of the
Common Stock on January 20, 1999, approximately ten days late, and (ii) Mr.
Courtright, Chief Accounting Officer and Controller of the Company, filed a
report with respect to options received during 1999 in March 2000, approximately
six weeks late.
MISCELLANEOUS
A copy of the Company's Annual Report for the year ended December 31,
1999, 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 7, 2000
<PAGE>
STRATEGIC DISTRIBUTION, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS, MAY 17, 2000
The undersigned stockholder(s) of Strategic Distribution, Inc. (the
"Company") hereby appoints David L. Courtright and Craig A. Swartz
(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 offices of the Company's counsel, Willkie Farr & Gallagher, 787
7th Avenue, 38th Floor, New York, New York on May 17, 2000 at 12:00 noon 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
<TABLE>
<S> <C> <C> <C> <C>
PROPOSAL I. Please indicate your vote for the election of Directors. The nominees are William R. Berkley, Andrew M.
Bursky, Arnold W. Donald, Catherine B. James, Robert D. Neary, Jack H. Nusbaum, Joshua A. Polan, Mitchell
J. Quain and John M. Sergey.
Election of Directors FOR / / WITHHELD / /
For all nominees, except those entered below:
----------------------------------------------------------------------------------------------------------
PROPOSAL II. To approve the increase to 275,000 in the number of shares of the Company's Common Stock which may be
subject to options granted under the Company's Amended and Restated 1996 Non-Employee Director Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
PROPOSAL III. To ratify the appointment of KPMG LLP, Certified Public Accountants, as the Company's independent auditors
for the fiscal year ending December 31, 2000.
FOR / / AGAINST / / ABSTAIN / /
</TABLE>
(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 17, 2000 and the Proxy Statement dated April 7,
2000.
<TABLE>
<S> <C>
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.
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY, USING THE ENCLOSED
ENVELOPE.
<PAGE>
Exhibit 99.1
Amended and Restated
Strategic Distribution, Inc.
1996 Non-Employee Director Stock Plan
1. PURPOSE. This Amended and Restated 1996 Non-Employee Director Stock Plan
(the "Plan") is intended to promote the interests of Strategic Distribution,
Inc. (the "Company") by promoting ownership of Company stock by the non-employee
members of the Company's Board of Directors (the "Board").
2. SHARES TO BE GRANTED. Under the Plan, options ("Options") to purchase
shares of common stock, par value $.10, of the Company ("Common Stock") are
granted to non-employee members of the Board ("Non-Employee Directors") on an
annual basis. The number of Options so granted is determined in each instance in
accordance with the terms of the Plan. Options granted under the Plan are not
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code.
3. AVAILABLE SHARES. The total number of shares of Common Stock to be
granted shall not exceed 275,000, subject to adjustment in accordance with
Section 12 hereof. Shares subject to the Plan are authorized but unissued shares
or shares that were once issued and subsequently reacquired by the Company.
4. ADMINISTRATION. The Plan shall be administered by the Board. The Board
shall have the power to construe the Plan and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable.
5. ELIGIBILITY AND LIMITATIONS. Options shall be granted pursuant to the
Plan only to Non-Employee Directors.
6. FAIR MARKET VALUE. For purposes of the Plan, the Fair Market Value of a
share of Common Stock on any date shall be the mean of the closing bid and asked
quotations in the over-the-counter market on such date, as reported by the
National Association of Securities Dealers, through NASDAQ. In the event the
shares are listed on any exchange or on the NASDAQ National Market System, the
Fair Market Value shall be the closing sale price on such exchange or in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. through NASDAQ, on such date or, if there are no sales on such
date, the mean of the bid and asked price for the shares on such exchange or in
the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc., through NASDAQ, at the close of business on such date.
7. GRANT OF OPTIONS. On December 31 of each calendar year commencing with
calendar year 1996, each person who is a Non-Employee Director as of such date
shall be granted without further action by the Board an Option to purchase 4,000
shares of Common Stock, with a per share exercise price equal to the Fair Market
Value of a share of Common Stock on such date. Each such Option shall be fully
vested on the date of grant, shall have a maximum term of five years, and shall
be subject to such other terms
<PAGE>
and conditions as the Board shall approve. Each Non-Employee Director shall
enter into a customary stock option agreement with respect to each Option
granted under the Plan.
8. TRANSFERABILITY: SHARE CERTIFICATES. Options may not be sold,
transferred, assigned, pledged or otherwise encumbered by a Non-Employee
Director other than by will or the laws of descent and distribution. At the time
a Non-Employee Director's Options are exercised, a certificate for shares of
Common Stock covered by the Options shall be registered in the Non-Employee
Director's name and delivered to the Non-Employee Director (or to such
Non-Employee Director's legal representative or designated beneficiary in the
event of the Non-Employee Director's death).
9. SHAREHOLDER RIGHTS. A Non-Employee Director shall have no rights as a
shareholder with respect to shares of Common Stock covered by Options until the
time such Options are exercised and certificates for such shares are registered
in the Non-Employee Director's name.
10. EXERCISE OF OPTIONS. Options granted under the Plan may be exercised by
written notice to the Company in such form as the Board may designate,
accompanied by full payment of the exercise price therefor. The exercise price
may be paid (i) in cash or cash equivalents, (ii) by tendering shares of Stock
previously owned for at least six months, having a Fair Market Value equal to
the exercise price, and (iii) by any other means approved by the Board.
11. LEGENDS. The certificates representing shares granted under the Plan
shall carry such appropriate legends, and such written instructions shall be
given to the Company's Transfer Agent, as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the
Securities Act of 1933 or any state securities laws.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS. In the
event that the outstanding shares of Common Stock are changed into or exchanged
for a different number or kind of shares or other securities of the Company or
of another corporation by reason of any reorganization, merger, consolidation,
recapitalization or reclassification, or in the event of a stock split,
combination of shares or dividends payable in capital stock, the Board shall
equitably adjust (i) the number and kind of available shares set forth in
Section 3 hereof, (ii) the number and kind of shares subject to each outstanding
Option, and (iii) the per share exercise price applicable to each outstanding
Option.
13. RESTRICTIONS ON ISSUANCE OF SHARES. Any other provision of this Plan
notwithstanding, the Company shall have no obligation to deliver any certificate
or certificates for shares until the following conditions have been satisfied:
(i) The shares to be granted are at the time of the issuance of such
shares effectively registered under applicable Federal and state
securities acts as now in force or hereafter amended; or
<PAGE>
(ii) Counsel for the Company shall have determined that such shares are
exempt from registration under Federal and state securities acts as
now in force or hereafter amended;
and the Company has complied with all applicable laws and regulations, including
without limitation all regulations required by any stock exchange upon which the
Common Stock is then listed.
The Company shall use its best efforts to bring about compliance with
the above conditions within a reasonable time, except that the Company shall be
under no obligation to cause a registration statement or a post-effective
amendment to any registration statement to be prepared at its expense solely for
the purpose of covering the issuance of shares under the Plan.
14. REPRESENTATIONS. The Company may require any Non-Employee Director to
deliver written warranties and representations upon delivery of shares that are
necessary to show compliance with Federal and state securities laws including to
the effect that an acquisition of shares under the Plan is made for investment
and not with a view to distribution (as that term is used in the Securities Act
of 1933).
15. TERMINATION AND AMENDMENT OF PLAN. The Board may at any time terminate
the Plan or make such modification or amendment thereof as it deems advisable,
PROVIDED, HOWEVER, that the Board may not, without approval by the affirmative
vote of the holders of a majority of the shares present in person or by proxy
and entitled to vote at a meeting of stockholders, increase the maximum number
of shares that my be granted under the Plan.
