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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INDUSTRIAL DISTRIBUTION GROUP, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 5085 58-2299339
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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2500 Royal Place
Tucker, Georgia 30084
(770) 243-4042
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Martin S. Pinson
Chairman and Chief Executive Officer
2500 Royal Place
Tucker, Georgia 30084
(770) 243-4043
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
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W. Randy Eaddy, Esq. William R. Kunkel, Esq.
Kilpatrick Stockton LLP Skadden, Arps, Slate, Meagher & Flom (Illinois)
1100 Peachtree Street 333 West Wacker Drive
Atlanta, Georgia 30309 Chicago, Illinois 60606
(404) 815-6500 (312) 407-0820
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities on this Form are being offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
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Common Stock, $.01 par value...... X,000,000 shares $XX $30,000,000 $9,090.91
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(1) Includes shares that may be purchased pursuant to the over-allotment
option granted to the Underwriters.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act.
(3) Calculated pursuant to Rule 457(o) based upon an estimate of the maximum
aggregate offering price.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1997
PROSPECTUS
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SHARES
[LOGO INDUSTRIAL DISTRIBUTION GROUP, INC.]
Common Stock
---------------------
All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being offered by Industrial
Distribution Group, Inc. (the "Company" or "IDG").
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. Shares of Common Stock are being reserved for sale to certain
employees, directors, and business associates of the Company, at the initial
public offering price. Such employees, directors, and other persons are expected
to purchase, in the aggregate, not more than 5% of the Common Stock offered in
the Offering. See "Underwriting".
Application will be made for listing of the Common Stock on the New York
Stock Exchange under the symbol "IDG".
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO PUBLIC UNDERWRITING DISCOUNT(1) PROCEEDS TO COMPANY(2)
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Per Share.............................. $ $ $
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Total(3)............................... $ $ $
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(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting".
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to additional
shares of Common Stock solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount, and Proceeds to Company will be $ , $ , and
$ , respectively. See "Underwriting".
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The shares of Common Stock offered hereby are offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
the Underwriters against payment therefor and subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel, or modify such offer and to
reject orders in whole or in part. It is expected that delivery of share
certificates representing the Common Stock will be made in New York, New York on
or about , 1997.
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MERRILL LYNCH & CO. THE ROBINSON-HUMPHREY
COMPANY, INC.
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The date of this Prospectus is , 1997.
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[REPRESENTATIVE PRODUCTS, MAP, OR SCHEMATIC]
Certain persons participating in the Offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, the purchase of Common Stock to cover
syndicate short positions, and the imposition of penalty bids. For a description
of these activities, see "Underwriting".
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Simultaneously with, and as a condition to, the Offering, the Company acquired
nine distributors of industrial products (collectively, the "Founding
Companies") in exchange for shares of Common Stock (the "Combination"). Unless
the context otherwise requires, all references herein to the "Company" or "IDG"
shall mean Industrial Distribution Group, Inc., a corporation formed in February
1997, and all the Founding Companies, taken as a whole, and assume that the
Combination has been consummated. Unless otherwise indicated, the information in
this Prospectus (i) does not give effect to the Underwriters' over-allotment
option, (ii) gives effect to a for 1 stock split effective as of
, 1997, (iii) assumes an initial offering price of $ per
share, and (iv) assumes that consideration of shares of Common Stock
is paid by the Company pursuant to the Combination. See "The Combination".
THE COMPANY
Industrial Distribution Group, Inc. (the "Company" or "IDG") was formed in
February 1997 to create a leading, nationwide supplier of cost-effective,
flexible procurement solutions for manufacturers and other users of maintenance,
repair, operating, and production ("MROP") products. The Company distributes a
full line of industrial MROP products, emphasizing its specialized expertise in
product applications. The Company's principal product categories include
abrasives, cutting tools, hand and power tools, and coolants, lubricants, and
adhesives. Utilizing its proprietary computerized Supply Management System, the
Company's application and product specialists are able to analyze a customer's
acquisition, possession, and application processes for MROP supplies and design
programs to streamline the processes and reduce associated costs. Such programs
may include improving a customer's production and procurement processes,
standardizing MROP products, reducing the number of suppliers, or developing
integrated supply arrangements that outsource to the Company some or all of a
customer's MROP procurement and management functions.
The Company intends to establish a nationwide presence, with MROP product
and service capabilities in all or most of the major U.S. industrial markets.
Currently, the Company has 41 operating locations in 37 cities, along with four
small facilities abroad. The Company's more than 20,000 customers include a
diverse group of major national and international corporations, including
AlliedSignal, Black & Decker, Boeing, Chrysler, General Motors, Hoechst
Celanese, PPG Industries, and Shell Oil. On a pro forma combined basis, the
Company had net sales of approximately $251 million for the year ended December
31, 1996, and net sales of approximately $67 million for the three months ended
March 31, 1997.
The Company estimates that the size of the market for industrial MROP
products in which it participates directly is approximately $70 billion.
However, the entire United States MROP market, which includes electrical, PVF
(pipes, valves, and fittings), power transmission, and other product categories
in which the Company does not currently participate, is estimated to be in
excess of $175 billion. This larger market is highly fragmented, with the 50
largest distributors (all of which have annual sales over $90 million)
accounting for less than 15% of the market.
Manufacturers and other users of MROP products are seeking ways to enhance
efficiencies and reduce MROP process and procurement costs in order to compete
more effectively in the global economy. As a result, the industrial supply
industry is experiencing consolidation, as customers focus on the convenience,
cost savings, and economies of scale associated with a reduced number of
suppliers capable of providing superior service and product selection. Further,
as manufacturers focus on their core manufacturing or other production
competencies, they are increasingly outsourcing their MROP procurement,
management, and application processes in search of comprehensive MROP solutions,
such as integrated supply. The Company believes that it will benefit from these
industry trends.
As a result of the Combination and the Offering, the Company believes that
it has the size, scale of operations, and resources necessary to compete
effectively in the evolving industrial MROP supply industry.
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The Company's size and scale of operations allow it to benefit from high volume
purchasing, attract the highly skilled personnel required to deliver enhanced
levels of service, and realize internal operating efficiencies. The Company's
resources enable it to offer a comprehensive product line and invest in
sophisticated inventory management and control systems needed to support its
enhanced levels of customer service. Finally, the Company's position enhances
its ability to implement its acquisition strategy in the consolidating and
fragmented MROP industry.
OPERATING STRATEGY
Superior Product Expertise and Comprehensive Product Line. One of the
Company's core competencies is its extensive product expertise. With its
understanding of the most appropriate product for specific customer
applications, the Company can identify the MROP product best suited for a
customer's specific need. This expertise benefits the customer in two ways, each
of which lowers the customer's total MROP costs. First, the customer increases
the efficiency of its manufacturing processes by minimizing downtime and other
indirect costs. Second, by providing only that level of quality required by the
application, the Company can lower the customer's MROP product costs. The
Company's comprehensive product line supports its commitment to deliver the most
appropriate product to its customers. In addition to maintaining over 100,000
stock keeping units ("SKUs"), as well as special items in stock for regular
customers, the Company can provide virtually any MROP item, including
special-order items.
Flexible Procurement Solutions; Integrated Supply. The Company believes
the key to serving customers in the changing MROP market is the ability to
design and implement customized flexible procurement solutions for acquiring,
possessing, and applying MROP products to satisfy each customer's particular
needs and achieve its cost reduction objectives. The spectrum of services
necessary to deliver such solutions is broad. For customers who are not yet
prepared to outsource their entire MROP procurement and management functions,
the Company provides a range of options from which customers may select the
appropriate types and level of service. For customers who desire total
procurement solutions designed and implemented through a single distributor, the
Company offers its "fully integrated supply" programs, which permit customers to
outsource to the Company the entire MROP procurement and management function,
including ownership by the Company of inventory in the customer's on-site MROP
supply room (or "tool crib").
Centralized Corporate Functions and Decentralized Operating Management. At
the corporate level, on the one hand, the Company will consolidate functions
such as financial, accounting, management information systems, employee
benefits, and certain purchasing arrangements to eliminate duplicative
administrative and other costs that otherwise would be incurred at each of its
operating locations. The resulting operating efficiencies, along with the
enhanced leverage from higher volume purchasing, should provide the Company an
advantage over smaller regional and local competitors. At the operating
subsidiary level, on the other hand, the Company will employ a decentralized
management structure that focuses management at each operating subsidiary on
day-to-day operating matters, profitability, and growth, as well as identifying
potential acquisition candidates. The Company believes that its decentralized
management philosophy will result in better customer service by allowing local
management the flexibility to implement policies and make decisions based on
first-hand assessments of the needs and desires of individual customers.
Superior Customer Service. Providing superior quality and a comprehensive
range of MROP services to customers is the IDG hallmark. As part of its
commitment to customer service, the Company emphasizes quality assurance in all
phases of its operations. The Company's sales and service personnel receive
ongoing periodic training in TQM ("total quality management") and other team
management skills to assure such quality performance. IDG will also seek
certification under the International Standards Organization ("ISO") 9002
standards for distribution with respect to its principal locations and expects
to make such certification a Company-wide objective for all future principal
locations.
GROWTH STRATEGY
Internal Growth. Management believes that significant opportunities exist
to increase revenues and earnings through internal expansion, particularly due
to the Company's enhanced competitive position resulting from the Combination.
Through focused marketing both inside and outside the United States, the Company
will seek to add
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revenue by offering additional products and services to new and existing
customers and identifying any unserved facilities of its larger existing
customers. Where necessary to increase its market share, the Company will open
or expand facilities in the vicinity of existing operations. The Company will
also consider the desirability of internal expansion into new geographic
markets.
Acquisitions in Select Geographic Markets. The Company intends to launch
an aggressive acquisition program to take advantage of consolidation
opportunities that management believes exist within the highly fragmented
industrial MROP market. The Company will seek to acquire successful MROP
distribution and related businesses that are large enough to establish a
significant initial presence and to provide for future Company expansion in the
particular market. The Company will seek to retain the management of acquired
businesses.
Expansion into International Markets. The Company believes that the
consolidation and outsourcing trends that provide growth opportunities in the
United States offer comparable opportunities in international markets. The
Company plans initially to extend its offering of flexible procurement solutions
to foreign manufacturing facilities of its domestic customers to develop a base
for potentially expanded international operations. The Company has been active
in the Peoples Republic of China since 1988, establishing sales offices in
Beijing (1994) and Shanghai (1996), and in Mexico since 1997.
THE COMBINATION
The decision to form IDG through the combination of the Founding Companies
emerged from the principals of those nine companies, who had developed
significant professional and personal relationships over the past 10 years.
These principals, who have had an average of over 20 years of experience in the
industrial distribution industry, have shared ideas for "best practices" with
respect to such matters as marketing, management, and operating systems, and
concluded that the formation of the Company would enhance their individual and
collective ability to compete successfully in the changing industrial MROP
market. In addition, the entire consideration payable by IDG for the Founding
Companies (other than a cash payment to a dissenting shareholder and payments in
lieu of fractional shares) consists of shares of Common Stock, all of which the
Founding Companies' stockholders have agreed contractually to hold for at least
two years. As a result, management believes that IDG's ability to integrate
successfully the operations of the Founding Companies will be greatly
facilitated.
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The Company's principal executive offices are located at 2500 Royal Place,
Tucker, Georgia, where its telephone number is (770) 243-4042.
THE OFFERING
Common Stock offered................
Common Stock to be outstanding after
the Offering(1)...................
Use of proceeds..................... To repay certain indebtedness of the
Founding Companies, to finance the
acquisition of additional MROP
distribution and related businesses,
and for general corporate purposes. See
"Use of Proceeds".
Proposed New York Stock
Exchange symbol................... IDG
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(1) Does not include shares of Common Stock issuable upon the
exercise of stock options granted under the Company's Stock Incentive Plan.
See "Management -- Stock Incentive Plan" and "Underwriting". As a result of
the Combination, the former stockholders of the Founding Companies will own
shares of Common Stock, or % of the Common Stock to be
outstanding after the Offering.
5
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SUMMARY PRO FORMA COMBINED FINANCIAL DATA
IDG will acquire the Founding Companies simultaneously with the closing of
this Offering. Pursuant to the requirements of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 97 ("SAB 97"), however, Industrial
Distribution Group, Inc., a Georgia corporation formed in 1981 and one of the
nine Founding Companies (referred to herein as "Predecessor-IDG"), is deemed to
be the acquiror, for financial reporting purposes, of the other eight Founding
Companies (the "Other Founding Companies"), and the following pro forma combined
data is presented on that basis. The acquisition of the Other Founding Companies
will be accounted for under the purchase method of accounting, whereby their
assets and liabilities are recorded at fair market value. Prior to the
Combination, each of the Founding Companies operated independently and was not
under common control or management; accordingly, the pro forma data presented
may not be comparable to or indicative of post-Combination results. For a
discussion of the pro forma combined operating results, see the Unaudited Pro
Forma Combined Financial Statements of the Company and related notes thereto
included elsewhere in this Prospectus.
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YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF INCOME DATA:(1)
Net sales................................................... $251,058 $66,684
Gross profit................................................ 60,381 15,906
Selling, general, and administrative expenses(2)(3)......... 53,612 13,665
Operating income............................................ 6,769 2,241
Net income(4)............................................... 3,575 1,417
Net income per share........................................
Weighted average shares outstanding(5)......................
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<CAPTION>
AS OF MARCH 31, 1997
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PRO FORMA COMBINED(1)(6) AS ADJUSTED(1)(7)
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Working capital....................................... $36,772
Property and equipment, net........................... 8,837
Total assets.......................................... 82,006
Long-term debt, including current portion............. 27,511
Stockholders' equity.................................. 31,816
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(1) See the Unaudited Pro Forma Combined Financial Statements of the Company
for pro forma financial information relating to the year ended December 31,
1996 and the three months ended March 31, 1997.
(2) Adjusted to reflect the acquisition of the Other Founding Companies and
reductions in salaries and benefits to certain owners of the Founding
Companies that have been agreed to in connection with the Combination (the
"Compensation Differential").
(3) Includes amortization of goodwill to be recorded as a result of the
Combination.
(4) Gives effect to certain tax adjustments related to the taxation of
Predecessor-IDG as an S Corporation prior to consummation of the
Combination, the tax impact of the Compensation Differential in each
period, and assumes all income is subject to a corporate tax rate of 40%.
(5) Includes (i) shares issued by the Company prior to the Combination and
the Offering and (ii) shares to be issued to the stockholders of the
Founding Companies in connection with the Combination; but excludes
shares to be issued in the Offering and shares of
Common Stock issuable pursuant to outstanding options granted under the
Company's Stock Incentive Plan.
(6) Gives effect to: (i) the acquisition of the Other Founding Companies at
fair market value in accordance with SAB 97; and (ii) the combination of
the Other Founding Companies with Predecessor-IDG as if such combination
had occurred as of March 31, 1997.
(7) Adjusted to reflect the sale of shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds".
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock.
This Prospectus contains certain forward-looking statements (as such term
is defined in the Securities Act) concerning the Company's operations,
performance, and financial condition, including, in particular, the likelihood
of the Company's success in developing and expanding its business. These
statements are based upon a number of assumptions and estimates which are
inherently subject to significant uncertainties and contingencies, many of which
are beyond the control of the Company. Actual results may differ materially from
those expressed or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include those set forth below.
ABSENCE OF COMBINED OPERATING HISTORY
Although each of the Founding Companies has operated for over 20 years, the
businesses of the Founding Companies will not be operated as a combined entity
until the Combination is consummated. There can be no assurance that the Company
will be able to integrate successfully the businesses of the Founding Companies
or to operate profitably. There can be no assurance that the Company's
management group, certain of whom, including the Chief Executive Officer, have
not previously worked in the MROP industry, will be able to manage effectively
the combined entity. Failure to integrate successfully the Founding Companies
could have a material adverse effect on the Company's results of operations and
financial condition.
ABSENCE OF INTEGRATED SYSTEMS
Until the Company implements its centralized management systems, the
Company will utilize and be dependent upon the information and operating systems
of the Founding Companies for ordering products, recording and analyzing
financial results, controlling inventory, and other important functions.
Although the Company has put in place certain control mechanisms, it may
nonetheless experience delays, disruptions, and unanticipated expenses in
implementing, integrating, and operating its centralized systems, any of which
could have a material adverse effect on the Company's results of operations and
financial condition. The Company will not be able to fully achieve certain
contemplated operating efficiencies and competitive advantages until it has
implemented fully its centralized management information and operating systems.
RISKS ASSOCIATED WITH EXPANSION THROUGH ACQUISITIONS
The Company's growth strategy contemplates acquisitions of MROP
distribution and related businesses. As a result, the Company's future success
is dependent, in part, upon its ability to identify, finance, and acquire
suitable businesses on favorable terms and then to integrate and manage the
acquired businesses successfully. The Company does not have a history of
completing and integrating acquisitions. Acquisitions involve special risks,
including risks associated with unanticipated liabilities, diversion of
management attention, and possible adverse effects on earnings resulting from
increased goodwill amortization, potential increased interest costs, the
issuance of additional securities, the dependence on retention, hiring, and
training of key personnel, and difficulties relating to the integration of the
acquired businesses. Although the Company believes that it can implement
successfully its acquisition program, there can be no assurance that the Company
will be able to do so. Further, there can be no assurance that future
acquisitions will not have an adverse effect upon the Company's results of
operations, particularly during periods in which the operations of acquired
businesses are being integrated into the Company's operations. See
"Business -- Business Strategies -- Growth Strategy".
NEED FOR ADDITIONAL FINANCING
The Company intends to use a combination of shares of Common Stock and
other types of consideration in making future acquisitions. The extent to which
the Company will be able or willing to use Common Stock for this purpose will
depend on the market value of the Common Stock from time to time and the
willingness
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of potential sellers to accept it as full or partial payment. If the Company is
unable to use its Common Stock for acquisitions, the Company's ability to make
acquisitions may depend upon its ability to raise additional capital, including
through borrowings. Such borrowings could create other risks for the Company and
its stockholders. No assurance can be given that the Company will be able to
obtain the capital it will need to finance its acquisition program. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Combined" and
"Business -- Business Strategies -- Growth Strategy".
DEPENDENCE ON SUPPLIER RELATIONSHIPS
Each of the Founding Companies has distribution rights for certain product
lines in its respective geographic market. The Company depends upon these
distribution rights for a substantial portion of its business. A significant
percentage of the Company's distribution arrangements with its suppliers are
oral, and many of its distribution rights may be terminated by the supplier
immediately or upon short notice. The termination or limitation by any key
supplier of its relationship with the Company could have a material adverse
effect on the Company's results of operations and financial condition.
COMPETITION
The industrial MROP supplies industry is highly competitive and features
numerous distribution channels, including: national, regional, and local
distributors; direct mail suppliers; large warehouse chains; hardware stores;
and manufacturers' own sales forces. Many of the Company's competitors are small
enterprises who sell to customers in a limited geographic area, but the Company
also competes against several large MROP distributors that have significantly
greater resources than the Company. As customers increasingly seek low-cost
alternatives to traditional methods of purchasing and sources of supply, they
are, among other things, reducing the number of their MROP suppliers. Also, MROP
distributors are consolidating to achieve economies of scale and increase
efficiencies, which consolidation trend could cause the industry to become more
competitive. In addition, new competitors may emerge. Certain of the Company's
competitors sell identical products for prices lower than those offered by the
Company. Moreover, the Company also competes on the basis of responsiveness to
the needs of customers for quality service, product diversity, and availability.
There can be no assurance that the Company will be able to compete successfully
under such conditions.
DEPENDENCE ON KEY PERSONNEL
The Company's operations depend on the continuing efforts of its executive
officers and the senior management of the Founding Companies, and the Company
likely will depend on the senior management of any significant businesses it
acquires in the future, especially as the Company enters into new geographic
markets. The business and prospects of the Company could be adversely affected
if these persons, in significant numbers, do not continue their key roles, and
the Company is unable to attract and retain qualified replacements. See
"-- Absence of Combined Operating History".
LABOR AVAILABILITY
The timely provision of high-quality service by the Company requires an
adequate supply of skilled sales and customer service personnel, including the
application and product specialists whose expertise is an essential element of
the Company's customer-oriented, flexible procurement solutions approach.
Accordingly, the Company's ability to implement its strategies depends to a
degree on its ability to employ the skilled personnel necessary to meet the
Company's marketing and services requirements. From time to time, the Company
has experienced difficulty in attracting or retaining sufficient numbers of
qualified personnel. In addition, the operating costs of the Company may be
adversely affected by turnover in such positions. There can be no assurance that
the Company will be able to maintain an adequately skilled sales and customer
service force or that the Company's labor expenses will not increase as a result
of a shortage in the supply of such skilled personnel.
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INDUSTRY CYCLICALITY
Some of the primary markets for the products sold by the Company are
subject to cyclical fluctuations that generally affect demand for industrial and
consumer durable goods produced by the users of MROP products. Consequently, the
demand for MROP products has been and may continue to be influenced by many of
those same national or regional factors. Changes in economic conditions
resulting in a change in the current business cycle could have a material
adverse effect on the Company's results of operations and financial condition.
CONTROL BY MANAGEMENT AND FORMER OWNERS OF FOUNDING COMPANIES
Following the Offering, directors and officers of the Company, and former
stockholders of the Founding Companies, will own beneficially an aggregate of
approximately % of the outstanding Common Stock ( % if the
Underwriters' over-allotment option is exercised in full). See "Principal
Stockholders". Accordingly, these persons, if they were to act in concert, would
have substantial influence over the affairs of the Company, including the
ability potentially to control the election of directors and other matters
requiring stockholder approval by simple majority vote.
LEGAL PROCEEDING
On November 18, 1996, Milliken & Company ("Milliken"), a textile
manufacturer and customer of Predecessor-IDG, filed suit against a manufacturer
of an industrial product and Predecessor-IDG in the Superior Court of Troup
County, Georgia, Civil Action No. 96-CV-964. Milliken claims that a product sold
to it by Predecessor-IDG as a distributor of the defendant-manufacturer was
defective and caused a fire, severely damaging Milliken's textile manufacturing
plant in LaGrange, Georgia. Milliken alleges damages of $500 million against the
defendants. Predecessor-IDG has denied any liability, and its insurance carrier
is vigorously defending the lawsuit on its behalf. While the damages alleged by
Milliken are exceptional in amount, the inclusion of the distributor of a
product, along with its manufacturer, as a defendant in an action for alleged
product defectiveness is unexceptional. The litigation is in the early stages of
discovery, and while it is not possible to predict with accuracy the outcome of
any such litigation matter, the Company believes that its insurance will be
adequate to cover any loss to Predecessor-IDG that might result from the
lawsuit.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and Delaware law may make a change in control of the Company more difficult to
effect, even if a change in control were in the stockholders' interests.
Provisions in the Company's Certificate of Incorporation allow the Board to
determine the terms of preferred stock that may be issued by the Company without
approval of the holders of the Common Stock. The ability of the Company to issue
preferred stock in such manner could enable the Board to prevent changes in
management and control of the Company. See "Description of Capital Stock --
Preferred Stock".
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF MARKET PRICE
Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
continue after the Offering or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price of the Common Stock has been determined by negotiation between the Company
and the Underwriters, and may not be indicative of the market price of shares of
Common Stock after the Offering. See "Underwriting".
From time to time after the Offering, there may be significant volatility
in the market price of the Common Stock. Quarterly operating results of the
Company, changes in earnings estimated by analysts, changes in general
conditions in the economy or the financial markets, or other developments
affecting the Company could cause the market price of the Common Stock to
fluctuate substantially. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated to their
9
<PAGE> 11
operating performance. Therefore, the Company cannot predict the market price
for the Common Stock subsequent to the Offering.
DILUTION
The purchasers of the Common Stock offered hereby will experience immediate
and substantial dilution of $ per share, the amount by which the
purchase price of the Common Stock offered hereby will exceed the net tangible
book value of the Common Stock immediately following the Offering. See
"Dilution". If the Company issues additional Common Stock in the future,
including shares that may be issued in connection with future acquisitions,
purchasers of Common Stock in the Offering may experience further dilution in
net tangible book value per share of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price for the
Common Stock. The number of outstanding shares of Common Stock available for
sale in the public market will be limited by (i) contractual agreements between
the Company and the stockholders of the Founding Companies not to sell for two
years the shares of Common Stock received by them in the Combination; (ii) the
lock-up agreements under which the Company, its officers and directors, and the
former Founding Company stockholders have agreed not to sell or otherwise
dispose of any of their shares for a period of 180 days after the date of this
Prospectus without the prior written consent of Merrill Lynch & Co., on behalf
of the Underwriters; and (iii) applicable restrictions under the Securities Act.
As a result of those agreements and restrictions, upon the closing of the
Offering, no shares other than the shares offered hereby will be eligible
for sale. A total of shares are subject to the above two-year limitation
and lock-up agreements, but otherwise would be eligible for sale subject to the
volume and holding period limitations of Rule 144 beginning one year after the
date of this Prospectus. In addition, the Company plans to file a shelf
registration statement to register shares of Common Stock for use in connection
with future acquisitions, which shares, if any were to be issued within 180 days
after the date of the Prospectus, would be subject to the Company's lock-up
agreement with Merrill Lynch & Co. as described above. See "Shares Eligible for
Future Sale".
POLICY TO PAY NO DIVIDENDS
The Company presently intends to retain its earnings to finance its growth
and expansion and for general corporate purposes. Consequently, it does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's future financing agreements may contain limitations on the payment of
cash dividends and other distributions of assets. See "Dividend Policy".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (assuming an initial public offering price of $ per
share and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company) are estimated to be approximately
$ million (approximately $ million if the Underwriters' over-allotment
option is exercised in full).
In connection with the Combination, the Company plans to use approximately
$ million to repay certain preexisting indebtedness of the Founding
Companies. At , 1997, such indebtedness had a weighted average
interest rate of %. Such indebtedness, if not repaid, would otherwise mature
at various dates through . See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Combined".
The remaining $ million of the net proceeds is expected to be used,
together with internally generated funds and proposed borrowings, to fund the
acquisition and development of additional MROP distribution and related
businesses, for general corporate purposes, and to make a cash payment under
10
<PAGE> 12
applicable corporate law to a former shareholder of Predecessor-IDG who elected
to exercise dissenters' rights with respect to the acquisition of that company.
While the Company is continuously considering possible acquisition prospects as
part of its growth strategy, the Company is not presently engaged in active
negotiations with respect to any particular acquisition.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing investment
grade or government securities.
DIVIDEND POLICY
The Company currently intends to retain its future earnings, if any, to
finance the growth, development, and expansion of the Company's business and,
accordingly, does not currently intend to declare or pay any dividends on the
Common Stock for the foreseeable future. The declaration, payment, and amount of
future dividends, if any, will be subject to the discretion of the Company's
Board of Directors and will depend upon the future earnings, results of
operations, financial condition, and capital requirements of the Company, among
other factors. Under Delaware law, the Company is prohibited from paying any
dividends unless it has capital surplus or net profits available for this
purpose.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 (i) for Predecessor-IDG as the deemed acquiror under SAB 97, (ii)
on a pro forma basis to reflect the Combination, and (iii) on a pro forma as
adjusted basis to reflect the Combination and to give effect to the sale of the
shares of Common Stock offered by the Company in the Offering at an
assumed offering price of $ per share and the application of the net
proceeds therefrom, which are estimated to be approximately $ million (after
deducting underwriting discounts and commissions and estimated Offering
expenses). The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and the Unaudited Pro Forma
Financial Statements of the Company and the related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------------------
PRO FORMA
PREDECESSOR- AS ADJUSTED
IDG PRO FORMA(1) (1)(2)(3)
------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings and current portion of long-term
debt..................................................... $ 55 $ 9,779
======= ======= =======
Long-term debt, excluding current portion.................. 15,047 17,732
------- ------- -------
Stockholders' equity:
Preferred Stock, par value $.10 per share, 10,000,000
shares authorized; no shares issued and outstanding
(historical, pro forma, and pro forma as adjusted).... -- -- --
Common Stock, par value $.01 per share, 50,000,000 shares
authorized; 110,665 shares issued and outstanding
(Predecessor-IDG historical); shares issued
and outstanding (pro forma); shares issued
and outstanding (pro forma as adjusted)............... 1 32
Additional paid-in capital............................... 307 31,784
Retained earnings........................................ 4,274 0
------- ------- -------
Total stockholders' equity....................... 4,582 31,816
------- ------- -------
Total capitalization............................. $19,629 $49,548
======= ======= =======
</TABLE>
- ---------------
(1) Gives effect to: (i) the acquisition of the Founding Companies in accordance
with SAB 97; (ii) the combination of the other Founding Companies with
Predecessor-IDG as if such combination had occurred as of March 31, 1997;
and (iii) an estimated liability that is payable in cash to a former
shareholder of Predecessor-IDG who elected to exercise dissenter's rights
with respect to the acquisition of that company.
(2) Adjusted to reflect the sale of shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See "Use
of Proceeds".
(3) Excludes shares of Common Stock issuable pursuant to outstanding
options granted under the Company's Stock Incentive Plan. See
"Management -- Stock Incentive Plan".
12
<PAGE> 14
DILUTION
At March 31, 1997, after giving effect to the Combination as if it had
occurred at such date, the pro forma combined net tangible book value of the
Company would have been $ , or $ per share. Such pro forma
combined net tangible book value is equal to the aggregate net tangible book
value (tangible assets less total liabilities) of the Founding Companies prior
to the Combination. The number of shares used for the per share calculation
includes the shares outstanding prior to the Offering. After giving effect
to the Combination and the sale by the Company of the shares of Common
Stock offered hereby (assuming an initial public offering price of $
per share and after deducting underwriting discounts and commissions and
estimated Offering expenses payable by the Company), the pro forma combined net
tangible book value of the Company would have been $ , or $
per share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution
in net tangible book value of $ per share to new investors purchasing
the shares of Common Stock in the Offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value prior to the Offering... $
Increase attributable to new investors.................... $
Pro forma net tangible book value after the Offering........
-------
Dilution in net tangible book value to new investors........ $
=======
</TABLE>
The following table sets forth on a pro forma basis, after giving effect to
the Combination as of March 31, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company, and the
average price per share paid to the Company by existing stockholders, including
both management stockholders and the stockholders of the Founding Companies, and
the new investors purchasing Common Stock from the Company in this Offering at
the initial public offering price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..............
Stockholders of Founding
Companies(1)(2).....................
New investors.........................
--------- ----- -------- ----- -----
Total.......................
========= ===== ======== ===== =====
</TABLE>
- ---------------
(1) See "Certain Transactions" for a discussion of certain issuances of Common
Stock.
(2) Total consideration paid by the stockholders of the Founding Companies
represents the stockholders' equity of the Founding Companies before the
Offering, adjusted to reflect S Corporation distributions.
13
<PAGE> 15
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The Company will acquire the Founding Companies simultaneously with the
closing of this Offering. Pursuant to SAB 97, Predecessor-IDG is deemed to be
the acquiror, for financial reporting purposes, of the Other Founding Companies,
and the following pro forma combined data is presented on that basis. The
Selected Pro Forma Combined Financial Data of the Company should be read in
conjunction with the audited financial statements of Predecessor-IDG and the
related notes thereto, the Unaudited Pro Forma Combined Financial Statements of
the Company and related notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR END THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF INCOME DATA:(1)
Net sales................................................. $251,058 $66,684
Gross profit.............................................. 60,381 15,906
Selling, general, and administrative expenses(2)(3)....... 53,612 13,665
Operating income.......................................... 6,769 2,241
Net income(4)............................................. 3,575 1,417
Net income per share......................................
Weighted average shares outstanding(5)....................
<CAPTION>
AS OF MARCH 31, 1997
---------------------------------------
PRO FORMA
COMBINED(1)(6) AS ADJUSTED(1)(7)
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 36,772
Property and equipment, net............................... 8,837
Total assets.............................................. 82,006
Long-term debt, including current portion................. 27,511
Stockholders' equity...................................... 31,816
</TABLE>
- ---------------
(1) See the Unaudited Pro Forma Combined Financial Statements of the Company for
pro forma financial information relating to the year ended December 31, 1996
and the three months ended March 31, 1997.
(2) Adjusted to reflect the acquisition of the Other Founding Companies and
reductions in salaries and benefits to certain owners of the Founding
Companies that have been agreed to in connection with the Combination (the
"Compensation Differential").
(3) Includes amortization of goodwill to be recorded as a result of the
Combination.
(4) Gives effect to certain tax adjustments related to the taxation of
Predecessor-IDG as an S Corporation prior to consummation of the Combination
and the tax impact of the Compensation Differential in each period, and
assumes all income is subject to a corporate tax rate of 40%.
(5) Includes (i) shares issued by the Company prior to the
Combination and the Offering and (ii) shares to be issued
to the stockholders of the Founding Companies in connection with the
Combination; but excludes shares to be issued in the Offering and
shares of Common Stock issuable pursuant to outstanding options granted
under the Company's Stock Incentive Plan.
(6) Gives effect to: (i) the acquisition of the Other Founding Companies at fair
market value in accordance with SAB 97; and (ii) the combination of the
Other Founding Companies with Predecessor-IDG as if such combination had
occurred as of March 31, 1997.
(7) Adjusted to reflect the sale of shares of Common Stock offered hereby
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds".
14
<PAGE> 16
PREDECESSOR-IDG SELECTED FINANCIAL DATA
Pursuant to the requirements of SAB 97, Predecessor-IDG is deemed to be the
acquiror, for financial reporting purposes, of the Other Founding Companies. The
following selected financial data of Predecessor-IDG are qualified by reference
to, and should be read in conjunction with, the financial statements of
Predecessor-IDG and notes thereto and other financial data included elsewhere in
this Prospectus. The financial data set forth below as of and for each of the
periods ended December 31, 1994, 1995, and 1996 have been derived from the
audited financial statements of Predecessor-IDG included elsewhere in this
Prospectus. The financial data as of and for the period ended March 31, 1996 and
1997 have been derived from the unaudited financial statements of
Predecessor-IDG included elsewhere in this Prospectus. The financial data as of
and for the periods ended December 31, 1992 and 1993 have been derived from
audited financial statements of Predecessor-IDG not included in this Prospectus.
These historical results are not indicative of the results that may be expected
in the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Prospectus Summary -- Summary Pro Forma Combined
Financial Data".
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................. $59,067 $66,675 $75,624 $83,526 $90,786 $22,569 $23,617
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 15,929 17,887 19,676 21,165 23,456 5,917 6,173
Selling, general, and administrative
expenses................................ 15,255 16,048 17,447 18,803 21,160 5,136 5,337
------- ------- ------- ------- ------- ------- -------
Operating income.......................... 674 1,839 2,229 2,362 2,296 781 836
Net income................................ 14 805 1,255 1,202 693 435 532
BALANCE SHEET DATA:
Working capital........................... 637 1,365 10,604 11,765 17,161 13,809 16,767
Property and equipment, net............... 2,267 2,184 2,202 2,142 2,166 2,106 2,063
Total assets.............................. 17,253 18,511 20,297 22,352 26,428 24,394 27,018
Long-term debt, including current
portion................................. 9,706 10,442 10,365 11,060 16,706 12,372 15,102
Shareholders' equity...................... 1,603 2,408 3,146 3,798 4,050 4,233 4,582
</TABLE>
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company provides flexible procurement solutions for manufacturers and
other users of industrial MROP products, distributing a full line of such
industrial MROP products and providing specialized services to a diverse group
of more than 20,000 customers. The Company has 41 operating locations in 37
cities, along with four small facilities abroad. The Company had net sales of
$251 million for the 12 months ended December 31, 1996, and $67 million for the
three months ended March 31, 1997.
The Company sells MROP supplies directly from stock using catalogs or
similar methods (stock sales); such sales were $157.6 million and $151.3 million
in 1996 and 1995, respectively. The Company also sells products and services
pursuant to supply contracts (normally for a duration of at least one year) for
fixed prices or fixed margins on certain products or product lines; such supply
contracts generated sales of $81.6 million and $73.3 million in 1996 and 1995,
respectively. Pursuant to integrated supply contracts, the Company manages tool
cribs and provides a level of enhanced service to certain customers, often with
a guaranteed minimum reduction in the customer's total MROP costs. The Company
began offering integrated supply contracts in 1995, and revenues from such
contracts have grown to $12.1 million in 1996 from $6.3 million in 1995.
Management expects the upward trend in its integrated supply business and
its specialized services supply business to continue for the foreseeable future,
driven by increasing demand from customers to outsource their MROP procurement
and management functions and for customized MROP procurement solutions.
Integrated supply arrangements are still in the early stages of development, but
management believes such arrangements are becoming increasingly attractive to
customers. IDG has selected integrated supply as a major focus of its operating
strategy. Because start-up costs necessary to design and implement an integrated
supply arrangement are currently expensed as incurred, such contracts typically
have a lower operating margin, in their implementation phase, than the Company's
other principal categories of revenue. Management believes, however, that
margins on these arrangements generally increase over the term of a contract (as
the Company's costs are reduced and savings to the customer increase), and that
integrated supply contracts will become a significant component of the Company's
operating results.
Management believes that the success of the Company's integrated supply and
other specialized services supply contract business will depend in major part on
the Company's utilization of technology to design and implement the MROP
procurement solutions that customers desire. The Company, on a combined basis,
invested over $800,000 in 1996 to develop and upgrade its proprietary Supply
Management System and its internal management information systems in order to
expand its capabilities to successfully and profitably deliver such specialized
services to customers. The Company will continue to commit resources to its
technological capabilities in order to provide superior customer service and
achieve internal operating efficiencies.
Under SAB 97, Predecessor-IDG has been designated as the acquiror for the
Combination, and the Company must include in this Prospectus management's
discussion and analysis of historical financial information of Predecessor-IDG.
Management has also included its discussion and analysis of certain combined
historical information of the Founding Companies, in order to provide other
important information with respect to the Company in light of certain effects of
the Combination. The following discussions have been organized on that basis.
In these discussions, most percentages and dollar amounts have been rounded
to aid presentation; as a result, all such figures are approximations.
References to such approximations have generally been omitted.
16
<PAGE> 18
RESULTS OF OPERATIONS -- COMBINED
The following table sets forth certain combined operating results of the
Founding Companies on a historical basis and shows such results as a percentage
of net sales.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------ ---------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- ---------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $206,608 100.0% $230,877 100.0% $251,303 100.0% $61,779 100.0% $66,686 100.0%
Cost of sales................... 157,307 76.1 176,696 76.5 191,115 76.0 46,828 75.8 50,809 76.2
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Gross profit.................... 49,301 23.9 54,181 23.5 60,188 24.0 14,951 24.2 15,877 23.8
Selling, general, and
administrative................ 44,594 21.6 48,307 20.9 53,306 21.2 13,114 21.2 13,555 20.3
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Operating income................ $ 4,707 2.3% $ 5,874 2.6% $ 6,882 2.8% $ 1,837 3.0% $ 2,322 3.5%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
</TABLE>
The combined operating results may not be indicative of the Company's
post-Combination results of operations for several reasons. The Founding
Companies have operated throughout the periods presented as separate
privately-owned entities. Their results of operations reflect varying tax
structures, which in turn have influenced other matters such as owners'
compensation. Accordingly, selling, general, and administrative expenses may not
be comparable among the individual Founding Companies. In addition, the Company
will have new senior management going forward, will incur implementation costs
of the Combination, and will incur amortization expenses from the goodwill
associated with the Combination. Moreover, these combined operating results do
not represent combined results of operations presented in accordance with
generally accepted accounting principles, but are only summations of the
respective line items from historical information of the individual Founding
Companies.
The Company will record goodwill in the Combination equal to the excess of
the fair value of the consideration paid for the Other Founding Companies over
the fair value of the net assets acquired from such companies. The amortization
of goodwill is a non-cash charge to operating income. Generally accepted
accounting principles require the amortization of goodwill over its useful life,
which in the Company's case will be the maximum of 40 years. The pro forma
impact of the Company's amortization expense, which is non-deductible for tax
purposes, is expected to be approximately $100,000 per year. The owners of the
Founding Companies have contractually agreed to certain adjustments in
compensation and benefits in connection with the Combination. The aggregate
result of these adjustments -- a reduction of $282,000 and $56,000 for the year
ended December 31, 1996 and the three months ended March 31, 1997, respectively
(the "Compensation Differential") -- has been reflected in the Unaudited Pro
Forma Combined Statements of Income of the Company presented elsewhere in this
Prospectus. However, the combined operating results presented above do not
reflect the effect of the Compensation Differential, goodwill amortization, or
any other pro forma adjustments.
The Company anticipates that, following the Combination, it will realize
savings from several sources, including (i) increased volume discounts and
rebates from vendors, (ii) consolidation of certain administrative functions,
and (iii) lower borrowing rates. These savings will be offset, to some extent,
by costs related to the Company's new senior management and costs associated
with being a public company. No such savings are reflected in the above combined
information or the following discussion.
Three Months Ended March 31, 1997 Compared to March 31, 1996
Net Sales. Net sales increased $4.9 million, or 7.9%, from $61.8 million
for the three months ended March 31, 1996 to $66.7 million for the three months
ended March 31, 1997. The increase was attributable to several factors,
including an increase in the number of new, and increased revenue under
existing, integrated supply contracts. Of the $4.9 million increase, $2.0
million resulted from increased orders from existing customers, $1.0 million
from an increase in integrated supply contracts, and $1.5 million in business
from new customers.
Cost of Sales. Cost of sales increased $4.0 million, or 8.5%, from $46.8
million for the three months ended March 31, 1996, to $50.8 million for the
three months ended March 31, 1997, primarily as a direct result of the increased
amount of sales in the latter period. As a percentage of net sales, however,
cost of sales
17
<PAGE> 19
increased from 75.8% for the three months ended March 31, 1996 to 76.2% for the
three months ended March 31, 1997. The increase was due to a significant
increase in volume of sales with a lower margin customer, which was partially
offset by an increase in sales of products with a higher profit margin. The
increased margins were recorded in the stock sale category and partially offset
by lower margins on abrasive products.
SG&A Expenses. Selling, general, and administrative expenses increased
$441,000, or 3.4%, from $13.1 million for the three months ended March 31, 1996,
to $13.6 million for the three months ended March 31, 1997. The increase is
attributable in part to the higher volume of business, but it also reflects
certain increases in start up costs associated with new integrated supply
contracts, employee health care and retirement costs, and professional fees
incurred. As a percentage of net sales, however, selling, general, and
administrative expenses remained relatively consistent between periods.
Operating Income. Operating income increased to $2.3 million for the three
months ended March 31, 1997, from $1.8 million for the three months ended March
31, 1996. As a percentage of net sales, operating income increased from 3.0% for
the three months ended March 31, 1996 to 3.5% for the three months ended March
31, 1997.
Year Ended 1996 Compared to 1995
Net Sales. Net sales increased $20.4 million, or 8.8%, from $230.9 million
in 1995 to $251.3 million in 1996. The increase primarily reflects substantial
growth in revenue from all categories of revenue. An acquisition at the end of
1995 contributed approximately $6.0 million in net sales in 1996. Price
increases ranged between 1% and 3%. These factors more than offset a $2.5
million decrease in gross sales to one large customer as a result of a vendor
agreeing to bill the customer directly (a "direct bill arrangement") and the
Company receiving a commission on the sale rather than recording the gross
amount of the sale as revenue.
Cost of Sales. Cost of sales increased $14.4 million, or 8.1%, from $176.7
million in 1995 to $191.1 million in 1996, primarily as a result of the increase
in sales in 1996. As a percentage of net sales, however, cost of sales decreased
from 76.5% in 1995 to 76.0% in 1996. The decrease was primarily due to a higher
margin product mix, increased margin as a result of the change to the direct
bill arrangement with the customer discussed above, and increased vendor
rebates.
SG&A Expenses. Selling, general, and administrative expenses increased
$5.0 million, or 10.4%, from $48.3 million in 1995 to $53.3 million in 1996. As
a percentage of net sales, these expenses increased from 20.9% in 1995 to 21.2%
in 1996. The increase was primarily due to higher start-up costs associated with
new specialized services and integrated supply contracts (approximately $1.4
million) and an increase in infrastructure needed to support increased volume.
Approximately $800,000 reflects the Company's expenditures for technology
upgrades and enhancements.
Operating Income. Operating income increased $1.0 million or 16.9%, from
$5.9 million in 1995 to $6.9 million in 1996. As a percentage of net sales,
operating income increased from 2.6% in 1995 to 2.8% in 1996.
Year Ended 1995 Compared to 1994
Net Sales. Net sales increased $24.3 million, or 11.8%, from $206.6
million in 1994 to $230.9 million in 1995. The increase is attributable
primarily to new customers within the stock sales category, although integrated
supply increased $1.5 million. Prices increased an average of 1% to 3%.
Cost of Sales. Cost of sales increased $19.4 million, or 12.3%, from
$157.3 million in 1994 to $176.7 million in 1995, primarily as a result of the
increase in sales in 1995. As a percentage of net sales, cost of sales increased
from 76.1% in 1994 to 76.5% in 1995. The increase was due to narrowing margins,
specifically in the abrasives product category, and some inventory write downs.
SG&A Expenses. Selling, general, and administrative expenses increased
$3.7 million, or 8.3%, from $44.6 million in 1994 to $48.3 million in 1995. As a
percentage of net sales, these expenses decreased from
18
<PAGE> 20
21.6% in 1994 to 20.9% in 1995. The dollar increase in SG&A was primarily the
result of increases in integrated supply charges, sales commissions, and
compensation expense. However, the decrease as a percent of sales is a result of
using existing Company overhead to support the higher sales level.
Operating Income. Operating income increased $1.2 million, or 25.5%, from
$4.7 million in 1994 to $5.9 million in 1995. As a percentage of net sales,
operating income increased from 2.3% in 1994 to 2.6% in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
At March 31, 1997, combined working capital was $34.2 million. Upon
consummation of the Combination and after applying the estimated net proceeds of
the Offering as discussed under "Use of Proceeds", the Company will have $
million of cash and cash equivalents, $ million of working capital, and no
outstanding indebtedness under its operating lines of credit. The $ million
of operating indebtedness of the Founding Companies is anticipated to be repaid
from Offering proceeds in connection with the Combination. The Company is
currently negotiating the terms of a credit facility with a bank that is
expected to include both an operating line of credit and a facility for use in
connection with future acquisitions by the Company (the "Credit Facility").
The principal operating capital requirements of the Company are for
increases in inventory and accounts receivable and purchasing and upgrading
property and equipment. Whether or not the Credit Facility is established,
management believes that the Company's available cash and working capital,
together with cash flow generated from operations, will be adequate to enable
the Company to fund its current operations on a combined basis and to fund
anticipated internal expansion for at least the next year. Management also
believes the Company could make some acquisitions and fund its capital
requirements to integrate those new businesses, without establishing the Credit
Facility, if it is able to use its Common Stock as the acquisition
consideration. However, in order to fully implement its contemplated acquisition
program, management believes the Company will need to establish the Credit
Facility or obtain comparable borrowing arrangements from other sources. While
there can be no assurance that the Company will be able to do so, management
believes that the Company's size and other resources will enable it to obtain
adequate credit arrangements, on acceptable terms, to meet its anticipated
operating and growth objectives for the foreseeable future.
Net cash (used in) provided by operating activities in 1996 and 1995 was
$(3.0 million) and $400,000, respectively. These changes were principally due to
the funding of working capital requirements for inventory and accounts
receivable for 1996.
Net cash used for investing activities, primarily attributable to capital
expenditures, in 1996 and 1995 was $800,000 and $2.4 million, respectively.
Net cash provided by financing activities in 1996 and 1995 was $4.0 million
and $2.3 million, respectively. Cash was primarily provided by the various lines
of credit arrangements that the Founding Companies have established.
RESULTS OF OPERATIONS -- PREDECESSOR-IDG
This discussion of the historical results of operations of Predecessor-IDG,
and the following discussion of "Liquidity and Capital Resources" of
Predecessor-IDG, are included herein as prescribed disclosures as a result of
SAB 97. They should be read in conjunction with the audited financial statements
of Predecessor-IDG included elsewhere in this Prospectus.
Predecessor-IDG operates three divisions that sell industrial supply
products to different industries. The largest division (64% of fiscal 1996
sales) sells to pulp, chemical, textile, and furniture manufacturers. Other
divisions sell to the recreational vehicle and manufactured housing market (26%
of fiscal 1996 sales) and to the residential and commercial construction
industry (10% of fiscal 1996 sales).
19
<PAGE> 21
Three Months Ended March 31, 1997 Compared to March 31, 1996
Net sales increased $1.0 million, or 4.4%, from $22.6 million in 1996 to
$23.6 million in 1997. This increase was primarily due to an increase in the
number of integrated supply contracts between periods and the strengthening of
Predecessor-IDG's sales force.
Cost of sales increased $700,000, or 4.2%, from $16.7 million in 1996 to
$17.4 million in 1997. As a percentage of net sales, cost of sales decreased
from 73.9% in 1996 to 73.7% in 1997. The decrease was primarily due to an
increase in sales of products with a higher profit margin.
Selling, general, and administrative expenses increased $200,000, or 3.9%,
from $5.1 million in 1996 to $5.3 million in 1997. As a percentage of net sales,
selling, general, and administrative expenses decreased from 22.8% in 1996 to
22.6% in 1997.
Other expense remained flat between periods.
Operating income increased to $836,000 in 1997 from $781,000 in 1996. As a
percentage of net sales, operating income remained constant at 3.5%.
Year Ended 1996 Compared to 1995
Net sales increased $7.3 million, or 8.7%, from $83.5 million in 1995 to
$90.8 million in 1996. This increase was primarily due to the implementation
throughout the year of more integrated supply contracts and the strengthening of
Predecessor-IDG's sales force.
Cost of sales increased $4.9 million, or 7.9%, from $62.4 million in 1995
to $67.3 million in 1996. As a percentage of net sales, cost of sales decreased
from 74.7% in 1995 to 74.1% in 1996. The decrease was primarily due to
cooperative purchasing arrangements and efficiencies realized in
Predecessor-IDG's inventory tracking systems.
Selling, general, and administrative expenses increased $2.4 million, or
12.8%, from $18.8 million in 1995 to $21.2 million in 1996. As a percentage of
net sales, selling, general, and administrative expenses increased from 22.5% in
1995 to 23.3% in 1996. The increase was primarily due to start-up costs
associated with the integrated supply contracts discussed above and costs
associated with its inventory tracking system implementation.
Other expenses increased $500,000, or 45.5%, from $1.1 million in 1995 to
$1.6 million in 1996. The increase was due to higher interest expense and the
settlement and related costs in 1996 of shareholder litigation.
Operating income decreased from 2.8% of sales in 1995 to 2.5% in 1996.
Year Ended 1995 compared to 1994
Net sales increased $7.9 million, or 10.4%, from $75.6 million in 1994 to
$83.5 million in 1995. This increase was primarily due to increased penetration
of sales to existing customers.
Cost of sales increased $6.4 million, or 11.4%, from $56.0 million in 1994
to $62.4 million in 1995. As a percentage of net sales, cost of sales increased
from 74.1% in 1994 to 74.7% in 1995. The increase was primarily due to
writedowns of obsolete and discontinued inventory.
Selling, general, and administrative expenses increased $1.4 million, or
8.0%, from $17.4 million in 1994 to $18.8 million in 1995. As a percentage of
net sales, selling, general, and administrative expenses decreased from 23.0% in
1994 to 22.5% in 1995. The decrease was primarily due to the ability to use the
existing corporate overhead level to increase net sales.
Other expense increased $100,000, or 10.0%, from $1.0 million in 1994 to
$1.1 million in 1995. The increase was due to higher interest expense in 1995.
20
<PAGE> 22
Operating income remained relatively flat from 1994 to 1995. As a
percentage of net sales, operating income decreased from 2.9% in 1994 to 2.8% in
1995.
LIQUIDITY AND CAPITAL RESOURCES -- PREDECESSOR-IDG
At March 31, 1997, Predecessor-IDG's working capital was $16.8 million.
Predecessor-IDG's principal capital requirements have been to fund inventory and
accounts receivable and purchase and upgrade property and equipment.
Historically, these requirements have been met by cash flows from operating
activities and borrowings under bank lines of credit.
Predecessor-IDG has a bank line of credit for up to $20 million based upon
a contractually defined formula of outstanding trade accounts receivable and
merchandise inventory. The line is secured by accounts receivable, inventory,
and other assets, and expires in March 1999. The line, which is expected to be
adequate for Predecessor-IDG's growth through 1998, is anticipated to be repaid
upon consummation of the Combination and the Offering.
Net cash provided by (used in) operating activities for 1996, 1995, and
1994 was ($4.8 million), ($100,000), and $700,000 respectively. These changes
were principally due to the funding of working capital requirements for
inventory and accounts receivable for all three years and decreased net income
and reduction in payables for 1996.
Net cash used for investing activities was primarily attributable to
capital expenditures and for 1996, 1995, and 1994 was $400,000, $200,000, and
$300,000, respectively.
Net cash (used in) provided by financing activities for 1996, 1995, and
1994 was $5.2 million, $100,000, and ($600,000), respectively. Predecessor-IDG,
which is an "S Corporation", made distributions to its shareholders of $400,000,
$600,000 and $500,000 for 1996, 1995, and 1994, respectively. Predecessor-IDG
also repaid a shareholder note of $150,000 in 1995. Its net borrowings for 1996,
1995 and 1994 were $5.7 million, $800,000, and $100,000, respectively.
21
<PAGE> 23
THE COMBINATION
The Company was formed in February 1997 to create a leading, nationwide
supplier of cost-effective, flexible procurement solutions for manufacturers and
other users of maintenance, repair, operating, and production ("MROP") products.
The Company will commence operations by combining the existing businesses of
nine MROP distributors (the "Founding Companies") that collectively are engaged
in business across a broad spectrum of MROP products and services in different
geographic locations around the United States. The Company has entered into a
definitive acquisition agreement with each Founding Company. When the
acquisitions are consummated, simultaneously with the closing of the Offering,
each Founding Company will become an operating subsidiary of the Company. As
combined, the Company will have 41 operating locations in 37 cities, along with
four small facilities abroad, serving over 20,000 customers. The Founding
Companies, on a pro forma combined basis, had net sales of approximately $251
million for the 12 months ended December 31, 1996, and net sales of
approximately $67 million for the three months ended March 31, 1997.
Over the last 10 years, the presidents of the Founding Companies have
developed significant professional and personal relationships, through meetings
at industry conventions, participating on supplier advisory boards and in trade
associations, and periodic informal exchanges. These principals, who have had an
average of over 20 years of experience in the industrial distribution industry,
have shared ideas for "best practices" with respect to such matters as
marketing, management, and operating systems. The decision to form the Company
emerged from these relationships, mutual respect developed over time, and a
belief by each principal that the Combination would enhance their individual and
collective ability to compete successfully in the changing MROP market. As a
result, management believes that IDG's ability to integrate successfully the
operations of the Founding Companies after the Combination will be greatly
facilitated.
FOUNDING COMPANIES
Predecessor-IDG, or the business to which it succeeded, has been in
operation since 1972. Predecessor-IDG operates principally throughout the
southeastern United States, with major facilities in Georgia, North Carolina,
and South Carolina. Douglass C. Smith, the President of Predecessor-IDG, who has
been in the MROP business for 25 years, is President and Chief Operating Officer
and a director of the Company. Charles A. Lingenfelter, who has been in the MROP
business for approximately 25 years and has been Executive Vice President of
Predecessor-IDG, will become its president. Predecessor-IDG's net sales for the
twelve months ended December 31, 1996 were approximately $91 million.
Shearer Industrial Supply Co. ("Shearer") has been in operation since 1947.
Shearer operates principally in Delaware, Maryland, North Carolina, and
Pennsylvania. Andrew B. Shearer, the President of Shearer, who has been in the
MROP business for approximately 12 years, is a director of the Company and will
continue as the president of Shearer. Shearer's net sales for the twelve months
ended December 31, 1996 were approximately $44 million.
B & J Industrial Supply Company ("B&J") has been in operation since 1936.
B&J operates principally in Alaska, Washington, and Idaho, and has small sales
offices in Beijing and Shanghai in the People's Republic of China. Martin C.
Burkland, the President of B&J, who has been in the MROP business for 22 years,
will continue as the president of B&J. William J. Burkland, the Vice President
of Finance of B&J, is a director of the Company. B&J's net sales for the twelve
months ended December 31, 1996 were approximately $29 million.
Tri-Star Industrial Supply, Inc. ("Tri-Star") has been in operation since
1956. Tri-Star operates principally in Arkansas, Illinois, and Missouri. George
L. Sachs, Jr., the President of Tri-Star, who has been in the MROP business for
19 years, is a director of the Company and will continue as the president of
Tri-Star. Tri-Star's net sales for the twelve months ended December 31, 1996
were approximately $24 million.
Associated Suppliers, Inc. ("Associated") has been in operation since 1936.
Associated operates principally in Arizona, Oregon, and Washington, and has a
small operation in Sonora, Mexico. William J. Janner, Jr., the President of
Associated, who has been in the MROP business for 19 years, will continue as the
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<PAGE> 24
president of Associated. Associated's net sales for the twelve months ended
December 31, 1996 were approximately $24 million.
J.J. Stangel Co. ("J.J. Stangel") has been in operation since 1917. J.J.
Stangel operates principally in Wisconsin. John J. Zimmer, the President of J.J.
Stangel, who has been in the MROP business for 34 years, will continue as the
president of J.J. Stangel. J.J. Stangel's net sales for the twelve months ended
December 31, 1996 were approximately $12 million.
Cramer Industrial Supplies, Inc. ("Cramer") has been in operation since
1900. Cramer operates principally in New York. Thomas W. Stewart, the President
of Cramer, who has been in the MROP business for 11 years, will continue as the
president of Cramer. Cramer's net sales for the twelve months ended December 31,
1996 were approximately $11 million.
Grinding Supplies Company ("Grinding") has been in operation since 1933.
Grinding operates principally in Michigan. Roy R. Woleben, the President of
Grinding, who has been in the MROP business for 27 years, will continue as the
president of Grinding. Grinding's net sales for the twelve months ended December
31, 1996 were approximately $8 million.
Slater Industrial Supply, Inc. ("Slater") has been in operation since 1946.
Slater operates principally in California. Robert C. Skidmore, the President of
Slater, who has been in the MROP business for 25 years, will continue as the
president of Slater. Slater's net sales for the twelve months ended December 31,
1996 were approximately $7 million.
SELECTED FINANCIAL DATA OF THE FOUNDING COMPANIES
The following table presents selected financial data for each of the
Founding Companies for the three most recent calendar years, as well as the most
recent interim period and comparable period of the prior year. Each Founding
Company has a fiscal year ending December 31, or has been converted to a
December 31 year end for purposes of the following table, and has an interim
period comprising three months.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PREDECESSOR-IDG
Net sales...................................... $75,624 $83,526 $90,786 $22,569 $23,617
------- ------- ------- ------- -------
Gross profit................................... 19,676 21,165 23,456 5,917 6,173
Selling, general, and administrative
expenses(1)................................. 17,447 18,803 21,160 5,136 5,337
------- ------- ------- ------- -------
Operating income............................... 2,229 2,362 2,296 781 836
SHEARER INDUSTRIAL SUPPLY CO.
Net sales...................................... $32,689 $35,946 $44,184 $10,506 $11,293
------- ------- ------- ------- -------
Gross profit................................... 7,304 7,724 10,019 2,355 2,411
Selling, general, and administrative
expenses(1)................................. 6,852 7,250 9,085 2,203 2,067
------- ------- ------- ------- -------
Operating income............................... 452 474 934 152 344
B & J INDUSTRIAL SUPPLY COMPANY
Net sales...................................... $22,108 $25,377 $29,083 $ 6,582 $ 8,156
------- ------- ------- ------- -------
Gross profit................................... 5,922 6,646 7,458 1,724 1,985
Selling, general, and administrative
expenses(1)................................. 5,175 5,631 6,058 1,391 1,646
------- ------- ------- ------- -------
Operating income............................... 747 1,015 1,400 333 339
</TABLE>
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<PAGE> 25
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
TRI-STAR INDUSTRIAL SUPPLY, INC.
Net sales...................................... $19,562 $24,474 $24,010 $ 6,178 $ 7,599
------- ------- ------- ------- -------
Gross profit................................... 3,789 5,027 5,319 1,394 1,722
Selling, general, and administrative
expenses(1)................................. 3,240 4,152 4,431 1,159 1,371
------- ------- ------- ------- -------
Operating income............................... 549 875 888 235 351
ASSOCIATED SUPPLIERS, INC.
Net sales...................................... $21,636 $24,471 $24,481 $ 6,172 $ 6,133
------- ------- ------- ------- -------
Gross profit................................... 4,425 4,917 4,907 1,257 1,265
Selling, general, and administrative
expenses(1)................................. 4,068 4,226 4,156 1,156 1,040
------- ------- ------- ------- -------
Operating income............................... 357 691 751 101 225
J.J. STANGEL CO.
Net sales...................................... $12,607 $12,188 $11,610 $ 2,993 $ 3,093
------- ------- ------- ------- -------
Gross profit................................... 2,978 2,948 2,765 750 774
Selling, general, and administrative
expenses(1)................................. 2,705 2,636 2,517 629 608
------- ------- ------- ------- -------
Operating income............................... 273 312 248 121 166
CRAMER INDUSTRIAL SUPPLIES, INC.
Net sales...................................... $ 8,870 $10,159 $11,467 $ 2,929 $ 2,876
------- ------- ------- ------- -------
Gross profit................................... 2,052 2,152 2,279 584 554
Selling, general, and administrative
expenses(1)................................. 1,894 1,931 2,159 578 613
------- ------- ------- ------- -------
Operating income (loss)........................ 158 221 120 6 (59)
GRINDING SUPPLIES COMPANY
Net sales...................................... $ 7,938 $ 8,371 $ 8,424 $ 2,062 $ 2,121
------- ------- ------- ------- -------
Gross profit................................... 1,850 2,089 2,213 539 579
Selling, general, and administrative
expenses(1)................................. 1,978 2,284 2,151 462 470
------- ------- ------- ------- -------
Operating income (loss)........................ (128) (195) 62 77 109
SLATER INDUSTRIAL SUPPLY, INC.
Net sales...................................... $ 5,574 $ 6,365 $ 7,258 $ 1,788 $ 1,798
------- ------- ------- ------- -------
Gross profit................................... 1,305 1,513 1,772 431 414
Selling, general, and administrative
expenses(1)................................. 1,235 1,394 1,589 400 403
------- ------- ------- ------- -------
Operating income............................... 70 119 183 31 11
</TABLE>
- ---------------
(1) Does not reflect the effects of certain reductions in salaries and benefits
to the owners of the Founding Companies (see "Summary Pro Forma Combined
Financial Data").
TERMS OF THE COMBINATION
To effect the Combination, the Company will acquire each of the Founding
Companies in a merger or stock purchase. The aggregate consideration payable to
the stockholders of the Founding Companies in the Combination (the "Combination
Consideration") consists of shares of Common Stock and incidental cash
amounts in lieu of fractional shares. A dissenting shareholder of
Predecessor-IDG will receive the fair value of his interest in that company in
accordance with applicable law.
Twenty-five percent of the shares of Common Stock received as Combination
Consideration by each Founding Company stockholder will be deposited in an
escrow account (the "Escrow Account") for the purpose of securing (i) the
guarantee by each stockholder of any receivables on the books and records of its
Founding Company as of March 31, 1997, and (ii) the indemnification obligations
of each stockholder to the Company under the acquisition agreement with the
subject Founding Company, subject to setoff of any
24
<PAGE> 26
indemnification obligations that the Company may have thereunder. A portion of
the escrowed shares will be distributed from the Escrow Account one year after
the closing of the Combination, and the balance after two years, unless required
to be distributed earlier to the Company in respect of its establishment of
indemnification claims prior to such times. Only stockholders who are also part
of the management of a Founding Company ("Management Stockholders") are subject
to indemnification obligations with respect to representations, warranties, and
similar business matters concerning the Founding Company ("Business Matters").
Each stockholder's indemnification obligation is several, not joint, and is
limited in amount to the product of the number of shares received in the
Combination times the price per share in the Offering, except that Management
Stockholders are jointly and severally liable for indemnification claims based
on Business Matters in an amount equal to the aggregate of the individual limits
for all the Management Stockholders. All indemnification obligations, except
with respect to taxes and environmental Business Matters, expire at the end of
two years after the closing of the Combination.
The President of each Other Founding Company and the Executive Vice
President of Predecessor-IDG will enter into an employment agreement with the
Company, effective as of the consummation of the Combination, to serve as the
president of that company as an operating subsidiary of the Company. The term of
such employment agreement is three years, and provides for termination by the
Company for cause (as defined in the respective employment agreements). If such
an employee is terminated without cause, he is entitled to a severance payment
equal to his salary for the greater of twelve months or the remainder of the
three-year term.
The closing of the Combination is subject to customary conditions. No
assurance can be given that the conditions to the closing set forth in all of
the acquisition agreements will be satisfied or waived, or that each component
of the Combination will close. However, the closing of the Company's acquisition
of each Founding Company is a condition to the closing of the acquisition of
each other Founding Company and to the consummation of the Offering.
One shareholder of Predecessor-IDG, who owned approximately 45% of its
stock, has dissented from Predecessor-IDG's participation in the Combination.
Pursuant to Georgia's dissenter's rights statute, he will be paid cash instead
of Common Stock for the fair value of his interest in Predecessor-IDG.
Predecessor-IDG has offered to pay that shareholder $ for his interest,
which amount the Company believes represents the fair value of his interest in
Predecessor-IDG as calculated under the dissenter's rights statute (that is,
without regard to the effect of the Combination). There can be no assurance,
however, that the shareholder will accept the offer or that the ultimate amount
paid to the shareholder will not be higher. If he rejects the offer within the
prescribed period (and otherwise complies with the requirements of the Georgia
dissenter's rights statute) and the parties do not otherwise agree on the amount
of the payment, the Company will institute an action under the statute for a
judicial determination of the fair value of his interest. The $ amount
offered by the Company is reflected in the pro forma financial information of
the Company included elsewhere in this Prospectus.
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<PAGE> 27
BUSINESS
GENERAL
Industrial Distribution Group, Inc. (the "Company" or "IDG") was formed in
February 1997 to create a leading, nationwide supplier of cost-effective,
flexible procurement solutions for manufacturers and other users of maintenance,
repair, operating, and production ("MROP") products. The Company distributes a
full line of industrial MROP products, emphasizing its specialized expertise in
product applications. The Company's principal product categories include
abrasives, cutting tools, hand and power tools, and coolants, lubricants, and
adhesives. Utilizing its proprietary computerized Supply Management System, the
Company's application and product specialists are able to analyze a customer's
acquisition, possession, and application processes for MROP supplies in order to
design programs to streamline the processes and reduce associated costs. Such
programs may include improving a customer's production and procurement
processes, standardizing MROP products, reducing the number of suppliers, or
developing integrated supply arrangements that outsource to the Company some or
all of a customer's MROP procurement and management functions.
The Company intends to establish a nationwide presence, with MROP product
and service capability in all or most of the major U.S. industrial markets.
Currently, the Company has 41 operating locations in 37 cities, along with four
small facilities abroad. The Company's more than 20,000 customers include a
diverse group of major national and international corporations, including
AlliedSignal, Black & Decker, Boeing, Chrysler, General Motors, Hoechst
Celanese, PPG Industries, and Shell Oil. On a pro forma combined basis, the
Company had net sales of approximately $251 million for the year ended December
31, 1996, and net revenues of approximately $67 million for the three months
ended March 31, 1997.
INDUSTRY OVERVIEW
Manufacturers, processors, and other producers of industrial, commercial,
or consumer products have a continual need for a broad range of industrial MROP
products. Many of these products -- such as drill bits, sandpaper, and saw
blades -- are consumed in production processes and are essential to maintain at
the point of production to avoid unnecessary downtime. Other MROP
products -- such as power tools, scales, hoists, and lathes -- have relatively
longer operational lives and are therefore purchased less frequently, but still
must be available "on time" in order to achieve production efficiencies.
The Company estimates that the size of the market for industrial MROP
products in which it participates directly is approximately $70 billion.
However, the entire United States MROP market, which includes electrical, PVF
(pipes, valves, and fittings), power transmission, and other product categories
in which the Company does not currently participate, is estimated to be in
excess of $175 billion. This larger market is highly fragmented, with the 50
largest distributors (all of which have annual sales over $90 million)
accounting for less than 15% of the market.
Manufacturers and other users of MROP products are seeking ways to enhance
efficiencies and reduce MROP process and procurement costs in order to compete
more effectively in the global economy. As a result, the industrial supply
industry is experiencing consolidation, as customers focus on the convenience,
cost savings, and economies of scale associated with a reduced number of
suppliers capable of providing superior service and product selection. Further,
as manufacturers focus on their core manufacturing or other production
competencies, they are increasingly outsourcing their MROP procurement,
management, and application processes in search of comprehensive MROP solutions,
such as integrated supply. The Company believes that it will benefit from these
industry trends.
BUSINESS STRATEGIES
As a result of the Combination and the Offering, the Company believes that
it has the size, scale of operations, and resources necessary to compete
effectively in the evolving industrial MROP supply industry. The Company's size
and scale of operations allow it to benefit from high volume purchasing, attract
the highly skilled personnel required to deliver enhanced levels of service, and
realize internal operating efficiencies. The Company's resources enable it to
offer a comprehensive product line and invest in sophisticated inventory
26
<PAGE> 28
management and control systems needed to support its enhanced levels of customer
service. Finally, the Company's position enhances its ability to implement its
acquisition strategy in the consolidating and fragmented MROP industry.
Operating Strategy
Superior Product Expertise and Comprehensive Product Line. One of the
Company's core competencies is its extensive product expertise. With its
understanding of the most appropriate product for specific customer
applications, the Company can identify the MROP product best suited for a
customer's specific need. This expertise benefits the customer in two ways, each
of which lowers the customer's total MROP costs. First, the customer increases
the efficiency of its manufacturing processes by minimizing downtime and other
indirect costs. Second, by providing only that level of quality required by the
application, the Company can lower the customer's MROP product costs. The
Company's comprehensive product line supports its commitment to deliver the most
appropriate product to its customers. In addition to maintaining over 100,000
stock keeping units ("SKUs"), as well as special items in stock for regular
customers, the Company can provide virtually any MROP item, including
special-order items.
Flexible Procurement Solutions; Integrated Supply. The Company believes
the key to serving customers in the changing MROP market is the ability to
design and implement customized flexible procurement solutions for acquiring,
possessing, and applying MROP products to satisfy each customer's particular
needs and achieve its cost reduction objectives. The spectrum of services
necessary to deliver such solutions is broad. For customers who are not yet
prepared to outsource their entire MROP procurement and management functions,
the Company provides a range of options from which customers may select the
appropriate types and level of service. For customers who desire total
procurement solutions designed and implemented through a single distributor, the
Company offers its "fully integrated supply" programs, which permit customers to
outsource to the Company the entire MROP procurement and management function,
including ownership by the Company of inventory in the customer's on-site MROP
supply room (or "tool crib"). The Company's services include, as needed by the
customer: assessing a customer's total procurement costs for its MROP
requirements (comprised of product ordering, carrying, management,
administrative, and other overhead costs); re-engineering procurement and
production processes; standardizing products; reducing the number of
distributors, with a corresponding reduction in purchase orders and invoices
processed by customers; reducing the numbers of products used by the customer;
acquiring supplies on an "on-time" basis; managing and supplying MROP items
using the Supply Management System; managing and staffing customers' tool cribs;
bar coding products in tool cribs to facilitate ordering and to track and
control consumption by employee, product, or cost center; and generating a
variety of customer-designed management reports.
Centralized Corporate Functions and Decentralized Operating Management. At
the corporate level, on the one hand, the Company will consolidate functions
such as financial, accounting, management information systems, employee
benefits, and certain purchasing arrangements to eliminate duplicative
administrative and other costs that otherwise would be incurred at each of its
operating locations. The resulting operating efficiencies, along with the
enhanced leverage from higher volume purchasing, should provide the Company an
advantage over smaller regional and local competitors. At the operating
subsidiary level, on the other hand, the Company will employ a decentralized
management structure that focuses management at each operating subsidiary on
day-to-day operating matters, profitability, and growth, as well as identifying
potential acquisition candidates. The Company believes that its decentralized
management philosophy will result in better customer service by allowing local
management the flexibility to implement policies and make decisions based on
first-hand assessments of the needs and desires of individual customers.
Superior Customer Service. Providing superior quality and a comprehensive
range of MROP services to customers is the IDG hallmark. As part of its
commitment to customer service, the Company emphasizes quality assurance in all
phases of its operations. The Company's sales and service personnel receive
ongoing periodic training in TQM ("total quality management") and other team
management skills to assure such quality performance. IDG also will seek
certification under the International Standards Organization ("ISO") 9002
standards for distribution with respect to its principal locations and expects
to make such certification a Company-wide objective for all future principal
locations.
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<PAGE> 29
Commitment to Technology. The Company's proprietary computerized Supply
Management System and its internal management and information systems will be
instrumental in delivering high quality customer service and in reducing the
Company's operating costs. The Supply Management System is designed to allow a
customer to order products directly from the Company, set internal purchase
control limits for its personnel, coordinate the management of MROP items within
its tool cribs, run customized reports, and perform numerous other functions
that facilitate the procurement process or reduce its costs. When fully
implemented, the Company's internal management and information systems will
track all of its products nationwide and will enable a customer and the
Company's sales personnel anywhere to determine the availability of products in
stock on a real time basis and to evaluate alternative products and pricing. The
Company is committed to continually assessing and implementing technological
innovations that will enhance its ability to serve customers and improve its
operating results. The Company will seek to use technology to reduce its order
processing and receiving costs, by means such as product bar coding, electronic
funds transfer ("EFT"), electronic data interchange ("EDI"), and vendor managed
inventory ("VMI") modules to facilitate on-time procurement of products, without
the administrative expense and inconveniences of the traditional exchange of
purchase orders and invoices.
Growth Strategy
Internal Growth. Management believes that significant opportunities exist
to increase revenues and earnings through internal expansion, particularly due
to the Company's enhanced competitive position resulting from the Combination.
Through focused marketing both inside and outside the United States, the Company
will seek to add revenue by offering additional products and services to new and
existing customers and identifying any unserved facilities of its larger
existing customers. Where necessary to increase its market share, the Company
will open or expand facilities in the vicinity of existing operations. The
Company will also consider the desirability of internal expansion into new
geographic markets.
Acquisitions in Select Geographic Markets. The Company intends to launch
an aggressive acquisitions program to take advantage of consolidation
opportunities that management believes exist within the highly fragmented
industrial MROP market. The Company will focus primarily on industrial MROP
markets in the United States, and initially on those major markets where the
Company does not presently operate. The Company will seek to acquire successful
MROP distribution and related businesses that are large enough to establish a
significant initial presence and to provide for future Company expansion in the
particular market. The Company will seek to retain the management of acquired
businesses.
"Hub and Spoke" Expansion Strategy. The Company will utilize a "hub and
spoke" approach both for acquisitions and internal expansion. In establishing a
"hub" location, the Company generally will assess both the volume of MROP
utilization in the geographic area and the ready availability of transportation
and warehouse facilities to permit the Company to develop and support smaller
operations in surrounding regions through centralization of some functions at
the hub location. Upon establishing a hub, the Company will seek to acquire or
open additional smaller operations, or "spokes", in the surrounding geographic
area to increase market penetration or capitalize on operating efficiencies
available through the hub.
Expansion into International Markets. The Company believes that the
consolidation and outsourcing trends that provide growth opportunities in the
United States offer comparable opportunities in international markets. The
Company plans initially to extend its offering of flexible procurement solutions
to foreign manufacturing facilities of its domestic customers to develop a base
for potentially expanded international operations. The Company has been active
in the People's Republic of China since 1988, establishing sales offices in
Beijing (1994) and Shanghai (1996), and in Mexico since 1997.
FLEXIBLE PROCUREMENT SOLUTIONS; INTEGRATED SUPPLY
The ability to deliver customized flexible procurement solutions that are
specially designed to reduce a particular customer's MROP costs is one of the
fundamental strengths of the Company. The spectrum of services necessary to
design and implement such solutions for customers in the changing industrial
MROP
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<PAGE> 30
market is broad and must encompass all three phases of a customer's MROP
cycle -- acquisition, possession, and application. The Company offers the entire
spectrum of services in order to assure its ability to design and implement
procurement solutions that meet each particular customer's MROP requirements.
Some customers may require nearly the entire spectrum of services -- a
so-called "fully integrated supply" relationship, where the Company essentially
forms a strategic alliance with the customer to procure, manage, and apply MROP
products at the customer's site and to share the benefits of the cost reductions
achieved. The Company's fully integrated supply relationships, which are not
standardized and vary from customer to customer, usually include licensing IDG's
proprietary Supply Management System to the customer; gaining access to plant
floors to re-engineer procurement and production processes and standardize MROP
products; coordinating the purchase of multiple MROP product lines; providing
consolidated invoices and customized management reports via a direct network
link to customers; and managing and staffing tool cribs. In addition, in a fully
integrated supply relationship, the Company, rather than the customer, generally
owns the inventory in the tool crib. The Company believes that the nature of
integrated supply relationships will continue to evolve, and it will seek to
maintain the capability to provide whatever level of integration its customers
may require over time.
In a fully integrated supply relationship, the Company often guarantees a
minimum annual reduction in the customer's total MROP costs. The Company
believes it can achieve such guaranteed cost reductions through its focused and
ongoing analysis and re-engineering of a customer's production processes to
reduce the variety and number of MROP products used by the customer. In addition
to the contractually guaranteed cost reductions, the Company often achieves
additional costs savings for the customer through the reduction of certain tool
crib staffing expenses; the reduction in shrinkage and obsolete stock due to
better inventory controls; and the elimination of certain inventory holding
costs. Where the Company saves additional costs for a customer through process
improvements, the customer usually shares the additional savings with the
Company. The Company believes that, for appropriate customers, a fully
integrated supply arrangement also has other benefits. For example, through the
use of the Company's proprietary Supply Management System, the customer
experiences a better fill rate for MROP products; reduces production downtime
due to the unavailability of key products; and obtains more useful information
about inventory needs and consumption by cost center than previously collected.
Other customers require less comprehensive solutions, and the Company has
the flexibility to design and implement only those services needed by the
customer. In addition to selections from the services described for fully
integrated supply arrangements, these specialized services may include any one
or more of the following: providing consolidated billing for MROP products and
computerized management reports to customers regarding purchases and inventory
levels; installing computer software and hardware to implement an EDI system to
enable the customer to order products from its own location electronically
without contacting the Company by telephone or facsimile; and bar coding
products in a customer's tool crib to control inventory and track consumption by
product, employee, or cost center. Other services, as needed to respond to a
particular customer's MROP requirements, can be designed and implemented to
achieve the desired solution.
At June 30, 1997, the Company had in place 19 fully integrated supply
arrangements with 17 customers covering 20 sites, and supply contracts for
specialized services with over 300 customers.
PRODUCTS
The Company offers a full line of industrial MROP products, stocks specific
items for regular customers, and can satisfy virtually any requirement a
customer may have for an MROP application or service. The Company's principal
categories of products include abrasives, cutting tools, hand and power tools,
coolants, lubricants, and adhesives, among others. The Company will be able to
offer significant depth and breadth in its core product lines to customers
throughout its nationwide operations, which will distinguish it from most of its
present competitors. The Company's products may be ordered electronically, by
telephone, by mail, or by facsimile. The Company will at all times seek to
provide its customers with the most convenient method of
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<PAGE> 31
selecting and ordering products, which in the future may include paper and
electronic catalogs, Internet commerce, and other publications.
The Company's offering of specific products from multiple manufacturers at
different prices and quality levels permits the Company to offer the product
that provides the best value for the customer. For example, if a customer
requires a drill bit to drill 100 holes, it would be inefficient and more costly
to purchase the top-of-the line product that is designed for a requirement of
drilling 10,000 holes. The Company's application and product specialists are
trained specifically to assist customers in making such intelligent cost-saving
purchases, with the goal of lowering the customer's total MROP product costs.
The Company believes these factors will significantly enhance its volume of
repeat business, and they are an integral part of the Company's overall customer
costs reduction and total procurement solution.
The following table sets forth the MROP products offered by the Company,
based on the Industrial Distribution Association product categories, describes
typical products in each category, and presents the percentage of the Company's
aggregate revenues from sales of the product category for 1996:
<TABLE>
<CAPTION>
% OF
AGGREGATE
PRODUCT CATEGORY TYPICAL PRODUCTS REVENUE
- ---------------- ---------------- ---------
<S> <C> <C>
Abrasives............................ Grinding Wheels, Sanding Belts, Discs, Sheets 17.3%
or Rolls
Cutting Tools........................ Drills, Taps, Carbide Tools, End Mills 15.3
Hand Tools........................... Wrenches, Socket Sets, Screwdrivers, Hammers 11.2
Power Tools.......................... Air and Electric Drills, Air Compressors, 10.5
Impact Wrenches, Screwdrivers
Coolants, Lubricants, and 6.5
Adhesives.......................... Metal Cutting Coolants, Aerosols, Industrial
Adhesives
Material Handling Equipment.......... Hoists, Slings, Chain, Shelving, Casters 5.2
Maintenance Equipment & Supplies..... Hydraulic Tools, Paint, Lubrication Equipment 4.3
Safety Products...................... Gloves, Signs, Absorbents, Glasses 4.0
Contractor Supplies.................. Powder-Actuated Tools, Ladders, Shovels 2.6
Machine Tools & Accessories.......... Milling Machines, Work Holding Vises, Tool 2.1
Holders
Fasteners............................ Socket Screws, Hex Screws, Anchors 1.7
Industrial Hose...................... Air Hose, Water Hose 1.7
Quality Control Products............. Electronic Calipers, Micrometers 1.6
Saw Blades........................... Band, Hack, Hole, Jig Saw Blades 1.5
Fluid Power.......................... Hydraulic and Pneumatic Valves, Cylinders 1.4
Tool & Die Supplies.................. Ground Stock, Drill Rod, Die Sets 1.4
Power Transmission Equipment......... Belts, Drives, Bearings, Gears, Pulleys 1.3
Brushes.............................. Wire Wheel, Floor Brooms 1.2
Tapes................................ Masking, Filament and Duct Tape 1.1
Industrial Pipe, Valves & Fittings... Pipes, Valves, Fittings 0.6
Welding Equipment & Supplies......... Welders, Weld Rod 0.3
Electrical........................... Fuses, Electrical Switches, Controls 0.2
Metal Goods.......................... Angle Iron, Conduit 0.1
Other Products....................... Not otherwise classified 6.9
-----
Total...................... 100.0%
=====
</TABLE>
In addition to maintaining over 100,000 SKUs in stock, the Company often
maintains supplies of special items for regular customers. Moreover, the Company
is able to supply virtually any special order MROP item. In order to achieve
costs savings for the Company and its customers, the Company periodically
reviews its
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<PAGE> 32
special order activities to identify items ordered with sufficient frequency to
warrant inclusion in the Company's stock.
The Company obtains its products from approximately 3,200 vendors. During
the 12 months ended December 31, 1996, only one vendor provided as much as 10%
of the products sold by the Company, and no other vendor provided more than 4%.
The Company believes it is not materially dependent on any one vendor or small
group of vendors.
The Company ships products anywhere in the world in the time frame required
by the customer. To facilitate such "on time" delivery of the Company's
products, the Company stores its stock MROP products primarily in warehouses at
various locations across the United States. See "-- Properties".
CUSTOMERS
The Company's customers, who number over 20,000, include a broad range of
industrial, commercial, and institutional users of MROP products, from
one-person machine shops to national and multinational corporations such as
AlliedSignal, Black & Decker, Boeing, Chrysler, General Motors, Hoechst
Celanese, PPG Industries, and Shell Oil. For the 12 months ended December 31,
1996, the Company sold products to over 700 customers who purchased at least
$50,000 of products, and no single customer accounted for as much as 5% of the
Company's net sales.
The Company will continue to serve a large number and wide variety of
customers, as part of its planned growth and nationwide expansion strategy.
Management does expect, however, that the Company will place special emphasis on
marketing and sales of core product categories to mid- to large-sized users of
MROP products who require the value-added benefits of the Company's flexible
procurement solutions.
SALES AND MARKETING
The Company has approximately 180 outside sales representatives, 170 inside
sales/customer service representatives, and 50 application and product
specialists. Most of the inside sales/customer service representatives support
the outside sales representatives and are responsible for certain types of
customer service contacts and order entry. The application and product
specialists call on designated customers and are responsible for designing and
presenting the Company's flexible procurement solutions to those customers and
providing technical support with respect to certain products. These specialists
are highly trained individuals who build relationships with customers and assist
them in reducing total procurement costs and improve production processes. Once
the Company's internal operating systems are integrated, its entire sales force
will have access to customers' historic product preferences, order values, and
inventory levels for all of the products stocked by the Company. The sales force
will also be able to access billing information and plant and industry
information, and to input product orders. The Company has invested significant
resources in developing these sales force automation systems and databases. The
databases will be a key component of the Company's marketing strategy and can
offer the Company an ongoing competitive advantage in increasing sales to
existing customers and attracting new customers.
The Company will centralize the administration of Company-wide training
programs and will provide intensive ongoing TQM training programs for all
Company personnel. In addition, each Founding Company has developed, and will
continue to provide as operating subsidiaries of the Company, regular training
programs for its sales personnel and special training programs for any products
distributed only in its market area. Each operating subsidiary will also
maintain a technical support group, as part of its overall sales and marketing
function, dedicated to answering specific customer inquiries, assisting
customers with the operation of products, and finding low cost solutions to
manufacturing problems.
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<PAGE> 33
PROPERTIES
The Company's current warehouses, sales, and administrative offices are as
follows, although it expects to consolidate certain facilities to achieve
operating efficiencies:
<TABLE>
<CAPTION>
LOCATION LEASE/OWN SQUARE FT.
- -------- --------- ---------- TYPE
<S> <C> <C> <C>
Tucson, AZ Lease 14,335 Warehouse/Offices
Little Rock, AR Lease 5,000 Warehouse/Sales
Cerritos, CA Lease 16,500 Warehouse/Sales/Office
Van Nuys, CA Lease 2,750 Warehouse/Sales
Tucker, GA Own 58,180 Warehouse/Sales/Headquarters
West Point, GA Own 33,346 Warehouse/Sales
Elkhart, IN Lease 8,700 Warehouse/Sales
Decatur, IL Lease 10,000 Warehouse/Sales
Baltimore, MD Lease 7,500 Warehouse/Sales
Hermosillo, Sonora, MX Lease 2,400 Warehouse/Offices
Ferndale, MI Own 30,000 Warehouse/Offices
Springfield, MO Lease 10,000 Warehouse/Sales
St. Louis, MO Lease 40,000 Warehouse/Sales
Jamestown, NY Own 4,000 Warehouse/Sales
Tonawanda, NY Own 16,700 Warehouse/Sales
Arden, NC Lease 5,500 Warehouse/Sales
Charlotte, NC Lease 6,900 Warehouse/Sales
Greensboro, NC Lease 52,000 Warehouse/Sales
Greenville, NC Lease 4,174 Warehouse/Sales
Hudson, NC Lease 11,200 Warehouse/Sales
Raleigh, NC Lease 8,800 Warehouse/Sales
Shelby, NC Lease 68,064 Warehouse/Sales
Statesville, NC Lease 550 Sales
Lincoln City, OR Lease 1,800 Sales
Portland, OR Lease 44,800 Warehouse/Offices
Portland, OR Lease 11,450 Warehouse/Offices
Portland, OR Lease 10,500 Warehouse/Sales
Hazleton, PA Lease 3,500 Sales
Reading, PA Lease 15,750 Warehouse/Sales
Southampton, PA Lease 16,000 Warehouse/Sales
Whitehall, PA Lease 24,000 Warehouse/Sales
Williamsport, PA Lease 4,000 Warehouse/Sales
York, PA Lease 22,000 Warehouse/Sales
York, PA Lease 5,000 Warehouse/Offices
Beijing, PRC Lease 500 Sales
Shanghai, PRC Lease 300 Sales
Tianjin, PRC Lease 500 Warehouse
Greenville, SC Lease 15,000 Warehouse/Sales
Knoxville, TN Lease 19,060 Warehouse/Sales
Redmond, WA Lease 2,266 Warehouse/Offices
Seattle, WA Lease 45,000 Warehouse/Sales
Spokane, WA Lease 31,440 Warehouse/Sales
Spokane, WA Lease 1,838 Warehouse/Offices
Tacoma, WA Own 26,150 Warehouse/Sales
Manitowoc, WI Lease 40,000 Warehouse/Sales
</TABLE>
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The Company's corporate offices are contained within Predecessor-IDG's
principal operating location at 2500 Royal Place, Tucker, Georgia, where the
Company is expanding a portion of that space to accommodate its executive
offices.
MANAGEMENT INFORMATION SYSTEMS
The Company will develop, maintain, and utilize computerized management and
information systems, including its internal management and information systems
and its proprietary PC-based Supply Management System for customer product
procurement and management. Both of these systems are important elements of the
Company's ability to meet customers' requirements for increasing levels of
individualized total MROP procurement solutions and also to achieve the
Company's desired level of operating efficiencies. The Company utilizes its
proprietary Supply Management System in providing flexible procurement solutions
for customers. In addition, certain other Founding Companies have internal
information systems that allow centralized management of key functions,
including communication links between warehouse and sales offices, inventory and
accounts receivable management, purchasing, pricing, sales and distribution, and
the preparation of periodic operating control reports that provide concise and
timely information regarding key aspects of its business.
In connection with developing its internal Company-wide systems following
the Combination, the Company expects to draw upon the best features of the
existing systems that have been utilized by the Founding Companies. Once the
systems of the Founding Companies are integrated, certain of the information
systems will operate over a wide area network, and the real-time information
system will allow each warehouse and sales center to share information and
monitor daily progress relating to sales activities, credit approval, inventory
levels, stock balancing, vendor returns, order fulfillment, and other measures
of performance. In addition, the Company's systems will enable it to
automatically purchase inventory from certain vendors based on projected
customer ordering models.
COMPETITION
The industrial MROP products industry is highly competitive and features
numerous distribution channels, including: national, regional, and local
distributors; direct mail suppliers; large warehouse chains; hardware stores;
and manufacturers' own sales forces. Many of the Company's competitors are small
enterprises who sell to such customers in a limited geographic area, but the
Company also competes against several large MROP distributors that have
significantly greater resources than the Company. Certain of the Company's
competitors sell identical products for lower prices than those offered by the
Company. Management believes, however, that the Company's ability to compete
effectively is dependent primarily upon its ability to respond to the needs of
its customers through quality service and product diversity and availability. As
a result of the Combination, the Company will be the 21st largest industrial
MROP distributor, based on the 1997 survey of the top 100 industrial
distributors published in the June 1997 issue of Industrial Distribution
magazine. Management believes the Company's operating and growth strategies will
yield operating efficiencies that enhance its ability to compete successfully
for the types of customers it desires.
PERSONNEL
Immediately after the Combination, the Company expects to have
approximately 850 full-time and 30 part-time associates. Twelve of the Company's
associates will be employed pursuant to a collective bargaining agreement with
local unions affiliated with the International Brotherhood of Teamsters.
Management believes that the Founding Company that has been employing these
persons pursuant to that contract enjoys good relations with these associates,
and has not experienced work stoppages. Management believes the Company's
relations with all of its associates is good.
LEGAL MATTERS
On November 18, 1996, Milliken & Company ("Milliken"), a textile
manufacturer and customer of Predecessor-IDG, filed suit against a manufacturer
of an industrial product and Predecessor-IDG in the
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<PAGE> 35
Superior Court of Troup County, Georgia, Civil Action No. 96-CV-964. Milliken
claims that a product sold to it by Predecessor-IDG as a distributor of the
defendant-manufacturer was defective and caused a fire, severely damaging
Milliken's textile manufacturing plant in LaGrange, Georgia. Milliken alleges
damages of $500 million against the defendants. Predecessor-IDG has denied any
liability, and its insurance carrier is vigorously defending the lawsuit on its
behalf. While the damages alleged by Milliken are exceptional in amount, the
inclusion of the distributor of a product, along with its manufacturer, as a
defendant in an action for alleged product defectiveness is unexceptional. The
litigation is in the early stages of discovery, and while it is not possible to
predict with accuracy the outcome of any such litigation matter, the Company
believes that its insurance will be adequate to cover any loss to
Predecessor-IDG that might result from the lawsuit.
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<PAGE> 36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the directors and executive officers of the
Company is set forth in the following table and paragraphs.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Martin S. Pinson (1)(3)............... 51 Chairman of the Board and Chief Executive Officer
Douglass C. Smith (1)................. 56 President and Chief Operating Officer and Director
Jack P. Healey........................ 38 Vice President, Chief Financial Officer, and Secretary
David K. Barth........................ 53 Director
William J. Burkland................... 35 Director
William R. Fenoglio(1)(2)............. 58 Director
William T. Parr(2)(3)................. 60 Director
George L. Sachs, Jr. (1).............. 55 Director
Richard M. Seigel (2)(3).............. 51 Director
Andrew B. Shearer..................... 34 Director
</TABLE>
- ---------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
Mr. Pinson joined the Company in June 1997 as its Chairman and Chief
Executive Officer. Prior to joining the Company, Mr. Pinson was a co-founder in
1994, and served as Executive Vice President (from inception) and Chief
Financial Officer (from inception to 1995) of U.S. Office Products Company, an
international office products supplier to corporate, commercial, and industrial
customers, which engaged in a consolidation of office products suppliers. From
1991 to 1995, Mr. Pinson served as President of Pinson and Associates, a
Washington, D.C.-based investment, legal, and consulting services firm primarily
serving development stage companies. From 1973 to 1990, Mr. Pinson was Senior
Vice President and Secretary of Greater Washington Investors, Inc., a
publicly-owned venture capital investment company, where he specialized in
developing investment strategy and locating new investment opportunities. He
received his undergraduate degree from Union College and his law degree from
Georgetown University.
Mr. Smith is a co-founder of the Company and has served as its President
and Chief Operating Officer since its inception. Mr. Smith was a co-founder in
1981 of Predecessor-IDG and has served as its President and Chief Executive
Officer since that time. Mr. Smith was also a co-founder in 1972 of Boring &
Smith Industries, Inc., a predecessor of Predecessor-IDG, and had served as its
President until the formation of the Company. Mr. Smith received his
undergraduate degree from the University of Maryland and his Masters in Business
Administration from Emory University.
Mr. Healey joined the Company in June 1997 as Vice President, Chief
Financial Officer, and Secretary. Prior to joining the Company, Mr. Healey was
the partner in charge of assurance services (since 1983) for Miller Ray Healey &
Houser, a regional accounting firm and member of the SEC practice section of
AICPA, during which time he served as auditor for Predecessor-IDG. Prior to
joining that firm, Mr. Healey was a senior auditor with the international
accounting firm of Ernst & Young. Mr. Healey is a certified public accountant
and a certified fraud examiner. He received his undergraduate degree in
accounting from Syracuse University.
Mr. Barth is the President of Barth Smith Company, an investment and
management consulting firm specializing in strategy, marketing, operating and
executive staffing issues associated with various distribution channels, which
he founded in 1991, which assisted the Company with the Combination. Prior to
that time, he served as Vice President, Planning and Development, from 1985 to
1990, and Treasurer, from 1979 to 1984, of W.W. Grainger, Inc., a national
distributor of maintenance, repair, and operating supplies and related
information to commercial, industrial, contractor, and institutional customers.
Mr. Barth also served as Treasurer, Financial Services Group, from 1975 to 1979,
and Manager, Treasury Operations, from 1972 to 1975, of Borg-Warner Corporation,
a multinational diversified manufacturing, finance, and services company.
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<PAGE> 37
Mr. Barth received his undergraduate degree from Knox College in Galesburg,
Illinois, and his Masters in Business Administration from the University of
California at Berkeley.
Mr. Burkland is a co-founder of the Company. Mr. Burkland has served since
1994 as the Vice President of Finance and Controller of B & J Industrial Supply
Company. From 1992 to 1994, Mr. Burkland served as B & J's Director of
International Sales, during which he initiated, managed, and expanded B & J's
international business. Mr. Burkland received his undergraduate degree in
business administration from the University of Washington.
Mr. Fenoglio served as the President and Chief Executive Officer of Augat,
Inc., a manufacturer of connector products, from 1994 to 1996. Prior to that
time, Mr. Fenoglio served as President and Chief Executive Officer (1991 to
1994) and Chief Operating Officer (1985 to 1991) of Barnes Group, Inc., a
diversified manufacturer and distributor which owns Bowman Distribution Company.
From 1961 to 1984, Mr. Fenoglio was employed by General Electric Corporation and
served as the Vice President and General Manager of the Component Motor Division
from 1981 to 1984. Mr. Fenoglio is currently a director of the Southern New
England Telecommunications Corporation and Southern New England Telephone
Company, and he has served as Chairman of the Board of Connecticut Business &
Industry Association. Mr. Fenoglio received his undergraduate engineering degree
from Rose Hulman Institute of Technology and completed the Advanced Executive
Program at Northwestern University's J.L. Kellogg Graduate School of Management.
Mr. Parr has served as Vice Chairman and a director of J. Smith Lanier &
Co., an insurance placement company, since 1980. He currently serves as a
director of ITC Holding and several of its subsidiaries, including ITC Services
Co., Inc. (a management services company), Valley Telephone, InterCall, Inc. (a
conference calling service provider), and Globe Telecommunications, Inc. (a
non-regulated telecommunications provider). He also serves as a director of
AvData Systems, Inc. and ITC DeltaCom. Mr. Parr received his undergraduate
degree in mathematics from Georgia State University.
Mr. Sachs is a co-founder of the Company. Mr. Sachs has served since 1985
as the President of Tri-Star Industrial Supply, Inc., one of the Founding
Companies, and from 1978 to 1985, he served as Tri-Star's Vice
President -- Finance. Prior to joining Tri-Star, Mr. Sachs served as an Audit
Manager for Arthur Andersen & Co. from 1968 to 1978. Mr. Sachs received his
undergraduate degree in accounting from California State Polytechnic University,
and is a certified public accountant.
Mr. Seigel is the Chairman and Chief Executive Officer (since 1990) of
SYSCO Food Services of Los Angeles, a subsidiary of SYSCO Corporation that
distributes a broad range of products and services to restaurants, hotels,
hospitals, schools, the military, and other institutions. Prior to that time,
Mr. Seigel had been Senior Vice President of SYSCO Corporation (1988 to 1990),
which he joined in 1988 following the acquisition by SYSCO Corporation of a
subsidiary of Staley-Continental, Inc. for which Mr. Seigel served as President
from 1984 to 1988. Mr. Seigel received his undergraduate degree from Knox
College and his Masters in Business Administration from The Amos Tuck School of
Business at Dartmouth College.
Mr. Shearer is a co-founder of the Company. Mr. Shearer has served since
1991 as the President of Shearer Industrial Supply Co., one of the Founding
Companies. Prior to becoming President, Mr. Shearer was employed by Shearer
Industrial Supply Co. in various positions from 1985. Mr. Shearer received his
undergraduate degree in business management from New Hampshire College.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Pinson and
Healey, and effective as of the consummation of the Combination, will enter into
an employment agreement with Mr. Smith. The agreements provide for a base salary
of $250,000, $250,000, and $150,000 per year for Messrs. Pinson, Smith, and
Healey, respectively; an annual bonus as determined by the Company's Board of
Directors; and Company benefits of the type generally provided to key
executives. While the Company may terminate an employment agreement at any time
during the term, if the Company terminates the agreement other than for cause,
death, or disability, the Company must pay severance based on the officer's base
salary under the agreement for the greater of 12 months or the unexpired portion
of the term and any performance bonus to which the officer
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<PAGE> 38
would otherwise be entitled for the fiscal year in which such termination
occurs. Messrs. Pinson's and Healey's employment agreements each have a
three-year term from June 1, 1997, and Mr. Smith's employment agreement has a
three-year term from the date of the Combination. All of the agreements contain
customary proscriptions against misuse of Company information, competition with
the Company, and solicitation of employees of the Company.
DIRECTORS COMPENSATION
The Company pays its outside directors an annual fee of $10,000, payable
quarterly. The Company reimburses all directors for their travel and other
expenses incurred in connection with attending Board or Committee meetings, and
also reimburses its outside directors for actual expenses otherwise incurred in
performing their duties. In addition, on , 1997, the Company granted
each outside director options to purchase shares of Common Stock at
the Offering Price. Such options will vest in three equal installments on the
first three anniversaries of the date of grant.
STOCK INCENTIVE PLAN
In July 1997, the Company adopted its Stock Incentive Plan to provide key
employees, officers, and directors an opportunity to own Common Stock of the
Company and to provide incentives for such persons to promote the financial
success of the Company. Awards under the Stock Incentive Plan may be structured
in a variety of ways, including "incentive stock options", as defined in Section
422 of the Internal Revenue Code, as amended ("IRC"), "nonqualified stock
options", shares of Common Stock subject to terms and conditions set by the
Board of Directors ("restricted stock awards"), and stock appreciation rights
("SARs"). Incentive stock options may be granted only to full-time employees
(including officers) of the Company, including its subsidiaries. Non-qualified
options, restricted stock awards, SARs, and other permitted forms of awards may
be granted to any person employed by or performing services for the Company,
including directors. The Stock Incentive Plan provides for the issuance of an
aggregate number of shares of Common Stock equal to 15% of the Company's fully
diluted shares of Common Stock outstanding from time to time, subject to the
issuance of a maximum of 450,000 shares pursuant to incentive stock options.
Incentive stock options are also subject to certain limitations prescribed
by the IRC, including the requirement that such options may not be granted to
employees who own more than 10% of the combined voting power of all classes of
voting stock of the Company, unless the option price is at least 110% of the
fair market value of the Common Stock subject to the option. In addition, such
incentive stock options may not be exercised for more than 5 years from the
stated grant. The Board of Directors of the Company (or a committee designated
by the Board) otherwise generally has discretion to set the terms and conditions
of options and other awards, including the term, exercise price, and vesting
conditions, if any; to select the persons who receive such grants and awards;
and to interpret and administer the Incentive Plan.
As of 1997, options to purchase an aggregate of
shares of Common Stock have been granted under the Stock
Incentive Plan and were outstanding, including options for and
shares of Common Stock issued to Mr. Pinson and Mr. Healey,
respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted an Employee Stock Purchase Plan (the "Stock
Purchase Plan") under which qualified employees of the Company and its
subsidiaries have the right to purchase shares of Common Stock on a quarterly
basis through payroll deductions by the employee. The Stock Purchase Plan will
become effective on , and will be administered by the Compensation
Committee of the Company's Board of Directors. The price to be paid for a share
of Common Stock under the plan is 85% of the fair market value (as defined in
the Stock Purchase Plan) of a share of Common Stock at the beginning or the end
of each quarterly purchase period, whichever is lower. The amount of any
participant's payroll deductions or cash contributions made pursuant to the
Stock Purchase Plan may not exceed 10% of such participant's total annual
compensation and may not exceed $25,000 per year. A maximum of 500,000 shares of
Common Stock may be issued under the Stock Purchase Plan. The Stock Purchase
Plan may be terminated or amended by
37
<PAGE> 39
the Company's Board of Directors; provided, however, that no such amendment
shall (i) disqualify the Stock Purchase Plan under Section 423 of the IRC or
(ii) without the consent of a participant, materially impair the rights of such
participant with respect to any shares of Common Stock previously purchased for
him or her under the Stock Purchase Plan.
The Stock Purchase Plan is intended to qualify under Sections 421 and 423
of the IRC. In accordance therewith, no income will be recognized by a
participant when shares are acquired pursuant to the Stock Purchase Plan. With
certain exceptions, when a participant disposes of such shares, he or she will
recognize a capital gain equal to the difference between the acquisition price
and the amount realized on such disposition. The Company will not be allowed a
deduction with respect to any shares transferred to a participant pursuant to
the Stock Purchase Plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Company's Certificate of Incorporation and Bylaws, the
Company is obligated to indemnify each of its directors and officers to the
fullest extent permitted by law with respect to all liability and losses
suffered and reasonable expenses incurred by such person in any action, suit, or
proceeding in which such person was (or is made or threatened to be made) a
party or is otherwise involved by reason of the fact that such person is or was
a director or officer of the Company. The Company will enter into
indemnification agreements with its directors and certain executive officers. It
will be obligated to pay the reasonable expenses of the directors or officers
incurred in defending such proceedings if the indemnified party agrees to repay
all amounts advanced by the Company if it is ultimately determined that such
indemnified party is not entitled to indemnification. See "Description of
Capital Stock -- Indemnification and Limitations on Liability of Officers and
Directors".
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<PAGE> 40
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of the Common Stock, as of the date hereof and giving effect to the Combination
and the Offering, by (i) each person known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock, including those
persons who are known to be such holders after the closing of the Combination,
(ii) each director and executive officer of the Company, and (iii) all directors
and executive officers of the Company as a group. Unless otherwise indicated,
each of the stockholders listed below has sole voting and investment power with
respect to the shares beneficially owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT PRIOR PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) TO OFFERING(2) AFTER OFFERING(2)
- ------------------------------------ ------------ -------------- -----------------
<S> <C> <C> <C>
Martin S. Pinson........................................
Douglass C. Smith(3)....................................
Jack P. Healey..........................................
David K. Barth(4).......................................
William J. Burkland(5)..................................
William R. Fenoglio.....................................
William T. Parr.........................................
George L. Sachs, Jr.....................................
Richard M. Seigel.......................................
Andrew B. Shearer.......................................
All directors and executive officers as a group (10
persons)..............................................
</TABLE>
- ---------------
* Denotes less than 1%
(1) Includes shares to be received as Combination Consideration by any
stockholder of a Founding Company simultaneously with the closing of the
Offering.
(2) The percentages shown prior to the Offering include all shares to be issued
as Combination Consideration simultaneously with the closing of the
Offering. The percentages shown after the Offering are based on the
assumptions that: (i) there will be shares of Common Stock
outstanding immediately after the closing of the Offering, and (ii) no such
person or entity will purchase any shares in the Offering.
(3) Does not include an aggregate of shares owned by Mr. Smith's wife
and his two adult daughters, with respect to which Mr. Smith disclaims
beneficial ownership.
(4) Does not include an aggregate of shares owned by Mr. Barth's business
associate, with respect to which Mr. Barth disclaims beneficial ownership.
(5) Does not include an aggregate of shares owned by Mr. Burkland's
wife, with respect to which Mr. Burkland disclaims beneficial ownership.
CERTAIN TRANSACTIONS
In February 1997 the Company entered into agreements with the Founding
Companies to (i) confirm their respective intentions (without effecting a
binding commitment to consummate the Combination) to assist the Company's
pursuit of the Combination and the Offering and (ii) commit to pay their pro
rata share of the expenses thereof, whether or not the transactions are
consummated. In the aggregate, the Founding Companies have advanced $655,000 to
IDG pursuant to those agreements, none of which is repayable by IDG.
In 1996 and 1997, each of the Founding Companies paid $7,500 ($67,500 in
the aggregate) to Barth Smith Company, a consulting firm in which David K.
Barth, a director of the Company, has a 75% ownership interest. After
consummation of the Offering, it is expected that Barth Smith Company will
assist IDG in implementing its acquisition strategy.
In June and July 1997, Messrs. Pinson, Healey, and Barth purchased 600,
225, and 200 shares, respectively, at aggregate purchase prices of $600, $225,
and $200, respectively.
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<PAGE> 41
Between January 1996 and May 1997, Predecessor-IDG paid approximately
$130,000 in fees to Miller Ray Healey & Houser, certified public accountants, in
connection with accounting services performed on behalf of Predecessor-IDG. Jack
P. Healey was a partner in Miller Ray Healey & Houser during that time.
Since January 1996, Predecessor-IDG has paid approximately $518,000 in
insurance premiums to J. Smith Lanier & Co., an independent insurance agency, in
connection with business and health insurance purchased by Predecessor-IDG.
William T. Parr is the Vice Chairman of, and has a 12% ownership interest in, J.
Smith Lanier & Co.
In connection with the Combination, and as consideration for their
respective interests in the Founding Companies, certain officers, directors, and
principal stockholders of the Company, and certain immediate family members of
such individuals, will receive shares of Common Stock of the Company as follows:
Douglass C. Smith -- shares; William J. Burkland -- shares; Andrew
B. Shearer -- shares; Charles A. Lingenfelter -- shares; William
J. Janner, Jr. -- shares; Martin C. Burkland -- shares; Charles T.
Burkland -- shares; Thomas W. Stewart -- shares; Roy R.
Woleben -- shares; Robert C. Skidmore -- shares; John
Zimmer -- shares; and George L. Sachs, Jr. -- shares. See "The
Combination".
Upon consummation of the Combination, the Company will succeed to certain
real property leases as lessee with respect to which shareholders of the Company
(former shareholders of certain of the Founding Companies), or their affiliates,
are the lessors. The Company believes that the monthly rent and other terms of
each of these leases are not less favorable to the Company than could be
obtained from unaffiliated parties for comparable properties in the respective
geographic areas. Specifically, following consummation of the Combination, the
Company will lease property in (i) Spokane, Washington from a company in which
the father of William J. Burkland has a 25% ownership interest; (ii) Whitehall,
Pennsylvania from Andrew B. Shearer; (iii) York, Pennsylvania from a company in
which Andrew B. Shearer has a 40% ownership interest; (iv) Reading,
Williamsport, and York, Pennsylvania from a trust of which Andrew B. Shearer's
mother is the trustee and he and his father, brother, and sisters are the
beneficiaries; (v) Hazelton and Lancaster, Pennsylvania from a trust of which
Andrew B. Shearer and his father, brother, and sisters are the beneficiaries;
(vi) Manitowoc, Wisconsin from a trust of which John Zimmer is a beneficiary;
and (vii) St. Louis and Springfield, Missouri from a company in which George L.
Sachs, Jr. has a 15% ownership interest. Messrs. Burkland, Shearer, and Sachs
are each directors and principal stockholders of the Company, and Mr. Zimmer is
a founding stockholder of the Company.
The Company has agreed to cause the release of certain personal guarantees
of indebtedness of the Founding Companies granted by certain former stockholders
of those Founding Companies who are now officers, directors, and holders of 5%
or more of the outstanding shares of the Company within 60 days after
consummation of the Offering. The aggregate amount of such guarantees for each
of these individuals is as follows: Douglass C. Smith -- $31,000; Robert C.
Skidmore -- $598,720; George L. Sachs, Jr. -- $1,929,670; and Thomas W.
Stewart -- $100,000.
Prior to the Combination, B&J had agreed to pay Charles T. Burkland, a
former president and currently a significant stockholder of B&J, a
non-qualified, unfunded pension in the amount of $10,000 per month during his
lifetime and thereafter to his spouse, if she survived him, for her lifetime. As
a condition to B&J's participation in the Combination, B&J made a lump sum
payment of $1.11 million to Charles T. Burkland in exchange for relief from its
obligation to make such monthly pension payments through 2012. As part of that
arrangement, the Company agreed to make such $10,000 monthly payments beginning
in January 2013, if either Mr. Burkland or his spouse is then surviving, and
continuing thereafter until both of them are deceased. In addition, the Company
has agreed to pay 75% of the health and dental insurance costs of Mr. Burkland
and his spouse until their deaths. Mr. Burkland is 71 years old, and his spouse
is 67 years old.
Predecessor-IDG has been treated for federal and certain state income tax
purposes as an S Corporation under the IRC. As a result, earnings of the
corporation have been subject to taxation at the stockholder rather than the
corporate level for federal and certain state income tax purposes. Prior to the
Combination, Predecessor-IDG will make distributions to its stockholders of
previously earned and undistributed earnings
40
<PAGE> 42
through June 30, 1997. The Company will make another distribution as promptly as
practicable after the closing of the Combination to each of the stockholders of
Predecessor-IDG equal to such corporation's earned but undistributed earnings in
accordance with Predecessor-IDG's final tax return.
On July 10, 1997, the Board of Directors adopted a policy that any
transactions between the Company and any of its officers, directors, or
principal stockholders or affiliates must be on terms no less favorable than
those that could be obtained from unaffiliated parties in comparable situations
and must be approved by a majority of the disinterested members of the Board of
Directors. The Audit Committee of the Board of Directors will be responsible for
reviewing all related party transactions on a continuing basis and potential
conflict of interest situations where appropriate.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock and no
predictions can be made as to the effect, if any, that sales of such shares or
the availability of such shares for sale in the public market will have on the
market prices prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market could adversely affect prevailing
market prices and impair the Company's ability to raise capital through the sale
of equity securities.
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock, of which only the shares sold in the
Offering ( shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restrictions or further
registration under the Securities Act, unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act ("Rule
144").
Shares of Common Stock not sold in the Offering were issued and sold by the
Company in private transactions in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act and are restricted securities
under Rule 144. These shares may not be sold unless they are registered under
the Securities Act or are sold pursuant to an applicable exemption from
registration, pursuant to Rule 144. In general, under Rule 144 as currently in
effect, beginning 90 days after the Offering, a person who has beneficially
owned any such shares for at least one year, including "affiliates" of the
Company, would be entitled to sell in broker's transactions or to market makers
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume of the Common Stock on the New York Stock Exchange during
the four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 are also subject to certain manner of
sale restrictions and notice requirements and to the availability of current
public information concerning the Company. A person (or persons whose shares are
aggregated) who is not an "affiliate" of the Company at any time during the 90
days preceding a sale, and who has beneficially owned such shares for at least
two years, would be entitled to sell such shares under Rule 144(k) without
regard to the availability of current public information, volume limitations,
manner of sale provisions, or notice requirements. The above is a summary of
Rule 144 and is not intended to be a complete description thereof.
Notwithstanding the eligibility of certain shares to be sold after the
expiration of the 90 day period, such shares are subject to certain lockup
agreements described below.
As a condition to the Combination, the stockholders of the Founding
Companies have agreed that they will not, directly or indirectly, sell or
otherwise dispose of the shares of Common Stock issued to them as Combination
Consideration for a period of two years after the Combination. In addition, the
Company, its officers and directors, and stockholders of the Founding Companies
have agreed that they will not, directly or indirectly, offer, pledge, sell,
contract to sell, or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus, without the prior written
consent of the Merrill Lynch & Co. on behalf of Underwriters. See
"Underwriting".
The Company plans to file a shelf registration statement to register shares
of Common Stock under the Securities Act for its use in connection with future
acquisitions. When and if any such registration statement is filed, the shares
issued pursuant to it (after the above 180-day period established by the lock-up
agreements with Merrill Lynch & Co.) generally will be freely tradable by
persons not affiliated with the Company, unless the Company contractually
restricts their sale.
41
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $.01 par value per share, and 10,000,000 shares of Preferred
Stock, $.10 par value per share, having such rights and privileges as the Board
of Directors may from time to time determine. Giving effect to the Combination,
shares of Common Stock, and no shares of Preferred Stock, will be
issued and outstanding immediately prior to the Offering.
The following summary of the Company's capital stock does not purport to be
complete and is qualified in its entirety by reference to the Certificate of
Incorporation, as amended, and Bylaws of the Company that are included as
exhibits to the Registration Statement of which this Prospectus forms a part,
and the applicable provisions of the Delaware General Corporation Law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on any issue
submitted to a vote of the stockholders and do not have cumulative voting rights
in the election of directors. Accordingly, the holders of a majority of the
outstanding shares of Common Stock voting in an election of directors can elect
all of the directors then standing for election, if they choose to do so. All
shares of Common Stock are entitled to share equally in such dividends as the
Board of Directors of the Company may, in its discretion, declare out of sources
legally available therefor. See "Dividend Policy". Upon dissolution,
liquidation, or winding up of the Company, holders of Common Stock are entitled
to receive on a ratable basis, after payment or provision for payment of all
debts and liabilities of the Company and any preferential amount due with
respect to outstanding shares of Preferred stock, all assets of the Company
available for distribution, in cash or in kind. Holders of shares of Common
Stock do not have preemptive or other subscription rights, conversion or
redemption rights, or any rights to share in any sinking fund. All currently
outstanding shares of Common Stock are, and the shares offered hereby (when sold
in the manner contemplated by this Prospectus) will be, fully paid and
nonassessable.
The Bylaws provide that, subject to any rights of holders of Preferred
Stock to elect additional directors under specified circumstances, the Company's
Board of Directors will consist of not less than three but no more than 15
directors. Currently, there are nine directors, four of whom are independent
directors.
The Bylaws provide that, subject to any rights of the Preferred Stock, and
unless the Board of Directors otherwise determines, any vacancies may be filled
by the affirmative vote of a majority of the remaining directors. A vacancy
resulting from an increase in the number of directors also may be filled by
action of the Board of Directors.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors, from time to time, may authorize the issuance of shares of Preferred
Stock in one or more series, may establish the number of shares to be included
in any such series, and may fix the designations, powers, preferences, and
rights (including voting rights) of the shares of each such series and any
qualifications, limitations, or restrictions thereon. No stockholder
authorization is required for the issuance of shares of Preferred Stock unless
imposed by then applicable law. Shares of Preferred Stock may be issued for any
general corporate purposes, including acquisitions. The Board of Directors may
issue one or more series of Preferred Stock with rights more favorable with
regard to dividends and liquidation than the rights of holders of Common Stock.
Any such series of Preferred Stock also could be used for the purpose of
preventing a hostile takeover of the Company that is considered to be desirable
by the holders of the Common Stock, could otherwise adversely affect the voting
power of the holders of Common Stock, and could serve to perpetuate the
directors' control of the Company under certain circumstances. No transaction is
now contemplated that would result in the issuance of any such shares of
Preferred Stock.
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<PAGE> 44
INDEMNIFICATION AND LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides for indemnification of
directors to the full extent permitted by Delaware law and, to the extent
permitted by such law, eliminate or limit the personal liability of directors to
the Company and its stockholders for monetary damages for certain breaches of
fiduciary duty and the duty of care. Such indemnification may be available for
liabilities arising in connection with this Offering. Insofar as indemnification
for liabilities under the Securities Act may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. Pursuant to its Certificate of Incorporation, the
Company may indemnify its officers, employees, agents and other persons to the
fullest extent permitted by Delaware law. The Company's Bylaws obligate the
Company, under certain circumstances, to advance expenses to its directors and
officers in defending an action, suit or proceeding for which indemnification
may be sought. In addition, the Company has entered into indemnification
agreements with its directors and executive officers pursuant to which the
Company has agreed to indemnify such persons in certain circumstances.
The Company's Bylaws also provide that the Company shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, or who, while a director,
officer, employee or agent, is or was serving as a director, officer, trustee,
general partner, employee or agent of one of the Company's subsidiaries or, at
the request of the Company, of any other organization, against any liability
asserted against such person or incurred by such person in any such capacity,
whether the Company would have the power to indemnify such person against such
liability under Delaware law. The Company intends to purchase and maintain
insurance on behalf of all of its directors and executive officers.
OTHER MATTERS
Application will be made for listing of the Common Stock on the New York
Stock Exchange under the proposed symbol "IDG".
The transfer agent and registrar for the Company's Common Stock is SunTrust
Bank, Atlanta, Georgia.
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<PAGE> 45
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters severally has agreed to purchase from
the Company, the aggregate number of shares of Common Stock set forth opposite
its name below. The Purchase Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby if any of such shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
The Robinson-Humphrey Company, Inc. ........................
---------
Total..........................................
=========
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $. per share. The Underwriters
may allow, and such dealers may reallow, a discount not in excess of $. per
share to certain other dealers. After the Offering, the initial public offering
price, concession, and discount may be changed.
The Company has granted the Underwriters an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the initial public offering price set forth
on the cover page hereof, less the underwriting discount. The Underwriters may
exercise this option only to cover overallotments, if any, made on the sale of
the shares of Common Stock offered hereby. If the Underwriters exercise this
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the foregoing
table bears to the shares of Common Stock initially offered hereby.
The Company has agreed not to (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or dispose of or transfer any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock or file any
registration statement under the Securities Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, for a period of
180 days from the date of this Prospectus without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated on behalf of the
Underwriters, except for any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to the Company's benefit plans described
herein.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
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<PAGE> 46
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of the Prospectus), the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Certain of the Underwriters have provided from time to time, and may
provide in the future, investment banking services to the Company and its
affiliates, for which such Underwriters have received and will receive customary
fees and commissions.
The Company will apply for listing of Common Stock on the New York Stock
Exchange under the trading symbol "IDG".
The Underwriters have reserved for sale, at the initial public offering
price, up to shares of Common Stock for certain employees, directors,
and business associates of the Company who have expressed an interest in
purchasing such shares of Common Stock. The number of shares available for sale
to the general public in the Offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered to the general public on the same basis as other shares offered hereby.
Prior to the Offering, there has been no established trading market for the
shares of Common Stock. The initial public offering price for the Common Stock
offered hereby has been determined by negotiations between the Company and the
Underwriters. Among the factors considered in making such determination were the
history of and the prospects for the industry in which the Company competes, an
assessment of the Company's management, the past and present operations of the
Founding Companies and the Company, the historical results of operations of the
Founding Companies and the Company and the trend of its revenues and earnings,
the prospects for future earnings of the Company, the general condition of
prices of similar securities of generally comparable companies and other
relevant factors. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the Offering at or above the initial public offering price.
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Kilpatrick Stockton
LLP, counsel to the Company. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom (Illinois).
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<PAGE> 47
EXPERTS
The audited financial statements of Predecessor-IDG, B&J Industrial Supply
Company, and Associated Suppliers, Inc. in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The audited financial statements of Shearer Industrial Supply Co. in this
Prospectus and elsewhere in the Registration Statement have been audited by
Miller & Co. LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
The audited financial statements of J. J. Stangel Co. in this Prospectus
and elsewhere in the Registration Statement have been audited by Schenck &
Associates, SC, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
The audited financial statements of Tri-Star Industrial Supply, Inc. in
this Prospectus and elsewhere in the Registration Statement have been audited by
Baird, Kurtz & Dobson, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which is a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Common Stock, reference is hereby made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus concerning the provisions or contents of any contract, agreement, or
any other document referred to herein are not necessarily complete. With respect
to each such contract, agreement, or document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matters involved, and each statement shall be deemed
qualified in its entirety by such reference to the copy of the applicable
document filed with the Commission. A copy of the Registration Statement,
including the exhibits and schedules thereto, may be inspected without charge at
the Public Reference section of the commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement and the exhibits and schedules thereto can be obtained from the Public
Reference Section of the Commission upon payment of prescribed fees. The
Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Upon effectiveness of the Registration Statement, the Company will become
subject to the informational and periodic reporting requirements of the Exchange
Act, and in accordance therewith, will file periodic reports, proxy statements,
and other information with the Commission. Such periodic reports, proxy
statements, and other information will be available for inspection and copying
at the public reference facilities and other regional offices referred to above.
The Company intends to register the securities offered by the Registration
Statement under the Exchange Act simultaneously with the effectiveness of the
Registration Statement and to furnish its stockholders with annual reports
containing audited financial statements and such other reports as may be
required from time to time by law or the New York Stock Exchange.
46
<PAGE> 48
INDEX TO FINANCIAL INFORMATION
PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Industrial Distribution Group, Inc.
Introduction to Unaudited Pro forma Combined Financial
Statements............................................. F-3
Pro Forma Combined Balance Sheet as of March 31, 1997
(Unaudited)............................................ F-4
Pro Forma Combined Statements of Income for the Year Ended
December 31, 1996 and the Three Months Ended March 31,
1997 (Unaudited)....................................... F-5
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-7
HISTORICAL FINANCIAL STATEMENTS
Industrial Distribution Group, Inc. ("Predecessor-IDG")
Report of Independent Public Accountants.................. F-9
Balance Sheets............................................ F-10
Statements of Income...................................... F-11
Statements of Shareholders' Equity........................ F-12
Statements of Cash Flows.................................. F-13
Notes to Financial Statements............................. F-14
Associated Suppliers, Inc.
Report of Independent Public Accountants.................. F-20
Consolidated Balance Sheets............................... F-21
Consolidated Statements of Income......................... F-22
Consolidated Statements of Shareholders' Equity........... F-23
Consolidated Statements of Cash Flows..................... F-24
Notes to Consolidated Financial Statements................ F-25
B & J Industrial Supply Company
Report of Independent Public Accountants.................. F-31
Consolidated Balance Sheets............................... F-32
Consolidated Statements of Income......................... F-33
Consolidated Statements of Shareholders' Equity........... F-34
Consolidated Statements of Cash Flows..................... F-35
Notes to Consolidated Financial Statements................ F-36
Shearer Industrial Supply Co.
Report of Independent Certified Public Accountants........ F-42
Consolidated Balance Sheets............................... F-43
Consolidated Statements of Earnings....................... F-45
Consolidated Statements of Stockholders' Equity........... F-46
Consolidated Statements of Cash Flows..................... F-47
Notes to Consolidated Financial Statements................ F-49
J. J. Stangel Co.
Report of Independent Public Accountants.................. F-58
Balance Sheets............................................ F-59
Statements of Income and Retained Earnings................ F-61
Statements of Cash Flows.................................. F-62
Notes to Financial Statements............................. F-63
</TABLE>
F-1
<PAGE> 49
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tri-Star Industrial Supply, Inc.
Independent Accountants' Report........................... F-68
Balance Sheets............................................ F-69
Statements of Income...................................... F-70
Statements of Retained Earnings........................... F-71
Statements of Cash Flows.................................. F-72
Notes to Financial Statements............................. F-73
</TABLE>
F-2
<PAGE> 50
INDUSTRIAL DISTRIBUTION GROUP, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The Company will acquire the Founding Companies simultaneously with the
closing of this Offering. Pursuant to the requirements of SAB 97,
Predecessor-IDG has been designated as the acquiror of the Other Founding
Companies for financial reporting purposes. Based upon the provisions of SAB 97,
these acquisitions will be accounted for as purchases at estimated fair value.
However, since the Founding Companies were not under common control or
management, pro forma results may not be comparable to, or indicative of, future
performance.
The unaudited pro forma combined balance sheet gives effect to the
Combination as if it had occurred on March 31, 1997. The unaudited pro forma
combined statements of income give effect to these transactions as if they had
occurred on January 1, 1996.
The following unaudited pro forma financial statements present
Predecessor-IDG and the Other Founding Companies and give effect to the
following pro forma adjustments: (i) the acquisition of the Other Founding
Companies in accordance with the applicable provisions of SAB 97; (ii) the
adjustment to compensation expense for specified Founding Company owners
pursuant to the acquisition agreement applicable to such Founding Company
("Compensation Differential"); (iii) the incremental provision for income taxes
attributable to the income of Predecessor-IDG (an S Corporation), net of the
income tax benefits related to the Compensation Differential and other; (iv) the
liability for the cash consideration to be paid to the dissenting shareholder in
the Combination; (v) the issuance of shares of Common Stock to
shareholders of the Founding Companies in connection with the Combination; (vi)
the adjustments to record the net deferred income tax liability attributable to
the temporary differences between the financial reporting and income tax bases
of assets and liabilities currently held in Predecessor-IDG (an S Corporation);
and (vii) the adjustment for goodwill recorded in connection with the
Combination.
The Company has performed a preliminary analysis of the savings that it
expects to realize as a result of (i) consolidating certain general and
administrative functions; (ii) the reduction in interest payments related to the
repayment of certain outstanding Founding Company debt; (iii) its ability to
borrow at lower interest rates than the Founding Companies; (iv) the interest
earned on the net proceeds of the Offering remaining after payment of the
expenses of the Offering, the cash portion of the consideration paid for the
Founding Companies, and the repayment of certain outstanding Founding Company
debt; and (v) efficiencies in other general and administrative areas. The
Company has not and cannot quantify these savings until after completion of the
Combination. It is anticipated that these savings will be partially offset by
the costs of the Company's new senior management and expenses associated with
being a public company. These costs cannot be quantified accurately.
Accordingly, only those anticipated savings and costs that are factually
supportable have been included in the accompanying pro forma financial
information of the Company.
The pro forma financial data do not purport to represent what the Company's
financial position or results of operations would actually have been if such
transactions and events in fact had occurred on those dates or to project the
Company's financial position or results of operations for any future period. See
"Risk Factors" included elsewhere herein.
These pro forma financial statements should be read in conjunction with
other information contained elsewhere in this Prospectus under the heading
"Selected Pro Forma Combined Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and the historical
financial statements of Predecessor-IDG and the Other Founding Companies. See
"Index to Financial Statements".
F-3
<PAGE> 51
INDUSTRIAL DISTRIBUTION GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR-
IDG ASSOCIATED B&J CRAMER GRINDING SHEARER SLATER J.J. STANGEL
------------ ---------- ------- ------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 13 $ 46 $ 2,872 $ 4 $ 621 $ 0 $ 5 $ 371
Accounts receivable, net.......... 9,856 2,798 3,796 1,190 1,151 5,481 903 839
Inventories, net.................. 13,890 3,136 4,179 1,309 667 2,932 875 1,056
Prepaid expenses and other current
assets.......................... 397 131 359 84 41 72 63 91
------- ------ ------- ------ ------ ------ ------ ------
Total current assets...... 24,156 6,111 11,206 2,587 2,480 8,485 1,846 2,357
------- ------ ------- ------ ------ ------ ------ ------
PROPERTY AND EQUIPMENT, net....... 2,063 379 1,100 496 306 567 95 554
OTHER ASSETS...................... 799 150 647 28 0 299 39 205
GOODWILL.......................... 0 0 0 0 0 83 0 0
------- ------ ------- ------ ------ ------ ------ ------
Total assets.............. $27,018 $6,640 $12,953 $3,111 $2,786 $9,434 $1,980 $3,116
======= ====== ======= ====== ====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ 7,334 1,862 2,933 1,229 602 3,539 686 1,012
Current maturities of long-term
debt............................ 55 185 129 41 0 117 17 20
Line of credit.................... 0 2,226 1,040 1,353 0 2,840 599 0
Pro forma cash consideration due
to dissenting shareholder of
Predecessor-IDG................. 0 0 0 0 0 0 0 0
------- ------ ------- ------ ------ ------ ------ ------
Total current
liabilities............. 7,389 4,273 4,102 2,623 602 6,496 1,302 1,032
------- ------ ------- ------ ------ ------ ------ ------
LONG-TERM DEBT, net of current
maturities...................... 15,047 504 358 189 0 730 742 635
------- ------ ------- ------ ------ ------ ------ ------
OTHER LIABILITIES................. 0 0 1,125 0 0 30 0 93
------- ------ ------- ------ ------ ------ ------ ------
DEFERRED INCOME TAXES............. 0 0 4 0 0 52 0 0
------- ------ ------- ------ ------ ------ ------ ------
STOCKHOLDERS' EQUITY:
Preferred stock................... 0 0 0 0 0 62 0 0
Common stock...................... 1 0 9 3 207 33 40 17
Additional paid-in capital &
other........................... 307 312 0 1,299 0 88 141 14
Retained earnings (deficit)....... 4,274 1,551 7,534 (1,003) 1,977 2,538 (245) 1,626
Treasury stock.................... 0 0 (179) 0 0 (595) 0 (301)
------- ------ ------- ------ ------ ------ ------ ------
Total stockholders' equity
(deficit)............... 4,582 1,863 7,364 299 2,184 2,126 (64) 1,356
------- ------ ------- ------ ------ ------ ------ ------
Total liabilities and
stockholders' equity
(deficit)............... $27,018 $6,640 $12,953 $3,111 $2,786 $9,434 $1,980 $3,116
======= ====== ======= ====== ====== ====== ====== ======
<CAPTION>
PRO FORMA PRO FORMA
TRI-STAR ADJUSTMENTS COMBINED
-------- ------------ ---------
(SEE NOTE 4)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 71 $ 1,230a $ 5,233
Accounts receivable, net.......... 3,209 29,223
Inventories, net.................. 2,681 1,900b 32,625
Prepaid expenses and other current
assets.......................... 160 (760)b 845
207c
------ -------
Total current assets...... 6,121 67,926
------ -------
PROPERTY AND EQUIPMENT, net....... 425 2,852d 8,837
OTHER ASSETS...................... 64 (1,230)a 1,001
GOODWILL.......................... 0 (83)e 4,242
4,242f
------ -------
Total assets.............. $6,610 $82,006
====== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ 2,178 21,375
Current maturities of long-term
debt............................ 182 746
Line of credit.................... 975 9,033
Pro forma cash consideration due
to dissenting shareholder of
Predecessor-IDG................. 0 0
------ -------
Total current
liabilities............. 3,335 31,154
------ -------
LONG-TERM DEBT, net of current
maturities...................... 1,308 (1,781)g 17,732
------ -------
OTHER LIABILITIES................. 0 1,248
------ -------
DEFERRED INCOME TAXES............. 0 56
------ -------
STOCKHOLDERS' EQUITY:
Preferred stock................... 0 (62)h 0
Common stock...................... 5 (283)h,o 32
Additional paid-in capital &
other........................... 0 29,623 b,e,g,h, 31,784
Retained earnings (deficit)....... 1,977 (20,229)c,h 0
Treasury stock.................... (15) 1,090h 0
------ -------
Total stockholders' equity
(deficit)............... 1,967 31,816
------ -------
Total liabilities and
stockholders' equity
(deficit)............... $6,610 $82,006
====== =======
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma combined
financial statement.
F-4
<PAGE> 52
INDUSTRIAL DISTRIBUTION GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR-
IDG ASSOCIATED B&J CRAMER GRINDING SHEARER SLATER J.J. STANGEL
------------ ---------- ------- ------- -------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES............................. $90,786 $24,481 $29,083 $11,467 $8,424 $44,184 $7,258 $11,610
COST OF SALES......................... 67,330 19,574 21,625 9,188 6,211 34,165 5,486 8,845
------- ------- ------- ------- ------ ------- ------ -------
Gross profit................. 23,456 4,907 7,458 2,279 2,213 10,019 1,772 2,765
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES............................ 21,160 4,156 6,058 2,159 2,151 9,063 1,589 2,517
GOODWILL AMORTIZATION................. 0 0 0 0 0 22 0 0
------- ------- ------- ------- ------ ------- ------ -------
INCOME FROM OPERATIONS................ 2,296 751 1,400 120 62 934 183 248
OTHER INCOME (EXPENSE):
Interest expense.................... (1,016) (278) (213) (173) 0 (437) (131) (82)
Other............................... (562) (89) 244 0 83 235 12 10
------- ------- ------- ------- ------ ------- ------ -------
INCOME (LOSS) BEFORE INCOME TAXES..... 718 384 1,431 (53) 145 732 64 176
PROVISION FOR INCOME TAXES............ 25 158 440 0 45 319 0 69
------- ------- ------- ------- ------ ------- ------ -------
NET INCOME (LOSS)..................... $ 693 $ 226 $ 991 $ (53) $ 100 $ 413 $ 64 $ 107
======= ======= ======= ======= ====== ======= ====== =======
PRO FORMA NET INCOME PER SHARE........
SHARES USED IN COMPUTING PRO FORMA NET
INCOME PER SHARE....................
<CAPTION>
PRO FORMA PRO FORMA
TRI-STAR ADJUSTMENTS COMBINED
-------- ------------ ---------
(SEE NOTE 4)
<S> <C> <C> <C>
NET SALES............................. $24,010 $(245)i $ 251,058
COST OF SALES......................... 18,691 (485)i 190,677
47b
------- ---------
Gross profit................. 5,319 60,381
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES............................ 4,431 (282)j 53,506
400k
33i
71d
GOODWILL AMORTIZATION................. 0 (22)e 106
106l
------- ---------
INCOME FROM OPERATIONS................ 888 6,769
OTHER INCOME (EXPENSE):
Interest expense.................... (191) 1,961m (560)
Other............................... (8) (207)i (250)
32p
------- ---------
INCOME (LOSS) BEFORE INCOME TAXES..... 689 5,959
PROVISION FOR INCOME TAXES............ 271 1,057n 2,384
------- ---------
NET INCOME (LOSS)..................... $ 418 $ 3,575
======= =========
PRO FORMA NET INCOME PER SHARE........ $
=========
SHARES USED IN COMPUTING PRO FORMA NET
INCOME PER SHARE....................
=========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma combined
financial statement.
F-5
<PAGE> 53
INDUSTRIAL DISTRIBUTION GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR-
IDG ASSOCIATED B&J CRAMER GRINDING SHEARER SLATER J.J. STANGEL
------------ ---------- ------ ------ -------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES............................ $23,617 $6,133 $8,156 $2,876 $2,121 $11,293 $1,798 $3,093
COST OF SALES........................ 17,444 4,868 6,171 2,322 1,542 8,882 1,384 2,319
------- ------ ------ ------ ------ ------- ------ ------
Gross profit.................... 6,173 1,265 1,985 554 579 2,411 414 774
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES........................... 5,337 1,040 1,646 613 470 2,062 403 608
GOODWILL AMORTIZATION................ 0 0 0 0 0 5 0 0
------- ------ ------ ------ ------ ------- ------ ------
INCOME (LOSS) FROM OPERATIONS........ 836 225 339 (59) 109 344 11 166
OTHER INCOME (EXPENSE):
Interest expense................... (322) (57) (60) (40) 0 (80) (33) (18)
Other.............................. 64 0 16 0 10 55 43 (9)
------- ------ ------ ------ ------ ------- ------ ------
INCOME (LOSS) BEFORE INCOME TAXES.... 578 168 295 (99) 119 319 21 139
PROVISION FOR INCOME TAXES........... 46 53 100 0 0 128 0 60
------- ------ ------ ------ ------ ------- ------ ------
NET INCOME (LOSS).................... $ 532 $ 115 $ 195 $ (99) $ 119 $ 191 $ 21 $ 79
======= ====== ====== ====== ====== ======= ====== ======
PRO FORMA NET INCOME PER SHARE.......
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE...............
<CAPTION>
PRO FORMA PRO FORMA
TRI-STAR ADJUSTMENTS COMBINED
-------- ------------ ---------
(SEE NOTE 4)
<S> <C> <C> <C>
NET SALES............................ $7,599 $ (2)i $ 66,684
COST OF SALES........................ 5,877 (16)i 50,778
(15)b
------ ---------
Gross profit.................... 1,722 15,906
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES........................... 1,371 27i 13,639
100k
(56)j
18d
GOODWILL AMORTIZATION................ 0 (5)e 26
26l
------ ---------
INCOME (LOSS) FROM OPERATIONS........ 351 2,241
OTHER INCOME (EXPENSE):
Interest expense................... (44) 590m (64)
Other.............................. (7) 13i 185
------ ---------
INCOME (LOSS) BEFORE INCOME TAXES.... 300 2,362
PROVISION FOR INCOME TAXES........... 113 445n 945
------ ---------
NET INCOME (LOSS).................... $ 187 $ 1,417
====== =========
PRO FORMA NET INCOME PER SHARE....... $
=========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE...............
=========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma combined
financial statement.
F-6
<PAGE> 54
INDUSTRIAL DISTRIBUTION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997 AND DECEMBER 31, 1996
1. BACKGROUND
Industrial Distribution Group, Inc., a Delaware corporation (the
"Company"), was formed to create a nationwide supplier of cost-effective,
flexible procurement solutions for manufacturers and other users of maintenance,
repair, operating, and production ("MROP") products. The Company will commence
operations by combining the existing operations of nine MROP distributors that
collectively are engaged in business across a broad spectrum of MROP products
and services in different geographic locations around the United States.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective financial statements where indicated. All Founding Companies have a
December 31 year-end, or their financial results have been recast to a December
31 year-end. Quarterly statements of income have been included in the pro forma
statements of income for the three months ended March 31, 1997. The audited
historical financial statements included elsewhere in this Prospectus have been
included in accordance with Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin No. 80. The Company will have a December 31 year-end.
3. ACQUISITION OF FOUNDING COMPANIES
Concurrent with the closing of the Offering, the Company will acquire
substantially all of the net assets of the Founding Companies. The acquisitions
will be accounted for using the purchase method of accounting, with
Predecessor-IDG being treated as the acquiror.
The following table sets forth for each Founding Company the shares of
Common Stock to be paid to its stockholders.
<TABLE>
<CAPTION>
SHARES
------
<S> <C>
Predecessor-IDG.............................................
Associated..................................................
B&J.........................................................
Cramer......................................................
Grinding....................................................
Shearer.....................................................
Slater......................................................
J.J. Stangel................................................
Tri-Star....................................................
---------
Total.............................................
=========
</TABLE>
The estimated purchase price for the acquisitions is subject to certain
purchase price adjustments following closing. See "Certain Transactions".
The holders of all of the shares of Common Stock issued as consideration in
the Combination have contractually agreed with the Company not to offer, sell,
or otherwise dispose of any of those shares for a minimum period of two years
after the Offering. The fair value of these shares reflects this restriction.
Of the estimated total purchase price of (based on the fair
value of the shares to be issued) of the acquisitions, has been
allocated to the assets acquired and liabilities assumed.
Based on management's preliminary analysis, it is anticipated that the
historical carrying value of the Founding Companies' assets and liabilities
except for certain property will approximate fair value. The amounts allocated
to property and goodwill are approximately $2.9 million and $4.2 million.
Management of
F-7
<PAGE> 55
INDUSTRIAL DISTRIBUTION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the Company has not identified any other material tangible or identifiable
intangible assets of the Founding Companies to which a portion of the purchase
price could reasonably be allocated.
4. PRO FORMA BALANCE SHEET AND INCOME STATEMENT ADJUSTMENTS
a. Records the buyout of the cash surrender value of life insurance policies
in the amount of $1,230,000 by shareholders of the Founding Companies.
b. Records the elimination of LIFO inventory reserves, net of deferred
income taxes.
c. Records the adjustment for deferred income tax balances attributable to
the temporary differences between the financial reporting and income tax
bases of assets and liabilities of Predecessor-IDG (an S Corporation).
d. Adjusts the carrying value of property and equipment purchased from the
Other Founding Companies to fair market value and records the related pro
forma depreciation.
e. Eliminates existing goodwill of Shearer and the related amortization
expense.
f. Records an estimate of the goodwill to be recorded in connection with the
Combination based upon an estimated fair value of $ per share which
represents a discount of 25% from the assumed initial public offering
price of $ due to restrictions on the sale and transferability of the
shares issued.
g. Reclassifies notes payable to stockholders.
h. Records the elimination of stockholders' equity of the Founding
Companies.
i. Reclassifies vendor and customer discounts consistently between the
Founding Companies.
j. Adjusts compensation to the level that the presidents of the Founding
Companies have contractually agreed to receive subsequent to the
Combination.
k. Records compensation for the chief executive officer and chief financial
officer of the Company.
l. Records the pro forma goodwill amortization expense using a 40-year
estimated life.
m. Records change in interest expense for pro forma adjustments to debt.
n. Records the incremental provision for federal and state income taxes
assuming a 40% effective tax rate.
o. Records the issuance of shares to be issued to the
stockholders of the Founding Companies and senior management and other
advisors to the Company.
p. Reclassifies state income taxes paid by a Founding Company.
5. POST COMBINATION ADJUSTMENTS
The proceeds from the issuance of shares of the Company's Common
Stock, net of estimated offering costs of (based on an assumed initial
public offering price of per share, the midpoint of the estimated
price range), will be applied to the repayment of certain debt obligations of
the Founding Companies and will increase cash and equity of the Company by
and .
Offering costs primarily consist of underwriting discounts and commissions,
accounting fees, legal fees, and printing expenses.
F-8
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Industrial Distribution Group, Inc.:
We have audited the accompanying balance sheets of INDUSTRIAL DISTRIBUTION
GROUP, INC. (a Georgia corporation) as of December 31, 1995 and 1996 and the
related statements of income, shareholders' equity, and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Industrial Distribution
Group, Inc. as of December 31, 1995 and 1996 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 23, 1997
F-9
<PAGE> 57
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12 $ 8 $ 13
Trade accounts receivable, net of allowance for doubtful
accounts of $148 in 1995, 1996, and 1997............... 7,154 9,256 9,856
Inventories, net.......................................... 11,927 14,074 13,890
Other receivables......................................... 141 144 144
Prepaid expenses and other assets......................... 67 460 253
------- ------- -------
Total current assets.............................. 19,301 23,942 24,156
PROPERTY AND EQUIPMENT, net................................. 2,142 2,166 2,063
OTHER ASSETS................................................ 909 320 799
------- ------- -------
Total assets...................................... $22,352 $26,428 $27,018
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities under line of credit................... $ 0 $ 1,062 $ 0
Current maturities of long-term debt...................... 42 47 55
Accounts payable.......................................... 6,168 4,730 6,323
Accrued expenses.......................................... 1,326 942 1,011
------- ------- -------
Total current liabilities......................... 7,536 6,781 7,389
------- ------- -------
LINE OF CREDIT, less current maturities..................... 9,368 13,993 13,473
------- ------- -------
LONG-TERM DEBT, less current maturities..................... 1,650 1,604 1,574
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 1,000,000 shares authorized,
110,665 shares issued and outstanding in 1995, 1996,
and 1997............................................... 1 1 1
Additional paid-in capital................................ 307 307 307
Retained earnings......................................... 3,490 3,742 4,274
------- ------- -------
Total shareholders' equity........................ 3,798 4,050 4,582
------- ------- -------
Total liabilities and shareholders' equity........ $22,352 $26,428 $27,018
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-10
<PAGE> 58
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES........................................ $75,624 $83,526 $90,786 $22,569 $23,617
COST OF SALES.................................... 55,948 62,361 67,330 16,652 17,444
------- ------- ------- ------- -------
Gross profit................................... 19,676 21,165 23,456 5,917 6,173
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.... 17,447 18,803 21,160 5,136 5,337
------- ------- ------- ------- -------
Income from operations................. 2,229 2,362 2,296 781 836
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of assets.................. 10 3 12 (1) 0
Interest expense............................... (856) (963) (1,016) (251) (322)
Other income................................... 43 57 47 11 78
Litigation costs (Note 8)...................... (165) (245) (621) (104) (14)
------- ------- ------- ------- -------
(968) (1,148) (1,578) (345) (258)
------- ------- ------- ------- -------
Income before state income tax
provision............................ 1,261 1,214 718 436 578
STATE INCOME TAX PROVISION (Note 2).............. 6 12 25 1 46
------- ------- ------- ------- -------
NET INCOME....................................... $ 1,255 $ 1,202 $ 693 $ 435 $ 532
======= ======= ======= ======= =======
PRO FORMA FEDERAL INCOME TAX PROVISION........... $ 208 $ 160
------- -------
PRO FORMA NET INCOME............................. $ 485 $ 372
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 59
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993..................... 110,665 $1 $307 $2,100 $2,408
Net income................................... 0 0 0 1,255 1,255
Distributions to shareholders................ 0 0 0 (517) (517)
------- -- ---- ------ ------
BALANCE, December 31, 1994..................... 110,665 1 307 2,838 3,146
Net income................................... 0 0 0 1,202 1,202
Distributions to shareholders................ 0 0 0 (550) (550)
------- -- ---- ------ ------
BALANCE, December 31, 1995..................... 110,665 1 307 3,490 3,798
Net income................................... 0 0 0 693 693
Distributions to shareholders................ 0 0 0 (441) (441)
------- -- ---- ------ ------
BALANCE, December 31, 1996..................... 110,665 1 307 3,742 4,050
Net income................................... 0 0 0 532 532
------- -- ---- ------ ------
BALANCE, March 31, 1997 (unaudited)............ 110,665 $1 $307 $4,274 $4,582
======= == ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 60
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 1,255 $ 1,202 $ 693 $ 435 $ 532
------- ------- ------- ------- -------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation........................ 271 320 357 79 99
(Gain) loss on sale of assets....... (10) (3) (12) (1) 4
Changes in assets and liabilities:
Trade accounts receivable, net.... (544) (510) (2,102) (1,863) (600)
Inventories, net.................. (1,500) (1,387) (2,147) (80) 184
Other receivables................. 10 (59) (3) 0 0
Prepaid expenses and other
assets......................... 115 (338) 196 (126) (272)
Accounts payable and accrued
expenses....................... 1,125 707 (1,822) 341 1,708
------- ------- ------- ------- -------
Total adjustments.............. (533) (1,270) (5,533) (1,650) 1,123
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities......... 722 (68) (4,840) (1,215) 1,655
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets........... 20 5 23 0 0
Capital expenditures................... (276) (202) (392) (42) 0
------- ------- ------- ------- -------
Net cash used in investing
activities................... (256) (197) (369) (42) 0
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line
of credit........................... (80) 819 5,687 1,340 (1,582)
Principal repayments of long-term
debt................................ (20) (33) (41) (74) (68)
Repayment of note payable to
shareholder......................... 0 (150) 0 0 0
Distributions to shareholders.......... (517) (550) (441) 0 0
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities......... (617) 86 5,205 1,266 (1,650)
------- ------- ------- ------- -------
NET CHANGE IN CASH AND CASH
EQUIVALENTS............................ (151) (179) (4) 9 5
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................. 342 191 12 12 8
------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 191 $ 12 $ 8 $ 21 $ 13
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Noncash financing to purchase assets... $ 23 $ 60 $ 0 $ 0 $ 0
======= ======= ======= ======= =======
Interest paid.......................... $ 856 $ 963 $ 919 $ 251 $ 419
======= ======= ======= ======= =======
Income taxes paid...................... $ 6 $ 12 $ 25 $ 1 $ 46
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE> 61
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995, AND 1996
1. DESCRIPTION OF THE BUSINESS
Industrial Distribution Group, Inc. (the "Company" or "Predecessor-IDG") is
a wholesale industrial supply distribution company headquartered in Tucker,
Georgia, with branch offices and warehouses in Georgia, North Carolina, South
Carolina, Indiana, Tennessee, and Oregon. The Company distributes industrial
supplies and equipment throughout the United States. The Company is also an
authorized repair center for many of its suppliers and provides additional
services, such as customizing conveyor belts and band saw blades, for its
customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION OF FINANCIAL STATEMENTS
The financial statements of the Company include the corporate headquarters
as well as its operating divisions, Boring-Smith, Dixie Industrial Supply, and
Ensco Supply. All significant interdivisional transactions and balances have
been eliminated.
CASH EQUIVALENTS
The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents.
TRADE ACCOUNTS RECEIVABLE
An allowance for doubtful accounts has been established based on a review
of the current status of existing receivables, historical collection experience,
and management's evaluation of the effect of existing economic conditions.
Receivables are charged to the allowance account when deemed to be
uncollectible.
INVENTORIES
Inventories consist primarily of merchandise purchased for resale and are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out basis, and market is considered to be net realizable value.
Inventories are stated net of an allowance of $150,000 to adjust cost to net
realizable value as of December 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation.
Expenditures for repairs and maintenance are charged to expense as incurred.
Upon retirement or disposal of assets, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized as other income (expense) in the accompanying statements of income.
Depreciation of property and equipment is provided using either the
straight-line or accelerated method using the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................... 19-31 years
Office and warehouse equipment.............................. 5-7 years
Vehicles.................................................... 3-5 years
</TABLE>
OTHER ASSETS
As of December 31, 1995, other assets included a receivable from a
shareholder for $52,000. During 1996, in connection with the settlement of a
lawsuit filed by the shareholder (Note 8), the Company forgave the receivable
from this shareholder.
INCOME TAXES
The Company, with the consent of its shareholders, has elected as of
January 1, 1990 to be taxed under the provisions of subchapter S of the Internal
Revenue Code. Accordingly, the financial statements do not
F-14
<PAGE> 62
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
include a provision for current income taxes because the Company does not incur
federal income taxes. Instead, its earnings and losses are included in the
shareholders' personal income tax returns, and the shareholders are taxed based
on their personal income tax strategies.
Subsequent to year-end, the Company will change from an S corporation to a
C corporation for federal and state income tax reporting purposes, which will
require the Company to recognize the tax consequences of operations in its
statements of income. The supplemental pro forma information included in the
accompanying statements of income reflects the estimated impact of recognizing
income tax expenses as if the Company had been a C corporation for tax reporting
purposes for the year ended December 31, 1996.
NATURE OF OPERATIONS, RISKS, AND UNCERTAINTIES
The Company operates primarily in wholesale distribution of industrial
supplies. There are no other significant business segments in which the Company
operates. The Company has a broad customer base representing many diverse
industries. As of December 31, 1994, 1995, and 1996, no one customer represented
greater than 10% of the Company's revenues or accounts receivable. The principal
industries served by Dixie Industrial Supply are the metal working, chemical,
transportation, textile, pulp and paper, and furniture industries. Dixie
Industrial Supply has seven branches located in North Carolina, South Carolina,
Georgia, and Tennessee. The principal customers of Boring-Smith are the
manufactured housing, recreational vehicle, and boating industries throughout
the continental United States who purchase production tools and supplies.
Boring-Smith distributes its products from three stationary warehouses and eight
mobile warehouses. Ensco Supply's principal customers are primarily commercial
mechanical, electrical, HVAC, and general contractors who purchase power tools
and related supplies. Ensco Supply has three warehouses, all located in North
Carolina.
The following schedule reflects the distribution in gross sales for the
years ended December 31, 1994, 1995, and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Dixie Industrial Supply..................................... 62% 62% 64%
Boring-Smith................................................ 27 28 26
Ensco Supply................................................ 11 10 10
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized on sales of products at the time of shipment.
COST OF SALES
Cost of sales consists of the cost of materials purchased offset by
discounts and rebates received from suppliers.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of," to be effective for
fiscal years beginning after December 15, 1995. The adoption of this
F-15
<PAGE> 63
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
statement as of January 1, 1996 did not have a significant impact on the
Company's financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to 1994 and 1995 amounts to
conform to current year presentation.
INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statements as of March 31, 1997 and for the three months
ended March 31, 1996 and 1997 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the unaudited financial statements for
these interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
3. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1995 and 1996 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land........................................................ $ 238 $ 238
Buildings................................................... 2,141 2,221
Furniture and fixtures...................................... 1,204 1,206
Computer equipment.......................................... 700 735
Trucks...................................................... 352 591
Leasehold improvements...................................... 746 746
------- -------
5,381 5,737
Less accumulated depreciation............................... (3,239) (3,571)
------- -------
Property and equipment, net....................... $ 2,142 $ 2,166
======= =======
</TABLE>
Depreciation expense was $271,000, $320,000, and $357,000 for the years
ended December 31, 1994, 1995, and 1996, respectively.
4. LINE OF CREDIT
The Company obtained a line of credit from a financial institution in
November 1993, which was amended in March 1996. The loan availability under the
line of credit is determined by a formula based on trade accounts receivable and
merchandise inventory, not to exceed $15,000,000. As of December 31, 1996, the
Company had an overadvancement on the line of credit. In accordance with the
loan agreement, the amount of overadvance is payable on demand and is included
in the accompanying balance sheet as a current liability. The line is secured by
trade accounts receivable, merchandise inventory, intangibles, and other assets.
Borrowings under the agreement bear interest, at the election of the
Company, at either the bank's prime rate, plus a margin based on the Company's
ratio of debt to adjusted tangible net worth, or LIBOR, plus a margin based on
the Company's ratio of debt to adjusted tangible net worth. The prime rate is
adjusted daily based on published rates, while the LIBOR rate is locked in for
one, two, or three months, based on the Company's election. Interest is payable
monthly with the principal balance due in March 1999. The effective interest
rate under the line of credit during 1996 was approximately 9.5%.
F-16
<PAGE> 64
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Borrowings outstanding under the line of credit as of December 31, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Variable rate line of credit, interest computed at prime
plus .75%
(9% as of December 31, 1996).............................. $9,368 $ 7,555
Variable rate line of credit, interest computed at LIBOR
plus 3.25%
(8.75% as of December 31, 1996)........................... 0 7,500
------ -------
Total borrowings under line of credit............. 9,368 15,055
Less current maturities..................................... 0 (1,062)
------ -------
Net long-term borrowings under line of credit............... $9,368 $13,993
====== =======
</TABLE>
The line of credit agreement contains various covenants pertaining to
maintenance of certain financial relationships. These covenants include
requirements on capital expenditures, maintaining a minimum adjusted tangible
net worth, a maximum ratio of debt to adjusted tangible net worth, a minimum
current ratio, a minimum EBITD ratio, and certain other covenants. The Company
was in default of certain of these covenants as of December 31, 1996. The
Company obtained a waiver in May 1997 for certain covenants, while other
covenants were amended on a going-forward basis.
5. LONG-TERM DEBT
Long-term debt as of December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
9.75% mortgage payable, due in monthly installments of
$15,036, including interest through July 1999, at which
time remaining principal and interest are due; secured by
a building................................................ $1,623 $1,600
8% note payable, due in monthly installments of $553,
including interest through October 1998, at which time
remaining principal and interest are due; secured by a
vehicle and personal guaranty of a shareholder............ 17 11
9% note payable, due in monthly installments of $822,
including interest through March 1999, at which time
remaining principal and interest are due; secured by a
vehicle................................................... 27 20
8.5% note payable, due in monthly installments of $665,
including interest through September 1999, at which time
remaining principal and interest are due; secured by a
vehicle................................................... 25 20
------ ------
Total long-term debt.............................. 1,692 1,651
Less current portion........................................ (42) (47)
------ ------
Total long-term debt, less current portion........ $1,650 $1,604
====== ======
</TABLE>
Future maturities of long-term debt as of December 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 47
1998........................................................ 50
1999........................................................ 39
2000........................................................ 34
2001........................................................ 38
Thereafter.................................................. 1,443
------
$1,651
======
</TABLE>
F-17
<PAGE> 65
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. EMPLOYEE BENEFIT PLAN
During 1994, the Company amended its profit-sharing plan and implemented a
401(k) savings plan (the "Plan") for all eligible employees. Employees of the
Company are eligible to participate in the Plan after satisfying certain
requirements as to age and length of service. The Company, at its discretion,
may make contributions equal to a matching percentage that it deems advisable
based on a tiered formula in relation to the employees' eligible contributions.
In addition, the Company, at its discretion, may contribute an amount which it
designates as a qualified nonelective contribution. For the plan years ended
December 31, 1994, 1995, and 1996, employer contributions to the Plan were $0,
$89,000, and $0, respectively.
7. RELATED-PARTY TRANSACTIONS
The Company leases, at customary terms and market rates, vehicles,
furniture, fixtures, and equipment from a limited partnership in which two
shareholders of the Company are partners. Rental expense paid to this limited
partnership amounted to $96,000, $71,000, and $31,000 during 1994, 1995, and
1996, respectively (Note 8).
The Company purchases business and health insurance through an independent
agency owned by a shareholder of the Company. The amount paid for such insurance
during 1994, 1995, and 1996 was approximately $289,000, $288,000, and $294,000,
respectively.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into operating leases for certain office and
warehouse facilities and equipment. The Company also subleases a portion of its
warehouse facilities. Management expects that in the normal course of business,
leases that expire will be renewed or replaced by other leases.
As of December 31, 1996, minimum future rental payments due under
noncancelable operating lease arrangements are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $1,116
1998........................................................ 885
1999........................................................ 673
2000........................................................ 323
2001........................................................ 26
Thereafter.................................................. 0
------
$3,023
======
</TABLE>
Rental expense for all of the operating leases amounted to $1,309,000,
$1,208,000, and $1,258,000 during 1994, 1995, and 1996, respectively. Of these
amounts, $96,000, $71,000, and $31,000 were paid to related parties during 1994,
1995, and 1996, respectively (Note 7).
LITIGATION
In 1993, a shareholder brought suit against the Company and members of
management seeking dissolution of the Company on grounds that there was a
shareholder voting deadlock and that those in control of the Company had acted
in a fraudulent manner in the operation of the Company. The shareholder also
sought certain damages from the Company and management. The court refused to
dissolve the Company and found that management had not acted in a fraudulent
manner in the operation of the Company. In a related judgment, the court ordered
the Company to pay the shareholder's attorneys fees in the amount of $100,000.
F-18
<PAGE> 66
INDUSTRIAL DISTRIBUTION GROUP, INC.
("PREDECESSOR-IDG")
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has appealed that decision, but has recorded $100,000 as of December
31, 1996 in accrued expenses in the accompanying balance sheet. The parties
submitted certain other claims by the shareholder and counterclaims by the
Company to binding arbitration. Based on the arbitration, the Company was
required to pay the shareholder and a related party approximately $263,000 and
to forgive $68,000 owed the Company by the shareholder. During 1994, 1995, and
1996, the Company charged to expense approximately $165,000, $245,000, and
$621,000, respectively, for legal fees and resolution of the aforementioned case
and arbitration.
On November 18, 1996, Milliken & Company ("Milliken"), a textile
manufacturer and customer of the Company, filed suit against a manufacturer of
an industrial product and the Company in the Superior Court of Troup County,
Georgia. Milliken claims that a product sold to it by the Company as a
distributor of the defendant-manufacturer was defective and caused a fire,
severely damaging Milliken's textile manufacturing plant in LaGrange, Georgia,
and alleges damages of $500 million against the defendants. The Company has
denied any liability, and its insurance carrier is vigorously defending the
lawsuit on its behalf. The litigation is in the early stages of discovery. While
the damages alleged by Milliken are exceptional in amount, the inclusion of the
distributor of a product, along with its manufacturer, as a defendant in an
action for alleged product defectiveness is unexceptional. The litigation is in
the early stages of discovery, and while it is not possible to predict with
accuracy the outcome of any such litigation matter, the Company believes that
its insurance will be adequate to cover any loss to the Company that might
result from the lawsuit.
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will be adequately covered by insurance or will not
have a material adverse effect on the Company's financial position or results of
operations.
9. SUBSEQUENT EVENT (UNAUDITED)
Effective June 9, 1997, the judgment against the Company related to the
$100,000 of attorneys fees was reversed on appeal (Note 8).
F-19
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Associated Suppliers, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of ASSOCIATED
SUPPLIERS, INC. (an Oregon corporation) AND SUBSIDIARIES as of December 31, 1995
and 1996 and the related consolidated statements of income, shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Associated Suppliers, Inc.
and subsidiaries as of December 31, 1995 and 1996 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 1, 1997
F-20
<PAGE> 68
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 29 $ 18 $ 46
Accounts receivable, less allowance for doubtful
accounts of $46, $51, and $50 in 1995, 1996, and
1997, respectively................................... 2,565 2,327 2,798
Inventories, net........................................ 3,190 2,806 3,136
Prepaid expenses and other.............................. 53 46 75
Deferred tax assets..................................... 52 56 56
------ ------ ------
Total current assets............................ 5,889 5,253 6,111
PROPERTY AND EQUIPMENT, net............................... 342 312 379
OTHER ASSETS.............................................. 39 121 150
------ ------ ------
Total assets.................................... $6,270 $5,686 $6,640
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.......................................... $2,305 $1,921 $2,226
Current portion of long-term debt and capital lease
obligations.......................................... 50 58 97
Current portion of company-guaranteed debt of ESOP...... 223 105 88
Accounts payable........................................ 1,541 1,255 1,698
Accrued expenses........................................ 204 236 113
Income taxes payable.................................... 73 123 51
------ ------ ------
Total current liabilities....................... 4,396 3,698 4,273
------ ------ ------
LONG-TERM DEBT and CAPITAL LEASE OBLIGATIONS, less current
portion................................................. 105 70 317
------ ------ ------
COMPANY-GUARANTEED DEBT OF ESOP, less current portion..... 316 204 187
------ ------ ------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, no par value; 500,000 shares authorized,
177,440, 164,420, and 164,420 shares issued and
outstanding in 1995, 1996, and 1997, respectively.... 0 0 0
Additional paid-in capital.............................. 782 587 587
Retained earnings....................................... 1,210 1,436 1,551
------ ------ ------
1,992 2,023 2,138
Unearned compensation under ESOP........................ (539) (309) (275)
------ ------ ------
Total shareholders' equity...................... 1,453 1,714 1,863
------ ------ ------
Total liabilities and shareholders' equity...... $6,270 $5,686 $6,640
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-21
<PAGE> 69
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, MARCH 31,
------------------ ----------------
1995 1996 1996 1997
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES............................................. $24,471 $24,481 $6,172 $6,133
COST OF SALES......................................... 19,554 19,574 4,915 4,868
------- ------- ------ ------
Gross profit........................................ 4,917 4,907 1,257 1,265
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES......... 4,226 4,156 1,156 1,040
------- ------- ------ ------
Income from operations.............................. 691 751 101 225
INTEREST EXPENSE...................................... 269 278 63 57
OTHER (INCOME) EXPENSE................................ (2) 89 0 0
------- ------- ------ ------
INCOME BEFORE INCOME TAXES............................ 424 384 38 168
PROVISION FOR INCOME TAXES............................ 173 158 11 53
------- ------- ------ ------
NET INCOME............................................ $ 251 $ 226 $ 27 $ 115
======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-22
<PAGE> 70
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED
ADDITIONAL COMPENSATION
COMMON PAID-IN RETAINED UNDER
SHARES CAPITAL EARNINGS ESOP TOTAL
------- ---------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994..................... 180,746 $830 $ 959 $(469) $1,320
Acquisition of common stock from departing
ESOP participants......................... (3,306) (48) 0 (266) (314)
Compensation under ESOP...................... 0 0 0 196 196
Net income................................... 0 0 251 0 251
------- ---- ------ ----- ------
BALANCE, December 31, 1995..................... 177,440 782 1,210 (539) 1,453
Acquisition of common stock from departing
ESOP participants......................... (13,020) (195) 0 0 (195)
Compensation under ESOP...................... 0 0 0 230 230
Net income................................... 0 0 226 0 226
------- ---- ------ ----- ------
BALANCE, December 31, 1996..................... 164,420 587 1,436 (309) 1,714
Compensation under ESOP...................... 0 0 0 34 34
Net income................................... 0 0 115 0 115
------- ---- ------ ----- ------
BALANCE, March 31, 1997 (unaudited)............ 164,420 $587 $1,551 $(275) $1,863
======= ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-23
<PAGE> 71
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, MARCH 31,
------------- -------------
1995 1996 1996 1997
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 251 $ 226 $ 27 $ 115
----- ----- ----- -----
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization.......................... 122 130 36 39
(Gain) loss on sale of equipment....................... (13) 12 0 0
Changes in operating assets and liabilities:
Accounts receivable.................................. (451) 238 (36) (471)
Inventories.......................................... (87) 384 (88) (330)
Prepaid expenses and other assets.................... 10 (32) (4) (58)
Deferred tax assets.................................. 1 (4) 0 0
Accounts payable, accrued expenses, and income taxes
payable........................................... 20 (204) (113) 248
----- ----- ----- -----
Total adjustments................................. (398) 524 (205) (572)
----- ----- ----- -----
Net cash (used in) provided by operating
activities...................................... (147) 750 (178) (457)
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.................. (167) (112) (24) (107)
Change in cash surrender value of officers' life
insurance.............................................. (8) 2 0 0
Investment in joint venture............................... 0 (45) 0 0
----- ----- ----- -----
Net cash used in investing activities............. (175) (155) (24) (107)
----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayment) under line of credit........... 397 (384) 227 306
Net borrowings of long-term debt and capital lease
obligations............................................ (8) (27) (12) 286
Acquisition of common stock from departing ESOP
participants........................................... (48) (195) 0 0
----- ----- ----- -----
Net cash provided by (used in) financing
activities...................................... 341 (606) 215 592
----- ----- ----- -----
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 19 (11) 13 28
CASH AND CASH EQUIVALENTS, beginning of period.............. 10 29 29 18
----- ----- ----- -----
CASH AND CASH EQUIVALENTS, end of period.................... $ 29 $ 18 $ 42 $ 46
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid.......................................... $ 230 $ 240
===== =====
Income taxes paid -- net of refunds.................... $ 91 $ 116
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-24
<PAGE> 72
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Associated Suppliers, Inc. and its five wholly owned subsidiaries (the
"Company") are engaged in the wholesale distribution of industrial tools and
supplies. The Company is located in Oregon, Washington, and Arizona. MACS
Industrial Supply, Inc., a subsidiary located in New Mexico, was closed during
1995. A new subsidiary, Factory Tool Outlet, Inc., located in Oregon, was formed
and opened during 1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Associated Suppliers, Inc. and its wholly owned subsidiaries: Davis Industrial
Products, Co. (Oregon), Mining & Construction Suppliers, Inc. (Arizona),
Tri-State Industrial Supply Co. (Washington), Supplies for Industry, Inc.
(Washington), and Factory Tool Outlet, Inc. (Oregon). All significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
An allowance for uncollectible accounts has been established based on the
Company's collection experience and an assessment of the collectibility of
specific accounts.
INVENTORIES
Inventories consist primarily of merchandise purchased for resale and are
valued at the lower of the weighted average cost or market value. Cost is
determined on an average cost basis, and market is considered as net realizable
value. Inventories are stated net of an allowance to adjust cost to net
realizable value of $112,000 as of December 31, 1995 and 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as incurred.
Upon retirement or disposal of assets, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized as other expense (income) in the accompanying financial statements.
Depreciation is computed using the straight-line and accelerated methods over
the estimated useful lives of the respective assets as follows:
<TABLE>
<S> <C>
Leasehold improvements...................................... Life of related lease
Machinery and office equipment.............................. Five to seven years
Motor vehicles.............................................. Five to seven years
Rental equipment............................................ One to three years
</TABLE>
OTHER ASSETS
Other assets as of December 31, 1995 and 1996 include the cash surrender
value of executive life insurance policies totaling $39,000 and $37,000,
respectively (face value of $550,000). In addition, during 1995, the Company
entered into a joint venture agreement with Hermientos Y Servicios USAMEX, a
Mexico corporation. The Company contributed capital of $45,000 to this joint
venture in 1996. As it is not expected
F-25
<PAGE> 73
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that the Company will be able to exercise control over the Mexican company, the
investment is accounted for using the cost method of accounting. There was no
operating activity in this Mexico corporation in either 1995 or 1996.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires recognition of deferred tax assets and liabilities using
currently enacted tax rates.
REVENUE RECOGNITION
Revenue is recognized on sales of products at the time of shipment.
COST OF SALES
Cost of sales includes the cost of merchandise purchased, less any
applicable rebates and volume discounts.
CONCENTRATION OF CREDIT RISK
The Company places its temporary cash investments with qualified financial
institutions and, by policy, limits the amount of credit exposure to one
financial institution. The Company has a broad customer base, representing many
diverse industries doing business in numerous geographic areas. As of December
31, 1996, one customer represented 11% of the Company's accounts receivables.
For the years ended December 31, 1995 and 1996, no one customer represented 10%
of the Company's sales and one supplier represented 20% and 22%, respectively,
of the Company's purchases.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statements as of March 31, 1997 and for the three months
ended March 31, 1996 and 1997 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the unaudited financial statements for
these interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
F-26
<PAGE> 74
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1995 and
1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Leasehold improvements...................................... $ 100 $ 70
Machinery and equipment..................................... 1,044 848
Motor vehicles.............................................. 224 174
Rental equipment............................................ 9 0
------- ------
1,377 1,092
Less accumulated depreciation............................... (1,035) (780)
------- ------
Property and equipment, net....................... $ 342 $ 312
======= ======
</TABLE>
Depreciation expense totaled $117,000 and $130,000 for the years ended
December 31, 1995 and 1996, respectively.
3. LINE OF CREDIT
The Company has a revolving operating line-of-credit agreement with a bank
maturing July 28, 1997. Interest is charged at the bank's prime lending rate
(8.25% as of December 31, 1996) plus .25% and is collateralized by eligible
accounts receivable, inventories, equipment, and other assets of the Company. At
December 31, 1996, the Company's maximum borrowing base is $3,500,000. The
outstanding balance on the line of credit at December 31, 1995 and 1996 is
$2,305,000 and $1,921,000, respectively.
4. LONG-TERM DEBT AND CAPITAL LEASES
At December 31, 1995 and 1996, long-term debt and capital leases consist of
the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Prime plus 1% note payable to bank, due in monthly
installments of $546 through June 1998; collateralized by
a vehicle................................................. $ 15 $ 10
8.25% note payable to bank, due in monthly installments of
$419 through October 1998; collateralized by a vehicle.... 13 8
9% note payable to bank, due in monthly installments of $518
through February 1998; collateralized by a vehicle........ 12 7
Capital leases.............................................. 115 103
---- ----
Total long-term debt and capital leases........... 155 128
Less current portion........................................ (50) (58)
---- ----
Long-term debt and capital leases, less current
portion......................................... $105 $ 70
==== ====
</TABLE>
Additionally, a bank has made available to the Company funds for foreign
investment (Note 1) in the amount of $150,000 at a stated interest rate of the
bank's prime lending rate plus 1%. At December 31, 1995 and 1996, no funds had
been borrowed under this agreement.
The capital lease obligations expire at various dates through July 2001,
with estimated residual values totaling approximately $16,000.
F-27
<PAGE> 75
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt and capital leases as of December 31, 1996 are
as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 66
1998........................................................ 56
1999........................................................ 11
2000........................................................ 6
2001........................................................ 3
----
Total minimum obligations................................... 142
Less amount representing interest on capital leases......... (14)
----
Present value of minimum obligations........................ $128
====
</TABLE>
Additionally, the Company was required to issue a letter of credit for
$63,000 as security for one of the capital lease agreements. The letter of
credit is to be exercised only upon default of the capital lease agreement.
5. EMPLOYEE BENEFIT PLANS
The Company has a leveraged noncontributory employee stock ownership plan
("ESOP") covering substantially all employees meeting certain age and
length-of-service requirements.
Contributions to the ESOP are determined by the Company's management.
Management intends to fund the ESOP in an amount which, when aggregated with the
ESOP plan's dividend and interest earnings, at least equals the annual principal
and interest due on notes payable to former participants. The notes payable to
former participants represent the debt incurred by the ESOP to repurchase shares
held by these departing participants. The Company is contingently liable for
repayment of the notes, and accordingly, the liability is included in the
accompanying balance sheets with a corresponding amount representing unearned
compensation shown as a reduction to shareholders' equity.
Contributions for the years ended December 31, 1995 and 1996 are classified
as follows in thousands:
<TABLE>
<CAPTION>
1995 1996
---- -----
<S> <C> <C>
Compensation expense........................................ $196 $ 88
Interest expense............................................ 39 38
Current employer contribution............................... 17 0
---- -----
Total contribution................................ $252 $ 126
==== =====
</TABLE>
As payments are made on the notes, shares are released from collateral and
the Company recognizes compensation expense equal to the carrying value of the
shares allocated to participant accounts. The ESOP classifies shares which
collateralize the debt as unallocated shares. All other shares of the ESOP are
held in participant accounts and are considered allocated.
At December 31, 1995 and 1996, the unallocated, allocated, and total shares
held by the ESOP and their respective fair market values are as follows (in
thousands except share data):
<TABLE>
<CAPTION>
1995 1996
---------------- ----------------
FAIR FAIR
MARKET MARKET
SHARES VALUE SHARES VALUE
------- ------ ------- ------
<S> <C> <C> <C> <C>
Unallocated......................................... 35,000 $ 530 20,000 $ 303
Allocated........................................... 112,000 1,673 114,000 1,772
------- ------ ------- ------
Total..................................... 147,000 $2,203 134,000 $2,075
======= ====== ======= ======
</TABLE>
F-28
<PAGE> 76
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The market value per share at December 31, 1995 and 1996 was $15.00 and
$15.50, respectively.
During 1996, the board of directors voted to terminate the ESOP. All funds
of nonseparated participants shall be rolled into a 401(k) savings plan.
Separated participants shall be paid out subsequent to year-end (Note 9).
6. PROVISION FOR INCOME TAXES
The provision for income taxes includes income taxes deferred because of
temporary differences between financial statement and tax bases of assets and
liabilities and consisted of the following for the years ended December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1995 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................................... $136 $132
State and local........................................... 31 30
---- ----
167 162
---- ----
Deferred:
Federal................................................... 4 (3)
State and local........................................... 2 (1)
---- ----
6 (4)
---- ----
Total provision................................... $173 $158
==== ====
</TABLE>
The provision for income taxes for the years ended December 31, 1995 and
1996 differs from the amount computed by applying the federal statutory rate of
34% due to the following:
<TABLE>
<CAPTION>
1995 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Tax at federal statutory rate............................... $144 $131
State and local income taxes, net of federal benefit........ 20 18
Nondeductible travel and entertainment...................... 9 9
---- ----
Total provision................................... $173 $158
==== ====
</TABLE>
Deferred taxes are recorded on differences between the financial statement
and tax bases of assets and liabilities. Temporary differences which give rise
to a significant portion of deferred tax assets and liabilities at December 31,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 18 $ 20
Inventory allowance....................................... 44 44
Other..................................................... 2 5
---- ----
64 69
Deferred tax liabilities:
Other..................................................... (12) (13)
---- ----
Net deferred tax assets................................... $ 52 $ 56
==== ====
</TABLE>
F-29
<PAGE> 77
ASSOCIATED SUPPLIERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company entered into operating leases for certain office, retail, and
warehouse facilities and equipment. The Company also subleases a portion of its
warehouse facilities. Management expects that in the normal course of business,
leases that expire will be renewed or replaced by other leases.
Future minimum lease payments under all leases as of December 31, 1996 were
as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $288
1998........................................................ 334
1999........................................................ 305
2000........................................................ 217
2001........................................................ 183
Thereafter.................................................. 844
</TABLE>
Total rental expense for the years ended December 31, 1995 and 1996 was
approximately $287,000 and $351,000, respectively.
LITIGATION
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will be adequately covered by insurance or will not
have a material adverse effect on the Company's financial position or results of
operations.
8. RELATED-PARTY TRANSACTIONS
Davis Industrial Products Co. leased its office and warehouse facilities
from a related party during the years ended December 31, 1995 and 1996. Total
lease payments were $145,000 and $169,000 for the years ended December 31, 1995
and 1996, respectively.
Mining & Construction Suppliers, Inc. leases its office and warehouse
facilities from parties related through common ownership. The operating lease
expires December 31, 1999. Total lease payments were approximately $70,000 for
the years ended December 31, 1995 and 1996.
9. SUBSEQUENT EVENTS
The Company secured a $300,000 commitment from a bank to liquidate all
outstanding debt obligations to separated participants in the ESOP plan (Note
5). Terms of the agreement call for 60 monthly principal payments of $5,000,
plus interest at the bank's prime lending rate plus .75%. The commitment matures
March 2002 and is secured by all assets of the Company.
F-30
<PAGE> 78
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To B & J Industrial Supply Company:
We have audited the accompanying consolidated balance sheets of B & J
INDUSTRIAL SUPPLY COMPANY (a Washington corporation) AND SUBSIDIARIES as of
December 31, 1995 and 1996 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of B & J Industrial Supply
Company and subsidiaries as of December 31, 1995 and 1996 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 24, 1997
F-31
<PAGE> 79
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,120 $ 1,407 $ 1,917
Short-term investments.................................... 915 948 955
Accounts receivable, less allowances for doubtful accounts
of $115, $125, and $125 in 1995, 1996, and 1997,
respectively........................................... 2,844 3,973 3,796
Prepaids and other current assets......................... 121 94 89
Deferred tax assets....................................... 247 324 270
Inventories, net.......................................... 3,896 4,455 4,179
------- ------- -------
Total current assets.............................. 9,143 11,201 11,206
------- ------- -------
PROPERTY AND EQUIPMENT, net................................. 1,187 1,114 1,100
------- ------- -------
OTHER ASSETS:
Cash surrender value of life insurance.................... 549 616 616
Other..................................................... 5 17 31
------- ------- -------
Total other assets................................ 554 633 647
------- ------- -------
Total assets...................................... $10,884 $12,948 $12,953
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................................ $ 900 $ 1,077 $ 1,040
Current portion of long-term debt and other long-term
obligations............................................ 118 128 129
Accounts payable.......................................... 1,360 2,056 2,055
Accrued liabilities....................................... 139 316 183
Accrued employee benefits................................. 421 446 488
Income taxes payable...................................... 93 228 207
------- ------- -------
Total current liabilities......................... 3,031 4,251 4,102
------- ------- -------
LONG-TERM DEBT.............................................. 459 373 358
------- ------- -------
DEFERRED TAX LIABILITIES.................................... 33 17 4
------- ------- -------
OTHER LONG-TERM OBLIGATIONS................................. 1,183 1,138 1,125
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Common stock, $10 par value; 5,000 shares authorized, 950
shares issued and outstanding in 1995, 1996, and
1997................................................... 9 9 9
Retained earnings......................................... 6,348 7,339 7,534
------- ------- -------
6,357 7,348 7,543
Treasury stock, 50 shares................................. (179) (179) (179)
------- ------- -------
Total shareholders' equity........................ 6,178 7,169 7,364
------- ------- -------
Total liabilities and shareholders' equity........ $10,884 $12,948 $12,953
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-32
<PAGE> 80
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES.................................. $22,108 $25,377 $29,083 $6,582 $8,156
COST OF SALES.............................. 16,186 18,731 21,625 4,858 6,171
------- ------- ------- ------ ------
Gross profit............................. 5,922 6,646 7,458 1,724 1,985
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES................................. 5,175 5,631 6,058 1,391 1,646
------- ------- ------- ------ ------
Income from operations................... 747 1,015 1,400 333 339
INTEREST EXPENSE........................... (113) (129) (213) (51) (60)
INTEREST INCOME............................ 36 56 73 13 22
OTHER INCOME (EXPENSE)..................... (31) 68 171 45 (6)
------- ------- ------- ------ ------
INCOME BEFORE INCOME TAXES................. 639 1,010 1,431 340 295
PROVISION FOR INCOME TAXES................. 229 323 440 134 100
------- ------- ------- ------ ------
NET INCOME................................. $ 410 $ 687 $ 991 $ 206 $ 195
======= ======= ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-33
<PAGE> 81
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- RETAINED TREASURY
SHARES AMOUNT EARNINGS STOCK TOTAL
------ ------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993............................ 950 $9 $5,251 $(179) $5,081
Net income.......................................... 0 0 410 0 410
--- -- ------ ----- ------
BALANCE, December 31, 1994............................ 950 9 5,661 (179) 5,491
Net income.......................................... 0 0 687 0 687
--- -- ------ ----- ------
BALANCE, December 31, 1995............................ 950 9 6,348 (179) 6,178
Net income.......................................... 0 0 991 0 991
--- -- ------ ----- ------
BALANCE, December 31, 1996............................ 950 9 7,339 (179) 7,169
Net income.......................................... 0 0 195 0 195
--- -- ------ ----- ------
BALANCE, March 31, 1997 (unaudited)................... 950 $9 $7,534 $(179) $7,364
=== == ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-34
<PAGE> 82
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ----------------
1994 1995 1996 1996 1997
----- ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 410 $ 687 $ 991 $ 264 $ 195
----- ------ ------- ------ ------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation............................. 128 153 132 31 31
Loss (gain) on sale of assets............ 41 (11) (7) 0 0
Deferred taxes........................... 9 15 (99) (20) 41
Changes in operating assets and
liabilities:
Accounts receivable.................... 9 (721) (1,128) (213) 177
Inventories............................ (179) (232) (559) (144) 276
Prepaids and other assets.............. (167) 271 15 69 5
Accounts payable, accrued liabilities,
and income taxes payable............ (214) 471 1,035 (42) (113)
----- ------ ------- ------ ------
Total adjustments................... (373) (54) (611) (319) 417
----- ------ ------- ------ ------
Net cash provided by (used in)
operating activities.............. 37 633 380 (55) 612
----- ------ ------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net.... (239) (117) (51) (9) (17)
Cash surrender value of life insurance...... (47) (100) (67) (1) (14)
Change in short-term investments............ 192 (133) (34) (7) (7)
----- ------ ------- ------ ------
Net cash used in investing
activities........................ (94) (350) (152) (17) (38)
----- ------ ------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in line of credit... 255 320 177 45 (37)
Repayments of other long-term obligations... (93) (105) (118) (83) (27)
----- ------ ------- ------ ------
Net cash provided by (used in)
financing activities.............. 162 215 59 (38) (64)
----- ------ ------- ------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS....... 105 498 287 (110) 510
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 517 622 1,120 1,120 1,407
----- ------ ------- ------ ------
CASH AND CASH EQUIVALENTS, end of period...... $ 622 $1,120 $ 1,407 $1,010 $1,917
===== ====== ======= ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid............................... $ 200 $ 213 $ 214 $ 83 $ 80
===== ====== ======= ====== ======
Income taxes paid........................... $ 359 $ 121 $ 309 $ 195 $ 121
===== ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-35
<PAGE> 83
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995, AND 1996
1. DESCRIPTION OF THE BUSINESS
B & J Industrial Supply Company and subsidiaries (the "Company") is a
Washington wholesale industrial distribution company headquartered in Seattle,
Washington, with branch offices and warehouses in Spokane and Tacoma,
Washington, and the People's Republic of China. The Company is also an
authorized repair center for many of its suppliers and provides additional
services, such as band saw welding and rigging equipment assembly, to its
customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
B & J Industrial Supply Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS
The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
An allowance for uncollectible accounts has been established based on the
Company's collection experience and an assessment of the collectibility of
specific accounts.
INVENTORIES
Inventories consist primarily of merchandise purchased for resale and are
stated at the lower of cost or market value. Cost is determined on an average
cost basis, and market is considered to be net realizable value. Inventories are
stated net of an allowance to adjust cost to net realizable value of $220,000 as
of December 31, 1995 and 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation.
Expenditures for repairs and maintenance are charged to expense as incurred.
Upon retirement or disposal of assets, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized as other (income) expense in the consolidated statements of income.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 40 years
Leasehold improvements...................................... Life of related lease
Furniture, fixtures, and equipment.......................... 5 - 10 years
Computer hardware and software.............................. 5 years
</TABLE>
OTHER ASSETS
Other assets as of December 31, 1995 and 1996 included the cash surrender
values of executive life insurance policies totaling $549,000 and $616,000,
respectively.
F-36
<PAGE> 84
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires recognition of deferred tax assets and liabilities using
currently enacted tax rates.
REVENUE RECOGNITION
Revenue is recognized on sales of products at the time of shipment.
COST OF SALES
Cost of sales consists of the cost of materials purchased, offset by
rebates received from suppliers.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in one financial institution
located in Seattle, Washington. The balances are insured by the Federal Deposit
Insurance Company ("FDIC") up to $100,000. The Company believes that its credit
risk related to its exposure above the FDIC insurance limits is minimal.
The Company has a broad customer base representing many diverse industries
doing business in the Pacific Northwest and China. As of December 31, 1995 and
1996, no one customer represented 10% of the Company's accounts receivable or
sales. For the years ended December 31, 1994, 1995, and 1996, one supplier
represented approximately 10% of the Company's purchases.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of," effective for fiscal years beginning after December 15, 1995. The
adoption of this statement as of January 1, 1996 did not have a significant
impact on the Company's financial position or results of operations.
INTERIM UNAUDITED FINANCIAL INFORMATION
The consolidated financial statements as of March 31, 1997 and for the
three months ended March 31, 1996 and 1997 are unaudited; however, in the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the unaudited consolidated
financial statements for these interim periods have been included. The results
of interim periods are not necessarily indicative of the results to be obtained
for a full year.
F-37
<PAGE> 85
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1995 and
1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land, building, and improvements............................ $ 817 $ 817
Leasehold improvements...................................... 435 435
Furniture, fixtures, and equipment.......................... 805 804
Computer hardware and software.............................. 445 464
------- -------
2,502 2,520
Less accumulated depreciation............................... (1,315) (1,406)
------- -------
Property and equipment, net....................... $ 1,187 $ 1,114
======= =======
</TABLE>
Depreciation expense totaled $128,000, $153,000, and $132,000 for the years
ended December 31, 1994, 1995, and 1996, respectively.
4. LINE OF CREDIT
The Company has a line of credit with Seattle First National Bank requiring
monthly payments of interest at the prime rate (8.25% at December 31, 1996). The
maximum available line of credit was $1,250,000 at December 31, 1995 and 1996.
The line of credit is secured by accounts receivable of the Company. The balance
outstanding under the line of credit was $900,000 and $1,077,000 at December 31,
1995 and 1996, respectively.
5. LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS
Long-term debt at December 31, 1995 and 1996 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
8.31% note payable to Seattle First National Bank; due in
monthly installments of $7,632, including interest,
through March 1, 2001; secured by real estate............. $390 $326
10% note payable to former shareholder; due in monthly
installments of $2,379 through January 15, 2003........... 145 130
---- ----
Total long-term debt.............................. 535 456
Less current portion........................................ 76 83
---- ----
Total long-term debt, less current portion........ $459 $373
==== ====
</TABLE>
The Company has an obligation to a former director, bearing interest of 10%
per annum with monthly payments of $925 through January 15, 2003. As of December
31, 1995 and 1996, the amount due under this obligation was $56,000 and $50,000,
respectively.
The Company also has an obligation to a retired officer to provide monthly
payments of $10,000 over his remaining life or, in the event he predeceases his
spouse, over the life of the spouse. Payments under this obligation have been
discounted at a 10% annual interest rate. As of December 31, 1995 and 1996, the
amount accrued under this obligation was $1,169,000 and $1,133,000,
respectively.
F-38
<PAGE> 86
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt and other obligations as of December 31, 1996
are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $128
1998........................................................ 140
1999........................................................ 152
2000........................................................ 165
2001........................................................ 107
Thereafter.................................................. 947
</TABLE>
6. INCOME TAXES
The provision for income taxes includes income taxes deferred because of
temporary differences between financial statement and tax bases of assets and
liabilities and consisted of the following for the years ended December 31,
1994, 1995, and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current..................................................... $219 $312 $532
Deferred.................................................... 10 11 (92)
---- ---- ----
Total provision............................................. $229 $323 $440
==== ==== ====
</TABLE>
The provision for income taxes for the years ended December 31, 1994, 1995,
and 1996 differs from the amount computed by applying the statutory rate of 34%
due to the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at federal statutory rate............................... $217 $347 $480
Nondeductible expenses...................................... 69 41 29
Tax-exempt interest income.................................. (7) (10) (10)
Pension benefits paid....................................... (11) (12) (12)
Cash surrender value of life insurance...................... (34) (34) (23)
Other....................................................... (5) (9) (24)
---- ---- ----
Provision for income taxes.................................. $229 $323 $440
==== ==== ====
</TABLE>
F-39
<PAGE> 87
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes are recorded based on differences between the financial
statement and tax bases of assets and liabilities. Temporary differences which
give rise to a significant portion of deferred tax assets and liabilities at
December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
------ -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 39 $ 42
Accrued employee benefits................................. 144 153
Capitalized inventory costs............................... 91 83
Inventory allowance....................................... 75 75
----- ----
349 353
----- ----
Deferred tax liabilities:
Book over tax depreciation................................ (33) (17)
Prepaid insurance......................................... (34) (29)
Other..................................................... (68) 0
----- ----
(135) (46)
----- ----
Net deferred tax assets........................... $ 214 $307
===== ====
</TABLE>
7. EMPLOYEE BENEFIT PLANS
Beginning January 1, 1989, the Company established a 401(k) savings plan
(the "Plan") for the Company's nonunion employees under which the participants
may contribute up to 10% of their compensation. Employees over age 21 with more
than one year of service who are not covered by a union plan are eligible for
participation in the Plan. During 1994, 1995, and 1996, the Company made
contributions to the Plan equivalent to 5% of eligible participants' salaries.
The Company's contributions totaled $105,000, $101,000, and $149,000 during
1994, 1995, and 1996, respectively.
8. RELATED-PARTY TRANSACTIONS
The Company leases its Spokane facility from a company owned by four
current and former shareholders of the Company under an operating lease that
expires November 30, 2002. Minimum annual lease payments are $82,000 and are
subject to increases at five-year intervals, based on increases in the consumer
price index. Rental expense recognized under this lease was $82,000 for each of
the years ended December 31, 1994, 1995, and 1996.
The Company has entered into contracts with two former officers and a
former director to provide certain future retirement-related payments (Note 5).
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
In addition to the facility lease discussed in Note 8, the Company leases a
warehouse and office facility in Seattle under an operating lease that expires
in December 1998. The Company subleases certain of its properties under
operating leases that expire October 31, 1997. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.
F-40
<PAGE> 88
B & J INDUSTRIAL SUPPLY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The minimum future rental payments, net of sublease revenues, under all
leases as of December 31, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $242
1998........................................................ 243
1999........................................................ 82
2000........................................................ 82
2001........................................................ 82
2002 and thereafter......................................... 75
</TABLE>
During the years ended December 31, 1994, 1995, and 1996, rental expense
under operating leases totaled $232,000, $232,000, and $254,000, respectively.
During the years ended December 31, 1994, 1995, and 1996, rental income related
to subleases was approximately $20,000, $23,000 and $20,000, respectively.
UNION CONTRACTS
The Company has labor contracts with two unions. Union employees are
covered by union-sponsored pension plans in accordance with the applicable labor
agreement. Under the terms of the Multiple Employers Pension Act of 1980,
employers under such plans are liable for the unfunded portion of said plans.
While a liability may exist, the amount is indeterminable at this time. The
amount becomes determinable upon withdrawal from said plan.
LITIGATION
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will be adequately covered by insurance or will not
have a material adverse effect on the Company's financial position or results of
operations.
F-41
<PAGE> 89
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Shearer Industrial Supply Co.:
We have audited the accompanying consolidated balance sheets of SHEARER
INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES as of December 31, 1995 and 1996 and the
related consolidated statements of earnings, stockholder's equity, and cash
flows for the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated balance sheets referred to above present
fairly, in all material respects, the consolidated financial position of Shearer
Industrial Supply Co. and Subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ MILLER & CO. LLP
York, Pennsylvania
February 21, 1997
F-42
<PAGE> 90
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Accounts receivable, less allowance for doubtful accounts
of $0, $0, and $12 in 1995, 1996, and 1997,
respectively........................................... $4,008 $ 5,311 $ 5,474
Accounts receivable -- affiliates......................... 8 10 7
Life insurance receivable................................. 77 0 0
Inventories............................................... 3,818 3,515 2,932
Prepaid expenses.......................................... 50 57 72
------ ------- -------
Total current assets.............................. 7,961 8,893 8,485
------ ------- -------
EQUIPMENT AND IMPROVEMENTS
Trucks and automobiles.................................... 403 453 452
Office equipment.......................................... 479 479 479
Store and warehouse equipment............................. 376 376 376
Leasehold improvements.................................... 306 306 306
------ ------- -------
1,564 1,614 1,613
Less accumulated depreciation and amortization............ (839) (1,004) (1,046)
------ ------- -------
Total equipment and improvements, net............. 725 610 567
------ ------- -------
OTHER ASSETS
Cash surrender value of life insurance.................... 105 121 124
Goodwill.................................................. 111 89 83
Investments............................................... 142 149 149
Investments -- other...................................... 27 26 26
------ ------- -------
Total other assets................................ 385 385 382
------ ------- -------
Total assets...................................... $9,071 $ 9,888 $ 9,434
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE> 91
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Cash overdraft............................................ $ 214 $ 797 $ 679
Line of credit............................................ 3,618 3,296 2,840
Current maturities of notes payable....................... 229 127 93
Current maturities of obligations under capital leases.... 24 21 24
Accounts payable.......................................... 2,034 2,297 2,469
Other current liabilities................................. 499 592 391
------ ------- -------
Total current liabilities......................... 6,618 7,130 6,496
NOTES PAYABLE............................................... 827 726 699
OBLIGATIONS UNDER CAPITAL LEASES............................ 31 9 31
DEFERRED COMPENSATION....................................... 31 37 30
DEFERRED INCOME TAXES....................................... 47 52 52
------ ------- -------
Total liabilities................................. 7,554 7,954 7,308
------ ------- -------
COMMITMENTS AND CONTINGENCY
STOCKHOLDER'S EQUITY
Preferred stock -- voting (no par value; 5,000,000 shares
authorized; 17,500 shares issued; 258 shares
outstanding; $10 per share liquidation preference;
$1.40 noncumulative dividend).......................... 62 62 62
Common stock -- nonvoting (no par value; 5,000,000 shares
authorized; 9,500 shares issued; 2,375 shares
outstanding)........................................... 33 33 33
Retained earnings......................................... 1,934 2,347 2,538
Unrealized holding gains.................................. 83 87 88
------ ------- -------
2,112 2,529 2,721
Less treasury stock, at cost
(Preferred -- 17,242 shares)
(Common -- 7,125 shares)............................... 595 595 595
------ ------- -------
Total stockholder's equity........................ 1,517 1,934 2,126
------ ------- -------
Total liabilities and stockholder's equity........ $9,071 $ 9,888 $ 9,434
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE> 92
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES...................................... $32,689 $35,946 $44,184 $10,506 $11,293
COST OF SALES.................................. 25,385 28,222 34,165 8,151 8,882
------- ------- ------- ------- -------
Gross profit................................. 7,304 7,724 10,019 2,355 2,411
OPERATING EXPENSES............................. 1,967 1,900 2,297 761 740
SELLING EXPENSES............................... 4,885 5,350 6,788 1,442 1,327
------- ------- ------- ------- -------
Earnings from operations..................... 452 474 934 152 344
INTEREST EXPENSE............................... 317 328 437 110 80
OTHER EXPENSES................................. 314 216 266 48 91
OTHER INCOME................................... 446 550 501 145 146
------- ------- ------- ------- -------
Earnings before income taxes................. 267 480 732 139 319
INCOME TAXES................................... 131 179 319 56 128
------- ------- ------- ------- -------
Net earnings......................... $ 136 $ 301 $ 413 $ 83 $ 191
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE> 93
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED TOTAL
PREFERRED COMMON RETAINED HOLDING TREASURY STOCKHOLDER'S
STOCK STOCK EARNINGS GAINS STOCK EQUITY
--------- ------ -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES -- DECEMBER 31, 1993......... $62 $33 $1,497 $ 0 $595 $ 997
Net earnings........................ 0 0 136 0 0 136
Unrealized holding gains (net of $53
of deferred income taxes)........ 0 0 0 76 0 76
--- --- ------ --- ---- ------
BALANCES -- DECEMBER 31, 1994......... 62 33 1,633 76 595 1,209
Net earnings........................ 0 0 301 0 0 301
Unrealized holding gains (net of $4
of deferred income taxes)........ 0 0 0 7 0 7
--- --- ------ --- ---- ------
BALANCES -- DECEMBER 31, 1995......... 62 33 1,934 83 595 1,517
Net earnings........................ 0 0 413 0 0 413
Unrealized holding gains (net of $3
of deferred income taxes)........ 0 0 0 4 0 4
--- --- ------ --- ---- ------
BALANCES -- DECEMBER 31, 1996......... 62 33 2,347 87 595 1,934
Net earnings........................ 0 0 191 0 0 191
Unrealized holding gains............ 0 0 0 1 0 1
--- --- ------ --- ---- ------
BALANCES -- MARCH 31, 1997
(unaudited)......................... $62 $33 $2,538 $88 $595 $2,126
=== === ====== === ==== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE> 94
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ------- ------- ------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES:
Net earnings...................................... $ 136 $ 301 $ 413 $ 83 $ 191
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 103 106 168 58 41
Amortization of goodwill....................... 9 0 22 0 6
Bad debts...................................... 131 22 30 0 0
Increase in cash surrender value of life
insurance.................................... (11) (18) (16) (3) (3)
Change in LIFO reserve......................... 26 67 44 0 0
Deferred income taxes.......................... 28 9 2 3 0
(Increase) decrease in assets:
Accounts receivable.......................... (943) 38 (1,333) (1,404) (163)
Accounts receivable -- affiliates............ 26 0 (2) (19) 3
Life insurance receivable.................... 0 (65) 77 77 0
Inventories.................................. 97 (172) 259 23 583
Prepaid expenses............................. 51 (13) (7) 33 99
Increase (decrease) in liabilities:
Accounts payable............................. 266 94 263 617 172
Other current liabilities and deferred
compensation.............................. 207 (56) 99 (261) (315)
----- ------- ------- ------- -----
Net cash provided by (used in) operating
activities................................ 126 313 19 (793) 614
----- ------- ------- ------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (124) (47) (53) 0 (3)
Repayment of note receivable...................... 0 38 0 0 0
Cash paid to acquire certain net assets........... 0 (1,407) 0 0 0
----- ------- ------- ------- -----
Net cash used in investing activities..... (124) (1,416) (53) 0 (3)
----- ------- ------- ------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in line of credit...................... (123) 1,307 (322) (124) (456)
Proceeds from notes payable....................... 44 100 27 0 0
Principal repayments of notes payable............. (131) (151) (230) (61) (37)
Principal repayments of obligations under capital
leases......................................... (7) (5) (24) 0 0
----- ------- ------- ------- -----
Net cash (used in) provided by financing
activities.............................. (217) 1,251 (549) (185) (493)
----- ------- ------- ------- -----
Net (decrease) increase in cash........... (215) 148 (583) (978) 118
CASH OVERDRAFT -- BEGINNING......................... (147) (362) (214) (214) (797)
----- ------- ------- ------- -----
CASH OVERDRAFT -- ENDING............................ $(362) $ (214) $ (797) $(1,192) $(679)
===== ======= ======= ======= =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE> 95
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
IN 1994:
The Company reclassified $38,038 of a related party notes receivable, which
had been previously netted against notes payable, to notes receivable.
The Company recorded unrealized holding gains of $129,211, net of related
deferred income taxes of $53,000 on available-for-sale securities as a direct
increase to equity.
IN 1995:
The Company recorded unrealized holding gains of $11,306 on
available-for-sale securities, less related deferred income taxes of $4,000, as
a direct increase to equity.
The Company's subsidiary, Wm. H. Taylor & Co., Inc. incurred a note payable
of $75,000 for the purchase of goodwill.
The Company's subsidiary, Turner Industries, Inc., purchased the operations
and certain net assets of three companies for $1,406,850. In conjunction with
this acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
LIABILITIES
ASSUMED
--------------
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired............................... $ 1,473
Cash paid for certain net assets............................ (1,407)
-------
$ 66
=======
</TABLE>
IN 1996:
The Company recorded unrealized holding gains of $6,584 on
available-for-sale securities, less related deferred income taxes of $3,000, as
a direct increase to equity.
F-48
<PAGE> 96
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995, AND 1996
1. NATURE OF OPERATIONS
The Company and its subsidiaries are primarily distributors of general line
industrial products with customers located in the Mid-Atlantic states.
2. ESTIMATES AND SUMMARY OF ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and the
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Shearer
Industrial Supply Co. (the "Company") and its wholly owned subsidiaries,
Wm. H. Taylor & Co., Inc., and Turner Industries, Inc., all of which are
Pennsylvania corporations. All significant intercompany balances and
transactions are eliminated in consolidation.
ACCOUNTS RECEIVABLE
The Companies consider accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
INVENTORIES
Inventories are determined primarily from perpetual records.
Inventories owned by the Company are stated at cost using the last-in,
first-out ("LIFO") method. Inventories owned by the Company's subsidiaries
are stated at the lower of average cost or market.
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are stated at cost and depreciated or
amortized using the straight-line and accelerated methods over their
estimated average useful lives as follows: trucks and automobiles, 3 to 5
years; office equipment, 5 to 10 years; store and warehouse equipment, 5 to
7 years; and leasehold improvements, 31.5 to 39 years.
GOODWILL
Goodwill represents the excess of the purchase price over the fair
market value of net assets acquired. Goodwill is amortized using the
straight-line method over five years beginning January 1, 1996.
F-49
<PAGE> 97
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
At the date of acquisition and each subsequent balance sheet date,
investments in debt and equity securities are classified into three
categories and accounted for as follows:
1. Debt securities that management has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and stated at amortized cost.
2. Debt securities and equity securities having a readily
determinable fair value that are acquired and held principally for the
purpose of selling and benefiting from short-term price fluctuations are
classified as trading securities and stated at fair value. Unrealized
gains and losses are included in operating results.
3. Debt securities and equity securities having a readily
determinable fair value and not classified as held-to-maturity or
trading securities are classified as available-for-sale securities and
stated at fair value. Unrealized gains and losses are excluded from
operating results and are reported, net of tax, as a separate component
of equity.
Realized gains and losses, if any, on the sale or disposal of
investments are computed on a specific identification basis.
INVESTMENTS -- OTHER
Investments -- other represent investments in equity securities and
are stated at the lower of aggregate cost or estimated market value because
no readily determinable fair value is available.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes relate to differences between the bases of
inventories, equipment and improvements, goodwill, investments, and
deferred compensation for financial and income tax reporting. Collectively,
these differences are referred to as temporary differences. Deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
temporary differences reverse, or when the underlying assets and
liabilities are recovered or settled.
INTERIM UNAUDITED FINANCIAL INFORMATION
The consolidated financial statements as of March 31, 1997 and for the
three months ended March 31, 1996 and 1997 are unaudited; however, in the
opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the unaudited
consolidated financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of
the results to be obtained for a full year.
F-50
<PAGE> 98
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Inventories owned by Shearer Industrial Supply Co. (at FIFO
costs).................................................... $2,968 $3,317
Less LIFO reserve........................................... 1,102 1,146
------ ------
Inventories owned by Shearer Industrial Supply Co. (at LIFO
costs).................................................... 1,866 2,171
Inventories owned by Wm. H. Taylor & Co., Inc. (at average
costs).................................................... 849 762
Inventories owned by Turner Industries, Inc................. 1,103 582
------ ------
$3,818 $3,515
====== ======
</TABLE>
The LIFO reserve increased by $25,565 in 1994, which caused gross profit to
decrease by $25,565. The LIFO reserve increased by $67,064 in 1995, which caused
gross profit to decrease by $67,064. The LIFO reserve increased $43,806 in 1996,
which caused gross profit to decrease by $43,806.
4. CASH SURRENDER VALUE OF LIFE INSURANCE
The Company is the owner and beneficiary of several life insurance policies
on the lives of its officers and former officers having an aggregate face value
of $2,936,000. As of December 31, 1995 and 1996, the cash surrender value is
stated net of policy loans totaling $41,304 and $40,304, respectively.
Wm. H. Taylor & Co., Inc. is the owner and beneficiary of life insurance
policies having an aggregate face value of $462,600. As of December 31, 1995 and
1996, the cash surrender value is stated net of policy loans totaling $198,544.
5. GOODWILL
Goodwill consists of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cost........................................................ $111 $111
Less accumulated amortization..................... 0 22
---- ----
$111 $ 89
==== ====
</TABLE>
6. INVESTMENTS
The cost, gross unrealized gains and losses, and fair value of
available-for-sale securities consist of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
GROSS
UNREALIZED
-------------- FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- ------------------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
1995:
Equity securities........................................... $2 $140 $0 $142
== ==== == ====
1996:
Equity securities........................................... $2 $147 $0 $149
== ==== == ====
</TABLE>
F-51
<PAGE> 99
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unrealized holding gains on available-for-sale securities included as a
separate component of equity consist of the following as of and for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Unrealized holding gains -- beginning (net of cumulative
deferred taxes of $53 and $57, respectively).............. $76 $84
Net unrealized holding gains................................ 11 6
Deferred income tax effect.................................. (4) (3)
--- ---
Unrealized holding gains -- ending (net of cumulative
deferred taxes of $57 and $60, respectively).............. $83 $87
=== ===
</TABLE>
7. INVESTMENTS -- OTHER
The Company's subsidiary, Turner Industries, Inc., owns shares of stock in
ServiStar as follows as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
8 shares of common stock.................................... $ 1 $ 1
521 shares of preferred stock............................... 26 25
--- ---
$27 $26
=== ===
</TABLE>
Cost is estimated to equal market value.
8. CASH OVERDRAFT
The cash overdraft represents net outstanding checks which have not been
presented to the bank for payment as of December 31, 1995 and 1996. Under the
Companies' cash management arrangement, as checks and deposits are presented to
the bank, they will be applied to the line of credit outstanding balance.
9. LINES OF CREDIT
The Company and its subsidiaries have an authorized $4,500,000 line of
credit with CoreStates Hamilton Bank. The line of credit is subject to a
borrowing base formula. The first $1,315,850 of borrowings on the line of credit
bear interest at the bank's prime rate, or 8.25% as of December 31, 1996.
Advances above $1,315,850 bear interest at the lower of the bank's prime rate or
the bank's money market loan rate, or 8.25% as of December 31, 1996. Total
borrowings outstanding as of December 31, 1995 and 1996 amounted to $3,295,850
and $3,617,850, respectively.
Additionally, in 1996 CoreStates Hamilton Bank has extended the Company an
additional authorized $500,000 line of credit. Borrowings bear interest at the
lower of the bank's prime rate or the bank's money market loan rate. There were
no borrowings against the additional line of credit as of December 31, 1996.
Both lines of credit are collateralized by the Company's assets. The lines
of credit, if not renewed by the bank, expire May 31, 1997. The lines of credit
agreements require the Companies to maintain certain financial covenants. The
agreements also require the Companies to obtain the bank's approval prior to
incurring any other indebtedness, excluding normal trade debt. The agreements
also contain certain other restrictive covenants.
F-52
<PAGE> 100
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. NOTES PAYABLE
Notes payable consist of the following as of December 31, 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ ----
<S> <C> <C>
Uncollateralized notes payable to former stockholders of Wm.
H. Taylor & Co., Inc.; originating from the purchase of
treasury stock; interest at 7% to 10.4%; payable in
varying installments...................................... $ 392 $369
Uncollateralized notes payable to former stockholders of the
Company; originating from the 1991 purchases of treasury
stock; interest at 8% to 9%; payable in varying
installments.............................................. 401 364
Uncollateralized noninterest bearing note payable to Air
Compressor Services, Inc.; originating from the purchase
of goodwill; payable in equal monthly principal
installments of $2,083; interest at 0%, beginning November
12, 1996; the effect of unrecorded imputed interest is
insignificant............................................. 75 71
Note payable to Navistar Financial; payable in equal monthly
principal and interest installments of $859; interest at
8.75%; collateralized by a truck.......................... 0 25
Note payable to CoreStates Hamilton Bank; payable in equal
monthly principal and interest installments of $1,382;
interest at 8.15%; collateralized by accounts receivable;
inventories and certain equipment......................... 27 12
Note payable to CoreStates Hamilton Bank; payable in equal
monthly principal and interest installments of $480;
interest at 10.65%........................................ 16 11
Note payable to CoreStates Hamilton Bank; payable in equal
monthly principal and interest installments of $673;
interest at 6.15%; collateralized by a truck.............. 8 1
Uncollateralized demand note payable to a related party;
interest at prime less 1%; repaid during 1996............. 100 0
Note payable to Phoenixcor, Inc.; payable in thirty monthly
principal and interest installments of $2,628, and then
thirty additional principal and interest installments of
$1,617; including interest at 11.88%; collateralized by
certain equipment owned by Turner Industries, Inc.; repaid
during 1996............................................... 17 0
Note payable to CoreStates Hamilton Bank; payable in equal
monthly principal and interest installments of $3,187;
interest at 6.5%; collateralized by accounts receivable
inventories and certain equipment; repaid during 1996..... 13 0
Note payable to Clarklift Services, Inc.; payable in equal
monthly principal and interest installments of $348;
interest at 10.74%; collateralized by a truck; repaid
during 1996............................................... 4 0
Note payable to Ford Credit Co.; payable in equal monthly
principal and interest installments of $454; interest at
9.5%; collateralized by a truck; repaid during 1996....... 3 0
------ ----
1,056 853
Less current maturities..................................... 229 127
------ ----
$ 827 $726
====== ====
</TABLE>
F-53
<PAGE> 101
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of notes payable, assuming no change in current terms,
consist of the following for the five years ending December 31 (in thousands):
<TABLE>
<CAPTION>
AGGREGATE
MATURITIES
OF NOTES
PAYABLE
----------
<S> <C>
1997........................................................ 127
1998........................................................ 122
1999........................................................ 120
2000........................................................ 92
2001........................................................ 70
</TABLE>
11. OBLIGATIONS UNDER CAPITAL LEASES
The Company's subsidiary, Turner Industries, Inc. entered into a capital
lease agreement in order to finance the purchase of equipment. The lease term
was forty-eight months and required twenty-four payments of $750 and twenty-four
payments of $504, which included interest at 11.014%. The lease was repaid
during 1996.
During 1995, Turner Industries, Inc. also assumed a capital lease agreement
in order to finance the purchase of office equipment. The remaining lease term
is twenty-nine months and requires monthly payments of $1,938, which includes
interest at 8.75%.
Future minimum lease payments consist of the following for the remaining
two years ending December 31:
<TABLE>
<CAPTION>
FUTURE
MINIMUM
LEASE
PAYMENTS
--------
<S> <C>
1997........................................................ $23,253
1998........................................................ 9,689
-------
32,942
Less amount representing interest........................... 2,066
-------
30,876
Less current portion........................................ 21,396
-------
$ 9,480
=======
</TABLE>
The cost, accumulated amortization, net book value, and amortization
expense of the capital lease assets consist of the following as of and for the
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cost........................................................ $75 $76
Less accumulated amortization............................... 17 30
--- ---
$58 $46
=== ===
Amortization expense........................................ $ 4 $ 3 $12
=== === ===
</TABLE>
F-54
<PAGE> 102
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Accrued interest............................................ $ 30 $ 16
Accrued payroll and commissions............................. 218 298
Deferred compensation....................................... 7 0
Accrued profit sharing...................................... 60 75
Payroll taxes withheld and accrued.......................... 25 15
Accrued expenses............................................ 34 33
Sales taxes payable......................................... 9 0
Accrued corporate taxes..................................... 116 155
---- ----
$499 $592
==== ====
</TABLE>
13. DEFERRED COMPENSATION AGREEMENTS
The Company's subsidiary, Wm. H. Taylor & Co., Inc., entered into deferred
compensation agreements with certain individuals. These agreements require the
payment of monthly amounts commencing with the retirement of these individuals.
The costs associated with these agreements are being accrued ratably over the
employment period of the individuals.
14. COMMITMENTS
The Company and its subsidiaries lease facilities and certain vehicles
under operating leases which have varying terms and monthly payments.
Future minimum lease payments consist of the following for each of the five
years ending December 31, 2001, and thereafter (in thousands):
<TABLE>
<CAPTION>
VEHICLES BUILDINGS TOTALS
-------- --------- ------
<S> <C> <C> <C>
1997........................................................ $152 $ 401 $ 553
1998........................................................ 79 255 334
1999........................................................ 24 174 198
2000........................................................ 0 151 151
2001........................................................ 0 165 165
Thereafter.................................................. 0 1,545 1,545
---- ------ ------
$255 $2,691 $2,946
==== ====== ======
</TABLE>
The Company also leases certain facilities on a year-to-year basis. Total
rent expense under operating leases for vehicles and buildings amounted to
$402,857, $427,204, and $593,264 for the years ended December 31, 1994, 1995,
and 1996, respectively.
During 1991, the Company entered into a noncompete agreement with its
former majority stockholder. The agreement, as amended, prohibits the former
stockholder from competing with the Company for a ten-year period. The $550,000
cost of the agreement is payable by the Company in monthly payments of $4,583.
Total noncompete agreement expense for the years ended December 31, 1994, 1995,
and 1996 was $55,000. The cost of the agreement is being expensed as paid over
the ten-year noncompete term. As of December 31, 1995 and 1996, future payments
required by the noncompete agreement amount to $293,333 and $238,333,
respectively.
F-55
<PAGE> 103
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. CONTINGENCY
The Company self-insures its group health insurance coverage through an
insurance trust. The plan is administered through a third-party administrator
who approves all claims and draws checks from the trust to pay all claims. As
protection for substantial claims, the Company purchased stop-loss insurance,
therefore placing caps on specific and aggregate claims.
Approximate maximum exposure consists of the following as of December 31,
1996:
<TABLE>
<S> <C>
Specific loss (per person/per plan year).................... $ 30,000
Aggregate loss.............................................. 299,000
</TABLE>
No accrual has been made for incurred but unpaid claims as of December 31,
1995 and 1996, because it was determined that the insurance trust has sufficient
assets to provide for such claims. The assets of the insurance trust are not
included in the financial statements of the Company.
16. PROFIT SHARING PLAN
The Companies sponsor a combination profit sharing and 401(k) retirement
savings plan which covers substantially all of their employees. Contributions to
this plan are made at the sole discretion of management, and profit sharing
expense amounted to $55,000, $60,000, and $76,557 for the years ended December
31, 1994, 1995, and 1996, respectively.
17. INCOME TAXES
Income taxes consist of the following for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current expense:
Federal................................................... $ 74 $140 $238
State..................................................... 29 30 79
---- ---- ----
103 170 317
Deferred expense............................................ 28 9 2
---- ---- ----
$131 $179 $319
==== ==== ====
</TABLE>
The federal income tax provision differs from the provision that would
result from applying graduated federal statutory rates to earnings before income
taxes because of the federal benefit of state income taxes and because certain
transactions, such as a portion of meals and entertainment, a portion of
noncompete expense, net life insurance expense, and certain dues, are without
tax consequence.
F-56
<PAGE> 104
SHEARER INDUSTRIAL SUPPLY CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net deferred income taxes in the accompanying balance sheets consist of the
following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- -----
<S> <C> <C>
Deferred income tax assets:
Inventories............................................... $ 24 $ 37
Deferred compensation..................................... 16 15
---- -----
40 52
Deferred income tax liabilities:
Equipment and improvements and goodwill................... (32) (45)
Investments............................................... (55) (59)
---- -----
(87) (104)
$(47) $ (52)
==== =====
</TABLE>
The Company and its subsidiaries' effective tax rate varied from the
statutory U.S. federal income tax rate for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal income tax rate................................ 32.7% 34.0% 34.0%
State income taxes, net of federal benefit.................. 8.0 6.6 6.6
Nondeductible meals and entertainment....................... 4.0 2.8 2.0
Nontaxable life insurance proceeds.......................... 0.0 (5.5) 0.0
Other individually insignificant items...................... 4.3 (0.6) 1.0
---- ---- ----
49.0% 37.3% 43.6%
==== ==== ====
</TABLE>
18. RELATED PARTY TRANSACTIONS
The Company is related to York Penn Machinery Co. through common management
and ownership. The Company receives reimbursements, primarily group insurance,
for payments made on behalf of the affiliates.
The Company also leases certain property used in its operations from
related parties under noncancelable lease agreements. Rent expense for these
properties was $244,602, $256,252, and $265,877 for the years ended December 31,
1994, 1995, and 1996, respectively.
The Company also paid interest to former stockholders of the Company on
uncollateralized notes payable. Total interest expense on these uncollateralized
notes payable is $0, $35,012, and $31,889, for the years ended December 31,
1994, 1995, and 1996, respectively.
19. ADVERTISING COSTS
Advertising costs for the years ended December 31, 1994, 1995, and 1996
amounted to $104,000, $141,710, and $142,228, respectively.
20. CONCENTRATION OF CREDIT RISK
The Company grants normal credit terms to its customers which are
principally manufacturing industries in Pennsylvania and surrounding states.
21. VENDOR DEPENDENCE
The Company purchased approximately 25%, 25%, and 24% of its inventory from
one vendor for the years ended December 31, 1994, 1995, and 1996, respectively.
F-57
<PAGE> 105
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To J. J. Stangel Company:
We have audited the accompanying balance sheet of J. J. STANGEL COMPANY as
of September 30, 1996 and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of J. J. Stangel Company as of
September 30, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ SCHENCK & ASSOCIATES, SC
Green Bay, Wisconsin
February 27, 1997
F-58
<PAGE> 106
J. J. STANGEL COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 223 $ 371
Receivables:
Trade, net of allowance of $9 and $11, respectively.... 711 827
Other.................................................. 39 12
Note receivable........................................... 20 20
Inventories............................................... 1,087 1,056
Prepaid expenses.......................................... 52 71
Refundable income taxes................................... 29 0
------ ------
Total current assets.............................. 2,161 2,357
------ ------
PROPERTY AND EQUIPMENT:
Leasehold improvements.................................... 70 70
Office furniture and fixtures............................. 180 182
Data processing equipment................................. 258 264
Equipment................................................. 200 200
Vehicles.................................................. 221 221
------ ------
929 937
Less accumulated depreciation............................. (588) (640)
------ ------
341 297
Capital lease building, less accumulated amortization of
$251 and $260, respectively............................ 266 257
------ ------
Net property and equipment........................ 607 554
------ ------
OTHER ASSETS:
Deferred charge, net of amortization...................... 9 8
Cash surrender value of life insurance.................... 113 119
Deferred tax benefit...................................... 78 78
------ ------
Total other assets................................ 200 205
------ ------
Total assets...................................... $2,968 $3,116
====== ======
</TABLE>
See notes to financial statements.
F-59
<PAGE> 107
J. J. STANGEL COMPANY
BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities........................................ $ 20 $ 20
Current maturities of deferred compensation............... 19 19
Accounts payable.......................................... 668 801
Accrued liabilities:
Profit sharing......................................... 67 34
Payroll and payroll taxes.............................. 137 72
Vacation............................................... 19 19
Other.................................................. 33 67
------ ------
Total current liabilities......................... 963 1,032
LONG-TERM DEBT, less current maturities..................... 645 635
DEFERRED COMPENSATION....................................... 102 93
------ ------
Total liabilities................................. 1,710 1,760
------ ------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDER'S EQUITY:
Common stock, $100 par value:
Issued, 173 shares..................................... 17 17
Additional paid-in capital................................ 14 14
Retained earnings......................................... 1,528 1,626
------ ------
1,559 1,657
Less treasury stock, at cost, 83 shares................... (301) (301)
------ ------
Total stockholder's equity........................ 1,258 1,356
------ ------
Total liabilities and stockholder's equity........ $2,968 $3,116
====== ======
</TABLE>
See notes to financial statements.
F-60
<PAGE> 108
J. J. STANGEL COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH PERIOD
SEPTEMBER 30, ENDED MARCH 31,
------------- ----------------
1996 1996 1997
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
NET SALES................................................... $11,713 $5,841 $5,838
COST OF SALES............................................... 8,990 4,408 4,406
------- ------ ------
Gross profit.............................................. 2,723 1,433 1,432
OPERATING EXPENSES.......................................... 2,534 1,186 1,209
------- ------ ------
Income from operations.................................... 189 247 223
------- ------ ------
OTHER INCOME (EXPENSE):
Interest and other income (expense)....................... 78 (42) (15)
Interest expense.......................................... (71) (41) (39)
------- ------ ------
OTHER INCOME (EXPENSE), Net................................. 7 (83) (54)
------- ------ ------
INCOME BEFORE INCOME TAXES.................................. 196 164 169
PROVISION FOR INCOME TAXES.................................. 72 66 71
------- ------ ------
NET INCOME.................................................. 124 $ 98 98
======
RETAINED EARNINGS:
Beginning of year......................................... 1,404 1,528
------- ------
End of year............................................... $ 1,528 $1,626
======= ======
</TABLE>
See notes to financial statements.
F-61
<PAGE> 109
J. J. STANGEL COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, -----------
1996 1996 1997
------------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $124 $ 98 $ 98
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 104 61 61
Amortization........................................... 17 0 0
Increase in cash surrender value of life insurance..... (1) 0 0
Decrease (increase) in:
Receivables.......................................... 30 (89) (90)
Refundable income taxes.............................. (29) 0 0
Inventories.......................................... 105 57 31
Other current assets................................. 21 10 (18)
Deferred tax benefit................................. (2) 0 0
(Decrease) increase in:
Accounts payable..................................... (63) (18) 129
Accrued income taxes................................. (37) (23) 63
Other current liabilities............................ 56 (26) (94)
---- ---- ----
Net cash provided by operating activities......... 325 70 180
---- ---- ----
INVESTING ACTIVITIES:
Purchase of property and equipment........................ (84) (8) (7)
Collection on notes receivable............................ 72 0 0
Issuance of notes receivable.............................. (70) (2) 0
Purchase of cash surrender value of life insurance........ (11) (5) (6)
---- ---- ----
Net cash used for investing activities............ (93) (15) (13)
---- ---- ----
FINANCING ACTIVITIES:
Repayment of deferred compensation obligation............. (19) 0 0
Repayment of capital lease obligation..................... (7) 0 0
Retirement of long-term debt.............................. (12) (20) (19)
---- ---- ----
Net cash used for financing activities............ (38) (20) (19)
---- ---- ----
CASH AND CASH EQUIVALENTS:
Net increase.............................................. 194 35 148
Beginning of period....................................... 29 28 223
---- ---- ----
End of period............................................. $223 $ 63 $371
==== ==== ====
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for:
Interest............................................... $ 71 $ 43 $ 39
==== ==== ====
Income taxes........................................... $140 $ 89 $ 8
==== ==== ====
</TABLE>
See notes to financial statements.
F-62
<PAGE> 110
J. J. STANGEL COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS
J.J. Stangel Company (the "Company") (a Wisconsin corporation) provides
industrial tools and supplies for sale to customers located mainly in
northeastern Wisconsin.
B. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
C. CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The Company did not have cash equivalents at September 30,
1996.
D. INVENTORIES
Inventories are stated at the lower of cost, determined on the last-in,
first-out ("LIFO") method, or market.
E. PROPERTY, EQUIPMENT, AND RELATED DEPRECIATION
Property and equipment are stated at cost. Expenditures for additions and
improvements are capitalized, while replacements, maintenance, and repairs which
do not improve or extend the lives of the respective assets are expensed
currently as incurred. Properties sold or otherwise disposed of are removed from
the property accounts, with gains or losses on disposal credited or charged to
the results of operations.
Depreciation for financial reporting purposes is provided over the
estimated useful lives of the respective assets, using both straight-line and
accelerated methods as follows:
<TABLE>
<S> <C>
Building and building improvements.......................... 19-31.5 years
Office furniture and fixtures............................... 5-10 years
Data processing equipment................................... 3-10 years
Equipment................................................... 5-15 years
Vehicles.................................................... 5 years
</TABLE>
For income tax purposes, accelerated depreciation methods are used.
F. DEFERRED CHARGE
A deferred charge has been established for a membership fee. The deferred
charge is amortized on the straight-line method over a 15-year period for
financial statement and income tax reporting purposes.
G. INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of property and equipment and
accrued between the basis of property and equipment and accrued liabilities for
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences
F-63
<PAGE> 111
J. J. STANGEL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
H. ADVERTISING COSTS
Advertising and marketing costs are expensed as incurred. Advertising and
marketing costs amounted to $12,043 for the year ended September 30, 1996.
I. NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of," to be effective for fiscal
years beginning after December 15, 1995. The Company does not anticipate that
the adoption of this statement will have a significant impact on the Company's
financial position or results of operations.
J. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statements as of March 31, 1997, and for the six months ended
March 31, 1996 and 1997 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full year.
2. CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. The Company believes that it is not exposed to any significant
credit risk on cash and cash equivalents.
3. INVENTORIES
Inventories as of September 30, 1996 consist of the following (in
thousands):
<TABLE>
<S> <C>
Inventories at average cost................................. $1,470
Adjustment to LIFO basis.................................... (383)
------
Inventories at LIFO......................................... $1,087
======
</TABLE>
The Company uses the LIFO method of valuing inventories for both financial
reporting and income tax purposes. The use of the LIFO method of inventory
valuation had the effect of decreasing the income before tax of the Company by
approximately $29,000 for the year ended September 30, 1996.
During 1996, inventory quantities were reduced. This reduction resulted in
a liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of 1996 purchases, the effect of which
decreased cost of goods sold by approximately $2,500.
4. NOTE RECEIVABLE
The note receivable of $20,000 at September 30, 1996 was due on demand from
the Company's stockholder at an interest rate of 9.25%.
F-64
<PAGE> 112
J. J. STANGEL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LIFE INSURANCE
The Company is beneficiary of life insurance policies totaling $750,000 on
John J. Zimmer, President of the Company, and $135,000 on Joseph A. Zimmer,
former stockholder of the Company. There are no policy loans outstanding at
September 30, 1996.
6. NOTE PAYABLE
The Company has a $650,000 line of credit with First National Bank in
Manitowoc which provides for interest at 1% over prime (effectively 9.25% at
September 30, 1996). The line is secured by substantially all assets under a
Selective Business Security Agreement. There were no borrowings against the line
of credit at September 30, 1996.
7. LONG-TERM DEBT
Long-term debt at September 30, 1996 consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Joseph A. Zimmer:
8% note, due in monthly installments of $2,703 through
July 2008, under the terms of a stock redemption
agreement dated August 1, 1991, secured by treasury
stock.................................................. $247
Zimmer Family Trust:
Capital lease obligation due in monthly installments of
$2,887, including interest at 12%, through 2014 (Note
10).................................................... 265
Capital lease obligation due in monthly installments of
$1,668, including interest at 12%, through 2014 (Note
10).................................................... 153
----
665
Less current maturities..................................... 20
----
Long-term debt, less current maturities..................... $645
====
</TABLE>
Maturities of long-term debt for each of the five years succeeding
September 30, 1996 and in total are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 20
1998........................................................ 22
1999........................................................ 25
2000........................................................ 27
2001........................................................ 30
Thereafter.................................................. 541
----
$665
====
</TABLE>
8. PROFIT-SHARING PLAN
The Company maintains a defined contribution plan with Section 401(k)
features, which covers substantially all employees. Those covered may elect to
make contributions to the plan's trust fund. The Company may contribute a
discretionary amount based upon the profit of the Company. The Company
contributions under this plan approximated $89,000 for the year ended September
30, 1996.
F-65
<PAGE> 113
J. J. STANGEL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision for income taxes for the year ended September 30, 1996
consists of the following (in thousands):
<TABLE>
<S> <C>
Current:
Federal................................................... $57
State..................................................... 17
Deferred.................................................... (2)
---
$72
===
</TABLE>
For tax purposes, the Company has approximately $36,000 of charitable
contribution carryforwards.
The provision for income taxes for the year ended September 30, 1996
differs from the amount computed by applying the federal statutory rate of 34%
due to the following (in thousands):
<TABLE>
<S> <C>
Tax at federal statutory rate............................... $67
State income taxes, net of federal benefit.................. 10
Nondeductible travel and entertainment...................... 4
Other....................................................... (9)
---
Total provision................................... $72
===
</TABLE>
The Company's total deferred tax assets and liabilities at September 30,
1996 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 3
Inventory allowance....................................... 25
Accrued vacation.......................................... 7
Deferred compensation..................................... 44
Charitable contributions carryforward..................... 13
Fixed assets.............................................. 10
----
102
Deferred tax liabilities:
Other..................................................... (24)
----
$ 78
====
</TABLE>
The deferred tax assets have not been offset by a valuation allowance
because the Company believes there is at least a 50% chance that the deferred
tax assets will be realized.
10. CAPITAL LEASES
The Company leases its office and warehouse building from the Zimmer Family
Trust. These leases, which expire in 1999 with 15-year renewal options expiring
in 2014, are accounted for as capital leases.
F-66
<PAGE> 114
J. J. STANGEL COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under the capital leases and the net
present value of the future minimum lease payments at September 30, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 55
1998........................................................ 55
1999........................................................ 55
2000........................................................ 55
2001........................................................ 54
Thereafter.................................................. 715
----
989
Less amount representing interest........................... 571
----
$418
====
</TABLE>
11. DEFERRED COMPENSATION
The Company has a deferred compensation agreement with one of its former
officers/stockholders. The agreement provides for monthly payments of $3,333
from July 1995 (the "agreed retirement date") to December 1995; $2,500 from
January 1996 through December 1999; and $1,667 from January 2000 through
December 2002. The present value (at 10%) of these payments at September 30,
1996 is $120,840.
12. COMMITMENTS
The Company has an outstanding obligation with a former employee to make
monthly retirement payments of $1,438 for the rest of her life. Based on the
former employee's age and a discount rate of 8.25%, the present value of these
future payments is $54,000. Management has not recorded this liability since
they do not believe it is material to the financial position of the Company.
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will be adequately covered by insurance or will not
have a material adverse effect on the Company's financial position or results of
operations.
F-67
<PAGE> 115
INDEPENDENT ACCOUNTANTS' REPORT
To Tri-Star Industrial Supply, Inc.:
We have audited the accompanying balance sheets of TRI-STAR INDUSTRIAL
SUPPLY, INC. as of September 30, 1995 and 1996 and the related statements of
income, retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TRI-STAR INDUSTRIAL SUPPLY,
INC. as of September 30, 1995 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ BAIRD, KURTZ & DOBSON
April 4, 1997
St. Louis, Missouri
F-68
<PAGE> 116
TRI-STAR INDUSTRIAL SUPPLY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------- MARCH 31,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 8 $ 60 $ 71
Accounts receivable, less allowance for doubtful accounts;
1995 -- $25, 1996 -- $50, 1997 -- $59.................. 2,796 2,539 3,209
Inventory................................................. 2,543 2,362 2,681
Prepaid expenses.......................................... 67 67 67
Deferred income taxes..................................... 70 92 93
------ ------ ------
Total current assets.............................. 5,484 5,120 6,121
------ ------ ------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................... 248 280 289
Machinery and equipment................................... 64 64 66
Furniture and fixtures.................................... 442 495 586
------ ------ ------
754 839 941
Less accumulated depreciation............................. 291 437 516
------ ------ ------
Property and equipment, net....................... 463 402 425
------ ------ ------
OTHER ASSETS:
Noncompete agreements, at amortized cost.................. 78 45 28
Deferred income taxes..................................... 32 35 36
------ ------ ------
Total other assets................................ 110 80 64
------ ------ ------
Total assets...................................... $6,057 $5,602 $6,610
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks.................................... $1,500 $ 700 $ 975
Current maturities of long-term debt...................... 134 182 182
Accounts payable.......................................... 1,571 1,315 1,717
Accrued expenses.......................................... 325 275 342
Income taxes payable...................................... 132 63 119
------ ------ ------
Total current liabilities......................... 3,662 2,535 3,335
------ ------ ------
LONG-TERM DEBT.............................................. 1,107 1,400 1,308
------ ------ ------
SHAREHOLDERS' EQUITY:
Common stock, $10 par value; authorized 3,000 shares;
issued and outstanding 501 shares...................... 5 5 5
Retained earnings......................................... 1,298 1,677 1,977
------ ------ ------
1,303 1,682 1,982
Treasury stock, 75 shares, at cost........................ (15) (15) (15)
------ ------ ------
Shareholders' equity...................................... 1,288 1,667 1,967
------ ------ ------
Total liabilities and shareholders' equity........ $6,057 $5,602 $6,610
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-69
<PAGE> 117
TRI-STAR INDUSTRIAL SUPPLY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH PERIOD
SEPTEMBER 30, ENDED MARCH 31,
----------------- -----------------
1995 1996 1996 1997
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES................................................. $23,633 $23,588 $12,094 $13,657
COST OF GOODS SOLD........................................ 18,962 18,688 9,427 10,562
------- ------- ------- -------
Gross profit............................................ 4,671 4,900 2,667 3,095
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 3,815 4,051 2,240 2,514
------- ------- ------- -------
Income from operations.................................. 856 849 427 581
------- ------- ------- -------
OTHER EXPENSE:
Interest................................................ 199 214 123 84
Other................................................... 0 19 14 4
------- ------- ------- -------
199 233 137 88
------- ------- ------- -------
INCOME BEFORE INCOME TAXES................................ 657 616 290 493
PROVISION FOR INCOME TAXES................................ 270 237 112 193
------- ------- ------- -------
NET INCOME................................................ $ 387 $ 379 $ 178 $ 300
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-70
<PAGE> 118
TRI-STAR INDUSTRIAL SUPPLY, INC.
STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, SIX-MONTH
--------------- PERIOD ENDED
1995 1996 MARCH 31, 1997
------ ------ --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE, beginning of period................................ $ 911 $1,298 $1,677
Net income................................................ 387 379 300
------ ------ ------
BALANCE, end of period...................................... $1,298 $1,677 $1,977
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-71
<PAGE> 119
TRI-STAR INDUSTRIAL SUPPLY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31,
------------- -------------
1995 1996 1996 1997
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 387 $ 379 $ 178 $ 300
Items not requiring (providing) cash:
Depreciation and amortization.......................... 164 180 85 95
Gain on sale of equipment.............................. (1) 0 0 0
Deferred income taxes.................................. (3) (26) 0 0
Payments on noncompete agreements...................... (33) 0 0 0
Changes in:
Accounts receivable.................................. (827) 257 67 (670)
Inventory............................................ (759) 181 (84) (319)
Prepaid expenses..................................... (17) 0 10 (1)
Accounts payable..................................... 301 (255) 110 402
Accrued expenses..................................... 59 (49) (106) 67
Income taxes payable................................. 66 (70) (128) 56
----- ----- ----- -----
Net cash (used in) provided by operating
activities...................................... (663) 597 132 (70)
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment........................... 1 0 0 0
Purchase of property and equipment........................ (133) (86) (63) (101)
----- ----- ----- -----
Net cash used in investing activities............. (132) (86) (63) (101)
----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit
agreement.............................................. 925 (800) (500) 275
Payments on long-term debt................................ (149) (159) (68) (93)
Long-term debt borrowings................................. 0 500 500 0
----- ----- ----- -----
Net cash provided by (used in) financing
activities...................................... 776 (459) (68) 182
----- ----- ----- -----
(DECREASE) INCREASE IN CASH................................. (19) 52 1 11
CASH, beginning of period................................... 27 8 8 60
----- ----- ----- -----
CASH, end of period......................................... $ 8 $ 60 $ 9 $ 71
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-72
<PAGE> 120
TRI-STAR INDUSTRIAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Tri-Star Industrial Supply, Inc. ("the Company"), a Missouri corporation,
has sales which are predominately earned as a midwestern distributor of
industrial and construction tools, supplies and equipment. The Company generally
extends unsecured credit to its customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORY PRICING
Inventory is stated at the lower of moving average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated over the estimated useful life of
each asset. Leasehold improvements are depreciated over the shorter of the lease
term or the estimated useful lives of the improvements. Annual depreciation is
primarily computed using the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 3-5 years
Leasehold improvements...................................... 5 years
Machinery and equipment..................................... 3-5 years
</TABLE>
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
INTANGIBLE ASSETS
Noncompete agreements are stated at cost, and are being amortized using the
straight-line method over the lives of the contracts.
CONCENTRATION OF RISK
In 1995 and 1996, approximately 15% of the Company's inventory purchases
were from one supplier.
INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statements as of March 31, 1997, and for the six months ended
March 31, 1996 and 1997 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full year.
F-73
<PAGE> 121
TRI-STAR INDUSTRIAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. NOTE PAYABLE TO BANK
The Company has a line-of-credit agreement which provides for borrowings up
to $1,500,000. This arrangement expires in February 1997 and is collateralized
by inventory, property and equipment, and accounts receivable. Interest is
charged at the prime rate plus 1/4%. Borrowings, which have been guaranteed by
the shareholders of the Company, aggregated $1,500,000 and $700,000 at September
30, 1995 and 1996, respectively.
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank, due February 1998; payable in monthly
installments of $11,500, plus interest at prime plus
1/4%; collateralized by inventory, property and
equipment, and accounts receivable and guaranteed by the
shareholders of the Company............................... $1,039 $1,424
Note payable to bank, due October 1999; payable in monthly
installments of $5,032, including interest at 8 3/4%;
collateralized by equipment............................... 202 158
------ ------
1,241 1,582
Less current maturities..................................... 134 182
------ ------
$1,107 $1,400
====== ======
</TABLE>
Aggregate annual maturities of long-term debt at September 30, 1996, were
as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 182
1998........................................................ 1,338
1999........................................................ 57
2000........................................................ 5
------
$1,582
======
</TABLE>
The carrying value of long-term debt and notes payable to bank is
considered to approximate fair value, based upon available terms and rates for
similar bank borrowings. The effective interest rate on all borrowings was 8.89%
and 8.58% in 1995 and 1996, respectively.
4. OPERATING LEASES
The Company has entered into operating leases for office and warehouse
facilities expiring through 2009. These leases generally require the Company to
pay most executory costs (property taxes, maintenance and insurance). Rental
expense was $156,000 in 1995 and 1996. Rental expense to a lessor with common
ownership with the Company was $126,000 in 1995 and 1996.
F-74
<PAGE> 122
TRI-STAR INDUSTRIAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments at September 30, 1996, were as follows (in
thousands):
<TABLE>
<CAPTION>
RELATED
PARTY OTHER
------- -----
<S> <C> <C>
1997........................................................ $ 120 $26
1998........................................................ 120 12
1999........................................................ 121 0
2000........................................................ 126 0
2001........................................................ 126 0
Thereafter.................................................. 1,017 0
------ ---
$1,630 $38
====== ===
</TABLE>
5. INCOME TAXES
The provision for income taxes includes these components (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Current tax expense......................................... $273 $263
Deferred tax expense........................................ (3) (26)
---- ----
$270 $237
==== ====
</TABLE>
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective rate is shown below (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Computed at the statutory rate (34%)........................ $223 $209
Increase (decrease) in taxes resulting from:
Non-deductible expenses................................... 15 21
State income taxes -- net of federal tax benefits......... 29 28
Change in expected rates.................................. 0 (21)
Change in valuation allowance............................. (2) 1
Other..................................................... 5 (1)
---- ----
$270 $237
==== ====
</TABLE>
F-75
<PAGE> 123
TRI-STAR INDUSTRIAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets were (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accumulated depreciation.................................. $ 6 $ 13
Inventory -- uniform capitalization....................... 61 67
Allowance for doubtful accounts........................... 9 20
Straight line rents....................................... 2 5
Net operating loss carryforwards.......................... 24 23
Other..................................................... 10 10
---- ----
Net deferred tax asset before valuation allowance........... 112 138
---- ----
Valuation allowance:
Beginning balance......................................... (12) (10)
Change during the period.................................. 2 (1)
---- ----
Ending balance............................................ (10) (11)
---- ----
Net deferred tax asset...................................... $102 $127
==== ====
</TABLE>
The above net deferred tax assets are presented on the balance sheets as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Current asset............................................... $ 70 $ 92
Long-term asset............................................. 32 35
---- ----
$102 $127
==== ====
</TABLE>
For federal income tax purposes, the Company has $58,000 of operating loss
carryforwards which expire through 2002.
6. PROFIT-SHARING PLAN
The Company has a profit-sharing plan covering substantially all employees.
The Company makes matching contributions to the Plan equal to 25% of the first
2% and 5% of the next 4% of employee contributions. Contributions are limited to
15% of total compensation paid participants during the Plan year. Participant
interests are vested over a period from two to six years of service.
Contributions to the Plan were $9,600 and $11,000 for 1995 and 1996,
respectively.
7. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Additional Cash Information
Interest paid............................................. $199 $214
==== ====
Income taxes paid......................................... $207 $333
==== ====
</TABLE>
8. SUBSEQUENT EVENT (UNAUDITED)
On June 2, 1997, the Company purchased the net assets of a local industrial
supplier for approximately $1,750,000. This transaction was principally financed
through bank borrowings.
F-76
<PAGE> 124
======================================================
NO DEALER, SALES PERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 10
Dividend Policy....................... 11
Capitalization........................ 12
Dilution.............................. 13
Selected Pro Forma Combined Financial
Data................................ 14
Predecessor-IDG Selected Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
The Combination....................... 22
Business.............................. 26
Management............................ 35
Principal Stockholders................ 39
Certain Transactions.................. 39
Shares Eligible for Future Sale....... 41
Description of Capital Stock.......... 42
Underwriting.......................... 44
Legal Matters......................... 45
Experts............................... 46
Additional Information................ 46
Index to Financial Information........ F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
SHARES
[INDUSTRIAL DISTRIBUTION (TM) LOGO]
INDUSTRIAL DISTRIBUTION GROUP, INC.]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
======================================================
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $9,090.91
National Association of Securities Dealers Fee.............. $3,500.00
New York Stock Exchange Fees................................ $ *
Blue Sky Fees and Expenses.................................. $ *
Printing and Engraving Expenses............................. $ *
Legal Fees and Expenses..................................... $ *
Accounting Fees and Expenses................................ $ *
Transfer Agent Fees and Expenses............................ $ *
Miscellaneous............................................... $ *
---------
Total............................................. $
=========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Purchase Agreement provides for indemnification by the Underwriters of
the Company and by the Company of the Underwriters, for certain liabilities,
including liabilities arising under the Securities Act of 1933 (the "Securities
Act"), and affords certain rights of contribution with respect thereto.
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware General Corporation Law ("DGCL"), a director of
the Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director. Under the DGCL, liability of
a director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases, and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provisions of the Company's
Certificate of Incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior), except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care.
In addition, under the Company's Certificate of Incorporation and Article
Eight of the Company's Bylaws, the Company shall indemnify its directors,
officers, employees, and agents against losses incurred by any such person by
reason of the fact that such person was acting in such capacity or was serving
at the request of the Company as a director, officer, employee, or agent of
another entity. In addition, the Company has entered into indemnification
agreements with its directors and executive officers.
The Company's directors and officers are insured against losses arising
from any claim against them as such for wrongful acts or omissions, subject to
certain limitation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant was incorporated in February 1997 in Georgia and was merged
into a Delaware corporation on July 2, 1997. Simultaneously with the closing of
the Offering, an aggregate of shares
II-1
<PAGE> 126
of Common Stock will be issued in connection with the merger or acquisition of
nine corporations into the Registrant, in reliance upon the exemptions contained
in Section 4(2) of the Securities Act. In exchange therefor, the Registrant will
acquire all of the outstanding shares in each of the nine corporations.
Since inception of the Registrant, the following persons were issued Common
Stock of the Registrant in reliance upon the exemption contained in Section 4(2)
of the 1993 Act, in the number of shares, on the date, and for the consideration
referenced below:
<TABLE>
<CAPTION>
NAME NO. SHARES DATE OF ISSUANCE CONSIDERATION
---- ---------- ---------------- -------------
<S> <C> <C> <C>
David K. Barth...............................
Jack P. Healey...............................
Martin S. Pinson.............................
Paul C. Smith................................
David K. Barth...............................
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <C> <S>
**1.1 -- Form of Purchase Agreement
*3.1 -- Certificate of Incorporation, as amended, of the Company
*3.2 -- Bylaws of the Company
**4.1 -- Form of Common Stock Certificate of the Company
**5.1 -- Opinion of Kilpatrick Stockton LLP
*10.1 -- Form of Agreement and Plan of Merger and Reorganization
(reverse merger)
*10.2 -- Agreement and Plan of Merger and Reorganization among the
Registrant, Industrial Distribution Group, Inc., a Georgia
corporation, IDG Acquisition Company I, Inc. and the
Stockholders named therein
*10.3 -- Agreement and Plan of Reorganization between the Registrant
and the Stockholders named therein
*10.4 -- Uniform Provisions for the Acquisition of Founding Companies
*10.5 -- Industrial Distribution Group, Inc. Stock Incentive Plan
*10.6 -- Employment Agreement between the Registrant and Martin S.
Pinson
*10.7 -- Employment Agreement between the Registrant and Douglass C.
Smith
*10.8 -- Employment Agreement between the Registrant and Jack P.
Healey
**10.9 -- Form of Indemnification Agreement
*21.1 -- Subsidiaries of the Company
**23.1 -- Consent of Kilpatrick Stockton LLP
*23.2 -- Consent of Arthur Andersen LLP
*23.3 -- Consent of Miller & Co. LLP
*23.4 -- Consent of Schenck & Associates, SC
*23.5 -- Consent of Baird, Kurtz & Dobson
*24.1 -- Powers of Attorney (see Signature Page)
</TABLE>
- ---------------
* Filed herewith
** To be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULES
II-2
<PAGE> 127
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question as to whether such indemnification by it
is against public policy as expressed in the Securities Act, and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Atlanta, State of Georgia,
on the 18th day of July, 1997.
INDUSTRIAL DISTRIBUTION GROUP, INC.
By: /s/ MARTIN S. PINSON
------------------------------------
Martin S. Pinson
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Martin S. Pinson and Douglass C. Smith and either of them, his true and lawful
attorneys-in-fact with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to cause the same to be filed, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
granting to said attorneys-in-fact and agent, full power and authority to do and
perform each and every act and thing whatsoever requisite or desirable to be
done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 18th day
of July, 1997, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ MARTIN S. PINSON Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
Martin S. Pinson
/s/ JACK P. HEALEY Vice President, Chief Financial Officer, and
- ----------------------------------------------------- Secretary (Principal Financial and
Jack P. Healey Accounting Officer)
/s/ DAVID K. BARTH Director
- -----------------------------------------------------
David K. Barth
/s/ WILLIAM J. BURKLAND Director
- -----------------------------------------------------
William J. Burkland
/s/ WILLIAM R. FENOGLIO Director
- -----------------------------------------------------
William R. Fenoglio
/s/ WILLIAM T. PARR Director
- -----------------------------------------------------
William T. Parr
/s/ GEORGE L. SACHS, JR. Director
- -----------------------------------------------------
George L. Sachs, Jr.
/s/ RICHARD M. SEIGEL Director
- -----------------------------------------------------
Richard M. Seigel
</TABLE>
II-4
<PAGE> 129
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ ANDREW B. SHEARER Director
- -----------------------------------------------------
Andrew B. Shearer
/s/ DOUGLASS C. SMITH Director
- -----------------------------------------------------
Douglass C. Smith
</TABLE>
II-5
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
INDUSTRIAL DISTRIBUTION GROUP, INC.
FIRST: The name of the Corporation is
INDUSTRIAL DISTRIBUTION GROUP, INC.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of Newcastle,
19805. The name of the Corporation's registered agent at such address is
Corporation Service Company.
THIRD: The name and mailing address of the incorporator is:
Neil D. Falis
Kilpatrick Stockton LLP
1100 Peachtree Street
Atlanta, Georgia 30309
FOURTH: The purposes for which the Corporation is formed are to engage in
any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
FIFTH: The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 60,000,000 shares, consisting of
50,000,000 shares of Common Stock, $0.01 par value (herein called the "Common
Stock"), and 10,000,000 shares of Preferred Stock, $0.10 par value (herein
called the "Preferred Stock"). All cross-references in each subdivision of
this Article FIFTH refer to other paragraphs in such subdivision unless
otherwise indicated.
The following is a statement of the designations, powers, preferences, and
rights, and the qualifications, limitations, or restrictions thereof, in
respect of each class of stock of the Corporation:
1
<PAGE> 2
I.
COMMON STOCK
All shares of Common Stock shall be identical and shall entitle the
holders thereof to the same rights and privileges:
A. Dividends and Distributions.
When and as dividends or other distributions are declared upon the
Common Stock, whether payable in cash, in property, or in shares of stock
of the Corporation, the holders of Common Stock shall be entitled to share
equally, share for share, in such dividends or other distributions. In the
event of any dissolution, liquidation, or winding up of the affairs of the
Corporation, whether voluntary or involuntary, after payment or provision
for payment of the debts and other liabilities of the Corporation, and the
payment of any liquidation preference with respect to any other class of
capital stock of the Corporation that has a liquidation preference over
the Common Stock, the remaining assets and funds of the Corporation shall
be divided among and paid ratably to the holders of the Common Stock.
B. Voting Rights.
Each holder of Common Stock shall be entitled to one vote per share
on any and all matters required to be (or otherwise) submitted for a vote
or consent by holders of Common Stock.
II.
PREFERRED STOCK
Subject to the provisions of this Certificate of Incorporation and this
ARTICLE FIFTH, shares of Preferred Stock may be issued from time to time in one
or more series as may be determined by the Board of Directors. The Board of
Directors is authorized to determine or alter the designations, voting powers,
preferences, and relative, participating, optional, or other special rights, and
qualifications, limitations, and restrictions on such rights, as the Board of
Directors may authorize by resolutions duly adopted prior to the issuance of any
shares of a series of Preferred Stock, including, but not limited to: (i) the
distinctive designation of each series and the number of shares that will
constitute such series (except that any decrease in the number of shares
constituting such series shall not be below the number of shares of such series
then outstanding); (ii) the voting rights, if any, of shares of such series and
whether the shares of any such series having voting rights shall have multiple
votes per share; (iii) the dividend rate, if any dividends are to be paid, on
the shares
2
<PAGE> 3
of any such series, any restrictions, limitations, or conditions upon the
payment of such dividends, whether such dividends shall be cumulative, and the
dates on which such dividends are payable; (iv) the prices at which, and the
terms and conditions on which, the shares of such series may be redeemed, if
such shares are redeemable; (v) the purchase or sinking fund provisions, if any,
for the purchase or redemption of shares of such series; (vi) any preferential
amount payable upon shares of such series in the event of the liquidation,
dissolution, or winding-up of the Corporation, or the distribution of its
assets; and (vii) the prices or rates of conversion at which, and the terms and
conditions on which, the shares are convertible, if such shares are convertible.
Any and all shares issued and for which full consideration has been paid
or delivered shall be deemed fully paid stock, and the holder thereof shall not
be liable for any further payment thereon.
SIXTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors of the Corporation is
expressly authorized and empowered to make, alter, or repeal the Bylaws of the
Corporation, subject to the power of the stockholders of the Corporation to
alter or repeal any Bylaw made by the Board of Directors.
SEVENTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change, or repeal any provisions contained in this
Certificate of Incorporation; other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences, and privileges
of whatsoever nature conferred upon stockholders, directors, or any other
persons whomsoever by and pursuant to this Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the right reserved
in this Article.
EIGHTH: (a) The property, affairs, and business of the Corporation shall
be managed by its Board of Directors. The exact number of directors shall be
fixed from time to time, within any maximum and minimum limitations specified
within the Corporation's Bylaws, by resolution of the Board of Directors. The
directors shall have the power, from time to time and at any time, when the
stockholders are not assembled at a meeting, to increase or decrease their own
number, within any maximum and minimum limitations specified within the
Corporation's Bylaws, by resolution of the Board of Directors.
(b) The directors shall be elected at each annual meeting of stock
holders to hold office until their respective successors, if there are to be
any, have been duly elected and qualified. At each annual meeting of
stockholders at which a quorum is present, the person receiving a plurality of
the votes cast with respect to an election to a position as a director shall be
elected to the position. Election of directors need not be by written ballot
unless the Bylaws of the Corporation so provide.
3
<PAGE> 4
(c) Any vacancy on the Board of Directors resulting from death,
retirement, resignation, disqualification, or removal from office or other
reason, as well as any vacancy resulting from an increase in the number of
directors that occurs between annual meetings of the stockholders at which
directors are elected, may be filled by a majority vote of the remaining
directors then in office, though less than a quorum. The directors chosen to
fill vacancies shall hold office for a term expiring at the end of the next
annual meeting of stockholders. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Notwithstanding the foregoing, whenever the holders of one or more
classes or series of Preferred Stock shall have the right, voting separately as
a class or series, to elect directors, the election, term of office, filling of
vacancies, removal, and other features of such directorships shall be governed
by the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FIFTH applicable thereto, and each director so elected
shall not be subject to the provisions of this ARTICLE EIGHTH unless otherwise
provided therein.
NINTH: (a) The Corporation shall indemnify each of the Corporation's
directors and officers in each and every situation where, under Section 145 of
the Delaware General Corporation Law ("Section 145"), the Corporation is
permitted or empowered to make such indemnification. The Corporation may, in
the sole discretion of the Board of Directors of the Corporation, indemnify any
other person who may be indemnified pursuant to Section 145 to the extent the
Board of Directors deems advisable, as permitted by Section 145. The
Corporation shall promptly make or cause to be made any determination required
to be made pursuant to Section 145.
(b) No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the Delaware General Corporation Law; or (iv) for
any transaction from which the director derived an improper personal benefit.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them or between the Corporation
and its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under the provisions of section 279 of Title 8 of the Delaware Code, order a
meeting of the creditors or class of creditors, or of the stockholders or class
of stockholders
4
<PAGE> 5
of the Corporation, as the case may be, to be summoned in such manner as the
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, or on all
the stockholders or class of stockholders of the Corporation, as the case may
be, and also on the Corporation.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Incorporation for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware this 17th day of June, 1997.
/s/ Neil D. Falis
------------------------------
Neil D. Falis
Incorporator
5
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
INDUSTRIAL DISTRIBUTION GROUP, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
BYLAWS
OF
INDUSTRIAL DISTRIBUTION GROUP, INC.
(A DELAWARE CORPORATION)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE OFFICE .................................................. 1
1.1 Registered Office and Agent ............................... 1
1.2 Principal Office .......................................... 1
1.3 Other Offices ............................................. 1
ARTICLE TWO STOCKHOLDERS' MEETING ................................... 2
2.1 Place of Meetings ......................................... 2
2.2 Annual Meetings ........................................... 2
2.3 Special Meetings .......................................... 2
2.4 Notice of Meetings ........................................ 2
2.5 Waiver of Notice .......................................... 2
2.6 Voting Group; Quorum; Vote Required to Act ................ 3
2.7 Voting of Shares .......................................... 3
2.8 Proxies ................................................... 3
2.9 Presiding Officer ......................................... 3
2.10 Adjournments ............................................. 4
2.11 Conduct of the Meeting ................................... 4
2.12 Action of Stockholders Without a Meeting ................. 4
2.13 Matters Considered at Annual Meetings .................... 5
ARTICLE THREE BOARD OF DIRECTORS .................................... 5
3.1 General Powers ............................................ 5
3.2 Number, Election and Term of Office ....................... 5
3.3 Removal of Directors ...................................... 6
3.4 Vacancies ................................................. 6
3.5 Compensation .............................................. 6
3.6 Committees of the Board of Directors ...................... 6
3.7 Qualification of Directors ................................ 6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE FOUR MEETING OF THE BOARD OF DIRECTORS ...................... 7
4.1 Regular Meetings .......................................... 7
4.2 Chairman of the Board ..................................... 7
4.3 Special Meetings .......................................... 7
4.4 Place of Meetings ......................................... 7
4.5 Notice of Meetings ........................................ 7
4.6 Quorum .................................................... 7
4.7 Vote Required for Action .................................. 7
4.8 Participation by Conference Telephone ..................... 8
4.9 Action by Directors Without a Meeting ..................... 8
4.10 Adjournments ............................................. 8
4.11 Waiver of Notice ......................................... 8
ARTICLE FIVE OFFICERS ............................................... 8
5.1 Officers .................................................. 8
5.2 Term ...................................................... 9
5.3 Compensation .............................................. 9
5.4 Removal ................................................... 9
5.5 Chairman of the Board ..................................... 9
5.6 Chief Executive Officer ................................... 9
5.7 President ................................................. 9
5.8 Vice President ............................................ 10
5.9 Secretary ................................................. 10
5.10 Treasurer ................................................ 10
ARTICLE SIX DISTRIBUTIONS AND DIVIDENDS ............................. 11
ARTICLE SEVEN SHARES ................................................ 11
7.1 Share Certificates ........................................ 11
7.2 Rights of Corporation with Respect to Registered Owners ... 11
7.3 Transfers of Shares ....................................... 11
7.4 Duty of Corporation to Register Transfer .................. 11
7.5 Lost, Stolen, or Destroyed Certificates ................... 12
7.6 Fixing of Record Date ..................................... 12
7.7 Record Date if None Fixed ................................. 12
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE EIGHT INDEMNIFICATION ........................................ 12
8.1 Action by Persons other than the Corporation ............... 12
8.2 Actions By or in the Name of the Corporation ............... 13
8.3 Successful Defense ......................................... 13
8.4 Authorization of Indemnification ........................... 13
8.5 Prepayment of Expenses ..................................... 14
8.6 Non-Exclusive Right ........................................ 14
8.7 Insurance .................................................. 14
8.8 Constituent Corporations to Merger ......................... 14
8.9 Definitions ................................................ 14
8.10 Continuation of Indemnification ........................... 15
8.11 Changes in Law ............................................ 15
8.12 Other Permitted Indemnification ........................... 15
8.13 Amendment ................................................. 15
8.14 Severability .............................................. 15
ARTICLE NINE MISCELLANEOUS ........................................... 16
9.1 Inspection of Books and Records ............................ 16
9.2 Fiscal Year ................................................ 16
9.3 Corporate Seal ............................................. 16
9.4 Notice ..................................................... 16
ARTICLE TEN AMENDMENTS ............................................... 17
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
INDUSTRIAL DISTRIBUTION GROUP, INC.
- --------------------------------------------------------------------------------
References in these Bylaws to "Certificate of Incorporation" are to the
Certificate of Incorporation of Industrial Distribution Group, Inc., a Delaware
corporation (the "Corporation"), as amended and restated from time to time.
All of these Bylaws are subject to contrary provisions, if any, of the
Certificate of Incorporation (including provisions designating the preferences,
limitations, and relative rights of any class or series of shares), the
Delaware General Corporation Law (the "DGCL"), and other applicable law, as in
effect on and after the effective date of these Bylaws. References in these
Bylaws to "Sections" shall refer to sections of the Bylaws, unless otherwise
indicated.
- --------------------------------------------------------------------------------
ARTICLE ONE
OFFICE
1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a
registered office in the State of Delaware and shall have a registered agent
whose business office is the same as the registered office.
1.2 PRINCIPAL OFFICE. The principal office of the Corporation shall be
located in the Atlanta, Georgia metropolitan area.
1.3 OTHER OFFICES. The Corporation may also have other offices at such
other place or places, both within or without the State of Delaware, as the
Board of Directors may from time to time designate or the business of the
Corporation requires.
1
<PAGE> 6
ARTICLE TWO
STOCKHOLDERS' MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the Corporation's stockholders may be
held at any location inside or outside the State of Delaware designated by the
Board of Directors or any other person or persons who properly call the meeting,
or if the Board of Directors or such other person or persons do not specify a
location, at the Corporation's principal office.
2.2 ANNUAL MEETINGS. The Corporation shall hold an annual meeting of
stockholders, at a time determined by the Board of Directors, to elect directors
and to transact any business that properly may come before the meeting. The
annual meeting may be combined with any other meeting of stockholders, whether
annual or special.
2.3 SPECIAL MEETINGS. Special meetings of stockholders of one or more
classes or series of the Corporation's shares may be called at any time by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, or
the President, and shall be called by the Corporation upon the written request
(in compliance with applicable requirements of the DGCL) of the holders of
shares representing twenty-five percent (25%) or more of the votes entitled to
be cast on each issue proposed to be considered at the special meeting. The
business that may be transacted at any special meeting of stockholders shall be
limited to that proposed in the notice of the special meeting given in
accordance with Section 2.4 (including related or incidental matters that may be
necessary or appropriate to effectuate the proposed business).
2.4 NOTICE OF MEETINGS. In accordance with Section 9.4 and subject to
waiver by a stockholder pursuant to Section 2.5, the Corporation shall give
written notice of the date, time, and place of each annual and special
stockholders' meeting no fewer than 10 days nor more than 60 days before the
meeting date to each stockholder of record entitled to vote at the meeting. The
notice of an annual meeting need not state the purpose of the meeting unless
these Bylaws require otherwise. The notice of a special meeting shall state the
purpose for which the meeting is called. If an annual or special stockholders'
meeting is adjourned to a different date, time, or location, the Corporation
shall give stockholders notice of the new date, time, or location of the
adjourned meeting, unless a quorum of stockholders was present at the meeting
and information regarding the adjournment was announced before the meeting was
adjourned; provided, however, that if (i) the adjournment is for more than 30
days, or (ii) a new record date is or must be fixed in accordance with Section
7.6, the Corporation must give notice of the adjourned meeting to all
stockholders of record as of the new record date who are entitled to vote at the
adjourned meeting.
2.5 WAIVER OF NOTICE. A stockholder may waive any notice required by the
DGCL, the Certificate of Incorporation, or these Bylaws, before or after the
date and time of the matter to which the notice relates, by delivering to the
Corporation a written waiver of notice signed by the stockholder entitled to the
notice. In addition, a stockholder's attendance at a meeting shall be (a) a
waiver of objection to lack of notice or defective notice of the meeting unless
the
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stockholder attends the meeting for the express purpose of objecting at the
beginning of the meeting, and (b) a waiver of objection to consideration of a
particular matter at the meeting that is not within the purpose stated in the
meeting notice, unless the stockholder objects to considering the matter when
it is presented. Except as otherwise required by the DGCL, neither the purpose
of nor the business transacted at the meeting need be specified in any waiver.
2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT. (a) Unless otherwise
required by the DGCL or the Certificate of Incorporation, all classes or series
of the Corporation's shares entitled to vote generally on a matter shall for
that purpose be considered a single voting group (a "Voting Group"). If either
the Certificate of Incorporation or the DGCL requires separate voting by two or
more Voting Groups on a matter, action on that matter is taken only when voted
upon by each such Voting Group separately. At all meetings of stockholders, any
Voting Group entitled to vote on a matter may take action on the matter only if
a quorum of that Voting Group exists at the meeting, and if a quorum exists, the
Voting Group may take action on the matter notwithstanding the absence of a
quorum of any other Voting Group that may be entitled to vote separately on the
matter. Unless the Certificate of Incorporation, these Bylaws, or the DGCL
provides otherwise, the presence (in person or by proxy) of shares representing
a majority of votes entitled to be cast on a matter by a Voting Group shall
constitute a quorum of that Voting Group with regard to that matter. Once a
share is present at any meeting other than for the express purpose of objecting
at the beginning of the meeting, the share shall be deemed present for quorum
purposes for the remainder of the meeting and for any adjournments of that
meeting, unless a new record date for the adjourned meeting is or must be set
pursuant to Section 7.6 of these Bylaws.
(b) Except as provided in Section 3.2, if a quorum exists, action on a
matter by a Voting Group is approved by that Voting Group if the votes cast
within the Voting Group favoring the action exceed the votes cast opposing the
action, unless the Certificate of Incorporation or the DGCL requires a greater
number of affirmative votes.
2.7 VOTING OF SHARES. Unless otherwise required by the DGCL or the
Certificate of Incorporation, each outstanding share of any class or series
having voting rights shall be entitled to one vote on each matter that is
submitted to a vote of stockholders.
2.8 PROXIES. A stockholder entitled to vote on a matter may vote in
person or by proxy pursuant to an appointment executed in writing by the
stockholder or by his or her attorney-in-fact. An appointment of a proxy shall
be valid for three years from the date of its execution, unless a longer or
shorter period is expressly stated in the proxy.
2.9 PRESIDING OFFICER. Except as otherwise provided in this Section 2.9,
the Chairman of the Board, if there be one, and in his or her absence or
disability the Chief Executive Officer, if there be one, and in his or her
absence or disability the President, shall preside at every stockholders'
meeting (and any adjournment thereof) as its chairman, if either of them is
present and willing to serve. If neither the Chairman of the Board, the Chief
Executive Officer, nor the President is present and willing to serve as chairman
of the meeting, and if the
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Chairman of the Board has not designated another person who is present and
willing to serve, then a majority of the Corporation's directors present at the
meeting shall be entitled to designate a person to serve as chairman. If no
director of the Corporation is present at the meeting or if a majority of the
directors who are present cannot be established, then a chairman of the meeting
shall be selected by a majority vote of (a) the shares present at the meeting
that would be entitled to vote in an election of directors or (b) if no such
shares are present at the meeting, then the shares present at the meeting
comprising the Voting Group with the largest number of shares present at the
meeting and entitled to vote on a matter properly proposed to be considered at
the meeting. The chairman of the meeting may designate other persons to assist
with the meeting.
2.10 ADJOURNMENTS. At any meeting of stockholders (including an adjourned
meeting), a majority of shares of any Voting Group present and entitled to vote
at the meeting (whether or not those shares constitute a quorum) may adjourn the
meeting, but only with respect to that Voting Group, to reconvene at a specific
time and place. If more than one Voting Group is present and entitled to vote on
a matter at the meeting, then the meeting may be continued with respect to any
such Voting Group that does not vote to adjourn as provided above, and such
Voting Group may proceed to vote on any matter to which it is otherwise entitled
to do so; provided, however, that if (a) more than one Voting Group is required
to take action on a matter at the meeting and (b) any one of those Voting Groups
votes to adjourn the meeting (in accordance with the preceding sentence), then
the action shall not be deemed to have been taken until the requisite vote of
any adjourned Voting Group is obtained at its reconvened meeting. The only
business that may be transacted at any reconvened meeting is business that could
have been transacted at the meeting that was adjourned, unless further notice of
the adjourned meeting has been given in compliance with the requirements for a
special meeting that specifies the additional purpose or purposes for which the
meeting is called. Nothing contained in this Section 2.10 shall be deemed or
otherwise construed to limit any lawful authority of the chairman of a meeting
to adjourn the meeting.
2.11 CONDUCT OF THE MEETING. At any meeting of stockholders, the chairman
of the meeting shall be entitled to establish the rules of order governing the
conduct of business at the meeting.
2.12 ACTION OF STOCKHOLDERS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the actions so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, and delivered to the
Corporation. Every written consent shall bear the date of signature of each
stockholder who signs the consent. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing. Such consent shall have
the same force and effect as a majority vote of stockholders.
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2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS. Notwithstanding anything to
the contrary in these Bylaws, the only business that may be conducted at an
annual meeting of stockholders shall be business brought before the meeting (a)
by or at the direction of the Board of Directors prior to the meeting, (b) by or
at the direction of the Chairman of the Board, the Chief Executive Officer, or
the President, or (c) by a stockholder of the Corporation who is entitled to
vote with respect to the business and who complies with the notice procedures
set forth in this Section 2.13. For business to be brought properly before an
annual meeting by a stockholder, the stockholder must have given timely notice
of the business in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered or mailed to and received at the
principal offices of the Corporation on or before the later to occur of (i) 14
days prior to the annual meeting or (ii) 5 days after notice of the meeting is
provided to the stockholders pursuant to Section 2.4 hereof. A stockholder's
notice to the Secretary shall set forth a brief description of each matter of
business the stockholder proposes to bring before the meeting and the reasons
for conducting that business at the meeting; the name, as it appears on the
Corporation's books, and address of the stockholder proposing the business; the
series or class and number of shares of the Corporation's capital stock that are
beneficially owned by the stockholder; and any material interest of the
stockholder in the proposed business. The chairman of the meeting shall have the
discretion to declare to the meeting that any business proposed by a stockholder
to be considered at the meeting is out of order and that such business shall not
be transacted at the meeting if (i) the chairman concludes that the matter has
been proposed in a manner inconsistent with this Section 2.13 or (ii) the
chairman concludes that the subject matter of the proposed business is
inappropriate for consideration by the stockholders at the meeting.
ARTICLE THREE
BOARD OF DIRECTORS
3.1 GENERAL POWERS. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed by, the Board of Directors, subject to any limitation set forth in the
Certificate of Incorporation, in bylaws approved by the stockholders, or in
agreements among all the stockholders that are otherwise lawful.
3.2 NUMBER, ELECTION AND TERM OF OFFICE. The number of directors of the
Corporation shall be fixed by resolution of the Board of Directors or of the
stockholders from time to time and, until otherwise determined, shall be three
(3); provided, however, that the number of directors shall not at any time be
less than three (3) or more than fifteen (15); and further provided, that no
decrease in the number of directors shall have the effect of shortening the term
of an incumbent director. Except as provided elsewhere in this Section 3.2 and
in Section 3.4, the directors shall be elected at each annual meeting of
stockholders, or at a special meeting of stockholders called for purposes that
include the election of directors, by a plurality of the votes cast by the
shares entitled to vote and present at the meeting. Except in case of death,
resignation, disqualification, or removal, the term of each director shall
expire at the next
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succeeding annual meeting of stockholders. Despite the expiration of a
director's term, he or she shall continue to serve until his or her successor,
if there is to be any, has been elected and has qualified.
3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed, with or without cause, by the affirmative
vote of the holders of a majority of all the shares of stock outstanding and
entitled to vote for the election of directors, provided that directors elected
by a particular Voting Group may be removed only by the stockholders in that
Voting Group. Removal action may be taken only at a stockholders' meeting for
which notice of the removal action has been given. A removed director's
successor, if any, may be elected at the same meeting to serve the unexpired
term.
3.4 VACANCIES. A vacancy occurring in the Board of Directors may be
filled for the unexpired term, unless the stockholders have elected a successor,
by the affirmative vote of a majority of the remaining directors, whether or not
the remaining directors constitute a quorum; provided, however, that if the
vacant office was held by a director elected by a particular Voting Group, only
the holders of shares of that Voting Group or the remaining directors elected by
that Voting Group shall be entitled to fill the vacancy; provided further,
however, that if the vacant office was held by a director elected by a
particular Voting Group and there is no remaining director elected by that
Voting Group, the other remaining directors or director (elected by another
Voting Group or Groups) may fill the vacancy during an interim period before the
stockholders of the vacated director's Voting Group act to fill the vacancy. A
vacancy or vacancies in the Board of Directors may result from the death,
resignation, disqualification, or removal of any director, or from an increase
in the number of directors.
3.5 COMPENSATION. Directors may receive such compensation for their
services as directors as may be fixed by the Board of Directors from time to
time. A director may also serve the Corporation in one or more capacities other
than that of director and receive compensation for services rendered in those
other capacities.
3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may
designate from among its members an executive committee or one or more other
standing or ad hoc committees, each consisting of one or more directors, who
serve at the pleasure of the Board of Directors. Subject to the limitations
imposed by the DGCL, each committee shall have the authority set forth in the
resolution establishing the committee or in any other resolution of the Board of
Directors specifying, enlarging, or limiting the authority of the committee.
3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a director
of the Corporation shall assume office and begin serving unless and until duly
qualified to serve, as determined by reference to the DGCL, the Certificate of
Incorporation, and any further eligibility requirements established in these
Bylaws.
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ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held in conjunction with each annual meeting of stockholders. In addition,
the Board of Directors may, by prior resolution, hold regular meetings at other
times.
4.2 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be one)
shall preside at and serve as chairman of meetings of the stockholders and of
the Board of Directors (unless another person is selected under Section 2.9 to
act as chairman). The Chairman of the Board shall perform other duties and have
other authority as may from time to time be delegated by the Board of Directors.
4.3 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board, the Chief Executive
Officer, the President, or any two directors in office at that time.
4.4 PLACE OF MEETINGS. Directors may hold their meetings at any place in
or outside the State of Delaware that the Board of Directors may establish from
time to time.
4.5 NOTICE OF MEETINGS. Directors need not be provided with notice of
any regular meeting of the Board of Directors. Unless waived in accordance with
Section 4.11, the Corporation shall otherwise give at least three days' notice
to each director of the date, time, and place of each special meeting. Notice of
a meeting shall be deemed to have been given to any director in attendance at
any prior meeting at which the date, time, and place of the subsequent meeting
was announced.
4.6 QUORUM. At meetings of the Board of Directors, the greater of (a) a
majority of the directors then in office, or (b) one-third of the number of
directors fixed in accordance with these Bylaws shall constitute a quorum for
the transaction of business.
4.7 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote is
taken, the vote of a majority of the directors present at the time of the vote
will be the act of the Board of Directors, unless the vote of a greater number
is required by the DGCL, the Certificate of Incorporation, or these Bylaws. A
director who is present at a meeting of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (a) he or
she objects at the beginning of the meeting (or promptly upon his or her
arrival) to holding the meeting or transacting business at it; (b) his or her
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) he or she delivers written notice of dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
Corporation immediately after adjournment of the meeting. The right of dissent
or abstention is not available to a director who votes in favor of the action
taken.
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4.8 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment through which all persons
participating may hear and speak to each other. Participation in a meeting
pursuant to this Section 4.8 shall constitute presence in person at the meeting.
4.9 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent, describing the action taken, is signed
by each director and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. The consent may be executed in
counterparts, and shall have the same force and effect as a unanimous vote of
the Board of Directors at a duly convened meeting.
4.10 ADJOURNMENTS. A meeting of the Board of Directors, whether or not a
quorum is present, may be adjourned by a majority of the directors present to
reconvene at a specific time and place. It shall not be necessary to give notice
to the directors of the reconvened meeting or of the business to be transacted,
other than by announcement at the meeting that was adjourned, unless a quorum
was not present at the meeting that was adjourned, in which case notice shall be
given to directors in the same manner as for a special meeting. At any such
reconvened meeting at which a quorum is present, any business may be transacted
that could have been transacted at the meeting that was adjourned.
4.11 WAIVER OF NOTICE. A director may waive any notice required by the
DGCL, the Certificate of Incorporation, or these Bylaws before or after the date
and time of the matter to which the notice relates, by a written waiver signed
by the director and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. Attendance by a director at a meeting shall
constitute waiver of notice of the meeting, except where a director at the
beginning of the meeting (or promptly upon his or her arrival) objects to
holding the meeting or to transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
ARTICLE FIVE
OFFICERS
5.1 OFFICERS. The officers of the Corporation shall consist of a
President, and a Secretary, and may include a Chief Executive Officer separate
from the President, each of whom shall be elected or appointed by the Board of
Directors. The Board of Directors may also elect a Chairman of the Board from
among its members. The Board of Directors from time to time may create and
establish the duties of other officers and may elect or appoint, or authorize
specific senior officers to appoint, the person who shall hold other offices,
including one or more Vice Presidents (including Executive Vice Presidents,
Senior Vice Presidents, Assistant Vice Presidents, and the like), one or more
Assistant Secretaries, a Treasurer, and
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one or more Assistant Treasurers. Whether or not so provided by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer may appoint
one or more Assistant Secretaries and one or more Assistant Treasurers. Any
two or more offices may be held by the same person.
5.2 TERM. Each officer shall serve at the pleasure of the Board of
Directors (or, if appointed by the Chief Executive Officer or a senior officer
pursuant to this Article Five, at the pleasure of the Board of Directors, the
Chief Executive Officer, or the senior officer authorized to have appointed the
officer) until his death, resignation, or removal, or until his replacement is
elected or appointed in accordance with this Article Five.
5.3 COMPENSATION. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors or by a committee or officer appointed
by the Board of Directors. Officers may serve without compensation.
5.4 REMOVAL. All officers (regardless of how elected or appointed) may
be removed, with or without cause, by the Board of Directors, and any officer
appointed by the Chief Executive Office or another senior officer may also be
removed, with or without cause, by the Chief Executive Officer or by any senior
officer authorized to have appointed the officer to be removed. Removal will be
without prejudice to the contract rights, if any, of the person removed, but
shall be effective notwithstanding any damage claim that may result from
infringement of such contract rights.
5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be one)
shall preside at and serve as chairman of meetings of the stockholders and of
the Board of Directors (unless another person is selected under Section 2.9 to
act as Chairman). The Chairman of the Board shall perform other duties and have
other authority as may from time to time be delegated by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
charged with the general and active management of the Corporation, shall see
that all orders and resolutions of the Board of Directors are carried into
effect, shall have the authority to select and appoint employees and agents of
the Corporation, and shall, in the absence or disability of the Chairman of the
Board, perform the duties and exercise the powers of the Chairman of the Board.
The Chief Executive Officer shall also be responsible for the development,
establishment, and implementation of the policy and strategic initiatives for
the Corporation. The Chief Executive Officer shall perform any other duties and
have any other authority as may be delegated from time to time by the Board of
Directors, and shall be subject to the limitations fixed from time to time by
the Board of Directors.
5.7 PRESIDENT. If there shall be no separate Chief Executive Officer of
the Corporation, then the President shall be the chief executive officer of the
Corporation, with the duties and authority provided in Section 5.6. The
President shall otherwise be the chief operating officer of the Corporation and
shall, consistent with the authority otherwise
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conferred upon the Chief Executive Officer in Section 5.6, have responsibility
for the conduct and general supervision of the business operations of the
Corporation, including without limitation responsibility for the direction,
supervision, and coordination of the activities of all operating subsidiaries
and other business units of the Corporation. The President shall perform such
other duties and have such other authority as may from time to time be
delegated by the Board of Directors. In the absence or disability of the Chief
Executive Officer, the President shall perform the duties and exercise the
powers of the Chief Executive Officer.
5.8 VICE PRESIDENT. The Vice President (if there be one) shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President, whether the duties and powers are specified in these
Bylaws or otherwise. If the Corporation has more than one Vice President, the
one designated by the Board of Directors shall act in the event of the absence
or disability of the President. Vice Presidents shall perform any other duties
and have any other authority as from time to time may be delegated by the Board
of Directors, the Chief Executive Officer, or the President.
5.9 SECRETARY. The Secretary shall be responsible for preparing minutes
of the meetings of stockholders, directors, and committees of directors and for
authenticating records of the Corporation. The Secretary or any Assistant
Secretary shall have authority to give all notices required by law or these
Bylaws. The Secretary shall be responsible for the custody of the corporate
books, records, contracts, and other documents. The Secretary or any Assistant
Secretary may affix the corporate seal to any lawfully executed documents
requiring it, may attest to the signature of any officer of the Corporation, and
shall sign any instrument that requires the Secretary's signature. The Secretary
or any Assistant Secretary shall perform any other duties and have any other
authority as from time to time may be delegated by the Board of Directors, the
Chief Executive Officer, or the President.
5.10 TREASURER. Unless otherwise provided by the Board of Directors, the
Treasurer shall be responsible for the custody of all funds and securities
belonging to the Corporation and for the receipt, deposit, or disbursement of
these funds and securities under the direction of the Board of Directors. The
Treasurer shall cause full and true accounts of all receipts and disbursements
to be maintained and shall make reports of these receipts and disbursements to
the Board of Directors, the Chief Executive Officer, and the President upon
request. The Treasurer or Assistant Treasurer shall perform any other duties and
have any other authority as from time to time may be delegated by the Board of
Directors, the Chief Executive Officer, or the President.
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ARTICLE SIX
DISTRIBUTIONS AND DIVIDENDS
Unless the Certificate of Incorporation provides otherwise, the Board of
Directors, from time to time in its discretion, may authorize or declare
distributions or share dividends in accordance with the DGCL.
ARTICLE SEVEN
SHARES
7.1 SHARE CERTIFICATES. The interest of each stockholder in the
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation, which shall be in such form as the Board of Directors
from time to time may adopt in accordance with the DGCL. Share certificates
shall be in registered form and shall indicate the date of issue, the name of
the Corporation, that the Corporation is organized under the laws of the State
of Delaware, the name of the stockholder, and the number and class of shares and
designation of the series, if any, represented by the certificate. Each
certificate shall be signed by the President or a Vice President (or in lieu
thereof, by the Chairman of the Board or Chief Executive Officer, if there be
one) and may be signed by the Secretary or an Assistant Secretary; provided,
however, that where the certificate is signed (either manually or by facsimile)
by a transfer agent, or registered by a registrar, the signatures of those
officers may be facsimiles.
7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior to
due presentation for transfer of registration of its shares, the Corporation may
treat the registered owner of the shares (or the beneficial owner of the shares
to the extent of any rights granted by a nominee certificate on file with the
Corporation pursuant to any procedure that may be established by the Corporation
in accordance with the DGCL) as the person exclusively entitled to vote the
shares, to receive any dividend or other distribution with respect to the
shares, and for all other purposes; and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in the shares on the part
of any other person, whether or not it has express or other notice of such a
claim or interest, except as otherwise provided by law.
7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon the
books of the Corporation kept by the Corporation or by the transfer agent
designated to transfer the shares, only upon direction of the person named in
the certificate or by an attorney lawfully constituted in writing. Before a new
certificate is issued, the old certificate shall be surrendered for cancellation
or, in the case of a certificate alleged to have been lost, stolen, or
destroyed, the provisions of Section 7.5 of these Bylaws shall have been
complied with.
7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of the
provisions of Section 7.3 of these Bylaws, the Corporation is under a duty to
register the transfer
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of its shares only if: (a) the share certificate is endorsed by the
appropriate person or persons; (b) reasonable assurance is given that each
required endorsement is genuine and effective; (c) the Corporation has no duty
to inquire into adverse claims or has discharged any such duty; (d) any
applicable law relating to the collection of taxes has been complied with; (e)
the transfer is in fact rightful or is to a bona fide purchaser; and (f) the
transfer is in compliance with applicable provisions of any transfer
restrictions of which the Corporation shall have notice.
7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a share
certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of this claim in such a manner as the Corporation may require and
shall, if the Corporation requires, give the Corporation a bond of indemnity in
form and amount, and with one or more sureties satisfactory to the Corporation,
as the Corporation may require, whereupon an appropriate new certificate may be
issued in lieu of the one alleged to have been lost, stolen, or destroyed.
7.6 FIXING OF RECORD DATE. For the purpose of determining stockholders
(a) entitled to notice of or to vote at any meeting of stockholders or, if
necessary, any adjournment thereof, (b) entitled to receive payment of any
distribution or dividend, or (c) for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. The record date may not
be more than 60 days (and, in the case of a notice to stockholders of a
stockholders' meeting, not less than 10 days) prior to the date on which the
particular action, requiring the determination of stockholders, is to be taken.
A separate record date may be established for each Voting Group entitled to vote
separately on a matter at a meeting. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, unless the Board of Directors shall fix a new record
date for the reconvened meeting, which it must do if the meeting is adjourned to
a date more than 30 days after the date fixed for the original meeting.
7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as provided in
Section 7.6, then the record date for any determination of stockholders that may
be proper or required by law shall be, as appropriate, the date on which notice
of a stockholders' meeting is mailed, the date on which the Board of Directors
adopts a resolution declaring a dividend or authorizing a distribution, or the
date on which any other action is taken that requires a determination of
stockholders.
ARTICLE EIGHT
INDEMNIFICATION
8.1 ACTION BY PERSONS OTHER THAN THE CORPORATION. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the Corporation or
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is or was serving at the request of the Corporation as a director, officer,
employee, or agent of another Corporation, partnership, joint venture, trust,
or other enterprise, against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit, or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
8.2 ACTIONS BY OR IN THE NAME OF THE CORPORATION. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of Delaware or such
other court shall deem proper.
8.3 SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee, or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in Sections
8.1 and 8.2, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
8.4 AUTHORIZATION OF INDEMNIFICATION. Any indemnification under Sections
8.1 and 8.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 8.1 and 8.2.
Such determination shall be made: (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit, or proceeding; (2) if such quorum is not obtainable, or, even if
obtainable, if a quorum of
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disinterested directors so directs, by independent legal counsel in a written
opinion; or (3) by the stockholders.
8.5 PREPAYMENT OF EXPENSES. Expenses incurred in defending a civil or
criminal action, suit, or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee, or agent to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this Article Eight.
8.6 NON-EXCLUSIVE RIGHT. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other Sections of this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office.
8.7 INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
8.8 CONSTITUENT CORPORATIONS TO MERGER. For purposes of this Article,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation or a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
8.9 DEFINITIONS. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee, or agent of the
Corporation which imposes duties on, or involves services by, such its director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or its beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
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8.10 CONTINUATION OF INDEMNIFICATION. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
8.11 CHANGES IN LAW. In the event the DGCL is amended following the date
of the latest modification, amendment, or revision of this Article so as to
permit indemnification by the Corporation of any person to a greater extent
(either as to matters or persons which may be the subject of indemnity) than
permitted in this Article, then the Board of Directors shall have the power to
authorize such greater indemnification in accordance with the amended provisions
of the DGCL.
8.12 OTHER PERMITTED INDEMNIFICATION. Whether or not required or
permitted by the foregoing provisions of this Article, the Corporation shall
indemnify any person against any other losses, damages, expenses (including
attorneys' fees and other costs of defense), judgments, fines, and amounts paid
in settlement which result from the fact that such person is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of another
Corporation, partnership, joint venture, trust, or other enterprise, if the
Board of Directors finds, in its sole discretion, that such indemnity is
appropriate in view of all of the facts and circumstances involved, unless such
indemnity, in the opinion of counsel, is prohibited by law.
8.13 AMENDMENT. Any amendment to this Article Eight that limits or
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any person indemnified hereunder (an "Indemnified
Person") shall, as to such Indemnified Person, apply only to proceedings based
on actions, events, or omissions (collectively, "Post Amendment Events")
occurring after such amendment and after delivery of notice of such amendment to
the Indemnified Person so affected. Any Indemnified Person shall, as to any
proceeding based on actions, events, or omissions occurring prior to the date of
receipt of such notice, be entitled to the right of indemnification, advancement
of expenses, and other rights under this Article Eight to the same extent as if
such provisions had continued as part of the Bylaws of the Corporation without
such amendment. This Section 8.13 cannot be altered, amended, or repealed in a
manner effective as to any Indemnified Person (except as to Post Amendment
Events) without the prior written consent of such Indemnified Person.
8.14 SEVERABILITY. Each of the Sections of this Article Eight, and each
of the clauses set forth herein, shall be deemed separate and independent, and
should any part of any such Section or clause be declared invalid or
unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall in no way render invalid or unenforceable any other part
thereof or any separate Section or clause of this Article Eight that is not
declared invalid or unenforceable.
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ARTICLE NINE
MISCELLANEOUS
9.1 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall have
the power to determine which accounts, books, and records of the Corporation
shall be available for stockholders to inspect or copy, except for those books
and records required by the DGCL to be made available upon compliance by a
stockholder with applicable requirements, and shall have the power to fix
reasonable rules and regulations (including confidentiality restrictions and
procedures) not in conflict with applicable law for the inspection and copying
of accounts, books, and records that by law or by determination of the Board of
Directors are made available.
9.2 FISCAL YEAR. The Board of Directors is authorized to fix the fiscal
year of the Corporation and to change the fiscal year from time to time as it
deems appropriate.
9.3 CORPORATE SEAL. The corporate seal will be in such form as the Board
of Directors may from time to time determine. The Board of Directors may
authorize the use of one or more facsimile forms of the corporate seal. The
corporate seal need not be used unless its use is required by law, by these
Bylaws, or by the Certificate of Incorporation.
9.4 NOTICE. (a) Whenever these Bylaws require notice to be given to any
stockholder or to any director, the notice may be given by mail, in person, by
courier delivery, by telephone, or by telecopier, telegraph, or similar
electronic means. Whenever notice is given to a stockholder or director by mail,
the notice shall be sent by depositing the notice in a post office or letter box
in a postage-prepaid, sealed envelope addressed to the stockholder or director
at his or her address as it appears on the books of the Corporation. Any such
written notice given by mail shall be effective: (i) if given to stockholders,
as such, at the time the same is deposited in the United States mail; and (ii)
in all other cases, at the earliest of (x) when delivered, properly addressed,
to the addressee's last known principal place of business or residence, (y)
three days after its deposit in the mail, as evidenced by the postmark, if
mailed with first-class postage prepaid and correctly addressed, or (z) on the
date shown on the return receipt, if sent by registered or certified mail,
return receipt requested, and the receipt is signed by or on behalf of the
addressee. Whenever notice is given to a stockholder or director by any means
other than mail, the notice shall be deemed given when received.
(b) In calculating time periods for notice, when a period of time
measured in days, weeks, months, years, or other measurement of time is
prescribed for the exercise of any privilege or the discharge of any duty, the
first day shall not be counted but the last day shall be counted.
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ARTICLE TEN
AMENDMENTS
Except as otherwise provided under the DGCL or the Certificate of
Incorporation, the Board of Directors shall have the power to alter, amend, or
repeal these Bylaws or adopt new Bylaws; provided, however, that these Bylaws
may not be amended to transfer the principal office of the Corporation to a
location outside of the Atlanta, Georgia metropolitan area without the
affirmative vote of two-thirds (2/3) of the members of the Board of Directors.
Any Bylaws adopted by the Board of Directors may be altered, amended, or
repealed, and new Bylaws adopted, by the stockholders. The stockholders may
prescribe in adopting any Bylaw or Bylaws that the Bylaw or Bylaws so adopted
shall not be altered, amended, or repealed by the Board of Directors.
Dated: June 26, 1997
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EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
INDUSTRIAL DISTRIBUTION GROUP, INC.,
A DELAWARE CORPORATION,
IDG ACQUISITION COMPANY ____ INC.,
A GEORGIA CORPORATION
,
-------------------------------
A CORPORATION
--------------
AND
THE STOCKHOLDERS NAMED HEREIN
DATED AS OF , 1997
---------- ---
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PRELIMINARY STATEMENT ..................................................... 1
ARTICLE I: DEFINITIONS ................................................... 2
1.01. Certain Defined Terms .......................................... 2
ARTICLE II: THE MERGER; RELATED MATTERS; AND RELATED AGREEMENTS .......... 6
2.01. Certificate Of Merger .......................................... 6
2.02. The Effective Time ............................................. 6
2.03. Certain Effects of the Merger .................................. 6
2.04. Effect of the Merger on Capital Stock .......................... 7
2.05. Delivery, Exchange and Payment ................................. 8
2.06. Fractional Shares .............................................. 9
2.07. Related Agreements ............................................. 9
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER .. 10
3.01. Representations and Warranties of Each Selling Stockholder ..... 10
3.02. Incorporation of the Uniform Provisions ........................ 10
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE MANAGEMENT STOCKHOLDERS ........................................... 10
4.01. Truthfulness of the Representations and Warranties
by the Company and Each Management Stockholder ........................ 10
4.02. Organization and Capitalization of Company ..................... 11
4.03. Incorporation of the Uniform Provisions ........................ 11
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO ............... 11
5.01. Representations and Warranties of IDG and Newco ................ 11
5.02. Organization of Newco .......................................... 11
5.03. Incorporation of the Uniform Provisions ........................ 11
ARTICLE VI: COVENANTS EXTENDING TO THE EFFECTIVE TIME .................... 12
6.01. Incorporation of the Uniform Provisions ........................ 12
ARTICLE VII: THE CLOSING AND CONDITIONS TO CLOSING ....................... 12
7.01. Incorporation of the Uniform Provisions ........................ 12
ARTICLE VIII: COVENANTS FOLLOWING THE EFFECTIVE TIME ...................... 12
8.01. Incorporation of the Uniform Provisions ........................ 12
ARTICLE IX: INDEMNIFICATION .............................................. 12
</TABLE>
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<TABLE>
<S> <C> <C>
9.01. Incorporation of the Uniform Provisions ........................ 12
ARTICLE X: LIMITATIONS ON COMPETITION .................................... 12
10.01. Prohibited Activities .......................................... 12
10.02. Damages ........................................................ 13
10.03. Reasonable Restraint ........................................... 13
10.04. Severability; Reformation ...................................... 14
10.05. Independent Covenant ........................................... 14
10.06. Materiality .................................................... 14
ARTICLE XI: GENERAL PROVISIONS ........................................... 14
11.01 Restrictions on Transfer of IDG Common Stock .................... 14
11.02 Brokers and Agents .............................................. 16
11.03 Assignment; No Third Party Beneficiaries ........................ 16
11.04 Entire Agreement; Amendment; Waivers ............................ 16
11.05 Counterparts .................................................... 16
11.06 Expenses ........................................................ 16
11.07 Notices ......................................................... 17
11.08 Governing Law ................................................... 18
11.09 Exercise of Rights and Remedies ................................. 18
11.10 Time ............................................................ 18
11.11. Reformation and Severability ................................... 18
11.12 Remedies Cumulative ............................................. 18
11.13 Respecting the IPO .............................................. 19
11.14 Treatment of Confidential Information ........................... 19
ARTICLE XII: TERMINATION .................................................. 20
12.01. Termination of this Agreement ................................. 20
12.02. Liabilities in Event of Termination ........................... 21
ARTICLE XIII: POWER OF ATTORNEY .......................................... 21
13.01 Appointment of Shareholders' Agent .............................. 21
13.02 Liability of Agent .............................................. 21
13.03 Succession ...................................................... 21
13.04 Irrevocable; Binding on Successors, Etc ......................... 21
</TABLE>
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ANNEXES
<TABLE>
<S> <C>
Annex 1 Uniform Provisions for the Acquisition of Founding Companies
Annex 2 Founding Companies
Annex 3 Initial Directors and Officers of the Surviving Corporation
Annex 4 Merger Consideration
Annex 5 Designated Inventory
Annex 6 Guaranteed Receivables
Annex 7 Management Stockholders
SCHEDULES
Schedule 3.03 Accredited Investor Status of Each Stockholder
Schedule 3.04 Disclosure of Equity Ownership and Liens
Schedule 3.09 Disclosure of Stockholders' Controlling Interests and Material
Related Transactions
Schedule 4.02 Authorized Capital Stock of the Company
Schedule 4.04 Qualification of Company in Foreign Jurisdictions
Schedule 4.08 Company Subsidiaries
Schedule 4.10 Obligations with Respect to Company's Capital Stock
Schedule 4.11 Legal and Fictitious Names
Schedule 4.12 Related Party Agreements
Schedule 4.13 Litigation
Schedule 4.15 Compliance with Laws
Schedule 4.16 Environmental Matters
Schedule 4.17 Liabilities
Schedule 4.18 Receivables
Schedule 4.19 Owned and Leased Real Property
Schedule 4.20 Personal Property
Schedule 4.21 Proprietary Rights in Property
Schedule 4.22 Title Objections
Schedule 4.23(a) Company Commitments
Schedule 4.23(b) Expected Cancellations of Company Commitments
Schedule 4.24 Capital Expenditures
Schedule 4.25 Inventories
Schedule 4.26 Insurance
Schedule 4.27(a) Employee Matters: Cash Compensation
Schedule 4.27(b) Engagement and Non-Competition Agreements
Schedule 4.27(c) Other Compensation Plans
Schedule 4.27(d) ERISA Benefit Plans
Schedule 4.27(e) Employee Policies and Procedures
Schedule 4.27(f) Unwritten Amendments
Schedule 4.27(g) Labor Compliance
Schedule 4.27(h) Unions
Schedule 4.27(i) Change of Control Benefits
</TABLE>
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<TABLE>
<S> <C>
Schedule 4.27(k) Retirees
Schedule 4.28 Compliance with ERISA
Schedule 4.29 Taxes
Schedule 4.30 Governmental Contracts
Schedule 4.31 Absence of Changes
Schedule 4.32 Bank Accounts
Schedule 6.04 Permitted Restricted Payments
Schedule 6.12 Assets to be Disposed of
Schedule 8.05 Listing of Stockholder Guaranties
</TABLE>
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<PAGE> 6
EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Employment Agreement
Exhibit C Form of Stock Option and Stock Purchase Plan
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<PAGE> 7
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made as of _______ ___, 1997, by and among INDUSTRIAL DISTRIBUTION GROUP, INC.,
a Delaware corporation ("IDG"), IDG ACQUISITION COMPANY II, INC., a Georgia
corporation and a wholly owned subsidiary of IDG ("Newco"), _________________, a
_____________ corporation (the "Company"), and the persons listed on the
signature pages hereof under the caption "Selling Stockholders."
PRELIMINARY STATEMENT
The Company is a distributor that provides flexible procurement solutions,
products and services to industrial users that have production and maintenance,
repair and operating supply requirements (the "Business"). IDG is a newly formed
Delaware corporation created for the purpose of acquiring and consolidating a
number of companies that are in a similar line of business as the Company. As
part of the consolidation undertaken by IDG, the parties to this Agreement have
determined that it is in their respective best long-term interests to effect a
business combination pursuant to which:
(a) Newco, a newly formed Georgia corporation, will merge into the
Company on the terms and subject to the conditions set forth herein (the
"Merger");
(b) IDG will acquire the stock of all or some of the entities listed
in Annex 2 (each an "Other Founding Company" and, collectively with the
Company, the "Founding Companies") pursuant to agreements that are (i)
similar to this Agreement and (ii) entered into among those entities and
their equity owners, IDG and other wholly owned subsidiaries of IDG
(collectively, the "Companion Agreements"); and
(c) IDG shall, contemporaneously with the effectiveness of the
Merger, effect a public offering of a portion of the shares of its common
stock and issue and sell those shares as contemplated in this Agreement.
The parties to this Agreement intend that this Agreement be approved and
adopted by all relevant parties as a plan of reorganization within the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
representations and undertakings contained herein, the parties hereto hereby
agree as follows:
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ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms have the
meanings assigned to them below in this Section 1.01. Capitalized terms used
herein and not defined in Section 1.01 have the meanings assigned to them in
Section 1.02 of Article I of Annex 1: "Industrial Distribution Group, Inc.
Uniform Provisions for the Acquisition of Founding Companies" (the "Uniform
Provisions"), the text of which is hereby incorporated herein by reference.
References to sections not found herein are to sections in the Uniform
Provisions.
"ACQUISITION AGREEMENT" means this Agreement and Plan of Merger and
Reorganization, including the Disclosure Statement relating hereto and all
attached Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"ACQUISITION CONSIDERATION" means the Merger Consideration.
"ACQUISITION TRANSACTION" means the Merger, and any ancillary transactions
contemplated to be consummated in accordance herewith.
"BALANCE SHEET DATE" means December 31, 1996.
"BUSINESS" has the meaning set forth in the first paragraph of the
Preliminary Statement.
"CAPITAL STOCK" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"CERTIFICATE OF MERGER" means (a) if the Company is a Georgia corporation,
the certificate of merger respecting the Merger that contains the information
required by the GBCC to effectuate the Merger; and (b) if the Company's
Organization State is not Georgia, the articles or certificate of merger
respecting the Merger that contains the information required by the GBCC and the
laws of the Company's Organization State to effectuate the Merger.
"CHARTER DOCUMENTS" means, with respect to any Entity at any time, in each
case as amended, modified and supplemented at that time, the articles or
certificate of formation, incorporation or organization (or the equivalent
organizational documents) of that Entity, (b) the bylaws, operating agreement,
trust indenture or regulations (or the equivalent governing documents) of that
Entity and (c) each document setting forth the designation, amount and relative
rights, limitations and preferences of any class or series of that Entity's
Capital Stock or of any rights in respect of that Entity's Capital Stock.
"CLOSING" has the meaning set forth in Section 7.02 of the Uniform
Provisions.
"CLOSING DATE" has the meaning set forth in Section 7.02 of the Uniform
Provisions, which shall be the same date as the IPO Closing Date.
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"CLOSING MEMORANDUM" means the form of closing memorandum to be prepared by
IDG for the Closing under this Acquisition Agreement in which are included the
forms of certificates of officers, the opinions of counsel, and certain other
documents to be delivered at the Closing as provided in Article VII.
"COMPANION AGREEMENTS" has the meaning set forth in the Preliminary
Statement.
"COMPANY" means _________________, a _____________ corporation.
"COMPANY COMMON STOCK" means the common stock, par value $10 per share, of
the Company.
"COMPANY SUBSIDIARY" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"CONFIDENTIAL INFORMATION" means, with respect to any Person, all trade
secrets and other confidential, nonpublic and/or proprietary information of that
Person, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, capital expenditure
projects, cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any Governmental Authority
and all other confidential, nonpublic concepts, methods of doing business,
ideas, materials or information prepared or performed for, by or on behalf of
that Person.
"CONSOLIDATED COMPANIES" means Company and subsidiaries.
"COUNSEL FOR IDG AND NEWCO" means Kilpatrick Stockton LLP.
"COUNSEL FOR THE COMPANY" means Casey & Pruzan.
"CURRENT BALANCE SHEET" means the unaudited consolidated balance sheet of
the Consolidated Companies as at the Current Balance Sheet Date.
"CURRENT BALANCE SHEET DATE" means March 31, 1997.
"DERIVATIVE SECURITIES" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"DESIGNATED INVENTORY" has the meaning set forth in Section 2.07(a).
"DISCLOSURE STATEMENT" means the Schedules and a written statement
executed by the Company and each of the Selling Stockholders and delivered to
IDG prior to the execution and delivery of this Acquisition Agreement by IDG and
Newco in which either (a) exceptions are taken to representations and warranties
made by the Company and the Selling Stockholders herein or (b) it is confirmed
that no exception is taken to such representations and warranties.
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"DISSENTING STOCKHOLDERS" shall mean any Person holding record title to any
shares of the Company Common Stock, as reflected on the books and records of the
Company as of the date hereof, that has exercised such Person's statutory right
to dissent from the Merger, in compliance with, and as required by, the laws of
the Organization State of the Company.
"EFFECTIVE TIME" has the meaning set forth in Section 2.02.
"EMPLOYMENT AGREEMENTS" means the employment agreements to be entered into
as of the Closing Date between [MARTIN C. BURKLAND] and IDG, which shall be
substantially in the form of Exhibit B attached hereto.
"ENTITY" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"ESCROW ACCOUNT" has the meaning set forth in Section 2.07(c).
"ESCROW AGENT" means
-----------------------------------------------
"ESCROW AGREEMENT" means the escrow agreement to be entered into on the
Closing Date by and among IDG, the Selling Stockholders, and the Escrow Agent,
which shall be substantially in the form of Exhibit A attached hereto.
"ESCROWED SHARES" has the meaning set forth in Section 2.07(c).
"FOUNDING COMPANIES" has the meaning set forth in the Preliminary
Statement.
"GBCC" means the Georgia Business Corporation Code, O.C.G.A. Section
14-2-101 et. seq.
"GUARANTEED RECEIVABLES" has the meaning set forth in Section 2.07(b).
"IDG" means Industrial Distribution Group, Inc., a Delaware corporation.
"IDG ACQUISITION CANDIDATE" means any Entity engaged in any of the
businesses of providing flexible procurement solutions, products and services to
industrial users that have production and maintenance, repair and operating
supplies requirements which either the Company or IDG or any of their
Subsidiaries (i) have entered into discussions regarding a possible acquisition
or (ii) have performed an acquisitions analysis with respect to any possible
acquisition.
"IDG COMMON STOCK" means the common stock, par value $.01 per share, of
IDG.
"IMMEDIATE FAMILY MEMBER" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"IPO PRICE" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
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"MANAGEMENT STOCKHOLDERS" means the Selling Stockholders as set forth in
Annex 7.
"MERGER" has the meaning set forth in the Preliminary Statement.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.04(a).
"NEWCO" means IDG Acquisition Company II, Inc., a Georgia corporation.
"NEWCO COMMON STOCK" means the common stock, par value $.01 per share, of
Newco.
"ORGANIZATION STATE" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"OTHER FOUNDING COMPANIES" has the meaning set forth in the Preliminary
Statement.
"PRO RATA SHARE" means, for each Selling Stockholder, the fraction
expressed as a percentage the numerator of which is the number of shares of
outstanding Company Common Stock owned by that Selling Stockholder and the
denominator of which is the total number of shares of outstanding Company Common
Stock owned by all Stockholders, as of the Closing Date.
"RECEIVABLES DETERMINATION DATE" shall mean the date that is the one year
anniversary of the Closing Date.
"RESTRICTED PERIOD" has the meaning set forth in Section 11.01.
"RETURNS" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"SCHEDULES" shall mean those certain disclosures made by the Company, the
Stockholders, IDG or Newco containing such information, as appropriate, relating
to the representations and warranties made by the respective party as set forth
in the Disclosure Statement.
"SELLING STOCKHOLDERS" shall mean all Persons holding record title to any
of the shares of the Company Common Stock, as reflected on the books and records
of the Company as of the date hereof, that have not exercised a statutory right
to dissent from the Merger in compliance with, and as required by, the laws of
the Organization State of the Company.
"STOCKHOLDERS" shall mean collectively the Selling Stockholders and
Dissenting Stockholders.
"STOCKHOLDERS' AGENT" has the meaning set forth in Section 13.01.
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"STOCK OPTION AND STOCK PURCHASE PLAN" means the IDG Stock Option and Stock
Purchase Plan adopted or to be adopted by the directors and shareholders of IDG
on or prior to the Closing Date, substantially in the form of Exhibit C attached
hereto.
"SURVIVING CORPORATION" means the Entity to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"TERRITORY" has the meaning set forth in Section 10.01(a).
"THRESHOLD AMOUNT" means 2% of the Transaction Value.
"TRANSACTION VALUE" means the value expressed in dollars resulting as the
product of (a) the aggregate number of shares of IDG Common Stock designated as
Merger Consolidation and allocated to the Selling Stockholders, multiplied by
(b) the IPO Price, as discounted by 25%.
"TRANSFER TAXES" has the meaning set forth in Section 11.06.
"UNIFORM PROVISIONS" has the meaning set forth in the first paragraph of
this Section 1.01.
ARTICLE II
THE MERGER; RELATED MATTERS; AND RELATED AGREEMENTS
2.01 CERTIFICATE OF MERGER. Subject to the terms and conditions hereof, the
Company and Newco will cause a Certificate of Merger to be duly executed and
delivered on or prior to the Closing Date, to be filed with the Secretary of
State of the State of Georgia and, if required, in the appropriate filing office
of the Organization State of the Company.
2.02 THE EFFECTIVE TIME. The effective time of the Merger (the "Effective
Time") will be the time on the Closing Date that the Certificate of Merger
specifies or, if the Certificate of Merger does not specify another time, 10:00
a.m., Eastern Daylight Savings Time, on the Closing Date.
2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective Time:
(a) Newco will be merged with and into the Company in accordance
with the provisions of the GBCC and the laws of the Organization State of the
Company;
(b) Newco will cease to exist as a separate legal entity;
(c) the articles of incorporation of the Company will remain the
articles of incorporation of the Surviving Corporation;
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(d) the Company, as the Surviving Corporation, will (i) possess all
of the properties, rights, privileges, immunities, franchises and powers, and be
subject to all the restrictions, duties, liabilities, debts and obligations, of
the Company and Newco, and (ii) be governed by the laws of the Organization
State of the Company;
(e) the Charter Documents of the Company will remain (until changed
in accordance with applicable law or their terms), the Charter Documents of the
Surviving Corporation;
(f) the initial board of directors of the Surviving Corporation will
consist of the persons named in Annex 3, each of whom will hold the office of
director of the Surviving Corporation subject to the provisions of the laws of
the Organization State of the Company and other applicable laws and the Charter
Documents of the Surviving Corporation; and
(g) the initial officers of the Surviving Corporation will be as set
forth in Annex 3, each of whom will serve in such office, subject to the
provisions of the laws of the Organization State of the Company and other
applicable laws and the Charter Documents of the Surviving Corporation, until
that person's successor is duly elected to, and, if necessary, qualified for,
that office.
2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. (a) As of the Effective Time,
as a result of the Merger and without any action on the part of any of the
Stockholders:
(i) all of the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (A) be converted into the right to
receive, subject to the provisions of Sections 2.05, 2.06, and 2.07(c), without
interest, on surrender of the certificates evidencing those shares, the number
of whole shares of IDG Common Stock and the amount of cash (if any), as provided
in Annex 4 (the "Merger Consideration"), (B) cease to be outstanding, and (C) be
canceled and retired;
(ii) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (A) cease to be outstanding, and (B) be
canceled and retired; and
(iii) each share of the Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of the
Company Common Stock, of the Surviving Corporation, and collectively will
constitute all of the issued and outstanding shares of the Capital Stock of the
Surviving Corporation.
(b) Each holder of a certificate representing shares of Company
Common Stock immediately prior to the Effective Time will, as of the Effective
Time and thereafter, cease to have any rights respecting those shares other than
the right to receive, subject to the provisions of Sections 2.05, 2.06 and 2.07
(c), without interest, the Merger Consideration.
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2.05 DELIVERY, EXCHANGE, AND PAYMENT. (a) At or after the Effective Time
each Selling Stockholder, upon surrender to IDG (or any agent that may be
appointed by IDG for purposes of this Section 2.05) of any and all certificates
representing the shares of Company Common Stock held by such Selling
Stockholder, will receive, subject to the provisions of Sections 2.05, 2.06 and
2.07(c), the Merger Consideration. Until any certificate representing shares of
Company Common Stock has been surrendered pursuant to this Section 2.05, that
certificate will, for all purposes, be deemed to evidence ownership of the
number of whole shares of IDG Common Stock included in the Merger Consideration
deliverable subject to Section 2.07(c), in respect of that certificate pursuant
to Section 2.04. All shares of IDG Common Stock issuable in the Merger will be
deemed for all purposes to have been issued by IDG at the Effective Time.
Notwithstanding the foregoing, the Stockholders' Agent may, at the instruction
of any of the Selling Stockholders, surrender the shares of Company Stock of
such Selling Stockholders to IDG and receive the Merger Consideration on behalf
of such Selling Stockholders, subject to the provisions of Sections 2.05, 2.06
and 2.07 (c).
(b) Each Selling Stockholder, or the Stockholders' Agent, will
deliver to IDG (or any agent that may be appointed by IDG for purposes of this
Section 2.05), on or before the Closing Date, the certificates representing
shares of Company Common Stock owned by the Selling Stockholder, duly endorsed
in blank, or accompanied by duly executed stock powers in blank, and with all
necessary transfer taxes and other revenue stamps, acquired at the Selling
Stockholders' expense, affixed and canceled. Each Selling Stockholder shall cure
any deficiencies in the endorsement of the certificates or other documents of
conveyance respecting, or in the stock powers accompanying, the certificates
representing the shares of Company Common Stock delivered by the Selling
Stockholders, or the Stockholders' Agent, as may be requested by IDG.
(c) No dividends or other distributions declared or earned after the
Effective Time with respect to IDG Common Stock and payable to the holders of
record thereof after the Effective Time will be paid to the holder of any
unsurrendered certificates representing shares of Company Common Stock for which
shares of IDG Common Stock have been issued in the Merger, until those
certificates are surrendered as provided herein, but (i) on such surrender, IDG
will cause to be paid, to the Person in whose name the certificates representing
such shares of IDG Common Stock shall then be issued, (1) the amount of
dividends or other distributions previously paid to any holders of IDG Common
Stock as of the record date with respect to such whole shares of IDG Common
Stock, or which have accrued, subsequent to the Effective Time but prior to
surrender, and (2) the amount of any cash payable in lieu of fractional shares
pursuant to Section 2.06, and (ii) at the appropriate payment date or as soon as
practicable thereafter, IDG will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
IDG Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to any such dividends or other
distributions on surrender of the outstanding certificates.
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(d) Each Dissenting Stockholder, in lieu of receiving the Merger
Consideration as set forth on Annex 4, shall receive from the Company (or the
Surviving Corporation) the payment in respect of the shares of the Company
Common Stock owned by such Dissenting Shareholder or other consideration, as
required by, and in compliance with, the GBCC or the laws of the Organization
State of Company as appropriate.
2.06 FRACTIONAL SHARES. Notwithstanding any other provision herein, no
fractional shares of IDG Common Stock will be issued, and any Selling
Stockholder who otherwise would be entitled hereunder to receive a fractional
share of IDG Common Stock but for this Section 2.06 will be entitled to receive,
in lieu thereof, a cash payment for and in the amount (rounded up to the nearest
whole cent) equal to that Selling Stockholder's fractional interest in a share
of IDG Common Stock multiplied by the IPO Price.
2.07 RELATED AGREEMENTS. In connection with the Merger, each of the
parties to this Acquisition Agreement agree to comply with the provisions of
this Section 2.07 as set forth below.
(a) Designated Inventory. The inventory set forth in Annex 5
attached hereto is hereinafter called the "Designated Inventory". With respect
to sales of Designated Inventory made after the Current Balance Sheet Date until
6:00 p.m. Eastern time on the second anniversary of the Closing Date, IDG will
cause the Surviving Corporation to pay the Stockholder's Agent, for the benefit
of the Selling Stockholders, 80% of the gross proceeds collected by the
Surviving Corporation from any sales of the Designated Inventory (whether such
sale or sales are made directly or through IDG or any of its Subsidiaries). All
proceeds from the sale of any Designated Inventory sold after the second
anniversary of the Closing Date shall be retained by the Surviving Corporation
and no amounts from such sales shall be owed to any of the Selling Stockholders.
The Company and the Selling Stockholders agree that IDG may use any reasonable
method to sell the Designated Inventory, including selling such inventory at a
discount or in one or more bulk sales.
(b) Guaranteed Receivables. The Selling Stockholders hereby jointly
and severally agree to the unconditional and irrevocable guarantee of the
collection in full, on or before the Receivables Determination Date, of the
gross dollar amount of the receivables set forth in Annex 6 attached hereto (the
"Guaranteed Receivables"), for the benefit of the Surviving Corporation, and
further agree to secure such guarantee with the Escrowed Shares (as defined in
paragraph (c) below). The obligations of the Selling Stockholders under this
paragraph shall expire and be of no further effect as to any Guaranteed
Receivables remaining uncollected as of the Receivables Determination Date for
which a claim has not been made by IDG before 6:00 p.m. pacific time on or
before such date. For purposes of determining whether any of the Guaranteed
Receivables remain uncollected at the Receivables Determination Date, reductions
to the Guaranteed Receivables resulting from the return of inventory or other
offsets (to the extent such offsets reduce any liability of the Company) shall
be considered a collection, and therefore the Surviving Corporation shall have
no claim against the Selling Stockholders to the extent of such reduction or
offset.
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(c) Escrow Account. On the Closing Date, an aggregate of twenty-five
percent (25%) of the shares of IDG Common Stock to be received by the Selling
Stockholders as part of the Merger Consideration (the "Escrowed Shares"),
allocated among the Selling Stockholders, shall be deposited with the Escrow
Agent in a segregated account (the "Escrow Account") pursuant to the Escrow
Agreement for a period of up to two years from the Closing Date, for the purpose
of securing and funding part of the obligations of the Selling Stockholders and
the Company to the Surviving Corporation that may arise pursuant to Section
2.07(b) and Article IX hereof. The Escrowed Shares shall be held in the Escrow
Account and disbursed in accordance with the terms of the Escrow Agreement.
Notwithstanding the foregoing, the respective Selling Stockholders as the legal
owners of the Escrowed Shares, unless and until disposed of in accordance with
the terms of this Acquisition Agreement and the Escrow Agreement, shall be
entitled to exercise the voting rights and to receive any dividends or other
distributions declared and paid with respect to such shares; provided, however,
any shares of IDG Common Stock issued with respect to the Escrowed Shares as a
result of a stock dividend, share exchange, stock split, or other action in
respect of the IDG Common Stock, shall be held in the Escrow Account as
additional Escrowed Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER
3.01 REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER. Each
Selling Stockholder represents and warrants to IDG and Newco that, as applied
solely to such Selling Stockholder, all of the representations and warranties in
this Article III are, as of the date of this Acquisition Agreement, and as
amended or supplemented pursuant to Section 6.08, will be, on the Closing Date,
true and correct, and do not and will not contain or omit any disclosure that
has or will or could have a Material Adverse Effect on the Company or on the
Surviving Corporation or IDG.
3.02 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 3.03 through 3.09
of the Uniform Provisions are hereby incorporated herein by reference.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE MANAGEMENT STOCKHOLDERS
4.01 TRUTHFULNESS OF THE REPRESENTATIONS AND WARRANTIES BY THE COMPANY
AND EACH MANAGEMENT STOCKHOLDER. The Company and each Management Stockholder,
jointly and severally, represent and warrant to IDG and Newco that all of the
following representations and warranties in this Article IV are, as of the date
of this Acquisition Agreement, and as amended or supplemented pursuant to
Section 6.08, will be, on the Closing Date, true and correct, and do not
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and will not contain or omit any disclosure that has or will or could have a
Material Adverse Effect on the Company or on the Surviving Corporation or IDG.
4.02 ORGANIZATION AND CAPITALIZATION OF COMPANY. (a) The Organization
State of the Company is Washington, and the Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of that State,
(ii) has all requisite corporate power and authority under all applicable laws
and its Charter Documents to own or lease and to operate its properties and to
carry on its business as it is now conducted and (iii) is duly qualified and in
good standing as a foreign corporation in all jurisdictions in which it owns or
leases property or in which the carrying on of its business as now conducted so
requires, except where the failure to be so qualified, singularly or in the
aggregate, would not have a Material Adverse Effect.
(b) The authorized, issued, and outstanding Capital Stock of the
Company is as set forth on Schedule 4.02, and, except as set forth in such
Schedule, (i) no shares are held by the Company as treasury shares, and (ii) no
outstanding Derivative Securities of the Company exist.
4.03 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 4.04 through 4.33
of the Uniform Provisions are hereby incorporated herein by reference.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO
5.01 REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO. IDG and Newco,
jointly and severally, represent and warrant to the Company and each Selling
Stockholder that all of the following representations and warranties in this
Article V are, as of the date of this Acquisition Agreement, and will be, on the
Closing Date, true and correct.
5.02 ORGANIZATION AND CAPITAL STOCK OF NEWCO. (a) Newco is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Georgia; (b) the authorized Capital Stock of Newco is comprised of
1,000 shares of Newco Common Stock, 100 shares of which are issued and
outstanding and owned of record and beneficially by IDG; (c) no Derivative
Securities of Newco are outstanding; (d) Newco has been organized for the sole
purpose of participating in the Merger and has not, and will not, engage in any
activities other than those necessary to effectuate the Merger; and (e) the
Newco Common Stock has been duly authorized and issued in accordance with the
GBCC and its Charter Documents, and is fully paid and non-assessable.
5.03 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 5.04 through 5.12
of the Uniform Provisions are hereby incorporated herein by reference. Sections
5.05, 5.06, 5.09, and 5.10 are also applicable to Newco in each instance as if
the reference to IDG therein was a reference to Newco.
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ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
6.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 6.02 through 6.13
of the Uniform Provisions are hereby incorporated herein by reference. Each
party to this Acquisition Agreement, subject to the waiver provisions of Section
11.04, agrees to comply with each covenant set forth therein.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING
7.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 7.02 through 7.05
of the Uniform Provisions are hereby incorporated herein by reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
8.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 8.02 through 8.05
of the Uniform Provisions are hereby incorporated herein by reference. From and
after the Effective Time, subject to the waiver provisions of Section 11.04,
each party hereto (other than the Company) agrees to comply with each covenant
therein to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
9.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 9.02 through 9.08
of the Uniform Provisions are hereby incorporated herein by reference.
ARTICLE X
LIMITATIONS ON COMPETITION
10.01 PROHIBITED ACTIVITIES. Each Selling Stockholder agrees, severally
and not jointly with any other Person, that he or she will not, during the
period beginning on the date hereof and ending on the third anniversary of the
Closing Date, directly or indirectly, for any reason, for his
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or her own account, or on behalf of, or together with, any other Person except
for, and on behalf of, the Company or any Company Subsidiary:
(a) be engaged as an officer or director or in any other managerial
or sales capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in a business that sells any products
or provides any services in competition with the Company, any Company
Subsidiary, or IDG or any Subsidiary of IDG (IDG and its Subsidiaries
collectively being "IDG" for purposes of this Article X) within a radius of 100
miles of each location in which any of the Company or any Company Subsidiary or
IDG was engaged in the Business on the date hereof or on the Closing Date (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary, or IDG in any managerial or sales capacity with
the purpose or intent of attracting that person from the employ of the Company,
any Company Subsidiary, or IDG;
(c) call on any Person who at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary, or IDG within the Territory, with whom the Selling Stockholder had
knowledge of, and contact with, that customer relationship, for the purpose of
soliciting or selling any product or service in competition with the Company,
any Company Subsidiary, or IDG within the Territory; or
(d) call on any IDG Acquisition Candidate, with the knowledge of
that Person's status as an IDG Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any Person
other than IDG.
Notwithstanding the foregoing, any Selling Stockholder may own and hold as
a passive investment up to one percent (1%) of the outstanding Capital Stock of
a competing Entity if that class of Capital Stock is listed for trading or
quotation on a national or regional stock exchange registered with the SEC or on
The Nasdaq National Stock Market.
10.02 DAMAGES. Because of the difficulty in measuring the economic losses
that may be incurred by IDG as a result of any breach by a Selling Stockholder
of his or her covenants in Section 10.01, and because of the immediate and
irreparable damage that could be caused to IDG for which it would have no other
adequate remedy, each Selling Stockholder agrees that IDG may enforce the
provisions of Section 10.01 by any equitable or legal means, including seeking
an appropriate injunction or restraining order against that Selling Stockholder
if a breach of any of those provisions occurs.
10.03 REASONABLE RESTRAINT. The parties hereto each agree that Sections
10.01 and 10.02 impose a reasonable restraint on the Selling Stockholders in
light of the activities and Business of the Company on the date hereof, the
current business plans of IDG as a result of its proposed acquisitions of the
Company and the Other Founding Companies (of which each
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Selling Stockholder acknowledges that he or she is aware), and the consideration
to be received by each Selling Stockholder from IDG as a result of the Merger.
10.04 SEVERABILITY; REFORMATION. The covenants in this Article X are
severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time, or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Selling
Stockholder, the parties hereto, including that Selling Stockholder, acknowledge
their mutual intention and agreement that those restrictions be enforced to the
fullest extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to that Selling Stockholder or any other Selling Stockholder
similarly situated.
10.05 INDEPENDENT COVENANT. All of the covenants in this Article X are
intended by each party hereto to be, and shall be construed as, an agreement
independent of any other provision in this Acquisition Agreement, and the
existence of any claim or cause of action of any Selling Stockholder against
IDG, whether predicated on this Acquisition Agreement or otherwise, shall not
constitute a defense to the enforcement by IDG of any covenant in this Article
X. It is specifically agreed that the period specified in Section 10.01 shall be
computed in the case of each Selling Stockholder by excluding from that
computation any time during which that Selling Stockholder is in violation of
any provision of Section 10.01. The covenants contained in this Article X shall
not be affected by any breach of any other provision hereof by any party hereto.
10.06 MATERIALITY. The Company and each Selling Stockholder, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
11.01 RESTRICTIONS ON TRANSFER OF IDG COMMON STOCK. (a) During the
two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Selling Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, or otherwise dispose of (A) any shares of IDG Common Stock
received by any Selling Stockholder in the Merger or (B) any interest in
(including any option to buy or sell unless such option is not exercisable until
after expiration of the Restricted Period) any of those shares of IDG Common
Stock, in whole or in part, and IDG will have no obligation to, and shall not,
treat any such attempted transfer as effective for any purpose; or (ii) engage
in any transaction, whether or not with respect to any shares of IDG Common
Stock or any interest therein, the intent or effect of which is to reduce the
risk of owning the shares of IDG Common Stock acquired pursuant to Section 2.04
(including, for example, engaging in put, call, short-sale, straddle or similar
market transactions); provided, however, that this Section 11.01 shall not
restrict any transfer of IDG Common Stock
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acquired by a Selling Stockholder pursuant to Section 2.04 to any of that
Selling Stockholder's Related Persons who agree in writing to be bound by the
provisions of this Section 11.01. The certificates evidencing the shares of IDG
Common Stock delivered to each Selling Stockholder, or the Stockholders' Agent
as the case may be, pursuant to Section 2.05 will bear a legend substantially in
the form set forth below and containing such other information as IDG may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION DATED ____________ __, 1997 AMONG THE ISSUER, THE HOLDER OF
THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED
TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR
PERIOD ENDING ON _____________, 1999 (THE "RESTRICTED PERIOD"). ON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE EXPIRATION OF THE RESTRICTED PERIOD.
(b) Each Selling Stockholder, severally and not jointly with any
other Person, (i) acknowledges that the shares of IDG Common Stock to be
delivered to that Selling Stockholder, or the Stockholders' Agent, as the case
may be, pursuant to Section 2.04 have not been, and will not be, registered
under the Securities Act, and therefore may not be resold by that Selling
Stockholder without being in compliance with the Securities Act or an exemption
thereof, and (ii) covenants that none of the shares of IDG Common Stock issued
to that Selling Stockholder pursuant to Section 2.04 will be offered, sold,
assigned, transferred or otherwise disposed of except upon full compliance with
all the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of IDG Common Stock issued pursuant to Section
2.04 will bear substantially the following legend in addition to the legend
prescribed by Section 11.01(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES
LAWS, HAVE BEEN ISSUED PURSUANT TO AND UNDER ONE OR MORE EXEMPTIONS
THERETO, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, OR
DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
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In addition, certificates evidencing shares of IDG Common Stock issued pursuant
to Section 2.04 to each Selling Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
11.02 BROKERS AND AGENTS. Except with respect to the retention and
remuneration of Barth Smith Company, the Company and the Selling Stockholders
jointly and severally represent and warrant to IDG and Newco that the Company
has not directly or indirectly employed or become obligated to pay any broker or
similar agent in connection with the transactions contemplated hereby, and
agree, without regard to the Threshold Amount limitations set forth in Article
IX, to indemnify IDG and Newco against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
11.03 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Acquisition Agreement
and the rights of the parties hereunder may not be assigned (except by operation
of law) and shall be binding on and inure to the benefit of the parties hereto,
the successors of IDG and Newco, and the heirs and legal representatives of the
Selling Stockholders (and, in the case of any trust, the successor trustees of
that trust). Neither this Acquisition Agreement nor any other Transaction
Document is intended, or shall be construed, deemed, or interpreted, to confer
on any Person not a party hereto or thereto any rights or remedies hereunder or
thereunder, except as provided in Section 6.05(b) or 11.13, or Article IX, or as
otherwise expressly provided herein or therein.
11.04 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Acquisition Agreement and
the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Selling Stockholders, the Company, Newco, and IDG and
supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Acquisition Agreement. This Acquisition
Agreement may be amended, modified, or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement, or waiver
is in writing and signed by the party to be bound thereby, and in the case of
each Selling Stockholder, the Stockholders' Agent or such Selling Stockholder.
The waiver of any of the terms and conditions hereof shall not be construed or
interpreted as, or deemed to be, a waiver of any other term or condition hereof.
11.05 COUNTERPARTS. This Acquisition Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
11.06 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, (a) IDG will pay the fees, expenses, and disbursements of IDG and
Newco and their Representatives that are incurred in connection with the subject
matter of this Acquisition Agreement and any amendments thereto, including all
costs and expenses incurred in the performance of and compliance with all
conditions to be performed by IDG and Newco under this Acquisition Agreement,
including the costs of preparing the Registration Statement, (b) the
Stockholders will pay from personal funds, and not from funds of the Company or
any Company
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<PAGE> 23
Subsidiary, all sales, use, transfer, and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby, and (c) the Company will pay the fees, expenses, and
disbursements of Counsel for the Company incurred in connection with the subject
matter of this Acquisition Agreement and the Registration Statement on or before
the Closing Date. Notwithstanding the foregoing, and in addition thereto, the
parties hereto acknowledge that the Company and IDG are parties to a certain
Letter of Intention and Expense Sharing Commitment dated as of February ____,
1997 and agree that such agreement shall continue to be effective with respect
to the obligations of the Company to IDG to pay or reimburse certain expenses
incurred by IDG in connection with its pursuit of the IPO and the transactions
contemplated hereunder.
The Selling Stockholders will file all necessary documentation and Returns
with respect to all Transfer Taxes. In addition, each Selling Stockholder
acknowledges that he or she, and not the Company or IDG or the Surviving
Corporation, will pay all Taxes, if any, due upon receipt of the consideration
payable to that Stockholder pursuant to Article II.
11.07 NOTICES. All notices required or permitted hereunder shall be in
writing, and shall be deemed to be delivered and received (a) if personally
delivered or, if delivered by telegram, facsimile, or courier service, when
actually received by the party to whom notice is sent (or upon confirmation of
receipt received by the sender), or (b) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may designate
by written notice to all other parties in accordance herewith):
(i) if to IDG or Newco:
Industrial Distribution Group, Inc.
2500 Royal Place
Tucker, Georgia 30084
Attn.: Chief Executive Officer
Facsimile No.:
with copies (which shall not constitute notice for purposes of this
Acquisition Agreement) to:
Kilpatrick Stockton LLP
1100 Peachtree Street
Atlanta, Georgia 30309
Attn.: W. Randy Eaddy, Esq.
Facsimile No.:(404) 815-6555
(ii) if to a Selling Stockholder, to the address set forth with
respect to such Selling Stockholder in Annex 4; and
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<PAGE> 24
(iii) if to the Company:
-----------------------------
-----------------------------
-----------------------------
Facsimile No.:
--------------
with copies (which shall not constitute notice for purposes of this
Acquisition Agreement) to:
Casey & Pruzan
18th Floor Pacific Building
720 3rd Avenue
Seattle, Washington 98104
Attn.: Carl Pruzan, Esq.
Facsimile No.: (206) 623-3649
11.08 GOVERNING LAW. THIS ACQUISITION AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF GEORGIA
[DELAWARE] WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
11.09 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein,
no delay or omission in the exercise of any right, power, or remedy accruing to
any party hereto as a result of any breach or default hereunder by any other
party hereto shall impair any such right, power, or remedy, nor shall it be
construed, deemed, or interpreted as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be construed, deemed, or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
11.10 TIME. Time is of the essence in the performance of this
Acquisition Agreement in all respects.
11.11 REFORMATION AND SEVERABILITY. If any provision of this Acquisition
Agreement is invalid, illegal, or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal, and
enforceable and so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Acquisition Agreement, and in either case the
validity, legality, and enforceability of the remaining provisions of this
Acquisition Agreement shall not in any way be affected or impaired thereby.
11.12 REMEDIES CUMULATIVE. No right, remedy, or election given by any term
of this Acquisition Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies, and elections available at law or in
equity.
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<PAGE> 25
11.13 AGREEMENTS RESPECTING THE IPO. Each of the Company and the Selling
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement, or promise or other assurance of any kind, whether express or
implied, oral or written, exists at the date hereof that the Registration
Statement will become effective or that the IPO will occur at a particular price
or within a particular range of prices or will occur at all; (b) neither IDG nor
any of its Representatives nor any prospective underwriters in the IPO will have
any liability to the Company, the Stockholders, or any of their respective
Affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that IDG will use its reasonable best
efforts to cause the Registration Statement to become effective prior to October
__, 1997) or (ii) the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (c) the decision of the Selling
Stockholders to enter into this Acquisition Agreement, and to vote in favor of
or consent to the Merger, has been made independent of, and without reliance on,
any statements, opinions, or other communications of, or due diligence
investigations that have been or will be made or performed by, any prospective
underwriter relative to IDG or the IPO.
11.14 TREATMENT OF CONFIDENTIAL INFORMATION. (a) Each of the Company and
the Selling Stockholders, severally and not jointly with any other Person,
acknowledges that it, he or she has or may have had in the past, and in the
future may have, access to Confidential Information of the Company and the
Company Subsidiaries, the Other Founding Companies and their Subsidiaries, and
IDG and its Subsidiaries. Each of the Company and the Stockholders, severally
and not jointly with any other Person, agrees that it, he or she will keep
confidential all such Confidential Information and, except with the specific
prior written consent of IDG, will not disclose such Confidential Information to
any Person except: (i) Representatives of IDG, (ii) its own Representatives,
provided that such Representatives (other than counsel) agree to the
confidentiality provisions of this Section 11.14. Confidential Information shall
not include (A) such information that becomes known to the public generally
through no fault of any Selling Stockholder, (B) information required to be
disclosed by law or the order of any Governmental Authority under color of law,
provided that prior to disclosing any information pursuant to this clause (B),
each Selling Stockholder shall, if possible, give prior written notice thereof
to IDG and provide IDG with the opportunity to contest such disclosure, or (C)
such information that the disclosing party reasonably believes the disclosure of
which is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by any Selling
Stockholder of the provisions of this Section 11.14 with respect to any
Confidential Information, IDG shall be entitled to an injunction restraining
such Selling Stockholder from disclosing, in whole or in part, that Confidential
Information. Nothing herein shall be construed as prohibiting IDG from pursuing
any other remedy available at law or in equity for such breach or threatened
breach, including the recovery of Damages.
(b) Because of the difficulty of measuring the economic loss that
may be incurred by IDG, the Surviving Company, or any IDG Subsidiary as a result
of the breach of the covenants in Section 11.14(a), and because of the immediate
and irreparable damage that would be caused to IDG and its Subsidiaries for
which it would have no other adequate remedy, each of the Company and the
Selling Stockholders agrees that IDG may enforce the provisions of
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<PAGE> 26
Section 11.14(a) by injunctions and restraining orders against each of them who
breaches any of those provisions.
(c) The obligations of IDG set forth in Section 6.02(d) are
incorporated in this Section 11.14 by this reference.
(d) The obligations of the parties under this Section 11.14 shall
survive the termination of this Acquisition Agreement.
ARTICLE XII
TERMINATION
12.01 TERMINATION OF THIS ACQUISITION AGREEMENT. (a) This Acquisition
Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of IDG and the Company;
(ii) by the Selling Stockholders and the Company, on the one hand,
or by IDG, on the other hand, if the conditions to Closing in Section 7 have not
either been satisfied or waived and the transactions contemplated by this
Acquisition Agreement to take place at the Closing shall not have been
consummated by December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case of the
Selling Stockholders and the Company, any of them) seeking to terminate this
Acquisition Agreement to perform or adhere to any agreement required hereby to
be performed or adhered to by such party prior to or at the Closing or on the
Closing Date;
(iii) by the Selling Stockholders and the Company, on the one hand,
or by IDG, on the other hand, if a material breach or default shall be made by
the other party (or in the case of the Selling Stockholders and the Company, any
of them) in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein and such breach or default
shall not have been cured by the breaching or defaulting party or parties within
ten (10) days after notice of such breach or default is provided thereto; or
(iv) by IDG if it is entitled to do so as provided in Section 6.08.
(b) If this Acquisition Agreement is terminated pursuant to this
Section 12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Acquisition Agreement is terminated pursuant
to this Section 12.01 after the Certificate of Merger has been filed with the
Secretary of State of the State of Georgia and the appropriate filing office of
the Organization State of the Company, but before the IPO has been consummated,
IDG will take all actions that Counsel for the Company and the Selling
Stockholders advise IDG are required by the applicable laws of the State of
Georgia and the Organization State of the Company in order to rescind the
Merger.
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<PAGE> 27
12.02 LIABILITIES IN EVENT OF TERMINATION. If this Acquisition Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.06 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Acquisition Agreement.
ARTICLE XIII
POWER OF ATTORNEY
13.01 APPOINTMENT OF STOCKHOLDERS' AGENT. The Selling Stockholders, and
each of them, hereby irrevocably constitute and appoint ______________ with an
address at (the "Stockholders' Agent") as their agent and attorney-in-fact to
modify, amend, or otherwise change this Acquisition Agreement, or any of its
terms or provisions (including modifications, amendments, or changes subsequent
to Closing), to take all actions and to execute all documents (including all
actions and documents required under Article VII hereof) necessary or desirable
to consummate the transactions contemplated by this Acquisition Agreement, to
tender their shares of Company Common Stock pursuant to this Acquisition
Agreement and to accept the Merger Consideration in connection therewith and to
take all actions, to execute all documents that may be necessary or desirable in
connection therewith (including, without limitation, delivery of the
certificates for their shares of Company Common Stock and execution of such
powers of attorney or other instruments as may be necessary to comply with this
Acquisition Agreement), to give and receive consents and all notices hereunder,
to negotiate and settle claims for indemnification under Article IX hereof, and
to perform any other act arising under or pertaining to this Acquisition
Agreement and the transactions contemplated hereby. The Selling Stockholders,
and each of them, agree that service of process upon the Stockholders' Agent in
any action or proceeding arising under or pertaining to this Acquisition
Agreement shall be deemed to be valid service of process upon the Selling
Stockholders, and any claim by IDG or Newco against the Selling Stockholders, or
any of them, in respect to this Acquisition Agreement may be asserted against,
and settled with, said Stockholders' Agent. The Stockholders' Agent shall be
deemed to have accepted the appointment herein upon his execution of this
Acquisition Agreement.
13.02 LIABILITY OF AGENT. Nothing contained herein shall be deemed to make
the Stockholders' Agent personally liable to the Selling Stockholders because of
service in his capacity as agent and attorney-in-fact. In performing any of his
duties hereunder, the Stockholders' Agent shall not incur any liability to the
Selling Stockholders for losses, damages, liabilities, or expenses, except for
his own willful or intentional default.
13.03 SUCCESSION. In the event of the death, disability, incompetency, or
resignation of the original Stockholders' Agent, the successor agent shall be
[_________]. In the event of the death, disability, incompetency, or resignation
of any successor Stockholders' Agent, the Selling Stockholders shall, within 30
days after notice from IDG and designate a successor Stockholders'
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<PAGE> 28
Agent, determined by simple majority vote, who shall have all of the rights,
powers, and authority conferred and limitation on personal liability provided
by, this Article XIII, and if the Stockholders fail to designate such successor
Stockholders' Agent within such period, IDG may petition a court of appropriate
jurisdiction for appointment of a successor Stockholders' Agent.
13.04 IRREVOCABLE; BINDING ON SUCCESSORS, ETC. It is expressly understood
and agreed that the power of attorney and agency created by this Article XIII is
coupled with an interest of the respective parties hereto and shall be binding
and enforceable on and against the respective heirs, personal representatives,
successors and assigns of the Selling Stockholders, and each of them, and the
same shall not be revoked or terminated by the death, disability, bankruptcy, or
incompetency of the Selling Stockholders, or any of them, but shall continue to
be binding and enforceable by the Stockholders' Agent, IDG and Newco, and their
respective successors and on and against the heirs, personal representatives,
and successors and assigns of the Stockholders in the manner provided herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Acquisition
Agreement as of the date first above written.
INDUSTRIAL DISTRIBUTION GROUP, INC., A DELAWARE
CORPORATION
By:
------------------------------------
Martin S. Pinson
Chairman and Chief Executive Officer
IDG ACQUISITION COMPANY II, INC., A GEORGIA
CORPORATION
By: ,
-------------------------------------
Martin S. Pinson
Chairman and Chief Executive Officer
--------------------------------------, A
CORPORATION
---------------
By: ,
----------------------------------
[signatures continued on following page]
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<PAGE> 30
SELLING STOCKHOLDERS:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
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<PAGE> 31
EXHIBIT A
Entities entering into reverse merger agreements
The following entities, and each of such entities
stockholders, have entered into a reverse merger
agreement with the Registrant:
B & J Industrial Supply Company
Cramer Industrial Supplies, Inc.
Grinding Supplies Company
J.J. Stangel Co.
Shearer Industrial Supply Co.
Slater Industrial Supply, Inc.
Tri-Star Industrial Supply, Inc.
<PAGE> 1
Exhibit 10.2
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
INDUSTRIAL DISTRIBUTION GROUP, INC.,
A DELAWARE CORPORATION,
IDG ACQUISITION COMPANY I, INC.,
A GEORGIA CORPORATION,
INDUSTRIAL DISTRIBUTION GROUP, INC.,
A GEORGIA CORPORATION,
AND
THE STOCKHOLDERS NAMED HEREIN
DATED AS OF ______ ___, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRELIMINARY STATEMENT............................................................................................ 1
ARTICLE I: DEFINITIONS.......................................................................................... 2
1.01. Certain Defined Terms................................................................................... 2
ARTICLE II: THE MERGER; RELATED MATTERS; AND RELATED AGREEMENTS................................................. 6
2.01. Certificate Of Merger................................................................................... 6
2.02. The Effective Time...................................................................................... 6
2.03. Certain Effects of the Merger........................................................................... 6
2.04. Effect of the Merger on Capital Stock................................................................... 7
2.05. Delivery, Exchange and Payment.......................................................................... 7
2.06. Fractional Shares....................................................................................... 9
2.07. Related Agreements..................................................................................... 9
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER.........................................10
3.01. Representations and Warranties of Each Selling Stockholder..............................................10
3.02. Incorporation of the Uniform Provisions.................................................................10
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MANAGEMENT STOCKHOLDERS.......................10
4.01. Truthfulness of the Representations and Warranties by the Company and Each Management Stockholder.......10
4.02. Organization and Capitalization of Company..............................................................11
4.03. Incorporation of the Uniform Provisions.................................................................11
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO......................................................11
5.01. Representations and Warranties of IDG and Newco.........................................................11
5.02. Organization of Newco...................................................................................11
5.03. Incorporation of the Uniform Provisions.................................................................11
ARTICLE VI: COVENANTS EXTENDING TO THE EFFECTIVE TIME...........................................................12
6.01. Incorporation of the Uniform Provisions.................................................................12
ARTICLE VII: THE CLOSING AND CONDITIONS TO CLOSING..............................................................12
7.01. Incorporation of the Uniform Provisions.................................................................12
ARTICLE VIII: COVENANTS FOLLOWING THE EFFECTIVE TIME.............................................................12
8.01. Incorporation of the Uniform Provisions.................................................................12
ARTICLE IX: INDEMNIFICATION.....................................................................................12
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
9.01. Incorporation of the Uniform Provisions.................................................................12
ARTICLE X: LIMITATIONS ON COMPETITION...........................................................................12
10.01. Prohibited Activities..................................................................................12
10.02. Damages................................................................................................13
10.03. Reasonable Restraint...................................................................................13
10.04. Severability; Reformation..............................................................................14
10.05. Independent Covenant...................................................................................14
10.06. Materiality............................................................................................14
ARTICLE XI: GENERAL PROVISIONS..................................................................................14
11.01 Restrictions on Transfer of IDG Common Stock............................................................14
11.02 Brokers and Agents......................................................................................16
11.03 Assignment; No Third Party Beneficiaries................................................................16
11.04 Entire Agreement; Amendment; Waivers....................................................................16
11.05 Counterparts...........................................................................................16
11.06 Expenses...............................................................................................16
11.07 Notices................................................................................................17
11.08 Governing Law...........................................................................................18
11.09 Exercise of Rights and Remedies.........................................................................18
11.10 Time..................................................................................................18
11.11. Reformation and Severability..........................................................................18
11.12 Remedies Cumulative....................................................................................19
11.13 Respecting the IPO.....................................................................................19
11.14 Treatment of Confidential Information..................................................................19
ARTICLE XII: TERMINATION........................................................................................20
12.01. Termination of this Agreement..........................................................................20
12.02. Liabilities in Event of Termination...................................................................21
ARTICLE XIII: POWER OF ATTORNEY.................................................................................21
13.01 Appointment of Shareholders' Agent......................................................................21
13.02 Liability of Agent.....................................................................................21
13.03 Succession.............................................................................................22
13.04 Irrevocable; Binding on Successors, Etc................................................................21
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
ANNEXES
<S> <C>
Annex 1 Uniform Provisions for the Acquisition of Founding Companies
Annex 2 Founding Companies
Annex 3 Initial Directors and Officers of the Surviving Corporation
Annex 4 Merger Consideration
Annex 5 Designated Inventory
Annex 6 Guaranteed Receivables
Annex 7 Management Stockholders
SCHEDULES
Schedule 3.03 Selling Stockholders Who Are Not Accredited Investors
Schedule 3.04 Disclosure of Equity Ownership and Liens
Schedule 3.09 Disclosure of Stockholders' Controlling Interests and
Material Related Transactions
Schedule 4.02 Authorized Capital Stock of the Company and Company
Subsidiaries
Schedule 4.04 Jurisdictions Of Authorization Or Qualification
Schedule 4.08 Company Subsidiaries
Schedule 4.10(a) Obligations with Respect to Company's Capital Stock
Schedule 4.10(b) Stock Transfers Since June 30, 1996
Schedule 4.11 Legal and Assumed Names
Schedule 4.12 Continuing Related Party Agreements
Schedule 4.13 Litigation
Schedule 4.15(a) Compliance with Laws: Licenses, Permits, and Government
Approvals
Schedule 4.15(b) Non-Compliance with Laws
Schedule 4.16(a) Environmental Matters: Compliance
Schedule 4.16(b) Environmental Matters: Disposition of Hazardous
Substances
Schedule 4.16(c) Environmental Matters: Transportation of Hazardous
Substances
Schedule 4.16(d) Environmental Matters: Storage Tanks
Schedule 4.17(a) Liabilities: Not Reflected on Current Balance Sheet Date
Schedule 4.17(b) Liabilities: Incurred After Current Balance Sheet
Schedule 4.17(c) Liabilities: Outstanding Guaranties
Schedule 4.18 Receivables Not Collected or Collectible as of March 31,
1997
Schedule 4.19(a) Owned and Leased Real Property
Schedule 4.19(b) Liens on Owned and Leased Properties
Schedule 4.19(c) Subleases
Schedule 4.19(d) Fixed Assets Not in Good Condition
Schedule 4.20(a) Owned and Leased Personal Property, Plant, and Equipment
Schedule 4.20(b) Liens on Personal Property, Plant, and Equipment
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
Schedule 4.20(c) Subleases Relating to Personal Property, Plant, and
Equipment
Schedule 4.20(d) Personal Property, Plant, and Equipment Not in Good
Condition
Schedule 4.21 Proprietary Rights
Schedule 4.23(a)(i) Partnerships, Joint Ventures, Cost-Sharing Arrangements
Schedule 4.23(a)(ii) Guaranties or Suretyships, Indemnification or Contribution
Agreements, Performance Bonds
Schedule 4.23(a)(iii) Instruments, Agreements, or Other Obligations Evidencing
or Relating to Indebtedness or to Money Lent or to be
Lent to Another Person
Schedule 4.23(a)(iv) Contracts to Purchase or Sell Real Property or any Material
Property, Plant, and Equipment
Schedule 4.23(a)(v) Agreements with Dealers or Sales or Commission Agents,
Public Relations or Advertising Agencies, Accountants, or
Attorneys
Schedule 4.23(a)(vi) Related Party Agreements Requiring Penalties or Notice to
Terminate
Schedule 4.23(a)(vii) Material Service, Supplies, Equipment, Inventory, or
Fixture Agreements
Schedule 4.23(a)(viii) Non-Compete Agreements
Schedule 4.23(a)(ix) Purchasing Agreements
Schedule 4.23(a)(x) Material Commitments and Commitments Not Made in the
Ordinary Course of Business
Schedule 4.23(b)(i) Defaults, Penalties, and Waivers
Schedule 4.23(b)(ii) Expected Cancellations of Company Commitments
Schedule 4.24 Capital Expenditures
Schedule 4.25 Nonconforming Inventory
Schedule 4.26(a) Insurance: Policies
Schedule 4.26(b) Insurance: Loss Runs and Workers' Compensation Claims
Schedule 4.27(a) Employee Matters: Cash Compensation
Schedule 4.27(b) Employee Matters: Engagement and Non-Competition
Agreements
Schedule 4.27(c) Employee Matters: Other Compensation Plans
Schedule 4.27(d) Employee Matters: ERISA Benefit Plans
Schedule 4.27(e) Employee Matters: Employee Policies and Procedures
Schedule 4.27(f) Employee Matters: Unwritten Amendments
Schedule 4.27(g) Employee Matters: Labor Compliance
Schedule 4.27(h) Employee Matters: Unions
Schedule 4.27(j) Employee Matters: Change of Control Benefits
Schedule 4.27(k) Employee Matters: Retirees
Schedule 4.28(b) Non-Qualified ERISA Pension Benefit Plans
Schedule 4.28(g) Compliance with ERISA: Participation in Multiemployer
Plan
Schedule 4.28(h) Compliance with ERISA: Claims and Litigation
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Schedule 4.28(k) ERISA Benefit Plans and Other Compensation Plans with No
Amendment, Modification or Termination Rights
Schedule 4.29 Exceptions to Tax Representations and Warranties
Schedule 4.30 Governmental Contracts
Schedule 4.31 Changes Since Balance Sheet Date
Schedule 4.32 Bank Accounts
Schedule 6.04 Prohibited Activities: Exceptions for Activities Involving
ERISA Employee Benefit Plans or Any Other
Compensation Plan, or Employee Policies and Procedures
Schedule 6.12 Disposition of Unwanted Assets
Schedule 8.05 Listing of Stockholder Guaranties Expected to be
Terminated
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Form of Escrow Agreement
Exhibit B Form of Employment Agreement
Exhibit C Form of Stock Incentive Plan
</TABLE>
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<PAGE> 8
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Acquisition
Agreement") is made as of _____ ___, 1997, by and among INDUSTRIAL DISTRIBUTION
GROUP, INC., a Delaware corporation ("IDG"), IDG ACQUISITION COMPANY I, INC., a
Georgia corporation and a wholly owned subsidiary of IDG ("Newco"), INDUSTRIAL
DISTRIBUTION GROUP, INC., a Georgia corporation (the "Company"), and the persons
listed on the signature pages hereof under the caption "Selling Stockholders."
PRELIMINARY STATEMENT
The Company is a distributor that provides flexible procurement
solutions, products and services to industrial users that have production and
maintenance, repair, operating, and production supply requirements (the
"Business"). IDG is a newly formed Delaware corporation created for the purpose
of acquiring and consolidating a number of companies that are in a similar line
of business as the Company. As part of the consolidation undertaken by IDG, the
parties to this Acquisition Agreement have determined that it is in their
respective best long-term interests to effect a business combination pursuant to
which:
(a) the Company will merge with and into Newco, a newly formed
Georgia corporation, on the terms and subject to the conditions set
forth herein (the "Merger");
(b) IDG will acquire the stock of all or some of the entities
listed in Annex 2 (each an "Other Founding Company" and, collectively
with the Company, the "Founding Companies") pursuant to agreements that
are (i) similar to this Acquisition Agreement and (ii) entered into
among those entities and their equity owners, IDG and other wholly
owned subsidiaries of IDG (collectively, the "Companion Agreements");
and
(c) IDG shall, contemporaneously with the effectiveness of the
Merger, effect a public offering of a portion of the shares of its
common stock and issue and sell those shares as contemplated in this
Acquisition Agreement.
The parties to this Acquisition Agreement intend that this Acquisition
Agreement be approved and adopted by all relevant parties as a plan of
reorganization within the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
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<PAGE> 9
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms have
the meanings assigned to them below in this Section 1.01. Capitalized terms used
herein and not defined in Section 1.01 have the meanings assigned to them in
Section 1.02 of Article I of Annex 1: "Industrial Distribution Group, Inc.
Formation Corp. Uniform Provisions for the Acquisition of Founding Companies"
(the "Uniform Provisions"), the text of which is hereby incorporated herein by
reference. References to sections not found herein are to sections in the
Uniform Provisions.
"ACQUISITION AGREEMENT" means this Agreement and Plan of Merger and
Reorganization, including the Disclosure Statement relating hereto and all
attached Annexes and Exhibits, as each of the same may be amended, modified or
supplemented from time to time pursuant to the provisions hereof or thereof.
"ACQUISITION CONSIDERATION" means the Merger Consideration.
"ACQUISITION TRANSACTION" means the Merger, and any ancillary
transactions contemplated to be consummated in accordance herewith.
"BALANCE SHEET DATE" means December 31, 1996.
"BUSINESS" has the meaning set forth in the first paragraph of the
Preliminary Statement.
"CAPITAL STOCK" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"CERTIFICATE OF MERGER" means (a) if the Company is a Georgia
corporation, the certificate of merger respecting the Merger that contains the
information required by the GBCC to effectuate the Merger; and (b) if the
Company's Organization State is not Georgia, the articles or certificate of
merger or other documents respecting the Merger that contains the information
required by the GBCC and the laws of the Company's Organization State to
effectuate the Merger.
"CHARTER DOCUMENTS" means, with respect to any Entity at any time, in
each case as amended, modified and supplemented at that time, the articles or
certificate of formation, incorporation or organization (or the equivalent
organizational documents) of that Entity, (b) the bylaws, operating agreement,
trust indenture or regulations (or the equivalent governing documents) of that
Entity and (c) each document setting forth the designation, amount and relative
rights, limitations and preferences of any class or series of that Entity's
Capital Stock or of any rights in respect of that Entity's Capital Stock.
"CLOSING" has the meaning set forth in Section 7.02 of the Uniform
Provisions.
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"CLOSING DATE" has the meaning set forth in Section 7.02 of the Uniform
Provisions, which shall be the same date as the IPO Closing Date.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by IDG for the Closing under this Acquisition Agreement in which are
included the forms of certificates of officers, the opinions of counsel, and
certain other documents to be delivered at the Closing as provided in Article
VII.
"COMPANION AGREEMENTS" has the meaning set forth in the Preliminary
Statement.
"COMPANY" means Industrial Distribution Group, Inc., a Georgia
corporation.
"COMPANY CAPITAL STOCK" means the common stock, par value $.01 per
share, of the Company.
"COMPANY SUBSIDIARY" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"CONFIDENTIAL INFORMATION" means, with respect to any Person, all trade
secrets and other confidential, nonpublic and/or proprietary information of that
Person, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, capital expenditure
projects, cost summaries, pricing formulae, contract analyses, financial
information, projections, confidential filings with any Governmental Authority
and all other confidential, nonpublic concepts, methods of doing business,
ideas, materials or information prepared or performed for, by or on behalf of
that Person.
"COUNSEL FOR IDG AND NEWCO" means Kilpatrick Stockton LLP, Atlanta,
Georgia.
"COUNSEL FOR THE COMPANY" means Watson/Minkin & Snyder, Atlanta,
Georgia.
"COVENANTING STOCKHOLDER" has the meaning set forth in Section 10.01.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of the
Company as at the Current Balance Sheet Date.
"CURRENT BALANCE SHEET DATE" means March 31, 1997.
"DERIVATIVE SECURITIES" has the meaning set forth in Section 1.02 of
the Uniform Provisions.
"DESIGNATED INVENTORY" has the meaning set forth in Section 2.07(a).
"DISCLOSURE STATEMENT" means the Schedules and a written statement
executed by the Company and each of the Selling Stockholders and delivered to
IDG prior to the execution and delivery of this Acquisition Agreement by IDG and
Newco in which either (a) exceptions are
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taken to representations and warranties made by the Company and the Selling
Stockholders herein or (b) it is confirmed that no exception is taken to such
representations and warranties.
"DISSENTING STOCKHOLDER" shall mean any Person holding record title to
any shares of the Company Capital Stock, as reflected on the books and records
of the Company as of the date hereof, that has exercised such Person's statutory
right to dissent from the Merger, in compliance with, and as required by, the
laws of the Organization State of the Company.
"EFFECTIVE TIME" has the meaning set forth in Section 2.02.
"EMPLOYMENT AGREEMENT" means the employment agreement to be entered
into as of the Closing Date between Charles A. Lingenfelter and IDG, which shall
be substantially in the form of Exhibit B attached hereto.
"ENTITY" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"ESCROW ACCOUNT" has the meaning set forth in Section 2.07(c).
"ESCROW AGENT" means SunTrust Bank, N.A., Atlanta, Georgia.
"ESCROW AGREEMENT" means the escrow agreement to be entered into on the
Closing Date by and among IDG, the Selling Stockholders, and the Escrow Agent,
which shall be substantially in the form of Exhibit A attached hereto.
"ESCROWED SHARES" has the meaning set forth in Section 2.07(c).
"FOUNDING COMPANIES" has the meaning set forth in the Preliminary
Statement.
"GBCC" means the Georgia Business Corporation Code, O.C.G.A. ss.ss.
14-2-101, et. seq.
"GUARANTEED RECEIVABLES" has the meaning set forth in Section 2.07(b).
"IDG" means Industrial Distribution Group, Inc., a Delaware
corporation.
"IDG ACQUISITION CANDIDATE" means any Entity engaged in any of the
businesses of providing flexible procurement solutions, products and services to
industrial users that have production and maintenance, repair and operating
supplies requirements which either the Company or IDG or any of their
Subsidiaries (i) have entered into discussions regarding a possible acquisition
or (ii) have performed an acquisitions analysis with respect to any possible
acquisition.
"IDG COMMON STOCK" means the common stock, par value $.01 per share, of
IDG.
"IMMEDIATE FAMILY MEMBER" has the meaning set forth in Section 1.02 of
the Uniform Provisions.
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"IPO PRICE" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"MANAGEMENT STOCKHOLDERS" means those Selling Stockholders set forth
in Annex 7.
"MERGER" has the meaning set forth in the Preliminary Statement.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.04(a).
"NEWCO" means IDG Acquisition Company I, Inc., a Georgia corporation.
"NEWCO COMMON STOCK" means the common stock, par value $.01 per share,
of Newco.
"ORGANIZATION STATE" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"OTHER FOUNDING COMPANIES" has the meaning set forth in the
Preliminary Statement.
"PRO RATA SHARE" means, for each Selling Stockholder, the fraction
expressed as a percentage the numerator of which is the number of shares of
outstanding Company Capital Stock owned by that Selling Stockholder and the
denominator of which is the total number of shares of outstanding Company
Capital Stock owned by all Stockholders, as of the Closing Date.
"RECEIVABLES DETERMINATION DATE" shall mean the date that is the first
anniversary of the Closing Date.
"RESTRICTED PERIOD" has the meaning set forth in Section 11.01.
"RETURNS" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"SCHEDULES" shall mean those certain disclosures made by the Company,
the Stockholders, IDG or Newco containing such information, as appropriate,
relating to the representations and warranties made by the respective party as
set forth in the Disclosure Statement.
"SELLING STOCKHOLDERS" shall mean all Persons holding record title to
any of the shares of the Company Capital Stock, as reflected on the books and
records of the Company as of the date hereof, that have not exercised a
statutory right to dissent from the Merger in compliance with, and as required
by, the laws of the Organization State of the Company.
"STOCKHOLDERS" shall mean collectively the Selling Stockholders and
Dissenting Stockholders.
"STOCKHOLDERS' AGENT" has the meaning set forth in Section 13.01.
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"STOCK INCENTIVE PLAN" means the IDG Stock Incentive Plan adopted or to
be adopted by the directors and shareholders of IDG on or prior to the Closing
Date, substantially in the form of Exhibit C attached hereto.
"SURVIVING CORPORATION" means the Entity to be designated in the
Certificate of Merger as the surviving corporation of the Merger.
"TERRITORY" has the meaning set forth in Section 10.01(a).
"THRESHOLD AMOUNT" means 2% of the Indemnification Limit.
"TRANSACTION VALUE" means the value expressed in dollars resulting as
the product of (a) the aggregate number of shares of IDG Common Stock designated
as Merger Consideration and allocated to the Selling Stockholders, multiplied by
(b) the IPO Price, as discounted by 25%.
"TRANSFER TAXES" has the meaning set forth in Section 11.06.
"UNIFORM PROVISIONS" has the meaning set forth in the first paragraph
of this Section 1.01.
ARTICLE II
THE MERGER; RELATED MATTERS; AND RELATED AGREEMENTS
2.01 CERTIFICATE OF MERGER. Subject to the terms and conditions hereof,
Newco will cause a Certificate of Merger to be duly executed and delivered on or
prior to the Closing Date, to be filed with the Secretary of State of the State
of Georgia and, if required, in the appropriate filing office of the
Organization State of the Company.
2.02 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the Closing Date that the Certificate of
Merger specifies or, if the Certificate of Merger does not specify another time,
10:00 a.m., Eastern Time, on the Closing Date.
2.03 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective Time:
(a) the Company will be merged with and into Newco in
accordance with the provisions of the GBCC and the laws of the Organization
State of the Company;
(b) the Company will cease to exist as a separate legal
entity;
(c) the articles of incorporation of Newco will remain the
articles of incorporation of the Surviving Corporation;
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(d) Newco, as the Surviving Corporation, will (i) possess all
of the properties, rights, privileges, immunities, franchises and powers, and be
subject to all the restrictions, duties, liabilities, debts and obligations, of
the Company, and (ii) be governed by the laws of the State of Georgia;
(e) the Charter Documents of Newco will remain (until changed
in accordance with applicable law or their terms) the Charter Documents of the
Surviving Corporation;
(f) the initial board of directors of the Surviving
Corporation will consist of the persons named in Annex 3, each of whom will hold
the office of director of the Surviving Corporation subject to the provisions of
the GBCC and other applicable laws and the Charter Documents of the Surviving
Corporation; and
(g) the initial officers of the Surviving Corporation will be
as set forth in Annex 3, each of whom will serve in such office, subject to the
provisions of the GBCC and other applicable laws and the Charter Documents of
the Surviving Corporation, until that person's successor is duly elected to,
and, if necessary, qualified for, that office.
2.04 EFFECT OF THE MERGER ON CAPITAL STOCK. (a) As of the Effective
Time, as a result of the Merger and without any action on the part of any of the
Stockholders:
(i) all of the shares of Company Capital Stock issued and
outstanding immediately prior to the Effective Time will (A) be converted into
the right to receive, subject to the provisions of Sections 2.05, 2.06, and
2.07(c), without interest, on surrender of the certificates evidencing those
shares, the number of whole shares of IDG Common Stock and the amount of cash
(if any), as provided in Annex 4 (the "Merger Consideration"), (B) cease to be
outstanding, and (C) be canceled and retired;
(ii) each share of Company Capital Stock held in the treasury
of the Company or any Company Subsidiary will (A) cease to be outstanding, and
(B) be canceled and retired; and
(iii) each share of the Newco Common Stock issued and
outstanding immediately prior to the Effective Time will remain one share of the
common stock, par value $.01 per share, of the Surviving Corporation, and
collectively will constitute all of the issued and outstanding shares of the
Capital Stock of the Surviving Corporation.
(b) Each holder of a certificate representing shares of
Company Capital Stock immediately prior to the Effective Time will, as of the
Effective Time and thereafter, cease to have any rights respecting those shares
other than the right to receive, subject to the provisions of Sections 2.05,
2.06 and 2.07 (c), without interest, the Merger Consideration.
2.05 DELIVERY, EXCHANGE, AND PAYMENT. (a) At or after the Effective
Time each Selling Stockholder, upon surrender to IDG (or any agent that may be
appointed by IDG for
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purposes of this Section 2.05) of any and all certificates representing the
shares of Company Capital Stock held by such Selling Stockholder, will receive,
subject to the provisions of Sections 2.05, 2.06 and 2.07(c), the Merger
Consideration. Until any certificate representing shares of Company Capital
Stock has been surrendered pursuant to this Section 2.05, that certificate will,
for all purposes, be deemed to evidence ownership of the number of whole shares
of IDG Common Stock included in the Merger Consideration deliverable subject to
Section 2.07(c), in respect of that certificate pursuant to Section 2.04. All
shares of IDG Common Stock issuable in the Merger will be deemed for all
purposes to have been issued by IDG at the Effective Time. Notwithstanding the
foregoing, the Stockholders' Agent may, at the instruction of any of the Selling
Stockholders, surrender the shares of Company Capital Stock of such Selling
Stockholders to IDG and receive the Merger Consideration on behalf of such
Selling Stockholders, subject to the provisions of Sections 2.05, 2.06 and 2.07
(c).
(b) Each Selling Stockholder, or the Stockholders' Agent, will
deliver to IDG (or any agent that may be appointed by IDG for purposes of this
Section 2.05), on or before the Closing Date, the certificates representing
shares of Company Capital Stock owned by the Selling Stockholder, duly endorsed
in blank, or accompanied by duly executed stock powers in blank, and with all
necessary transfer taxes and other revenue stamps, acquired at the Selling
Stockholders' expense, affixed and canceled. Each Selling Stockholder shall cure
any deficiencies in the endorsement of the certificates or other documents of
conveyance respecting, or in the stock powers accompanying, the certificates
representing the shares of Company Capital Stock delivered by the Selling
Stockholders, or the Stockholders' Agent, as may be requested by IDG.
(c) No dividends or other distributions declared or earned
after the Effective Time with respect to IDG Common Stock and payable to the
holders of record thereof after the Effective Time will be paid to the holder of
any unsurrendered certificates representing shares of Company Capital Stock for
which shares of IDG Common Stock have been issued in the Merger, until those
certificates are surrendered as provided herein, but (i) on such surrender, IDG
will cause to be paid, to the Person in whose name the certificates representing
such shares of IDG Common Stock shall then be issued, (1) the amount of
dividends or other distributions previously paid to any holders of IDG Common
Stock as of the record date with respect to such whole shares of IDG Common
Stock, or which have accrued, subsequent to the Effective Time but prior to
surrender, and (2) the amount of any cash payable in lieu of fractional shares
pursuant to Section 2.06, and (ii) at the appropriate payment date or as soon as
practicable thereafter, IDG will cause to be paid to that Person the amount of
dividends or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole shares of
IDG Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to any such dividends or other
distributions on surrender of the outstanding certificates.
(d) Each Dissenting Stockholder, in lieu of receiving the
Merger Consideration as set forth on Annex 4, shall receive from the Company (or
the Surviving Corporation) the payment in respect of the shares of the Company
Capital Stock owned by such
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Dissenting Shareholder or other consideration, as required by, and in compliance
with, the GBCC or the laws of the Organization State of Company as appropriate.
2.06 FRACTIONAL SHARES. Notwithstanding any other provision herein, no
fractional shares of IDG Common Stock will be issued, and any Selling
Stockholder who otherwise would be entitled hereunder to receive a fractional
share of IDG Common Stock but for this Section 2.06 will be entitled to receive,
in lieu thereof, a cash payment for and in the amount (rounded up to the nearest
whole cent) equal to that Selling Stockholder's fractional interest in a share
of IDG Common Stock multiplied by the IPO Price.
2.07 RELATED AGREEMENTS. In connection with the Merger, each of the
parties to this Acquisition Agreement agrees to comply with the provisions of
this Section 2.07 as set forth below.
(a) Designated Inventory. The inventory set forth in Annex 5
attached hereto is hereinafter called the "Designated Inventory". With respect
to sales of Designated Inventory made after the Current Balance Sheet Date until
5:00 p.m., Eastern Time, on the second anniversary of the Closing Date, IDG will
cause the Surviving Corporation to pay the Stockholders' Agent, for the benefit
of the Selling Stockholders, 80% of the gross proceeds collected by the
Surviving Corporation from any sales of the Designated Inventory (whether such
sale or sales are made directly or through IDG or any of its Subsidiaries). All
proceeds from the sale of any Designated Inventory sold after the second
anniversary of the Closing Date shall be retained by the Surviving Corporation
and no amounts from such sales shall be owed to any of the Selling Stockholders.
The Company and the Selling Stockholders agree that IDG may use any reasonable
method to sell the Designated Inventory, including selling such inventory at a
discount or in one or more bulk sales.
(b) Guaranteed Receivables. The Selling Stockholders hereby
jointly and severally agree to the unconditional and irrevocable guarantee of
the collection in full, on or before the Receivables Determination Date, of the
gross dollar amount of the receivables set forth in Annex 6 attached hereto (the
"Guaranteed Receivables"), for the benefit of the Surviving Corporation, and
further agree to secure such guarantee with the Escrowed Shares (as defined in
paragraph (c) below). The obligations of the Selling Stockholders under this
paragraph shall be limited to such Selling Stockholder's Pro Rata Share of the
Indemnification Limit, and shall expire and be of no further effect as to any
Guaranteed Receivables remaining uncollected as of the Receivables Determination
Date for which a claim has not been made by IDG with the Selling Stockholder at
or before 5:00 p.m., Eastern Time, on or before ten business days after the
Receivables Determination Date. For purposes of determining whether any of the
Guaranteed Receivables remain uncollected at the Receivables Determination Date,
reductions to the Guaranteed Receivables resulting from the return of inventory
or other offsets (to the extent such offsets reduce any liability of the
Company) shall be considered a collection, and therefore the Surviving
Corporation shall have no claim against the Selling Stockholders to the extent
of such reduction or offset.
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(c) Escrow Account. On the Closing Date, an aggregate of
twenty-five percent (25%) of the shares of IDG Common Stock to be received by
the Selling Stockholders as part of the Merger Consideration (the "Escrowed
Shares") allocated among the Selling Stockholders, shall be deposited with the
Escrow Agent in a segregated account (the "Escrow Account") pursuant to the
Escrow Agreement for a period of up to two years from the Closing Date, for the
purpose of securing and funding part of the obligations of the Selling
Stockholders and the Company to IDG and Newco that may arise pursuant to Section
2.07(b) and Article IX hereof. The Escrowed Shares shall be held in the Escrow
Account and disbursed in accordance with the terms of the Escrow Agreement.
Notwithstanding the foregoing, the respective Selling Stockholders as the legal
owners of the Escrowed Shares, unless and until disposed of in accordance with
the terms of this Acquisition Agreement and the Escrow Agreement, shall be
entitled to exercise the voting rights and to receive any dividends or other
distributions declared and paid with respect to such shares; provided, however,
any shares of IDG Common Stock issued with respect to the Escrowed Shares as a
result of a stock dividend, share exchange, stock split, or other action in
respect of the IDG Common Stock, shall be held in the Escrow Account as
additional Escrowed Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER
3.01 REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER. Each
Selling Stockholder represents and warrants to IDG and Newco that, as applied
solely to such Selling Stockholder, all of the representations and warranties in
this Article III are, as of the date of this Acquisition Agreement, and as
amended or supplemented pursuant to Section 6.08, will be, on the Closing Date,
true and correct, and do not and will not contain or omit any disclosure that
has or will or could have a Material Adverse Effect on the Company or on the
Surviving Corporation or IDG.
3.02 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 3.03 through
3.09 of the Uniform Provisions are hereby incorporated herein by reference.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE MANAGEMENT STOCKHOLDERS
4.01 TRUTHFULNESS OF THE REPRESENTATIONS AND WARRANTIES BY THE COMPANY
AND EACH MANAGEMENT STOCKHOLDER. The Company and each Management Stockholder,
jointly and severally, represent and warrant to IDG and Newco that all of the
following representations and warranties in this Article IV are, as of the date
of this Acquisition Agreement, and as amended or supplemented pursuant to
Section 6.08, will be, on the Closing Date, true and correct, and do not
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and will not contain or omit any disclosure that has or will or could have a
Material Adverse Effect on the Company or on the Surviving Corporation or IDG.
4.02 ORGANIZATION AND CAPITALIZATION OF COMPANY. (a) The Organization
State of the Company is Georgia, and the Company (i) is a corporation duly
organized, validly existing and in good standing under the laws of that State,
(ii) has all requisite corporate power and authority under all applicable laws
and its Charter Documents to own or lease and to operate its properties and to
carry on its business as it is now conducted and (iii) is duly qualified and in
good standing as a foreign corporation in all jurisdictions in which it owns or
leases property or in which the carrying on of its business as now conducted so
requires, except where the failure to be so qualified, singularly or in the
aggregate, would not have a Material Adverse Effect.
(b) The authorized, issued, and outstanding Capital Stock of the
Company is as set forth on Schedule 4.02, and, except as set forth in such
Schedule, (i) no shares are held by the Company as treasury shares, and (ii) no
outstanding Derivative Securities of the Company exist.
4.03 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 4.04 through
4.33 of the Uniform Provisions are hereby incorporated herein by reference.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO
5.01 REPRESENTATIONS AND WARRANTIES OF IDG AND NEWCO. IDG and Newco,
jointly and severally, represent and warrant to the Company and each Selling
Stockholder that all of the following representations and warranties in this
Article V are, as of the date of this Acquisition Agreement, and will be, on the
Closing Date, true and correct.
5.02 ORGANIZATION AND CAPITAL STOCK OF NEWCO. (a) Newco is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Georgia; (b) the authorized Capital Stock of Newco is
comprised of 1,000 shares of Newco Common Stock, 100 shares of which are issued
and outstanding and owned of record and beneficially by IDG; (c) no Derivative
Securities of Newco are outstanding; (d) Newco has been organized for the sole
purpose of participating in the Merger and has not, and will not, engage in any
activities other than those necessary to effectuate the Merger; and (e) the
Newco Common Stock has been duly authorized and issued in accordance with the
GBCC and its Charter Documents, and is fully paid and non-assessable.
5.03 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 5.04 through
5.12 of the Uniform Provisions are hereby incorporated herein by reference.
Sections 5.05, 5.06, 5.09, 5.10, 511 and 5.12 are also applicable to Newco in
each instance as if the reference to IDG therein was a reference to Newco.
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ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
6.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 6.02 through
6.13 of the Uniform Provisions are hereby incorporated herein by reference. Each
party to this Acquisition Agreement, subject to the waiver provisions of Section
11.04, agrees to comply with each covenant set forth therein.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING
7.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 7.02 through
7.05 of the Uniform Provisions are hereby incorporated herein by reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
8.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 8.02 through
8.05 of the Uniform Provisions are hereby incorporated herein by reference. From
and after the Effective Time, subject to the waiver provisions of Section 11.04,
each party hereto (other than the Company) agrees to comply with each covenant
therein to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
9.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 9.02 through
9.08 of the Uniform Provisions are hereby incorporated herein by reference.
ARTICLE X
LIMITATIONS ON COMPETITION
10.01 PROHIBITED ACTIVITIES. Each Management Stockholder and each
Selling Stockholder owning five percent or more of the Company Capital Stock
(each a "Covenanting Stockholder") agrees severally, but not jointly with any
other Person, that he or she will not,
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during the period beginning on the date hereof and ending on the third
anniversary of the Closing Date, directly or indirectly, for any reason, for his
or her own account, or on behalf of, or together with, any other Person except
for, and on behalf of, the Company or any Company Subsidiary:
(a) be engaged as an officer or director or in any other
managerial or sales capacity or as an owner, co-owner or other investor of or
in, whether as an employee, independent contractor, consultant or advisor, or as
a sales representative or distributor of any kind, in a business that sells any
products or provides any services in competition with the Company, any Company
Subsidiary, or IDG or any Subsidiary of IDG (IDG and its Subsidiaries
collectively being "IDG" for purposes of this Article X) within a radius of 100
miles of each location in which any of the Company or any Company Subsidiary or
IDG was engaged in the Business on the date hereof or on the Closing Date (those
locations collectively being the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary, or IDG in any managerial or sales capacity
with the purpose or intent of attracting that person from the employ of the
Company, any Company Subsidiary, or IDG;
(c) call on any Person who at that time is, or at any time
within one year prior to that time was, a customer of the Company, any Company
Subsidiary, or IDG within the Territory, of whom the Covenanting Stockholder had
knowledge, and contact with, that customer relationship, for the purpose of
soliciting or selling any product or service in competition with the Company,
any Company Subsidiary, or IDG within the Territory; or
(d) call on any IDG Acquisition Candidate, with the knowledge
of that Person's status as an IDG Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any Person
other than IDG.
Notwithstanding the foregoing, any Covenanting Stockholder may own and
hold as a passive investment up to one percent (1%) of the outstanding Capital
Stock of a competing Entity if that class of Capital Stock is listed for trading
or quotation on a national or regional stock exchange registered with the SEC or
on The Nasdaq National Stock Market.
10.02 DAMAGES. Because of the difficulty in measuring the economic
losses that may be incurred by IDG as a result of any breach by a Covenanting
Stockholder of his or her covenants in Section 10.01, and because of the
immediate and irreparable damage that could be caused to IDG for which it would
have no other adequate remedy, each Covenanting Stockholder agrees that IDG may
enforce the provisions of Section 10.01 by any equitable or legal means,
including seeking an appropriate injunction or restraining order against that
Covenanting Stockholder if a breach of any of those provisions occurs.
10.03 REASONABLE RESTRAINT. The parties hereto each agree that Sections
10.01 and 10.02 impose a reasonable restraint on the Covenanting Stockholders in
light of the activities and Business of the Company on the date hereof, the
current business plans of IDG as a result of its
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proposed acquisitions of the Company and the Other Founding Companies (of which
each Covenanting Stockholder acknowledges that he or she is aware), and the
consideration to be received by each Covenanting Stockholder from IDG as a
result of the Merger.
10.04 SEVERABILITY; REFORMATION. The covenants in this Article X are
severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time, or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Covenanting
Stockholder, the parties hereto, including that Covenanting Stockholder,
acknowledge their mutual intention and agreement that those restrictions be
enforced to the fullest extent the court deems reasonable, and thereby shall be
reformed to that extent as applied to that Covenanting Stockholder or any other
Covenanting Stockholder similarly situated.
10.05 INDEPENDENT COVENANT. All of the covenants in this Article X are
intended by each party hereto to be, and shall be construed as, an agreement
independent of any other provision in this Acquisition Agreement, and the
existence of any claim or cause of action of any Covenanting Stockholder against
IDG, whether predicated on this Acquisition Agreement or otherwise, shall not
constitute a defense to the enforcement by IDG of any covenant in this Article
X. It is specifically agreed that the period specified in Section 10.01 shall be
computed in the case of each Covenanting Stockholder by excluding from that
computation any time during which that Covenanting Stockholder is in violation
of any provision of Section 10.01. The covenants contained in this Article X
shall not be affected by any breach of any other provision hereof by any party
hereto.
10.06 MATERIALITY. The Company and each Covenanting Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
11.01 RESTRICTIONS ON TRANSFER OF IDG COMMON STOCK. (a) During the
two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Selling Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, or otherwise dispose of (A) any shares of IDG Common Stock
received by any Selling Stockholder in the Merger or (B) any interest in
(including any option to buy or sell unless such option is not exercisable until
after expiration of the Restricted Period) any of those shares of IDG Common
Stock, in whole or in part, and IDG will have no obligation to, and shall not,
treat any such attempted transfer as effective for any purpose; or (ii) engage
in any transaction, whether or not with respect to any shares of IDG Common
Stock or any interest therein, the intent or effect of which is to reduce the
risk of owning the shares of IDG Common Stock acquired pursuant to Section 2.04
(including, for example, engaging in put, call, short-sale, straddle or similar
market transactions);
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provided, however, that this Section 11.01 shall not restrict any transfer of
IDG Common Stock acquired by a Selling Stockholder pursuant to Section 2.04 to
any of that Selling Stockholder's Related Persons who agree in writing to be
bound by the provisions of this Section 11.01. The certificates evidencing the
shares of IDG Common Stock delivered to each Selling Stockholder, or the
Stockholders' Agent as the case may be, pursuant to Section 2.05 will bear a
legend substantially in the form set forth below and containing such other
information as IDG may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION DATED JUNE 27, 1997 AMONG THE ISSUER, THE HOLDER OF THIS
CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON _____________, 1999 (THE "RESTRICTED
PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
PLACED WITH THE TRANSFER AGENT) AFTER THE EXPIRATION OF THE RESTRICTED
PERIOD.
(b) Each Selling Stockholder, severally and not jointly with
any other Person, (i) acknowledges that the shares of IDG Common Stock to be
delivered to that Selling Stockholder, or the Stockholders' Agent, as the case
may be, pursuant to Section 2.04 have not been, and will not be, registered
under the Securities Act, and therefore may not be resold by that Selling
Stockholder without being in compliance with the Securities Act or an exemption
thereof, and (ii) covenants that none of the shares of IDG Common Stock issued
to that Selling Stockholder pursuant to Section 2.04 will be offered, sold,
assigned, transferred or otherwise disposed of except upon full compliance with
all the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of IDG Common Stock issued pursuant to Section
2.04 will bear substantially the following legend in addition to the legend
prescribed by Section 11.01(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE SECURITIES
LAWS, HAVE BEEN ISSUED PURSUANT TO AND UNDER ONE OR MORE EXEMPTIONS
THERETO, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, OR
DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE
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<PAGE> 23
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
In addition, certificates evidencing shares of IDG Common Stock issued pursuant
to Section 2.04 to each Selling Stockholder will bear any legend required by the
securities or blue sky laws of the state in which that Stockholder resides.
11.02 BROKERS AND AGENTS. Except with respect to the retention and
remuneration of Barth Smith Company, the Company and the Selling Stockholders
jointly and severally represent and warrant to IDG and Newco that the Company
has not directly or indirectly employed or become obligated to pay any broker or
similar agent in connection with the transactions contemplated hereby, and
agree, without regard to the Threshold Amount limitations set forth in Article
IX, to indemnify IDG and Newco against all Damage Claims arising out of claims
for any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
11.03 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Acquisition
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of IDG and Newco, and the heirs and legal
representatives of the Selling Stockholders (and, in the case of any trust, the
successor trustees of that trust). Neither this Acquisition Agreement nor any
other Transaction Document is intended, or shall be construed, deemed, or
interpreted, to confer on any Person not a party hereto or thereto any rights or
remedies hereunder or thereunder, except as provided in Section 6.05(b) or
11.13, or Article IX, or as otherwise expressly provided herein or therein.
11.04 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Acquisition Agreement
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among the Selling Stockholders, the Company, Newco, and IDG and
supersede all prior agreements and understandings, both written and oral,
relating to the subject matter of this Acquisition Agreement. This Acquisition
Agreement may be amended, modified, or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement, or waiver
is in writing and signed by the party to be bound thereby, and in the case of
each Selling Stockholder, the Stockholders' Agent or such Selling Stockholder.
The waiver of any of the terms and conditions hereof shall not be construed or
interpreted as, or deemed to be, a waiver of any other term or condition hereof.
11.05 COUNTERPARTS. This Acquisition Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
11.06 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, (a) IDG will pay the fees, expenses, and disbursements of IDG and
Newco and their Representatives that are incurred in connection with the subject
matter of this Acquisition Agreement and any amendments thereto, including all
costs and expenses incurred in the performance of and compliance with all
conditions to be performed by IDG and Newco under
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<PAGE> 24
this Acquisition Agreement, including the costs of preparing the Registration
Statement, (b) the Stockholders will pay from personal funds, and not from funds
of the Company or any Company Subsidiary, all sales, use, transfer, and other
similar taxes and fees (collectively, "Transfer Taxes") incurred in connection
with the transactions contemplated hereby, and (c) the Company will pay the
fees, expenses, and disbursements of Counsel for the Company incurred in
connection with the subject matter of this Acquisition Agreement and the
Registration Statement on or before the Closing Date. Notwithstanding the
foregoing, and in addition thereto, the parties hereto acknowledge that the
Company and IDG are parties to a certain Letter of Intention and Expense Sharing
Commitment dated as of February 20, 1997 and agree that such agreement shall
continue to be effective with respect to the obligations of the Company to IDG
to pay or reimburse certain expenses incurred by IDG in connection with its
pursuit of the IPO and the transactions contemplated hereunder.
The Selling Stockholders will file all necessary documentation and
Returns with respect to all Transfer Taxes. In addition, each Selling
Stockholder acknowledges that he or she, and not the Company or IDG or the
Surviving Corporation, will pay all Taxes, if any, due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
11.07 NOTICES. All notices required or permitted hereunder shall be in
writing, and shall be deemed to be delivered and received (a) if personally
delivered or, if delivered by telegram, facsimile, or courier service, when
actually received by the party to whom notice is sent (or upon confirmation of
receipt received by the sender), or (b) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may designate
by written notice to all other parties in accordance herewith):
(i) if to IDG or Newco:
Industrial Distribution Group, Inc.
2500 Royal Place
Tucker, Georgia 30084
Attn.: Chief Executive Officer
Facsimile No.: (770) 938-7311
Telephone No.: (770) 243-4042
with copies (which shall not constitute notice for purposes of
this Acquisition Agreement) to:
Kilpatrick Stockton LLP
1100 Peachtree Street
Atlanta, Georgia 30309
Attn.: W. Randy Eaddy, Esq.
Facsimile No.: (404) 815-6555
Telephone No.: (404) 815-6587
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<PAGE> 25
(ii) if to a Selling Stockholder, to the address set forth
with respect to such Selling Stockholder in Annex 4; and
(iii) if to the Company:
Industrial Distribution Group, Inc.
2500 Royal Place
Tucker, Georgia 30084
Attn: Douglass C. Smith
Facsimile No.: (770) 938-7311
Telephone No.: (770) 243-4042
with copies (which shall not constitute notice for purposes of
this Acquisition Agreement) to:
Watson/Minkin & Snyder
One Buckhead Plaza, Suite 1100
3060 Peachtree Road
Atlanta, Georgia 30305
Attn.: Aaron Watson, Esq.
Facsimile No.: (404) 233-5824
Telephone No.: (404) 261-8000
11.08 GOVERNING LAW. THIS ACQUISITION AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF GEORGIA
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
11.09 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay or omission in the exercise of any right, power, or remedy
accruing to any party hereto as a result of any breach or default hereunder by
any other party hereto shall impair any such right, power, or remedy, nor shall
it be construed, deemed, or interpreted as a waiver of or acquiescence in any
such breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be construed, deemed, or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
11.10 TIME. Time is of the essence in the performance of this
Acquisition Agreement in all respects.
11.11 REFORMATION AND SEVERABILITY. If any provision of this
Acquisition Agreement is invalid, illegal, or unenforceable, that provision
shall, to the extent possible, be modified in such manner as to be valid, legal,
and enforceable and so as to most nearly retain the intent of the parties hereto
as expressed herein, and if such a modification is not possible, that provision
shall
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be severed from this Acquisition Agreement, and in either case the validity,
legality, and enforceability of the remaining provisions of this Acquisition
Agreement shall not in any way be affected or impaired thereby.
11.12 REMEDIES CUMULATIVE. No right, remedy, or election given by any
term of this Acquisition Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies, and elections available at law or in
equity.
11.13 AGREEMENTS RESPECTING THE IPO. Each of the Company and the
Selling Stockholders acknowledges and agrees that: (a) no firm commitment,
binding agreement, or promise or other assurance of any kind, whether express or
implied, oral or written, exists at the date hereof that the Registration
Statement will become effective or that the IPO will occur at a particular price
or within a particular range of prices or will occur at all; (b) neither IDG nor
any of its Representatives nor any prospective underwriters in the IPO will have
any liability to the Company, the Stockholders, or any of their respective
Affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that IDG will use its reasonable best
efforts to cause the Registration Statement to become effective prior to October
31, 1997) or (ii) the IPO to occur at a particular price or within a particular
range of prices or to occur at all; and (c) the decision of the Selling
Stockholders to enter into this Acquisition Agreement, or to vote in favor of or
consent to the Merger, as the case may be, has been made independent of, and
without reliance on, any statements, opinions, or other communications of, or
due diligence investigations that have been or will be made or performed by, any
prospective underwriter relative to IDG or the IPO.
11.14 TREATMENT OF CONFIDENTIAL INFORMATION. (a) Each of the Company
and the Selling Stockholders, severally and not jointly with any other Person,
acknowledges that it, he or she has or may have had in the past, and in the
future may have, access to Confidential Information of the Company and the
Company Subsidiaries, the Other Founding Companies and their Subsidiaries, and
IDG and its Subsidiaries. Each of the Company and the Stockholders, severally
and not jointly with any other Person, agrees that it, he or she will keep
confidential all such Confidential Information and, except with the specific
prior written consent of IDG, will not disclose such Confidential Information to
any Person except: (i) Representatives of IDG, (ii) its own Representatives,
provided that such Representatives (other than counsel) agree to the
confidentiality provisions of this Section 11.14. Confidential Information shall
not include (A) such information that becomes known to the public generally
through no fault of any Selling Stockholder, (B) information required to be
disclosed by law or the order of any Governmental Authority under color of law,
provided that prior to disclosing any information pursuant to this clause (B),
each Selling Stockholder shall, if possible, give prior written notice thereof
to IDG and provide IDG with the opportunity to contest such disclosure, or (C)
such information that the disclosing party reasonably believes the disclosure of
which is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by any Selling
Stockholder of the provisions of this Section 11.14 with respect to any
Confidential Information, IDG shall be entitled to an injunction restraining
such Selling Stockholder from disclosing, in whole or in part, that Confidential
Information. Nothing herein shall be construed
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<PAGE> 27
as prohibiting IDG from pursuing any other remedy available at law or in equity
for such breach or threatened breach, including the recovery of Damages.
(b) Because of the difficulty of measuring the economic loss
that may be incurred by IDG, the Surviving Company, or any IDG Subsidiary as a
result of the breach of the covenants in Section 11.14(a), and because of the
immediate and irreparable damage that would be caused to IDG and its
Subsidiaries for which it would have no other adequate remedy, each of the
Company and the Selling Stockholders agrees that IDG may enforce the provisions
of Section 11.14(a) by injunctions and restraining orders against each of them
who breaches any of those provisions.
(c) The obligations of IDG set forth in Section 6.02(d) are
incorporated in this Section 11.14 by this reference.
(d) The obligations of the parties under this Section 11.14
shall survive the termination of this Acquisition Agreement.
ARTICLE XII
TERMINATION
12.01 TERMINATION OF THIS ACQUISITION AGREEMENT. (a) This
Acquisition Agreement may be terminated at any time prior to the Closing solely:
(i) by the mutual written consent of IDG and the Company;
(ii) by the Selling Stockholders and the Company, on the one
hand, or by IDG, on the other hand, if the conditions to Closing in Section 7
have not either been satisfied or waived and the transactions contemplated by
this Acquisition Agreement to take place at the Closing shall not have been
consummated by December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case of the
Selling Stockholders and the Company, any of them) seeking to terminate this
Acquisition Agreement to perform or adhere to any agreement required hereby to
be performed or adhered to by such party prior to or at the Closing or on the
Closing Date;
(iii) by the Selling Stockholders and the Company, on the one
hand, or by IDG, on the other hand, if a material breach or default shall be
made by the other party (or in the case of the Selling Stockholders and the
Company, any of them) in the observance or in the due and timely performance of
any of the covenants, agreements or conditions contained herein and such breach
or default shall not have been cured by the breaching or defaulting party or
parties within ten (10) days after notice of such breach or default is provided
thereto; or
(iv) by IDG if it is entitled to do so as provided in Section
6.08.
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(b) If this Acquisition Agreement is terminated pursuant to
this Section 12.01, the Merger will be deemed for all purposes to have been
abandoned and of no force or effect. If this Acquisition Agreement is terminated
pursuant to this Section 12.01 after the Certificate of Merger has been filed
with the Secretary of State of the State of Georgia and the appropriate filing
office of the Organization State of the Company, but before the IPO has been
consummated, IDG will take all actions that Counsel for the Company and the
Selling Stockholders advise IDG are required by the applicable laws of the State
of Georgia and the Organization State of the Company in order to rescind the
Merger.
12.02 LIABILITIES IN EVENT OF TERMINATION. If this Acquisition
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.06 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Acquisition Agreement.
ARTICLE XIII
POWER OF ATTORNEY
13.01 APPOINTMENT OF STOCKHOLDERS' AGENT. The Selling Stockholders, and
each of them, hereby irrevocably constitute and appoint Douglass C. Smith with
an address at 1894 Breckenridge Drive, Atlanta, Georgia 30345 (the
"Stockholders' Agent") as their agent and attorney-in-fact to modify, amend, or
otherwise change this Acquisition Agreement, or any of its terms or provisions
(including modifications, amendments, or changes subsequent to Closing), to take
all actions and to execute all documents (including all actions and documents
required under Article VII hereof) necessary or desirable to consummate the
transactions contemplated by this Acquisition Agreement, to tender their shares
of Company Capital Stock pursuant to this Acquisition Agreement and to accept
the Merger Consideration in connection therewith and to take all actions, to
execute all documents that may be necessary or desirable in connection therewith
(including, without limitation, delivery of the certificates for their shares of
Company Capital Stock and execution of such powers of attorney or other
instruments as may be necessary to comply with this Acquisition Agreement), to
give and receive consents and all notices hereunder, to negotiate and settle
claims for indemnification under Article IX hereof, and to perform any other act
arising under or pertaining to this Acquisition Agreement and the transactions
contemplated hereby. The Selling Stockholders, and each of them, agree that
service of process upon the Stockholders' Agent in any action or proceeding
arising under or pertaining to this Acquisition Agreement shall be deemed to be
valid service of process upon the Selling Stockholders, and any claim by IDG or
Newco against the Selling Stockholders, or any of them, in respect to this
Acquisition Agreement may be asserted against, and settled with, said
Stockholders' Agent. The Stockholders' Agent shall be deemed to have accepted
the appointment herein upon his execution of this Acquisition Agreement.
13.02 LIABILITY OF AGENT. Nothing contained herein shall be deemed to
make the Stockholders' Agent personally liable to the Selling Stockholders
because of service in his
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capacity as agent and attorney-in-fact. In performing any of his duties
hereunder, the Stockholders' Agent shall not incur any liability to the Selling
Stockholders for losses, damages, liabilities, or expenses, except for his own
willful or intentional default.
13.03 SUCCESSION. In the event of the death, disability, incompetency,
or resignation of the original Stockholders' Agent, the successor agent shall be
Charles A. Lingenfelter. In the event of the death, disability, incompetency, or
resignation of any successor Stockholders' Agent, the Selling Stockholders
shall, within 30 days after notice from IDG and designate a successor
Stockholders' Agent, determined by simple majority vote, who shall have all of
the rights, powers, and authority conferred and limitation on personal liability
provided by, this Article XIII, and if the Stockholders fail to designate such
successor Stockholders' Agent within such period, IDG may petition a court of
appropriate jurisdiction for appointment of a successor Stockholders' Agent.
13.04 IRREVOCABLE; BINDING ON SUCCESSORS, ETC. It is expressly
understood and agreed that the power of attorney and agency created by this
Article XIII is coupled with an interest of the respective parties hereto and
shall be binding and enforceable on and against the respective heirs, personal
representatives, successors and assigns of the Selling Stockholders, and each of
them, and the same shall not be revoked or terminated by the death, disability,
bankruptcy, or incompetency of the Selling Stockholders, or any of them, but
shall continue to be binding and enforceable by the Stockholders' Agent, IDG and
Newco, and their respective successors and on and against the heirs, personal
representatives, and successors and assigns of the Stockholders in the manner
provided herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have executed this
Acquisition Agreement as of the date first above written.
INDUSTRIAL DISTRIBUTION GROUP, INC., A
DELAWARE CORPORATION
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
IDG ACQUISITION COMPANY I, INC.
By:
-----------------------------------
Douglass C. Smith
President
INDUSTRIAL DISTRIBUTION GROUP, INC., A
GEORGIA CORPORATION
By:
-----------------------------------
Charles A. Lingenfelter
Executive Vice President
[signatures continued on next page]
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<PAGE> 31
SELLING STOCKHOLDERS:
-----------------------------------
DOUGLASS C. SMITH
-----------------------------------
J. SMITH LANIER, II
-----------------------------------
VIRGINIA G. SMITH
-----------------------------------
SUE C. SMITH
-----------------------------------
CHARLES A. LINGENFELTER
-----------------------------------
ANN M. LANIER
-----------------------------------
JOHN H. MORGAN
-----------------------------------
MAUDE SIMPSON GARDNER BAGGETT
-----------------------------------
PAULA S. REEVES
-----------------------------------
REBECCA B. MALLORY
-----------------------------------
ALVIS J. WAITE
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EXHIBIT 10.3
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Acquisition
Agreement") is made as of July ___, 1997, by and among INDUSTRIAL DISTRIBUTION
GROUP, INC., a Delaware corporation ("IDG"), and the persons listed on the
signature pages hereof under the caption "Selling Stockholders."
PRELIMINARY STATEMENT
The Selling Stockholders own all of the issued and outstanding shares
of capital stock of Associated Suppliers, Inc., an Oregon corporation (the
"Company"). The Company is a distributor that provides flexible procurement
solutions, products and services to industrial users that have production and
maintenance, repair, operating, and production supply requirements (the
"Business"). IDG is a newly formed Delaware corporation created for the
purpose of acquiring and consolidating a number of companies that are in a
similar line of business as the Company. As part of the consolidation
undertaken by IDG, the parties to this Acquisition Agreement have determined
that it is in their respective best long- term interests to enter this
Acquisition Agreement and other business combinations pursuant to which:
(a) IDG will purchase, and each of the Selling
Stockholders will sell, pursuant to the terms of this Acquisition
Agreement, all of the capital stock of the Company (the "Purchased
Shares") to IDG (the "Stock Acquisition");
(b) IDG will acquire the stock of all or some of the
entities listed in Annex 2 (each, other than the Company, an "Other
Founding Company" and, collectively with the Company, the "Founding
Companies") pursuant to agreements that (i) provide for the
acquisition of the Founding Companies by IDG and (ii) are entered into
among those entities and their equity owners, IDG and wholly owned
subsidiaries of IDG (collectively, the "Companion Agreements"); and
(c) IDG shall, contemporaneously with the effectiveness
of the Stock Acquisition, effect a public offering of a portion of the
shares of its common stock and issue and sell those shares as
contemplated in this Acquisition Agreement.
The parties to this Acquisition Agreement intend that the Stock
Acquisition be deemed a reorganization within the provisions of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, the parties
hereto hereby agree as follows:
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<PAGE> 2
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms
have the meanings assigned to them below in this Section 1.01. Capitalized
terms used herein and not defined in Section 1.01 have the meanings assigned to
them in Section 1.02 of Article I of Annex 1: "Industrial Distribution Group,
Inc. Uniform Provisions for the Acquisition of Founding Companies" (the
"Uniform Provisions"), the text of which is hereby incorporated herein by
reference. References to sections not found herein are to sections in the
Uniform Provisions.
"ACQUISITION AGREEMENT" means Agreement and Plan of Reorganization,
including the Disclosure Statement relating hereto and all attached Annexes and
Exhibits, as each of the same may be amended, modified or supplemented from
time to time pursuant to the provisions hereof or thereof.
"ACQUISITION CONSIDERATION" has the meaning set forth in Section 2.04.
"ACQUISITION TRANSACTION" means the Stock Acquisition, and any
ancillary transactions contemplated to be consummated in accordance herewith.
"BALANCE SHEET DATE" means December 31, 1996.
"BUSINESS" has the meaning set forth in the first paragraph of the
Preliminary Statement.
"CAPITAL STOCK" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"CERTIFICATE OF MERGER" means (a) if an Entity is a Georgia
corporation, the certificate of merger respecting a merger that contains the
information required by the GBCC to effectuate such merger; and (b) if an
Entity's Organization State is not Georgia, the articles or certificate of
merger or other documents respecting such merger that contains the information
required by the GBCC and the laws of such Entity's Organization State to
effectuate such merger.
"CHARTER DOCUMENTS" means, with respect to any Entity at any time, in
each case as amended, modified and supplemented at that time, the articles or
certificate of formation, incorporation or organization (or the equivalent
organizational documents) of that Entity, (b) the bylaws, operating agreement,
trust indenture or regulations (or the equivalent governing documents) of that
Entity and (c) each document setting forth the designation, amount and relative
rights, limitations and preferences of any class or series of that Entity's
Capital Stock or of any rights in respect of that Entity's Capital Stock.
"CLOSING" has the meaning set forth in Section 7.02 of the Uniform
Provisions.
"CLOSING DATE" has the meaning set forth in Section 7.02 of the
Uniform Provisions, which shall be the same date as the IPO Closing Date.
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<PAGE> 3
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by IDG for the Closing under this Acquisition Agreement in which are
included the forms of certificates of officers, the opinions of counsel, and
certain other documents to be delivered at the Closing as provided in Article
VII.
"COMPANION AGREEMENTS" has the meaning set forth in the Preliminary
Statement.
"COMPANY" means Associated Suppliers, Inc., an Oregon corporation.
"COMPANY CAPITAL STOCK" means the common stock, no par value per
share, of the Company.
"COMPANY SUBSIDIARY" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"CONFIDENTIAL INFORMATION" means, with respect to any Person, all
trade secrets and other confidential, nonpublic and/or proprietary information
of that Person, including information derived from reports, investigations,
research, work in progress, codes, marketing and sales programs, capital
expenditure projects, cost summaries, pricing formulae, contract analyses,
financial information, projections, confidential filings with any Governmental
Authority and all other confidential, nonpublic concepts, methods of doing
business, ideas, materials or information prepared or performed for, by or on
behalf of that Person.
"CONSOLIDATED COMPANIES" means Company and its wholly owned
subsidiaries, Davis Industrial Products Co., an Oregon corporation, Tri-State
Industrial Supply Co., a Washington corporation, Supplies for Industry, Inc., a
Washington corporation, Mining & Construction Suppliers, Inc., an Arizona
corporation, Factory Tool Outlet, Inc., an Oregon corporation, and its fifty
percent owned subsidiary, Herramientas Y Servicios USAMEX.
"COUNSEL FOR IDG" means Kilpatrick Stockton LLP, Atlanta, Georgia.
"COUNSEL FOR THE COMPANY" means Bayless, Stiner & Murphy, Portland,
Oregon.
"COVENANTING STOCKHOLDER" has the meaning set forth in Section 10.01.
"CURRENT BALANCE SHEET" means the unaudited consolidated balance sheet
of the Consolidated Companies as at the Current Balance Sheet Date.
"CURRENT BALANCE SHEET DATE" means March 31, 1997.
"DERIVATIVE SECURITIES" has the meaning set forth in Section 1.02 of
the Uniform Provisions.
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"DISCLOSURE STATEMENT" means the Schedules and a written statement
executed by the Company and each of the Selling Stockholders and delivered to
IDG prior to the execution and delivery of this Acquisition Agreement by IDG
and Newco in which either (a) exceptions are taken to representations and
warranties made by the Company and the Selling Stockholders herein or (b) it is
confirmed that no exception is taken to such representations and warranties.
"EFFECTIVE TIME" has the meaning set forth in Section 2.02.
"EMPLOYMENT AGREEMENT" means the employment agreement to be entered
into as of the Closing Date between William J. Janner and IDG, which shall be
substantially in the form of Exhibit B attached hereto.
"ENTITY" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"ESCROW ACCOUNT" has the meaning set forth in Section 2.07(c).
"ESCROW AGENT" means SunTrust Bank, N.A., Atlanta, Georgia.
"ESCROW AGREEMENT" means the escrow agreement to be entered into on
the Closing Date by and among IDG, the Selling Stockholders, and the Escrow
Agent, which shall be substantially in the form of Exhibit A attached hereto.
"ESCROWED SHARES" has the meaning set forth in Section 2.07(c).
"FOUNDING COMPANIES" has the meaning set forth in the Preliminary
Statement.
"GBCC" means the Georgia Business Corporation Code, O.C.G.A. Section
Section 14-2-101, et. seq.
"GUARANTEED RECEIVABLES" has the meaning set forth in Section 2.07(b).
"IDG" means Industrial Distribution Group, Inc., a Delaware
corporation.
"IDG ACQUISITION CANDIDATE" means any Entity engaged in any of the
businesses of providing flexible procurement solutions, products and services
to industrial users that have production and maintenance, repair and operating
supplies requirements which either the Company or IDG or any of their
Subsidiaries (i) have entered into discussions regarding a possible acquisition
or (ii) have performed an acquisitions analysis with respect to any possible
acquisition.
"IDG COMMON STOCK" means the common stock, par value $.01 per share,
of IDG.
"IMMEDIATE FAMILY MEMBER" has the meaning set forth in Section 1.02 of
the Uniform Provisions.
"INDEMNIFICATION LIMIT" has the meaning set forth in Section 9.07(a).
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"IPO PRICE" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"MANAGEMENT STOCKHOLDERS" means those Selling Stockholders set forth
in Annex 7.
"ORGANIZATION STATE" has the meaning set forth in Section 1.02 of the
Uniform Provisions.
"OTHER FOUNDING COMPANIES" has the meaning set forth in the
Preliminary Statement.
"PRO RATA SHARE" means, for each Selling Stockholder, the fraction
expressed as a percentage the numerator of which is the number of shares of
outstanding Company Capital Stock owned by that Selling Stockholder and the
denominator of which is the total number of shares of outstanding Company
Capital Stock owned by all Stockholders, as of the Closing Date.
"PURCHASED SHARES" has the meaning set forth in the Preliminary
Statement.
"RECEIVABLES DETERMINATION DATE" shall mean the date that is the first
anniversary of the Closing Date.
"RESTRICTED PERIOD" has the meaning set forth in Section 11.01.
"RETURNS" has the meaning set forth in Section 1.02 of the Uniform
Provisions.
"SCHEDULES" shall mean those certain disclosures made by the Company,
the Stockholders, or IDG containing such information, as appropriate, relating
to the representations and warranties made by the respective party as set forth
in the Disclosure Statement.
"SELLING STOCKHOLDERS" shall mean all Persons holding record title to
any of the shares of the Company Capital Stock, as reflected on the books and
records of the Company as of the date hereof.
"STOCK ACQUISITION" has the meaning set forth in the Preliminary
Statement.
"STOCKHOLDERS" means collectively the Selling Stockholders.
"STOCKHOLDERS' AGENT" has the meaning set forth in Section 13.01.
"STOCK INCENTIVE PLAN" means the IDG Stock Incentive Plan adopted or
to be adopted by the directors and shareholders of IDG on or prior to the
Closing Date, substantially in the form of Exhibit C attached hereto.
"TERRITORY" has the meaning set forth in Section 10.01(a).
"THRESHOLD AMOUNT" means 2% of the Indemnification Limit.
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"TRANSACTION VALUE" means the value expressed in dollars resulting as
the product of (a) the aggregate number of shares of IDG Common Stock
designated as Acquisition Consideration and allocated to the Selling
Stockholders, multiplied by (b) the IPO Price, as discounted by 25%.
"TRANSFER TAXES" has the meaning set forth in Section 11.06.
"UNIFORM PROVISIONS" has the meaning set forth in the first paragraph
of this Section 1.01.
ARTICLE II
THE STOCK ACQUISITION; RELATED MATTERS; AND RELATED AGREEMENTS
2.01 SALE AND TRANSFER OF THE PURCHASED SHARES. Subject to the
terms and conditions set forth herein, each Selling Stockholder shall sell to
IDG, and IDG shall purchase from such Selling Stockholder, on the Closing Date,
the number of Purchased Shares set forth opposite the name of such Selling
Stockholder on Annex 4 hereof.
2.02 THE EFFECTIVE TIME. The effective time of the Stock
Acquisition (the "Effective Time") will be the time on the Closing Date that
the mergers provided for in the Companion Agreements become effective.
2.03 AGREEMENTS REGARDING COMPANY. At and as of the Effective
Time:
(a) the initial board of directors of the Company will be
modified to consist of the persons named in Annex 3, each of whom will hold the
office of director of the Surviving Corporation subject to the provisions of
the laws of the Organization State of the Company; and
(b) the initial officers of the Company will be as set forth
in Annex 3, each of whom will serve in such office, subject to the provisions
of the laws of the Organization State of the Company, until that person's
successor is duly elected to, and, if necessary, qualified for, that office.
2.04 PURCHASE PRICE. In full consideration for the purchase by IDG
of the Purchased Shares, IDG shall pay to the Selling Stockholders the number
of shares of IDG Common Stock, and the amount of cash (if any), as provided in
Annex 4 (the "Acquisition Consideration").
2.05 DELIVERY, EXCHANGE, AND PAYMENT. (a) At the Closing on the
Closing Date each Selling Stockholder, shall deliver to IDG (or any agent that
may be appointed by IDG for purposes of this Section 2.05) any and all
certificates representing the Purchased Shares held by such Selling
Stockholder, and each Selling Stockholder shall, subject to the provisions of
Sections 2.05, 2.06 and 2.07(c), be entitled to receive the Acquisition
Consideration.All shares
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of IDG Common Stock issuable in the Stock Acquisition will be deemed for all
purposes to have been issued by IDG at the Effective Time. Notwithstanding the
foregoing, the Stockholders' Agent may, at the instruction of any of the
Selling Stockholders, surrender the shares of Company Capital Stock of such
Selling Stockholders to IDG and receive the Acquisition Consideration on behalf
of such Selling Stockholders, subject to the provisions of Sections 2.05, 2.06
and 2.07 (c).
(b) Each Selling Stockholder, or the Stockholders' Agent,
will deliver to IDG (or any agent that may be appointed by IDG for purposes of
this Section 2.05), on or before the Closing Date, the certificates
representing the Purchased Shares owned by the Selling Stockholder, duly
endorsed in blank, or accompanied by duly executed stock powers in blank, and
with all necessary transfer taxes and other revenue stamps, acquired at the
Selling Stockholders' expense, affixed and canceled. Each Selling Stockholder
shall cure any deficiencies in the endorsement of the certificates or other
documents of conveyance respecting, or in the stock powers accompanying, the
certificates representing the Purchased Shares delivered by the Selling
Stockholders, or the Stockholders' Agent, as may be requested by IDG.
(c) All dividends or other distributions declared or
earned after the Effective Time with respect to IDG Common Stock and payable to
the holders of record thereof after the Effective Time will be paid to the
Selling Stockholders irrespective of whether the shares of IDG Common Stock due
to such Selling Stockholders have been delivered thereto. No interest will be
payable with respect to any such dividends or other distributions on delivery
of the outstanding certificates.
2.06 FRACTIONAL SHARES. Notwithstanding any other provision herein,
no fractional shares of IDG Common Stock will be issued, and any Selling
Stockholder who otherwise would be entitled hereunder to receive a fractional
share of IDG Common Stock but for this Section 2.06 will be entitled to
receive, in lieu thereof, a cash payment for and in the amount (rounded up to
the nearest whole cent) equal to that Selling Stockholder's fractional interest
in a share of IDG Common Stock multiplied by the IPO Price.
2.07 RELATED AGREEMENTS. In connection with the Stock Acquisition,
each of the parties to this Acquisition Agreement agrees to comply with the
provisions of this Section 2.07 as set forth below.
(a) [INTENTIONALLY OMITTED]
(b) Guaranteed Receivables. The Selling Stockholders hereby
jointly and severally agree to the unconditional and irrevocable guarantee of
the collection in full, on or before the Receivables Determination Date, of the
gross dollar amount of the receivables set forth in Annex 6 attached hereto
(the "Guaranteed Receivables"), for the benefit of the Company, and further
agree to secure such guarantee with the Escrowed Shares (as defined in
paragraph (c) below). The obligations of the Selling Stockholders under this
paragraph shall be limited to such Selling Stockholder's Pro Rata Share of the
Indemnification Limit, and shall expire and be of no further effect as to any
Guaranteed Receivables remaining uncollected as of the Receivables
Determination Date for which a claim has not been made by IDG before 5:00 p.m.,
Eastern Time, on or before ten business days after the Receivables
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Determination Dates. For purposes of determining whether any of the Guaranteed
Receivables remain uncollected at the Receivables Determination Date,
reductions to the Guaranteed Receivables resulting from the return of inventory
or other offsets (to the extent such offsets reduce any liability of the
Company) shall be considered a collection, and therefore IDG, for the benefit
of the Company, shall have no claim against the Selling Stockholders to the
extent of such reduction or offset.
(c) Escrow Account. On the Closing Date, an aggregate of
twenty-five percent (25%) of the shares of IDG Common Stock to be received by
the Selling Stockholders as part of the Acquisition Consideration (the
"Escrowed Shares"), allocated among the Selling Stockholders as set forth in
Annex 4, shall be deposited with the Escrow Agent in a segregated account (the
"Escrow Account") pursuant to the Escrow Agreement for a period of up to two
years from the Closing Date, for the purpose of securing and funding part of
the obligations of the Selling Stockholders and the Company to IDG that may
arise pursuant to Section 2.07(b) and Article IX hereof. The Escrowed Shares
shall be held in the Escrow Account and disbursed in accordance with the terms
of the Escrow Agreement. Notwithstanding the foregoing, the respective Selling
Stockholders as the legal owners of the Escrowed Shares, unless and until
disposed of in accordance with the terms of this Acquisition Agreement and the
Escrow Agreement, shall be entitled to exercise the voting rights and to
receive any dividends or other distributions declared and paid with respect to
such shares; provided, however, any shares of IDG Common Stock issued with
respect to the Escrowed Shares as a result of a stock dividend, share exchange,
stock split, or other action in respect of the IDG Common Stock, shall be held
in the Escrow Account as additional Escrowed Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER
3.01 REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER.
Each Selling Stockholder represents and warrants to IDG that, as applied solely
to such Selling Stockholder, all of the representations and warranties in this
Article III are, as of the date of this Acquisition Agreement, and as amended
or supplemented pursuant to Section 6.08, will be, on the Closing Date, true
and correct, and do not and will not contain or omit any disclosure that has or
will or could have a Material Adverse Effect on the Company or IDG.
3.02 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 3.03
through 3.09 of the Uniform Provisions are hereby incorporated herein by
reference.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE MANAGEMENT STOCKHOLDERS
4.01 TRUTHFULNESS OF THE REPRESENTATIONS AND WARRANTIES BY THE
COMPANY AND EACH MANAGEMENT STOCKHOLDER. The Company and each Management
Stockholder, jointly and severally, represent and warrant to IDG that all of
the following representations and warranties in this Article IV are, as of the
date of this Acquisition Agreement, and as amended or supplemented pursuant to
Section 6.08, will be, on the Closing Date, true and correct, and do not and
will not contain or omit any disclosure that has or will or could have a
Material Adverse Effect on the Company or IDG.
4.02 ORGANIZATION AND CAPITALIZATION OF COMPANY AND THE COMPANY
SUBSIDIARY. (a) The Organization State of the Company and each Company
Subsidiary is as set forth on Schedule 4.02, and the Company and each Company
Subsidiary (i) is a corporation duly organized, validly existing and in good
standing under the laws of their respective organization state, (ii) has all
requisite corporate power and authority under all applicable laws and its
Charter Documents to own or lease and to operate its properties and to carry on
its business as it is now conducted and (iii) is duly qualified and in good
standing as a foreign corporation in all jurisdictions in which it owns or
leases property or in which the carrying on of its business as now conducted so
requires, except where the failure to be so qualified, singularly or in the
aggregate, would not have a Material Adverse Effect.
(b) The authorized, issued, and outstanding Capital Stock
of the Company and each Company Subsidiary is as set forth on Schedule 4.02,
and, except as set forth in such Schedule, (i) no shares are held by the
Company or any Company Subsidiary as treasury shares, and (ii) no outstanding
Derivative Securities of the Company or any Company Subsidiary exist.
4.03 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 4.04
through 4.33 of the Uniform Provisions are hereby incorporated herein by
reference.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IDG
5.01 REPRESENTATIONS AND WARRANTIES OF IDG. IDG represents and
warrants to the Company and each Selling Stockholder that all of the following
representations and warranties in this Article V are, as of the date of this
Acquisition Agreement, and will be, on the Closing Date, true and correct.
5.02 [INTENTIONALLY OMITTED].
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5.03 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 5.04
through 5.12 of the Uniform Provisions are hereby incorporated herein by
reference.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
6.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 6.02 through
6.13 of the Uniform Provisions are hereby incorporated herein by reference.
Each party to this Acquisition Agreement, subject to the waiver provisions of
Section 11.04, agrees to comply with each covenant set forth therein.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING
7.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 7.02
through 7.05 of the Uniform Provisions are hereby incorporated herein by
reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
8.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 8.02
through 8.05 of the Uniform Provisions are hereby incorporated herein by
reference. From and after the Effective Time, subject to the waiver provisions
of Section 11.04, each party hereto (other than the Company) agrees to comply
with each covenant therein to be performed or observed by that party.
ARTICLE IX
INDEMNIFICATION
9.01 INCORPORATION OF THE UNIFORM PROVISIONS. Sections 9.02
through 9.08 of the Uniform Provisions are hereby incorporated herein by
reference.
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ARTICLE X
LIMITATIONS ON COMPETITION
10.01 PROHIBITED ACTIVITIES. Each Management Stockholder and each
Selling Stockholder owning five percent or more of the Company Capital Stock
(each a "Covenanting Stockholder") agrees severally, but not jointly with any
other Person, that he or she will not, during the period beginning on the date
hereof and ending on the third anniversary of the Closing Date, directly or
indirectly, for any reason, for his or her own account, or on behalf of, or
together with, any other Person except for, and on behalf of, the Company or
any Company Subsidiary:
(a) be engaged as an officer or director or in any other
managerial or sales capacity or as an owner, co-owner or other investor of or
in, whether as an employee, independent contractor, consultant or advisor, or
as a sales representative or distributor of any kind, in a business that sells
any products or provides any services in competition with the Company, any
Company Subsidiary, or IDG or any Subsidiary of IDG (IDG and its Subsidiaries
collectively being "IDG" for purposes of this Article X) within a radius of 100
miles of each location in which any of the Company or any Company Subsidiary or
IDG was engaged in the Business on the date hereof or on the Closing Date
(those locations collectively being the "Territory");
(b) call on any natural person who is at that time
employed by the Company, any Company Subsidiary, or IDG in any managerial or
sales capacity with the purpose or intent of attracting that person from the
employ of the Company, any Company Subsidiary, or IDG;
(c) call on any Person who at that time is, or at any
time within one year prior to that time was, a customer of the Company, any
Company Subsidiary, or IDG within the Territory, of whom the Covenanting
Stockholder had knowledge, and contact with, that customer relationship, for
the purpose of soliciting or selling any product or service in competition with
the Company, any Company Subsidiary, or IDG within the Territory; or
(d) call on any IDG Acquisition Candidate, with the
knowledge of that Person's status as an IDG Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that Person by
any Person other than IDG.
Notwithstanding the foregoing, any Covenanting Stockholder may own and
hold as a passive investment up to one percent (1%) of the outstanding Capital
Stock of a competing Entity if that class of Capital Stock is listed for
trading or quotation on a national or regional stock exchange registered with
the SEC or on The Nasdaq National Stock Market.
10.02 DAMAGES. Because of the difficulty in measuring the economic
losses that may be incurred by IDG as a result of any breach by a Covenanting
Stockholder of his or her covenants in Section 10.01, and because of the
immediate and irreparable damage that could be caused to IDG for which it would
have no other adequate remedy, each Covenanting Stockholder
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agrees that IDG may enforce the provisions of Section 10.01 by any equitable or
legal means, including seeking an appropriate injunction or restraining order
against that Covenanting Stockholder if a breach of any of those provisions
occurs.
10.03 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Covenanting
Stockholders in light of the activities and Business of the Company on the date
hereof, the current business plans of IDG as a result of its proposed
acquisitions of the Company and the Other Founding Companies (of which each
Covenanting Stockholder acknowledges that he or she is aware), and the
consideration to be received by each Covenanting Stockholder from IDG as a
result of the Merger.
10.04 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant
in this Article X is not intended by any party hereto to, and shall not, affect
the provisions of any other covenant in this Article X. If any court of
competent jurisdiction shall determine that the scope, time, or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Covenanting Stockholder, the parties hereto, including that Covenanting
Stockholder, acknowledge their mutual intention and agreement that those
restrictions be enforced to the fullest extent the court deems reasonable, and
thereby shall be reformed to that extent as applied to that Covenanting
Stockholder or any other Covenanting Stockholder similarly situated.
10.05 INDEPENDENT COVENANT. All of the covenants in this Article X
are intended by each party hereto to be, and shall be construed as, an
agreement independent of any other provision in this Acquisition Agreement, and
the existence of any claim or cause of action of any Covenanting Stockholder
against IDG, whether predicated on this Acquisition Agreement or otherwise,
shall not constitute a defense to the enforcement by IDG of any covenant in
this Article X. It is specifically agreed that the period specified in Section
10.01 shall be computed in the case of each Covenanting Stockholder by
excluding from that computation any time during which that Covenanting
Stockholder is in violation of any provision of Section 10.01. The covenants
contained in this Article X shall not be affected by any breach of any other
provision hereof by any party hereto.
10.06 MATERIALITY. The Company and each Covenanting Stockholder,
severally and not jointly with any other Person, hereby agree that this Article
X is a material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
11.01 RESTRICTIONS ON TRANSFER OF IDG COMMON STOCK. (a) During the
two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Selling Stockholder voluntarily will: (i) sell,
assign, exchange, transfer, or otherwise dispose of (A) any shares of IDG
Common Stock received by any Selling Stockholder in the Stock Acquisition or
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(B) any interest in (including any option to buy or sell unless such option is
not exercisable until after expiration of the Restricted Period) any of those
shares of IDG Common Stock, in whole or in part, and IDG will have no
obligation to, and shall not, treat any such attempted transfer as effective
for any purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of IDG Common Stock or any interest therein, the intent or effect
of which is to reduce the risk of owning the shares of IDG Common Stock
acquired pursuant to Section 2.04 (including, for example, engaging in put,
call, short-sale, straddle or similar market transactions); provided, however,
that this Section 11.01 shall not restrict any transfer of IDG Common Stock
acquired by a Selling Stockholder pursuant to Section 2.04 to any of that
Selling Stockholder's Related Persons who agree in writing to be bound by the
provisions of this Section 11.01. The certificates evidencing the shares of
IDG Common Stock delivered to each Selling Stockholder, or the Stockholders'
Agent as the case may be, pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other information
as IDG may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION DATED JULY __, 1997 AMONG THE ISSUER, THE
HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO, THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, OR
OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR
PERIOD ENDING ON _____________, 1999 (THE "RESTRICTED
PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF THIS
CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE EXPIRATION OF THE RESTRICTED PERIOD.
(b) Each Selling Stockholder, severally and not jointly
with any other Person, (i) acknowledges that the shares of IDG Common Stock to
be delivered to that Selling Stockholder, or the Stockholders' Agent, as the
case may be, pursuant to Section 2.04 have not been, and will not be,
registered under the Securities Act, and therefore may not be resold by that
Selling Stockholder without being in compliance with the Securities Act or an
exemption thereof, and (ii) covenants that none of the shares of IDG Common
Stock issued to that Selling Stockholder pursuant to Section 2.04 will be
offered, sold, assigned, transferred or otherwise disposed of except upon full
compliance with all the applicable provisions of the Securities Act and the
rules and regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of IDG Common Stock issued
pursuant to Section 2.04 will bear substantially the following legend in
addition to the legend prescribed by Section 11.01(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS, HAVE BEEN ISSUED PURSUANT TO
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AND UNDER ONE OR MORE EXEMPTIONS THERETO, AND MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED, ASSIGNED, OR DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
In addition, certificates evidencing shares of IDG Common Stock issued pursuant
to Section 2.04 to each Selling Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
11.02 BROKERS AND AGENTS. Except with respect to the retention and
remuneration of Barth Smith Company, the Company and the Selling Stockholders
jointly and severally represent and warrant to IDG that the Company has not
directly or indirectly employed or become obligated to pay any broker or
similar agent in connection with the transactions contemplated hereby, and
agree, without regard to the Threshold Amount limitations set forth in Article
IX, to indemnify IDG against all Damage Claims arising out of claims for any
and all fees and commissions of brokers or similar agents employed or promised
payment by the Company.
11.03 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Acquisition
Agreement and the rights of the parties hereunder may not be assigned (except
by operation of law) and shall be binding on and inure to the benefit of the
parties hereto, the successors of IDG, and the heirs and legal representatives
of the Selling Stockholders (and, in the case of any trust, the successor
trustees of that trust). Neither this Acquisition Agreement nor any other
Transaction Document is intended, or shall be construed, deemed, or
interpreted, to confer on any Person not a party hereto or thereto any rights
or remedies hereunder or thereunder, except as provided in Section 6.05(b) or
11.13, or Article IX, or as otherwise expressly provided herein or therein.
11.04 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Acquisition
Agreement and the documents delivered pursuant hereto constitute the entire
agreement and understanding among the Selling Stockholders, the Company, and
IDG and supersede all prior agreements and understandings, both written and
oral, relating to the subject matter of this Acquisition Agreement. This
Acquisition Agreement may be amended, modified, or supplemented, and any right
hereunder may be waived, if, but only if, that amendment, modification,
supplement, or waiver is in writing and signed by the party to be bound
thereby, and in the case of each Selling Stockholder, the Stockholders' Agent
or such Selling Stockholder. The waiver of any of the terms and conditions
hereof shall not be construed or interpreted as, or deemed to be, a waiver of
any other term or condition hereof.
11.05 COUNTERPARTS. This Acquisition Agreement may be executed in
multiple counterparts, each of which will be an original, but all of which
together will constitute one and the same instrument.
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11.06 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) IDG will pay the fees, expenses, and disbursements
of IDG and their Representatives that are incurred in connection with the
subject matter of this Acquisition Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by IDG under this Acquisition Agreement,
including the costs of preparing the Registration Statement, (b) the
Stockholders will pay from personal funds, and not from funds of the Company or
any Company Subsidiary, all sales, use, transfer, and other similar taxes and
fees (collectively, "Transfer Taxes") incurred in connection with the
transactions contemplated hereby, and (c) the Company will pay the fees,
expenses, and disbursements of Counsel for the Company incurred in connection
with the subject matter of this Acquisition Agreement and the Registration
Statement on or before the Closing Date. Notwithstanding the foregoing, and in
addition thereto, the parties hereto acknowledge that the Company and IDG are
parties to a certain Letter of Intention and Expense Sharing Commitment dated
as of February 20, 1997 and agree that such agreement shall continue to be
effective with respect to the obligations of the Company to IDG to pay or
reimburse certain expenses incurred by IDG in connection with its pursuit of
the IPO and the transactions contemplated hereunder.
The Selling Stockholders will file all necessary documentation and
Returns with respect to all Transfer Taxes. In addition, each Selling
Stockholder acknowledges that he or she, and not the Company or IDG or the
Surviving Corporation, will pay all Taxes, if any, due upon receipt of the
consideration payable to that Stockholder pursuant to Article II.
11.07 NOTICES. All notices required or permitted hereunder shall
be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or, if delivered by telegram, facsimile, or courier
service, when actually received by the party to whom notice is sent (or upon
confirmation of receipt received by the sender), or (b) if delivered by mail
(whether actually received or not), at the close of business on the third
business day next following the day when placed in the mail, postage prepaid,
certified or registered, addressed to the appropriate party or parties, at the
address of such party set forth below (or at such other address as such party
may designate by written notice to all other parties in accordance herewith):
(i) if to IDG:
Industrial Distribution Group, Inc.
2500 Royal Place
Tucker, Georgia 30084
Attn.: Chief Executive Officer
Facsimile No.: (770) 938-7311
Telephone No.: (770) 243 -4042
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<PAGE> 16
with copies (which shall not constitute notice for purposes of
this Acquisition Agreement) to:
Kilpatrick Stockton LLP
1100 Peachtree Street
Atlanta, Georgia 30309
Attn.: W. Randy Eaddy, Esq.
Facsimile No.:(404) 815-6555
Telephone No.: (404) 815-6587
(ii) if to a Selling Stockholder, to the address set forth
with respect to such Selling Stockholder in Annex 4; and
(iii) if to the Company:
Associated Suppliers, Inc.
2705 N.E. Argyle
Street Portland, Oregon 97211
Attn: William J. Janner
Facsimile No.: (503) 288-1828
Telephone No.: (503) 288 -3252
with copies (which shall not constitute notice for purposes of
this Acquisition Agreement) to:
Bayless, Stiner & Murphy
1300 S.W. 5th Avenue
Suite 3035
Portland, Oregon 97201
Attn.: Alonzo P. Stiner, Esq.
Facsimile No.: (503)-223-1332
Telephone No.: (503) 294-3975
11.08 GOVERNING LAW. THIS ACQUISITION AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF GEORGIA
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
11.09 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay or omission in the exercise of any right, power, or remedy
accruing to any party hereto as a result of any breach or default hereunder by
any other party hereto shall impair any such right, power, or remedy, nor shall
it be construed, deemed, or interpreted as a waiver of or acquiescence in any
such breach or default, or of any similar breach or default occurring later;
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<PAGE> 17
nor shall any waiver of any single breach or default be construed, deemed, or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
11.10 TIME. Time is of the essence in the performance of this
Acquisition Agreement in all respects.
11.11 REFORMATION AND SEVERABILITY. If any provision of this
Acquisition Agreement is invalid, illegal, or unenforceable, that provision
shall, to the extent possible, be modified in such manner as to be valid,
legal, and enforceable and so as to most nearly retain the intent of the
parties hereto as expressed herein, and if such a modification is not possible,
that provision shall be severed from this Acquisition Agreement, and in either
case the validity, legality, and enforceability of the remaining provisions of
this Acquisition Agreement shall not in any way be affected or impaired
thereby.
11.12 REMEDIES CUMULATIVE. No right, remedy, or election given by
any term of this Acquisition Agreement shall be deemed exclusive, but each
shall be cumulative with all other rights, remedies, and elections available at
law or in equity.
11.13 AGREEMENTS RESPECTING THE IPO. Each of the Company and the
Selling Stockholders acknowledges and agrees that: (a) no firm commitment,
binding agreement, or promise or other assurance of any kind, whether express
or implied, oral or written, exists at the date hereof that the Registration
Statement will become effective or that the IPO will occur at a particular
price or within a particular range of prices or will occur at all; (b) neither
IDG nor any of its Representatives nor any prospective underwriters in the IPO
will have any liability to the Company, the Stockholders, or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that IDG will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to October 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
the Selling Stockholders to enter into this Acquisition Agreement, has been
made independent of, and without reliance on, any statements, opinions, or
other communications of, or due diligence investigations that have been or will
be made or performed by, any prospective underwriter relative to IDG or the
IPO.
11.14 TREATMENT OF CONFIDENTIAL INFORMATION. (a) Each of the
Company and the Selling Stockholders, severally and not jointly with any other
Person, acknowledges that it, he or she has or may have had in the past, and in
the future may have, access to Confidential Information of the Company and the
Company Subsidiaries, the Other Founding Companies and their Subsidiaries, and
IDG and its Subsidiaries. Each of the Company and the Stockholders, severally
and not jointly with any other Person, agrees that it, he or she will keep
confidential all such Confidential Information and, except with the specific
prior written consent of IDG, will not disclose such Confidential Information
to any Person except: (i) Representatives of IDG, (ii) its own
Representatives, provided that such Representatives (other than counsel) agree
to the confidentiality provisions of this Section 11.14. Confidential
Information shall not include (A) such information that becomes known to the
public generally through no fault of any Selling Stockholder, (B) information
required to be disclosed by law or the order of any Governmental
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<PAGE> 18
Authority under color of law, provided that prior to disclosing any information
pursuant to this clause (B), each Selling Stockholder shall, if possible, give
prior written notice thereof to IDG and provide IDG with the opportunity to
contest such disclosure, or (C) such information that the disclosing party
reasonably believes the disclosure of which is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any Selling Stockholder of the provisions of this Section
11.14 with respect to any Confidential Information, IDG shall be entitled to an
injunction restraining such Selling Stockholder from disclosing, in whole or in
part, that Confidential Information. Nothing herein shall be construed as
prohibiting IDG from pursuing any other remedy available at law or in equity
for such breach or threatened breach, including the recovery of Damages.
(b) Because of the difficulty of measuring the economic loss
that may be incurred by IDG, the Surviving Company, or any IDG Subsidiary as a
result of the breach of the covenants in Section 11.14(a), and because of the
immediate and irreparable damage that would be caused to IDG and its
Subsidiaries for which it would have no other adequate remedy, each of the
Company and the Selling Stockholders agrees that IDG may enforce the provisions
of Section 11.14(a) by injunctions and restraining orders against each of them
who breaches any of those provisions.
(c) The obligations of IDG set forth in Section 6.02(d) are
incorporated in this Section 11.14 by this reference.
(d) The obligations of the parties under this Section 11.14
shall survive the termination of this Acquisition Agreement.
ARTICLE XII
TERMINATION
12.01 TERMINATION OF THIS ACQUISITION AGREEMENT. (a) This
Acquisition Agreement may be terminated at any time prior to the Closing
solely:
(i) by the mutual written consent of IDG and all of the
Selling Stockholders;
(ii) by the Selling Stockholders, on the one hand, or by
IDG, on the other hand, if the conditions to Closing in Section 7 have not
either been satisfied or waived and the transactions contemplated by this
Acquisition Agreement to take place at the Closing shall not have been
consummated by December 31, 1997, unless the failure of such transactions to be
consummated results from the willful failure of the party (or in the case of
the Selling Stockholders, any of them) seeking to terminate this Acquisition
Agreement to perform or adhere to any agreement required hereby to be performed
or adhered to by such party prior to or at the Closing or on the Closing Date;
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<PAGE> 19
(iii) by the Selling Stockholders, on the one hand, or by
IDG, on the other hand, if a material breach or default shall be made by the
other party (or in the case of the Selling Stockholders, any of them) in the
observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein and such breach or default shall not
have been cured by the breaching or defaulting party or parties within ten (10)
days after notice of such breach or default is provided thereto; or
(iv) by IDG if it is entitled to do so as provided in
Section 6.08.
(b) If this Acquisition Agreement is terminated pursuant
to this Section 12.01, the Stock Acquisition will be deemed for all purposes to
have been abandoned and of no force or effect.
12.02 LIABILITIES IN EVENT OF TERMINATION. If this Acquisition
Agreement is terminated pursuant to Section 12.01, there shall be no liability
or obligation on the part of any party hereto except (a) as provided in Section
11.06 and (b) to the extent that such liability is based on the breach by that
party of any of its representations, warranties or covenants set forth in this
Acquisition Agreement.
ARTICLE XIII
POWER OF ATTORNEY
13.01 APPOINTMENT OF STOCKHOLDERS' AGENT. The Selling Stockholders,
and each of them, hereby irrevocably constitute and appoint William J. Janner
with an address at 21470 S. Wisteria Road, West Linn, Oregon 97068 (the
"Stockholders' Agent") as their agent and attorney-in-fact to modify, amend, or
otherwise change this Acquisition Agreement, or any of its terms or provisions
(including modifications, amendments, or changes subsequent to Closing), to
take all actions and to execute all documents (including all actions and
documents required under Article VII hereof) necessary or desirable to
consummate the transactions contemplated by this Acquisition Agreement, to
tender their shares of Company Capital Stock pursuant to this Acquisition
Agreement and to accept the Acquisition Consideration in connection therewith
and to take all actions, to execute all documents that may be necessary or
desirable in connection therewith (including, without limitation, delivery of
the certificates for their shares of Company Capital Stock and execution of
such powers of attorney or other instruments as may be necessary to comply with
this Acquisition Agreement), to give and receive consents and all notices
hereunder, to negotiate and settle claims for indemnification under Article IX
hereof, and to perform any other act arising under or pertaining to this
Acquisition Agreement and the transactions contemplated hereby. The Selling
Stockholders, and each of them, agree that service of process upon the
Stockholders' Agent in any action or proceeding arising under or pertaining to
this Acquisition Agreement shall be deemed to be valid service of process upon
the Selling Stockholders, and any claim by IDG or Newco against the Selling
Stockholders, or any of them, in respect to this Acquisition Agreement may be
asserted against, and settled with, said
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<PAGE> 20
Stockholders' Agent. The Stockholders' Agent shall be deemed to have accepted
the appointment herein upon his execution of this Acquisition Agreement.
13.02 LIABILITY OF AGENT. Nothing contained herein shall be deemed
to make the Stockholders' Agent personally liable to the Selling Stockholders
because of service in his capacity as agent and attorney-in-fact. In performing
any of his duties hereunder, the Stockholders' Agent shall not incur any
liability to the Selling Stockholders for losses, damages, liabilities, or
expenses, except for his own willful or intentional default.
13.03 SUCCESSION. In the event of the death, disability,
incompetency, or resignation of the original Stockholders' Agent, the successor
agent shall be Jerome Kvanvig, 13156 N.W. Harvest, Portland, Oregon 97229. In
the event of the death, disability, incompetency, or resignation of any
successor Stockholders' Agent, the Selling Stockholders shall, within 30 days
after notice from IDG and designate a successor Stockholders' Agent, determined
by simple majority vote, who shall have all of the rights, powers, and
authority conferred and limitation on personal liability provided by, this
Article XIII, and if the Stockholders fail to designate such successor
Stockholders' Agent within such period, IDG may petition a court of appropriate
jurisdiction for appointment of a successor Stockholders' Agent.
13.04 IRREVOCABLE; BINDING ON SUCCESSORS, ETC. It is expressly
understood and agreed that the power of attorney and agency created by this
Article XIII is coupled with an interest of the respective parties hereto and
shall be binding and enforceable on and against the respective heirs, personal
representatives, successors and assigns of the Selling Stockholders, and each
of them, and the same shall not be revoked or terminated by the death,
disability, bankruptcy, or incompetency of the Selling Stockholders, or any of
them, but shall continue to be binding and enforceable by the Stockholders'
Agent, and IDG, and their respective successors and on and against the heirs,
personal representatives, and successors and assigns of the Selling
Stockholders in the manner provided herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this
Acquisition Agreement as of the date first above written.
INDUSTRIAL DISTRIBUTION GROUP, INC., A
DELAWARE CORPORATION
By:
--------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
ASSOCIATED SUPPLIERS, INC., AN OREGON
CORPORATION
By:
--------------------------------------------
William J. Janner
Chairman and CEO
[signatures continued on following page]
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<PAGE> 22
SELLING STOCKHOLDERS:
By:
--------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
------------------------------------------------
WILLIAM J. JANNER
----------------------------------------------
JEROME D. KVANVIG
-----------------------------------------------
DAVID S. CHAMBERLAIN
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<PAGE> 1
EXHIBIT 10.4
INDUSTRIAL DISTRIBUTION GROUP, INC.
A DELAWARE CORPORATION
UNIFORM PROVISIONS
FOR THE ACQUISITION OF
FOUNDING COMPANIES
DATED AS OF JUNE 27, 1997
WORDS AND TERMS USED IN THESE UNIFORM PROVISIONS THAT ARE NOT DEFINED HEREIN
ARE DEFINED IN THE ACQUISITION AGREEMENT FOR EACH OF THE FOUNDING COMPANIES
(CALLED THEREIN AND HEREIN THE "ACQUISITION AGREEMENT"), TO WHICH THESE UNIFORM
PROVISIONS ARE ATTACHED AS ANNEX 1.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
COORDINATION STATEMENT ....................................................... 1
ARTICLE I - ADDITIONAL DEFINITIONS ........................................... 1
1.02 Additional Defined Terms ............................................. 1
1.03 Other Definitional Provisions ........................................ 12
1.04 Captions ............................................................. 12
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF EACH SELLING
STOCKHOLDER .................................................................. 13
3.03 Investment Intentions ................................................ 13
3.04 Ownership and Status of the Company Capital Stock .................... 13
3.05 Power of the Selling Stockholder; Approval of the
Acquisition Transaction .............................................. 13
3.06 No Conflicts or Litigation ........................................... 14
3.07 No Brokers ........................................................... 15
3.08 Preemptive and Other Rights; Waiver .................................. 15
3.09 Control of Related Businesses ........................................ 15
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE MANAGEMENT STOCKHOLDERS .................................................. 15
4.04 Qualification ........................................................ 15
4.05 Authorization; Enforceability; Absence of
Conflicts; Required Consents ......................................... 15
4.06 Charter Documents and Records; No Violation .......................... 17
4.07 No Defaults .......................................................... 17
4.08 Company Subsidiaries ................................................. 17
4.09 Capital Stock of the Company and the
Company Subsidiaries ................................................. 17
4.10 Transactions in Capital Stock ........................................ 18
4.11 Predecessor Status; Etc .............................................. 18
4.12 Related Party Agreements ............................................. 18
4.13 Litigation ........................................................... 18
4.14 Financial Statements; Disclosure ..................................... 18
4.15 Compliance with Laws ................................................. 19
4.16 Certain Environmental Matters ........................................ 20
4.17 Liabilities and Obligations .......................................... 21
4.18 Receivables .......................................................... 21
4.19 Owned and Leased Real Properties ..................................... 21
4.20 Owned and Leased Property, Plant and Equipment ....................... 22
4.21 Proprietary Rights ................................................... 22
4.22 Title to Other Properties ............................................ 23
4.23 Commitments .......................................................... 23
4.24 Capital Expenditures ................................................. 24
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
4.25 Inventories .......................................................... 25
4.26 Insurance ............................................................ 25
4.27 Employee Matters ..................................................... 25
4.28 Compliance with ERISA, Etc ........................................... 28
4.29 Taxes ................................................................ 30
4.30 Government Contracts ................................................. 31
4.31 Absence of Changes ................................................... 31
4.32 Bank Relations; Powers of Attorney ................................... 32
4.33 Relations with Governments, Etc ...................................... 33
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF IDG ............................ 33
5.04 Organization; Power .................................................. 33
5.05 Authorization; Enforceability; Absence of
Conflicts; Required Consents ......................................... 33
5.06 Charter Documents .................................................... 34
5.07 Capital Stock of IDG ................................................. 34
5.08 Subsidiaries ......................................................... 35
5.09 Liabilities .......................................................... 35
5.10 Compliance with Laws; No Litigation .................................. 35
5.11 No Brokers ........................................................... 35
5.12 Private Placement Memorandum ......................................... 35
ARTICLE VI - COVENANTS EXTENDING TO THE EFFECTIVE TIME ....................... 36
6.02 Access and Cooperation; Due Diligence ................................ 36
6.03 Conduct of Business Pending Closing .................................. 36
6.04 Prohibited Activities ................................................ 37
6.05 No Shop; Release of Directors ........................................ 39
6.06 Notice to Bargaining Agents .......................................... 39
6.07 Notification of Certain Matters ...................................... 40
6.08 Supplemental Information ............................................. 40
6.09 Cooperation in Connection with the IPO ............................... 41
6.10 Additional Financial Statements ...................................... 41
6.11 Termination of Plans ................................................. 41
6.12 Disposition of Unwanted Assets ....................................... 42
6.13 HSR Act Matters ...................................................... 42
ARTICLE VII - THE CLOSING AND CONDITIONS TO CLOSING .......................... 42
7.02 The Closing and Certain Actions ...................................... 42
7.03 Conditions to the Obligations of Each
Party at the Closing ................................................. 43
7.04 Conditions to the Obligations of the Company
and the Selling Stockholders ......................................... 43
7.05 Conditions to the Obligations of IDG and Newco ....................... 44
ARTICLE VIII - COVENANTS FOLLOWING THE EFFECTIVE TIME ........................ 46
8.02 Disclosure ........................................................... 46
8.03 Preparation and Filing of Tax Returns ................................ 46
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
8.04 Directors ............................................................ 46
8.05 Removal of Guaranties ................................................ 46
ARTICLE IX - INDEMNIFICATION ................................................. 47
9.02 Survival of Representations and Warranties ........................... 47
9.03 Indemnification of Seller Indemnified Parties ........................ 47
9.04 Indemnification of IDG Indemnified Parties ........................... 48
9.05 Conditions of Indemnification ........................................ 49
9.06 Remedies Not Exclusive ............................................... 51
9.07 Limitations on Indemnification ....................................... 51
9.08 Special Indemnification Considerations
Regarding Selling Stockholders ....................................... 51
</TABLE>
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<PAGE> 5
UNIFORM PROVISIONS
FOR THE ACQUISITION OF
FOUNDING COMPANIES
COORDINATION STATEMENT
These Uniform Provisions are expressly made a part of that certain
Acquisition Agreement dated as of ________, 1997 between IDG, the Company and
the Stockholders named therein (called herein and therein the "Acquisition
Agreement") to which this Annex 1 is attached and incorporated therein. The
Article and Section numbers hereof or referenced herein have been used in
coordination with the corresponding numbers used or referenced in the
Acquisition Agreement.
ARTICLE I
ADDITIONAL DEFINITIONS
1.02 ADDITIONAL DEFINED TERMS. As used herein, the following terms have
the meanings assigned to them below:
"ACQUISITION AGREEMENT" has the meaning set forth in Section 1.01.
"ACQUISITION CONSIDERATION" has the meaning set forth in Section 1.01.
"ACQUISITION PROPOSAL" has the meaning set forth in Section 6.05.
"ACQUISITION TRANSACTION" has the meaning set forth in Section 1.01.
"AFFILIATE" means, as to any specified Person, any other Person that,
directly or indirectly through one or more intermediaries or otherwise,
controls, is controlled by, or is under common control with the specified
Person. As used in this definition, "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a Person (whether through ownership of Capital Stock of that
Person, by contract, or otherwise).
"BALANCE SHEET DATE" has the meaning set forth in Section 1.01.
"CAPITAL LEASE" means a lease of (or other agreement conveying the right
to use) real or personal property that is required to be classified and
accounted for as a capital lease in accordance with GAAP as in effect on the
date of this Acquisition Agreement.
"CAPITAL STOCK" means, with respect to (a) any corporation, any share, or
any depository receipt or other certificate representing any share, of an
equity ownership interest in that corporation, and (b) any other Entity, any
share, membership or other percentage interest, unit of participation, or other
equivalent (however designated) of an equity interest in that Entity.
<PAGE> 6
"CASH COMPENSATION" means, as applied to any employee, nonemployee
director or officer of, or any natural person who performs consulting or other
independent contractor services for, the Company or any Company Subsidiary, the
wages, salaries, bonuses (discretionary and formula), fees and other cash
compensation paid or payable by the Company or any Company Subsidiary to that
employee or other natural person.
"CERTIFICATE OF MERGER" has the meaning set forth in Section 1.01.
"CLAIM NOTICE" has the meaning set forth in Section 9.05.
"CLOSING" has the meaning set forth in Section 7.02.
"COBRA" means the continuation coverage requirements of Section 1001 of
the Consolidated Omnibus Reconciliation Act of 1985, as amended, as codified in
ERISA Sections 601 through 608 and Section 4980B of the Code.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANION TRANSACTION DOCUMENTS" means the Companion Agreements and the
other written agreements, documents, instruments, and certificates at any time
executed pursuant to or in connection with the Companion Agreements (other than
the Transaction Documents and the Underwriting Agreement), all as amended,
modified, or supplemented from time to time.
"COMPANY" has the meaning set forth in Section 1.01.
"COMPANY CAPITAL STOCK" has the meaning as set forth in Section 1.01.
"COMPANY COMMITMENT" has the meaning set forth in Section 4.23.
"COMPANY SUBSIDIARY" means at any time any Entity that is a Subsidiary of
the Company at that time.
"CURRENT BALANCE SHEET" has the meaning set forth in Section 1.01.
"CURRENT BALANCE SHEET DATE" has the meaning set forth in Section 1.01.
"CURRENT DATE" means any day during the 20-day period ending on the date
of the Closing.
"DAMAGES" to any specified Person means any costs, damages (including any
consequential, exemplary, punitive, or treble damages) or expenses (including
reasonable fees and actual disbursements by attorneys, consultants, experts, or
other Representatives, and Litigation costs) to, any fine of or penalty on, or
any liability (including loss of earnings or profits) of any other nature to
that Person.
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<PAGE> 7
"DAMAGES CLAIM" means, as asserted (a) against any specified Person, any
claim, demand, or Litigation made or pending against that Person for Damages to
any other Person, or (b) by the specified Person, any claim or demand of the
specified Person against any other Person for Damages to the specified Person.
"DERIVATIVE SECURITIES" of a specified Entity means any Capital Stock or
debt security or other Indebtedness of the specified Entity or any other Person
that is convertible into or exchangeable for, or any option, warrant, or other
right to acquire common stock of the specified Entity.
"EFFECTIVE TIME" has the meaning set forth in Section 2.02.
"ELECTION PERIOD" has the meaning set forth in Section 9.05(a).
"EMPLOYEE POLICIES AND PROCEDURES" means at any time all employee manuals
and all material policies, procedures, and work-related rules that apply at
that time to any employee, nonemployee director or officer of, or any other
natural person performing consulting or other independent contractor services
for, the Company or any Company Subsidiary.
"ENGAGEMENT AND NON-COMPETITION AGREEMENTS" means at any time any (a)
agreement to which the Company or any Company Subsidiary is a party that then
relates to the direct or indirect employment or engagement, or arises from the
past employment or engagement, of any natural person by the Company or any
Company Subsidiary, whether as an employee, a nonemployee officer or director,
a consultant or other independent contractor, a sales representative, or a
distributor of any kind, including any employee leasing or service agreement
and any noncompetition agreement, and (b) agreement between the Company or any
Company Subsidiary and any Person that arises from the sale of a business by
that Person to the Company or any Company Subsidiary and limits that Person's
competition with the Company or any Company Subsidiary.
"ENTITY" OR "ENTITIES" means one or more sole proprietorships,
corporations, partnerships of any kind having a separate legal status, limited
liability companies, business trusts, unincorporated organizations or
associations, mutual companies, joint stock companies, or joint ventures.
"ENVIRONMENTAL LAWS" means any and all Governmental Requirements relating
to the environment or worker health or safety, including ambient air, surface
water, land surface, or subsurface strata, or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals, or
industrial toxic or hazardous substances or wastes (including Hazardous
Substances) or noxious noise or odor into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, recycling, removal, transport, or handling of pollutants,
contaminants, chemicals, or industrial toxic or hazardous substances or wastes
(including petroleum, petroleum distillates, asbestos or asbestos-containing
material, polychlorinated biphenyls, chlorofluorocarbons (including
chlorofluorocarbon-12), or
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<PAGE> 8
hydrochlorofluoro- carbons), including but not limited to the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C.A. Section
9601 et seq.; the Resource Conversation and Recovery Act, 42 U.S.C.A. Section
6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C.A. Section
1251 et seq.; the Federal Clean Air Act, 42 U.S.C.A. Section 7401 et seq.; the
Federal Insecticide Fungicide and Rodenticide Act, 7 U.S.C.A. Section 135 et
seq.; the Toxic Substances Control Act, 15 U.S.C.A. Section 2601 et seq.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any Person that is, or at any time within six
years of that time was, a member of any "group of organizations" within the
meaning of Section 414(b), (c), (m) or (o) of the Code or any "controlled
group" as defined in Section 4001(a)(14) of ERISA of which the specified Person
is or was a member at the same time.
"ERISA BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA, excluding any Multiemployer Plan.
"ERISA PENSION BENEFIT PLAN" means any "employee pension benefit plan", as
defined in Section 3(2) of ERISA, excluding any Multiemployer Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FINAL PROSPECTUS" means the prospectus included in the Registration
Statement at the time it becomes effective, except that if the prospectus first
furnished to the Underwriter after the Registration Statement becomes effective
for use in connection with the IPO differs from the prospectus included in the
Registration Statement at the time it becomes effective (whether or not that
prospectus so furnished is required to be filed with the SEC pursuant to
Securities Act Rule 424(b)), the prospectus so furnished is the "Final
Prospectus."
"FINANCIAL STATEMENTS" means the Initial Financial Statements and the
other financial statements of the Company and the Company Subsidiaries, if any,
delivered to IDG pursuant to Section 6.10 prior to the Effective Time.
"GAAP" means generally accepted accounting principles and practices in the
United States as in effect from time to time that (i) have been concurred in by
Arthur Andersen LLP and (ii) have been or are being applied on a basis
consistent (except for changes concurred in by Arthur Andersen LLP) with the
most recent Financial Statements delivered to IDG prior to the Effective Time.
"GOVERNMENTAL APPROVAL" means at any time any authorization, consent,
approval, permit, franchise, certificate, license, implementing order, or
exemption of, or registration or filing with, any Governmental Authority,
including any certification or licensing of a natural person to engage in a
profession or trade or a specific regulated activity, at that time.
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"GOVERNMENTAL AUTHORITY" means (a) any national, state, county, municipal,
or other government, domestic or foreign, or any agency, board, bureau,
commission, court, department, or other instrumentality of any such government,
and (b) any Person having the authority under any applicable Governmental
Requirement to assess and collect Taxes for its own account.
"GOVERNMENTAL REQUIREMENT" means at any time (a) any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict,
award, authorization or other requirement of any Governmental Authority in
effect at that time, and (b) any obligation included in any certificate,
certification, franchise, permit, or license issued by any Governmental
Authority or resulting from binding arbitration, including any requirement under
common law, at that time.
"GUARANTY" means, for any specified Person, without duplication, any
liability, contingent or otherwise, of that Person guaranteeing or otherwise
becoming liable for any obligation of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and including any liability of
the specified Person, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) that obligation or to purchase (or
to advance or supply funds for the purchase of) any security for the payment of
that obligation, (b) to purchase property, securities, or services for the
purpose of assuring the owner of that obligation of its payment, or (c) to
maintain working capital, equity capital, or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
that obligation; provided, that the term "Guaranty" does not include
endorsements for collection or deposit in the ordinary course of the endorser's
business.
"HAZARDOUS SUBSTANCES" means any material or substance, or combination of
materials or substances, that by reason of quantity, concentration, composition,
or characteristic is or in the future becomes regulated under any Environmental
Law.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"IDG COMMON STOCK" means the common stock, par value $.01 per share, of
IDG.
"IDG INDEMNIFIED PARTY" means (a) each Selling Stockholder and each of
that Selling Stockholder's Affiliates (other than the Company or, following the
Effective Time, the Surviving Corporation or IDG or any of its Subsidiaries, if
the Selling Stockholder is an Affiliate of IDG), agents and counsel and (b)
prior to the Effective Time, the Company and each of its officers, directors,
employees, agents, and counsel who are not IDG Indemnified Parties within the
meaning of clause (a) of this definition.
"IDG INDEMNIFIED LOSS" has the meaning set forth in Section 9.04.
"IMMEDIATE FAMILY MEMBER" of a Stockholder means at any time: (a) if that
Stockholder is a natural person, any child or grandchild (by blood or legal
adoption) or spouse of that Stockholder at that time, or any child of that
spouse, or such person's parents, siblings,
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mothers and fathers-in-law, or brothers and sisters-in-law; and (b) if that
Stockholder is an Entity whose ultimate beneficial owner is a natural person,
or a natural person and his spouse, any child or grandchild (by blood or legal
adoption) or spouse at that time (if not then an ultimate beneficial owner of
that Entity), or any child of that spouse, or such person's parents, siblings,
mothers and fathers-in-law, or brothers and sisters-in-law of the ultimate
beneficial owner or owners.
"INDEBTEDNESS" of any Person means, without duplication, (a) any liability
of that Person (i) for borrowed money or arising out of any extension of credit
to or for the account of that Person (including reimbursement or payment
obligations with respect to surety bonds, letters of credit, banker's
acceptances, and similar instruments), for the deferred purchase price of
property or services or arising under conditional sale or other title retention
agreements, other than trade payables arising in the ordinary course of
business, (ii) evidenced by notes, bonds, debentures, or similar instruments, or
(iii) in respect of Capital Leases; (b) any liability secured by any Lien upon
any property or assets of that Person (or upon any revenues, income, or profits
of that Person therefrom), whether or not that Person has assumed that liability
or otherwise becomes liable for the payment thereof; or (c) any liability of
others of the type described in the preceding clause (a) or (b) in respect of
which that Person has incurred, assumed, or acquired a liability by means of a
Guaranty.
"INDEMNIFICATION LIMIT" has the meaning set forth in Section 9.07(a).
"INDEMNIFIED PARTY" has the meaning set forth in Section 9.05(a).
"INDEMNIFYING PARTY" has the meaning set forth in Section 9.05(a).
"INDEMNITY NOTICE" has the meaning set forth in Section 9.05(d).
"INITIAL FINANCIAL STATEMENTS" means the audited financial statements of
the Company consolidated with the Company Subsidiaries, if any, as at the
Balance Sheet Date.
"INFORMATION" means written information, including without limitation, (a)
data, certificates, reports, files, records, agreements, correspondence, plans,
policies, practices, manuals, and statements, and (b) summaries of unwritten
agreements, arrangements, contracts, plans, policies, programs, or practices or
of unwritten amendments or modifications of, supplements to, or waivers under
any of the foregoing.
"IPO" means the initial public offering by IDG of shares of IDG Common
Stock pursuant to a registration statement filed and declared effective under
the Securities Act, the sale of which shares to the public is underwritten by
one or more underwriters.
"IPO CLOSING DATE" means the date on which IDG first receives payment for
the shares of IDG Common Stock it sells to the Underwriter in the IPO, which
shall be the same date as the Closing Date.
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"IPO PRICE" means the price per share of IDG Common Stock that is set
forth as the "Price to Public" on the cover page of the Final Prospectus.
"IPO PRICING DATE" means the date, if any, on which IDG and the
Underwriter agree in the Underwriting Agreement to the price per share of Common
Stock at which the Underwriter, subject to the terms and conditions of the
Underwriting Agreement, will purchase newly issued shares of IDG Common Stock
from IDG on the IPO Closing Date.
"IRS" means the Internal Revenue Service.
"LIEN" means, with respect to any property or asset of any Person (or any
revenues, income, or profits of that Person therefrom) (in each case whether the
same is consensual or nonconsensual or arises by contract, operation of law,
legal process, or otherwise), (a) any mortgage, lien, security interest, pledge,
attachment, levy, or other charge or encumbrance of any kind thereupon or in
respect thereof or (b) any other arrangement under which the same is
transferred, sequestered, or otherwise identified with the intention of
subjecting the same to, or making the same available for, the payment or
performance of any liability in priority to the payment of the ordinary,
unsecured creditors of that Person, including any "adverse claim" (as defined in
Section 8-302(b) of each applicable Uniform Commercial Code) in the case of any
Capital Stock. For purposes of this Acquisition Agreement, a Person shall be
deemed to own subject to a Lien any asset that it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
Capital Lease, or other title retention agreement relating to that asset.
"LITIGATION" means any action, case, proceeding, claim, grievance, suit,
or investigation or other proceeding conducted by or pending before any
Governmental Authority or any arbitration or mediation proceeding.
"MANAGEMENT STOCKHOLDERS" has the meaning set forth in Section 1.01.
"MATERIAL" means, as applied to any Entity, material to the business,
operations, property or assets, liabilities, financial condition, results of
operations, or prospects of that Entity and its Subsidiaries considered as a
whole.
"MATERIAL ADVERSE EFFECT" means, with respect to the consequences of any
fact or circumstance (including the occurrence or non-occurrence of any event)
to the Company and the Company Subsidiaries considered as a whole (or after the
Effective Time, the Surviving Corporation and the Company Subsidiaries
considered as a whole), that such fact or circumstance has caused, is causing,
or may reasonably be expected to cause, directly, indirectly, or
consequentially, singularly or in the aggregate with other facts and
circumstances, any Damages in excess of the Threshold Amount.
"MATERIAL AGREEMENT" of an Entity means any contract or agreement (a) to
which that Entity or any of its Subsidiaries is a party, or by which that Entity
or any of its Subsidiaries is
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bound or to which any property or assets of that Entity or any of its
Subsidiaries is subject and (b) which is Material to that Entity.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA, Section 414 of the Code, or Section 3(37) of ERISA.
"NEWCO", if applicable, has the meaning set forth in Section 1.01.
"NEWCO COMMON STOCK", if applicable, has the meaning set forth in Section
1.01.
"ORGANIZATION STATE" means, as applied to (a) any corporation, its state
or other jurisdiction of incorporation, (b) any limited liability company or
limited partnership, the state or other jurisdiction under which laws the Entity
is organized and existing in such legal form, and (c) any other Entity, the
state or other jurisdiction which laws govern such Entity's internal affairs.
"OTHER COMPENSATION PLAN" means any compensation or benefit arrangement,
plan, policy, practice, or program established, maintained, or sponsored by the
Company or any Company Subsidiary, or to which the Company or any Company
Subsidiary contributes, on behalf of any of its employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries, including,
but not limited to, all pension, retirement, profit sharing, deferred
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus, or other incentive plans, medical, vision, dental or other health plans,
life insurance plans, and all other employee benefit plans or fringe benefit
plans, but excluding any ERISA Benefit Plan.
"PERMITTED INVESTMENTS" means at the time of purchase or other acquisition
by the Company or any Company Subsidiary (a) obligations issued or guaranteed by
the United States of America with a remaining maturity not exceeding one year,
(b) commercial paper with maturities of not more than 270 days and a published
rating of not less than A-1 by S&P or P-1 by Moody's, and (c) certificates of
deposit and bankers' acceptances having maturities of not more than one year of
any commercial bank or trust company if (i) that bank or trust company has a
combined capital and surplus of at least $500,000,000 and (ii) its unsecured
long-term debt obligations, or those of a holding company of which it is a
subsidiary, are rated not less than A- by S&P or A3 by Moody's.
"PERMITTED LIENS" means, as applied to the property or assets of any
Person (or any revenues, income or profits of that Person therefrom), (a) Liens
for Taxes if the same are not at the time due and delinquent; (b) Liens of
carriers, warehousemen, mechanics, laborers and materialmen for sums not yet
due; (c) Liens incurred in the ordinary course of that Person's business in
connection with workmen's compensation, unemployment insurance and other social
security legislation (other than pursuant to ERISA or Section 412(n) of the
Code); (d) Liens incurred in the ordinary course of that Person's business in
connection with deposit accounts or to secure the performance of bids, tenders,
trade contracts, statutory obligations, surety and
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appeal bonds, performance and return-of-money bonds and other obligations of
like nature; (e) easements, rights-of-way, reservations, restrictions and other
similar encumbrances incurred in the ordinary course of that Person's business
or existing on property and not materially interfering with the ordinary
conduct of that Person's business or the use of that property; (f) defects or
irregularities in that Person's title to its real properties which do not
materially (i) diminish the value of the surface estate or (ii) interfere with
the ordinary conduct of that Person's business or the use of any of such
properties; (g) any interest or title of a lessor of assets being leased by
any Person pursuant to any Capital Lease disclosed in Schedule 4.19 of the
Disclosure Statement or any lease that, pursuant to GAAP, would be accounted
for as an operating lease; and (h) Liens securing purchase money Indebtedness
so long as such Liens do not attach to any property or assets other than the
properties or assets purchased with the proceeds of such Indebtedness.
"PERSON" means any natural person, Entity, estate, trust, union or
employee organization, or Governmental Authority or, for the purpose of the
definition of "ERISA Affiliate", any trade or business.
"PRIVATE PLACEMENT MEMORANDUM" means the IDG Private Placement Memorandum
dated as of June ___, 1997 relating to the offer of IDG Common Stock to the
Stockholders in connection with the Acquisition Transaction.
"PROHIBITED TRANSACTION" means any transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA.
"PROPERTY, PLANT, AND EQUIPMENT" means at any time any property that then
would be included and classified as property, plant, and equipment on a balance
sheet prepared in accordance with GAAP of the Company or a Company Subsidiary.
"PROPRIETARY RIGHTS" means (a) patents, applications for patents, and
patent rights, (b) in each case, whether registered, unregistered, or under
pending registration, trademark rights, trade names, trade name rights,
corporate names, business names, trade styles or dress, service marks and logos,
and other trade designations and copyrights, and (c), in the case of the Company
or any Company Subsidiary, all agreements relating to the technology, know-how,
or processes used in any business of the Company or any Company Subsidiary.
"REGISTRATION STATEMENT" means the registration statement, including (a)
each preliminary prospectus included therein prior to the date on which that
registration statement is declared effective under the Securities Act (including
any prospectus filed with the SEC pursuant to Securities Act Rule 424(b)), (b)
the Final Prospectus, and (c) any amendments thereof and all supplements and
exhibits thereto, filed by IDG with the SEC to register shares of IDG Common
Stock under the Securities Act for public offering and sale in the IPO.
"RETURNS" means the returns, reports, or statements (including any
information returns) any Governmental Requirement requires to be filed for
purposes of any Tax.
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"RELATED PARTY AGREEMENT" means any contract or other agreement, written
or oral, (a) to which the Company or any Company Subsidiary is a party or is
bound or by which any property of the Company or any Company Subsidiary is bound
or may be subject, and (b) (i) to which any Stockholder or any of that
Stockholder's Related Persons or Affiliates also is a party, (ii) of which any
Stockholder or any of that Stockholder's Related Persons or Affiliates is a
beneficiary, or (iii) as to which any transaction contemplated thereby properly
would be characterized (without regard to the amount involved) as a related
party transaction for purposes of applying the disclosure requirements of GAAP
or the SEC applicable to the Registration Statement.
"RELATED PERSON" of a Stockholder means (a) if that Stockholder is a
natural person, (i) any Immediate Family Member of that Stockholder, (ii) any
Estate of that Stockholder or any Immediate Family Member of that Stockholder,
(iii) the trustee of any inter vivos or testamentary trust of which all the
beneficiaries are Related Persons of that Stockholder, and (iv) any Entity the
entire equity interest in which is owned by any one or more of that Stockholder
and Related Persons of that Stockholder; and (b) if that Stockholder is an
Entity, Estate, or trust, (i) any Person who owns an equity interest in that
Stockholder on the date hereof, (ii) any Person who would be a Related Person
under clause (a) of this definition of a natural person who is an ultimate
beneficial owner of that Stockholder, or (iii) any other Entity the entire
equity interest in which is owned by any one or more of that Stockholder and
Related Persons of that Stockholder. As used in this definition, "Estate" means,
as to any natural person who has died or been adjudicated mentally incompetent
by a court of competent jurisdiction, that person's estate or the administrator,
conservator, executor, guardian, or representative of that estate.
"REPRESENTATIVES" means, with respect to any Person, the directors,
officers, employees, Affiliates, accountants (including independent certified
public accountants), advisors, attorneys, consultants, or other agents of that
Person, or any other representatives of that Person or of any of those
directors, officers, employees, Affiliates, accountants (including independent
certified public accountants), advisors, attorneys, consultants or other agents.
"RESTRICTED PAYMENT" means, with respect to any Entity at any time, any of
the following effected by that Entity, (a) any declaration or payment of any
dividend or other distribution, direct or indirect, on account of any Capital
Stock of that Entity or any Affiliate of that Entity or (b) any direct or
indirect redemption, retirement, purchase, or other acquisition for value of, or
any direct or indirect purchase, payment, or sinking fund or similar deposit for
the redemption, retirement, purchase, or other acquisition for value of, or to
obtain the surrender of, (i) any then outstanding Capital Stock of that Entity
or any Affiliate of that Entity or (ii) any then outstanding warrants, options,
or other rights to acquire or subscribe for or purchase unissued or treasury
Capital Stock of that Entity or any Affiliate of that Entity.
"S CORPORATION" means a corporation described in Code section 1362(b) that
has in effect a valid election to be an S corporation for purposes of the Code.
"S&P" means Standard and Poor's Rating Group.
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"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER INDEMNIFIED PARTY" means IDG, its Affiliates, and the
Underwriters, and each of their respective shareholders and Representatives;
provided, however, that no Person who indemnifies Seller Indemnified Parties in
this Acquisition Agreement in his capacity as a Stockholder will be a Seller
Indemnified Party for purposes of this Acquisition Agreement, notwithstanding
that the Person is a Seller Indemnified Party for purposes of one or more of the
Other Agreements.
"SELLER INDEMNIFIED LOSS" has the meaning set forth in Section 9.03(a).
"STOCKHOLDER INDEMNIFIED LOSS" has the meaning set forth in Section
9.03(b).
"SUBSIDIARY" or "SUBSIDIARIES" of any specified Person means any Entity or
Entities, as the case may be, a majority of the Capital Stock of which is or are
at that time owned, directly by the specified Person.
"SUPPLEMENTAL INFORMATION" has the meaning set forth in Section 6.08.
"TAX" or "TAXES" means all net or gross income, gross receipts, net
proceeds, sales, use, ad valorem, value added, franchise, bank shares,
withholding, payroll, employment, excise, property, deed, stamp, alternative or
add-on minimum, environmental, or other taxes, assessments, duties, fees,
levies, or other governmental charges or assessments of any nature whatever
imposed by any Governmental Requirement, whether disputed or not, together with
any interest, penalties, or additional amounts with respect thereto.
"TAXING AUTHORITY" means any Governmental Authority having or purporting
to exercise jurisdiction with respect to any Tax.
"THIRD PARTY CLAIM" has the meaning set forth in Section 9.05(a).
"THRESHOLD AMOUNT" has the meaning set forth in Section 1.01.
"TRANSACTION DOCUMENTS" means this Acquisition Agreement, the Employment
Agreement, the Escrow Agreement, the Stock Incentive Plan, and the other written
agreements, documents, instruments, and certificates executed pursuant to or in
connection with this Acquisition Agreement or the Acquisition Transaction (other
than the Companion Transaction Documents and the Underwriting Agreement),
including those specified in Article VII to be delivered at or before the
Closing Date, all as amended, modified, or supplemented from time to time.
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"UNDERWRITER" means collectively (a) the investment banking firms that,
prospectively as of the date hereof, may enter into the Underwriting Agreement,
and (b) from and after the IPO Pricing Date, the investment banking firms
parties to the Underwriting Agreement.
"UNDERWRITING AGREEMENT" has the meaning set forth in Section 7.03(c).
"WELFARE PLAN" means an "employee welfare benefit plan" as defined in
Section 3(1) of ERISA.
"WHOLLY-OWNED SUBSIDIARY" means any corporation or other Entity or
Entities, as the case may be, all of the outstanding Capital Stock of which, on
a fully diluted basis, is owned, directly by, or indirectly through another
Wholly Owned Subsidiary, by the Company.
1.03 OTHER DEFINITIONAL PROVISIONS. (a) Except as otherwise specified
herein, all references herein to any Governmental Requirement defined or
referred to herein, including the Code, ERISA, the Exchange Act, and the
Securities Act, shall be deemed references to that Governmental Requirement or
any successor Governmental Requirement, as the same may have been amended or
supplemented from time to time, and any rules or regulations promulgated
thereunder.
(b) When used in these Uniform Provisions or the Acquisition
Agreement, the words "herein", "hereof", and "hereunder" and words of similar
import shall refer to these Uniform Provisions and the Acquisition Agreement as
a whole and not to any provision of these Uniform Provisions or the Acquisition
Agreement, and the words "Article", "Section", "Annex", "Schedule", and
"Exhibit" refer to Articles and Sections of, and Annexes, Schedules, and
Exhibits to these Uniform Provisions and this Acquisition Agreement, unless
otherwise specified.
(c) Whenever the context so requires, the singular includes the
plural and vice versa, and a reference to one gender includes the other gender
and the neuter.
(d) The word "including" (and, with correlative meaning, the word
"include") means that the generality of any description preceding such word is
not limited, and the words "shall" and "will" are used interchangeably and have
the same meaning.
1.04 CAPTIONS. Captions to Articles, Sections, and subsections of, and
Annexes, Schedules, and Exhibits to, this Acquisition Agreement or any
Transaction Document are included for convenience of reference only, and such
captions shall not constitute a part of these Uniform Provisions and this
Acquisition Agreement or any Transaction Document for any other purpose or in
any way affect the meaning or construction of any provision of these Uniform
Provisions and this Acquisition Agreement or any Transaction Document.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH SELLING STOCKHOLDER
3.03 INVESTMENT INTENTIONS. (a) The Selling Stockholder (i) will be
acquiring the shares of IDG Common Stock to be issued pursuant to Section 2.04
to the Selling Stockholder solely for such Selling Stockholder's account, for
investment purposes only and with no current intention or plan to distribute,
sell, or otherwise dispose of any of those shares in connection with any
distribution; (ii) is not a party to any agreement or other arrangement for the
disposition of any shares of IDG Common Stock other than this Acquisition
Agreement; (iii) unless disclosed otherwise on Schedule 3.03, is an "accredited
investor" as defined in Securities Act Rule 501(a); (iv) (A) is able to bear
the economic risks of an investment in the IDG Common Stock acquired pursuant
to this Acquisition Agreement, (B) can afford to sustain a total loss of that
investment, (C) has such knowledge and experience in financial and business
matters that the Selling Stockholder is capable of evaluating the merits and
risks of the proposed investment in the IDG Common Stock, (D) has had an
adequate opportunity to ask questions and receive answers from the officers of
IDG concerning any and all matters relating to the transactions contemplated
hereby, including the background and experience of the current and proposed
officers and directors of IDG, the plans for the operations of the business of
IDG, the business, operations, and financial condition of the Other Founding
Companies, and any plans of IDG for additional acquisitions, and (E) has asked
all questions of the nature described in preceding clause (D), and all those
questions have been answered to such Selling Stockholder's satisfaction.
(b) The Selling Stockholder has no present plan, intention, or
arrangement to dispose of any of the IDG Common Stock received in the
Acquisition Transaction if such disposition would reduce the fair value of the
IDG Common Stock (with such value measured as of the Closing Date) retained by
the Selling Stockholder to an amount less than 50% of the fair value of the
Company Capital Stock held by the Selling Stockholder immediately before the
consummation of the Acquisition Transaction.
3.04 OWNERSHIP AND STATUS OF THE COMPANY CAPITAL STOCK. The Selling
Stockholder is the record and beneficial owner (or, if the Selling Stockholder
is a trust or the estate of a deceased natural person, the legal owner) of the
number of shares of the Company Capital Stock set forth opposite the Selling
Stockholder's name in Schedule 3.04, free and clear of all Liens, except for
the Liens accurately set forth in Schedule 3.04, all of which will be released
at or before the Effective Time.
3.05 POWER OF THE SELLING STOCKHOLDER; APPROVAL OF THE ACQUISITION
TRANSACTION. (a) The Selling Stockholder has the full power, legal capacity,
and authority to execute and deliver this Acquisition Agreement and each
Transaction Document to which the Selling Stockholder is a party and to perform
the Selling Stockholder's obligations in this Acquisition Agreement and in all
Transaction Documents to which the Selling Stockholder is a party. This
Acquisition Agreement constitutes, and each such Transaction Document when
executed in the Selling Stockholder's individual or legal capacity and
delivered by the Selling Stockholder, or the Stockholders' Agent will
constitute, the legal, valid, and binding obligation of the Selling
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Stockholder, enforceable against the Selling Stockholder in accordance
with its terms, except as that enforceability may be (i) limited by any
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the enforcement of creditors' rights generally and (ii) subject to
general principles of equity (regardless of whether that enforceability is
considered in a proceeding in equity or at law). If the Selling Stockholder is
an Entity, the Selling Stockholder has obtained, in accordance with all
applicable Governmental Requirements and its Charter Documents, all approvals
and the taking of all actions necessary for the authorization, execution,
delivery, and performance by the Selling Stockholder of this Acquisition
Agreement and the Transaction Documents to which the Selling Stockholder is a
party. If the Selling Stockholder is acting otherwise than in his individual
capacity (whether as an executor or a guardian or in any other fiduciary or
representative capacity), all actions on the part of the Selling Stockholder and
all other Persons (including any court) necessary for the authorization,
execution, delivery, and performance by the Selling Stockholder of this
Acquisition Agreement and the Transaction Documents to which the Selling
Stockholder is a party have been duly taken and the transactions contemplated
herein have been duly authorized.
(b) The Selling Stockholder, acting in each capacity in which he or
it is entitled (by reason of the Company's Charter Documents or the Governmental
Requirements of the Company's Organization State or for any other reason), to
vote to approve or disapprove the consummation of the Acquisition Transaction,
has voted all the shares of Company Capital Stock owned by him or it in favor
of the entering of this Acquisition Agreement and the consummation of the
Acquisition Transaction and the other transactions contemplated hereby.
3.06 NO CONFLICTS OR LITIGATION. The execution, delivery, and performance
in accordance with their respective terms by the Selling Stockholder of this
Acquisition Agreement and the Transaction Documents to which the Selling
Stockholder is a party do not and will not (a) violate or conflict with any
Governmental Requirement, (b) breach or constitute a default under any
agreement or instrument to which the Selling Stockholder is a party or by which
the Selling Stockholder or any of the shares of Company Capital Stock owned by
the Selling Stockholder is bound, (c) result in the creation or imposition of,
or afford any Person the right to obtain, any Lien upon any of the shares of
Company Capital Stock owned by the Selling Stockholder, or (d) if the Selling
Stockholder is an Entity, violate the Stockholder's Charter Documents. No
Litigation is pending or, to the knowledge of the Selling Stockholder,
threatened to which the Selling Stockholder is or may become a party that (i)
questions or involves the validity or enforceability of any of the Selling
Stockholder's obligations under any Transaction Document or (ii) seeks (or
reasonably may be expected to seek) (A) to prevent or delay the consummation by
the Selling Stockholder of the transactions contemplated by this Acquisition
Agreement to be consummated by the Selling Stockholder or (B) Damages in
connection with any consummation by the Selling Stockholder of the transactions
contemplated by this Acquisition Agreement.
3.07 NO BROKERS. Except with respect to the retention of, and the
remuneration to be paid to, Barth Smith Company, the Selling Stockholder has
not, directly or indirectly, in connection with this Acquisition Agreement or
the transactions contemplated hereby (a)
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employed any broker, finder, or agent or (b) agreed to pay or incurred any
obligation to pay any broker's or finder's fee, any sales commission, or any
similar form of compensation.
3.08 PREEMPTIVE AND OTHER RIGHTS; WAIVER. Except for the rights of the
Selling Stockholder to receive shares of IDG Common Stock as a result of the
Acquisition Transaction or to acquire IDG Common Stock pursuant to any written
option granted by IDG to the Selling Stockholder separate and apart from this
Acquisition Agreement, the Selling Stockholder either (a) does not own or
otherwise have any statutory or contractual preemptive or other right of any
kind (including any right of first offer or refusal) to acquire any shares of
Company Capital Stock or IDG Common Stock or (b) hereby irrevocably waives each
right of that type the Selling Stockholder does own or otherwise has.
3.09 CONTROL OF RELATED BUSINESSES. Except as accurately set forth in
Schedule 3.09, the Selling Stockholder is not, alone or with one or more other
Persons, the controlling Affiliate of, or has an equity interest in, any
Entity, business, or trade (other than the Company and the Company
Subsidiaries, if the Stockholder is an Affiliate of the Company) that (a) is
engaged in any line of business that is the same as or similar to the Business
of the Company, or (b) is, or has within the three-year period ending on the
date of this Acquisition Agreement, engaged in any transaction with the Company
or any Company Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE MANAGEMENT STOCKHOLDERS
4.04 QUALIFICATION. Schedule 4.04 of the Disclosure Statement accurately
lists all of the jurisdictions in which the Company or any Company Subsidiary
is authorized or qualified to own, lease, or operate its properties, or to
carry on its business as now conducted, and except as set forth on Schedule
4.04, neither the Company nor any Company Subsidiary owns, leases, or operates
properties or carries on any business that is Material to the Company in any
other jurisdiction.
4.05 AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS; REQUIRED
CONSENTS. (a) The execution, delivery, and performance by the Company of this
Acquisition Agreement and each Transaction Document to which it is a party, and
the consummation of the Acquisition Transaction and the other transactions
contemplated hereby and thereby, are within its corporate or other power under
its Charter Documents and the applicable Governmental Requirements of its
Organization State and have been duly authorized by all proceedings, including
actions permitted to be taken in lieu of proceedings, required under its
Charter Documents and those Governmental Requirements.
(b) This Acquisition Agreement has been, and each of the Transaction
Documents to which the Company is a party, when executed and delivered to IDG
or, if applicable, Newco (or, in the case of a Certificate of Merger, the
applicable Governmental Authorities) will have been, duly executed and
delivered by the Company and is, or when so
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<PAGE> 20
executed and delivered will be, the legal, valid, and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
as that enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether that enforceability is considered
in a proceeding in equity or at law).
(c) Except as set forth on Schedule 4.05(c) of the Disclosure
Statement, the execution, delivery, and performance in accordance with their
respective terms by the Company of the Transaction Documents to which it is a
party have not and will not (i) violate, breach, or constitute a default under
(A) the Charter Documents of the Company or any Company Subsidiary, (B) any
Governmental Requirement applicable to any of the Company or any Company
Subsidiary, or (C) any Material Agreement of the Company or any Company
Subsidiary, (ii) result in the acceleration or mandatory prepayment of any
Indebtedness, or any Guaranty not constituting Indebtedness, of the Company or
any Company Subsidiary, or afford any holder of any Indebtedness, or any
beneficiary of any Guaranty, the right to require the Company or any Company
Subsidiary to redeem, purchase, or otherwise acquire, reacquire, or repay any
Indebtedness, or to perform any Guaranty, (iii) cause or result in the
imposition of, or afford any Person the right to obtain, any Lien upon any
property or assets of the Company or any Company Subsidiary (or upon revenues,
income, or profits of the Company or any Company Subsidiary therefrom), or (iv)
result in the revocation, cancellation, suspension, or material modification, in
any single case or in the aggregate, of any Governmental Approval possessed by
the Company or any Company Subsidiary at the date hereof and necessary for the
ownership, lease, or operation of its properties, or the uninterrupted carrying
on of its business as now conducted, including any necessary Governmental
Approval under each applicable Environmental Law.
(d) Except for (i) if applicable, the filing of the Certificates of
Merger with the applicable Governmental Authorities, (ii) filings of the
Registration Statement under the Securities Act and the SEC order declaring the
Registration Statement effective under the Securities Act, (iii) as may be
required by the HSR Act, or (iv) as may be required by applicable state
securities or blue sky laws, no Governmental Approvals are required to be
obtained, and no reports or notices to, or filings with, any Governmental
Authority are required to be made by the Company or any Company Subsidiary for
the execution, delivery, or performance by the Company of the Transaction
Documents to which it is a party, the enforcement against the Company of its
obligations thereunder, or the effectuation of the Acquisition Transaction and
the other transactions contemplated hereby and thereby.
4.06 CHARTER DOCUMENTS AND RECORDS; NO VIOLATION. The Company has caused
true, complete, and correct copies of the Charter Documents, each as in effect
on the date hereof, and the minute books and similar corporate or other Entity
records of the Company and each Company Subsidiary to be delivered or otherwise
made available to IDG. No breach or violation of the Charter Documents of the
Company or any Company Subsidiary has occurred and is continuing.
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<PAGE> 21
4.07 NO DEFAULTS. Except as set forth on Schedule 4.07 of the Disclosure
Statement, no condition or state of facts exists, or, with the giving of notice
or the lapse of time or both, would exist, that (a) entitles any holder of any
outstanding Indebtedness, or any Guaranty not constituting Indebtedness, of the
Company or any Company Subsidiary, or a representative of that holder, to
accelerate the maturity, or require a mandatory prepayment, of that
Indebtedness or Guaranty, or affords that holder or its representative, or any
beneficiary of that Guaranty, the right to require the Company or any Company
Subsidiary to redeem, purchase, or otherwise acquire, reacquire, or repay any
of that Indebtedness, or to perform that Guaranty in whole or in part, (b)
entitles any Person to obtain any Lien (other than a Permitted Lien) upon any
properties or assets of the Company or any Company Subsidiary (or upon
revenues, income, or profits of any of the Company or any Company Subsidiary
therefrom), or (c) constitutes a violation or breach of, or a default under,
any Material Agreement of the Company or any Company Subsidiary by the Company
or any Company Subsidiary.
4.08 COMPANY SUBSIDIARIES. Schedule 4.08 of the Disclosure Statement
either accurately sets forth the form of organization, legal name, each assumed
name, and Organization State of each Company Subsidiary or correctly states no
Entity is a Company Subsidiary. Except as accurately disclosed in Schedule
4.08 of the Disclosure Statement, each Company Subsidiary is a Wholly Owned
Subsidiary. In the case of any Company Subsidiary that is not a Wholly Owned
Subsidiary, Schedule 4.08 of the Disclosure Statement accurately sets forth,
(a) the number of outstanding shares of Capital Stock of the Company
Subsidiary, (b) the Company's aggregate direct and indirect ownership of those
shares, and (c) the name and address of record and percentage ownership of
those shares of each holder of record thereof other than the Company or a
Company Subsidiary. No Lien exists on any outstanding share of Capital Stock
of any Company Subsidiary that is owned directly or indirectly by the Company
other than the Liens, if any, described in Schedule 4.08 of the Disclosure
Statement, all of which will be released at or before the Effective Time, and
Permitted Liens. Except as accurately set forth in Schedule 4.08 of the
Disclosure Statement, the Company does not own, of record or beneficially,
directly or indirectly through any Person, and does not control, directly or
indirectly through any Person, or otherwise, any Capital Stock or Derivative
Securities of any Entity other than a Company Subsidiary.
4.09 CAPITAL STOCK OF THE COMPANY AND THE COMPANY SUBSIDIARIES. Except
as set forth on Schedule 4.09 of the Disclosure Statement, all of the issued
and outstanding shares of Capital Stock of the Company and each Company
Subsidiary have been duly authorized and validly issued in accordance with the
applicable Governmental Requirements of their respective issuer's Organization
State and Charter Documents, and are fully paid and nonassessable. Neither the
Company nor any Company Subsidiary has issued or sold any shares of its
outstanding Capital Stock in breach or violation of any applicable statutory or
contractual preemptive rights, or any other rights of any kind (including any
rights of first offer or refusal), of any Person, or the terms of any of its
Derivative Securities that were outstanding at the time of such issuance. No
Person has, otherwise than solely by reason of that Person's right, if any, to
vote any of the shares of the Capital Stock of the Company or any Company
Subsidiary it holds (to the extent those shares afford the holder thereof any
voting rights), any right to vote on any matter with the holders of Capital
Stock of the Company or any Company Subsidiary.
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<PAGE> 22
4.10 TRANSACTIONS IN CAPITAL STOCK. Except as accurately set forth in
Schedule 4.10(a) of the Disclosure Statement, (a) the Company has no obligation
(contingent or otherwise) to purchase, redeem, or otherwise acquire or
reacquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof; and (b) no transaction
has been effected, and no action in contemplation of the transactions described
in this Acquisition Agreement has been taken since June 30, 1996 respecting the
equity ownership of either the Company or any Company Subsidiary, except as set
forth in Schedule 4.10(b).
4.11 PREDECESSOR STATUS; ETC. Schedule 4.11 of the Disclosure Statement
accurately lists all of the legal and assumed names of all predecessor
companies of the Company, including the names of any Entities from which the
Company previously acquired material assets (excluding assets acquired as
inventory in the ordinary course of business). Except as accurately disclosed
in Schedule 4.11 of the Disclosure Statement, the Company has not been a
Subsidiary or division of another Entity or a part of an acquisition that later
was rescinded.
4.12 RELATED PARTY AGREEMENTS. Except as set forth in Schedule 4.12 of
the Disclosure Statement, each Related Party Agreement in effect on the date
hereof will have been terminated as of the Closing Date.
4.13 LITIGATION. Except as accurately disclosed in Schedule 4.13 of the
Disclosure Statement, no Litigation is pending or, to the knowledge of the
Company and the Management Stockholders, threatened to which the Company or any
Company Subsidiary is or may become a party.
4.14 FINANCIAL STATEMENTS; DISCLOSURE. (a)(i) The Financial Statements
(including in each case the related schedules and notes) delivered to IDG
present fairly, in all Material respects, the consolidated financial position
of the Company and the Company Subsidiaries, if any, at the respective dates of
the balance sheets included therein and the consolidated results of their
operations and their consolidated cash flows and stockholders' or other owners'
equity for the respective periods set forth therein and have been prepared in
accordance with GAAP. As of the date of any balance sheet included in those
Financial Statements, neither the Company nor any Company Subsidiary had any
outstanding Indebtedness to any Person or any liabilities of any kind
(including contingent obligations, tax assessments, or unusual forward or
long-term commitments), or any unrealized or anticipated loss, that in the
aggregate were Material to the Company other than those reflected in those
Financial Statements or in the notes related thereto, and (ii) since the
Balance Sheet Date, no change has occurred in the business, operations,
properties or assets, liabilities, condition (financial or other), results of
operations, or prospects of the Company or any Company Subsidiary that could
reasonably be expected, either alone or together with all other such changes,
to have a Material Adverse Effect on the Company.
(b)(i) As of the date hereof, all Information that has been made
available to IDG by or on behalf of the Company or any Company Subsidiary prior
to the date of this Acquisition Agreement in connection with the transactions
contemplated hereby is, taken together, true and correct in all Material
respects and does not contain, to the knowledge of the Company or the Management
Stockholders, any untrue statement of a Material fact or omit to state a
Material fact
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<PAGE> 23
necessary in order to make the statements contained therein not misleading in
light of the circumstances under which those statements were made.
(ii) All Information that is made available to IDG by or on behalf
of the Company or any Company Subsidiary after the date hereof from time to time
prior to the Closing in connection with or pursuant to this Acquisition
Agreement or any Transaction Document will be, when made available and taken
together, true and correct in all Material respects and will not contain any
untrue statement of a Material fact or omit to state a Material fact necessary
in order to make the statements contained therein not Materially misleading in
light of the circumstances under which those statements are made.
(iii) All financial budgets and projections that have been or are
hereafter from time to time prepared by the Company or any of its
Representatives and made available to IDG pursuant to or in connection with this
Acquisition Agreement prior to the Closing have been and will be prepared and
furnished to IDG in good faith and were and will be based on facts and
assumptions that are believed by the Management Stockholders to be reasonable in
light of the then current and foreseeable business conditions of the Company and
the Company Subsidiaries and represented and will represent the Management
Stockholders' good faith estimate of the projected financial performance of the
Company and the Company Subsidiaries based on the information available to the
Management Stockholders at the time so furnished.
4.15 COMPLIANCE WITH LAWS. (a) To the knowledge of the Company and the
Management Stockholders, (i) each of the Company and the Company Subsidiaries
possesses all necessary licenses, permits, and similar Governmental Approvals
required for the conduct of its business; and (ii) each of the Company and the
Company Subsidiaries are in compliance in all Material respects with the terms
and conditions of all Governmental Approvals necessary for the ownership or
lease and the operation of its properties (including all the facilities and
sites it owns or holds under any lease) and the carrying on of its business as
now conducted. To the knowledge of the Company and the Management Stockholders,
Schedule 4.15 of the Disclosure Statement includes a complete list of all the
Governmental Approvals possessed by any Company or the Company Subsidiary
necessary for the continued uninterrupted operation of the Company and each
Company Subsidiary as they are presently operated. To the knowledge of the
Company and the Management Stockholders, all the Governmental Approvals so
listed are valid, and, except as accurately disclosed in Schedule 4.15(a) of the
Disclosure Statement, neither the Company nor any Company Subsidiary has
received any notice from any Governmental Authority of its intention to cancel,
terminate or not renew any of those Governmental Approvals.
(b) Except as accurately disclosed in Schedule 4.15(b) of the
Disclosure Statement, (i) to the knowledge of the Company and the Management
Stockholders, the Company and each Company Subsidiary has been and continues to
be in compliance with all Governmental Requirements applicable to it or any of
its presently or previously owned or operated properties (including all the
facilities and sites now or previously owned or held by it under any lease),
businesses, or operations, including all applicable Governmental Requirements
under ERISA and Environmental Laws, and (ii)(A) neither the Company nor any
Company
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<PAGE> 24
Subsidiary has received any notice from any Governmental Authority that asserts,
or raises the possibility of assertion of, any noncompliance with any of those
Governmental Requirements and, (B) to the knowledge of the Company and the
Management Stockholders, no condition or state of facts exists that would
provide a valid basis for any such assertion.
4.16 CERTAIN ENVIRONMENTAL MATTERS. Except as accurately disclosed in
Schedule 4.16 of the Disclosure Statement, (a) to the knowledge of the
Company and the Management Stockholders, the Company and each Company Subsidiary
have complied, and remain in compliance, with the provisions of all
Environmental Laws applicable to any of them or any of their respective
presently owned or operated facilities, sites, or other properties, businesses,
and operations; (b) except as accurately disclosed in Schedule 4.16(b), no
Hazardous Substances have been disposed of or released at, from, in, or on any
site owned or operated by the Company or any Company Subsidiary in violation of
applicable Environmental Laws; (c) except as accurately disclosed in Schedule
4.16(c), neither the Company nor any Company Subsidiary (or any agent or
contractor of either) has transported or arranged for the transportation of any
Hazardous Substances to, or disposed or arranged for the disposition of any
Hazardous Substances at, any off-site location that could lead to any claim
against the Company, any Company Subsidiary, IDG, or any Affiliate or Subsidiary
of IDG, as a potentially responsible party or otherwise, for any clean-up costs,
remedial work, damage to natural resources, personal injury, or property damage,
including any claim under Environmental Laws; and (d) except as accurately
disclosed in Schedule 4.16(d), no storage tanks existed or exist on or under any
of the properties owned, leased, or operated by the Company or any Company
Subsidiary from which any Hazardous Substances could have been released into the
surrounding environment. The Company has provided IDG with copies (or if not
available, accurate written summaries) of all environmental investigations,
studies, audits, reviews, inspections, and other analyses conducted by or on
behalf, or which otherwise are in the possession, of the Company or any Company
Subsidiary respecting any facility, site, or other property presently owned,
leased, or operated by the Company or any Company Subsidiary.
4.17 LIABILITIES AND OBLIGATIONS. Schedule 4.17(a) of the Disclosure
Statement accurately lists all present liabilities, of every kind, character,
and description and whether accrued, absolute, fixed, contingent, or otherwise,
of the Company and the Company Subsidiaries (a) (i) that exceed or reasonably
could be expected to exceed $10,000 and (ii) (A) that had been incurred prior
to the Current Balance Sheet Date, but are not reflected on the Current Balance
Sheet, (B) Schedule 4.17(b) accurately lists such liabilities that were
incurred after the Current Balance Sheet Date otherwise than in the ordinary
course of business, and consistent with the past practices, of that Entity, and
(b) Schedule 4.17(c) discloses each of the Company and the Company Subsidiaries'
outstanding secured and unsecured Guaranties entered by the Company or any
Company Subsidiary and, for each of those Guaranties, whether any Stockholder or
Related Person or Affiliate of any Stockholder is a Person whose obligation is
covered by that Guaranty. Schedules 4.17(a) and (b) of the Disclosure Statement
also accurately list and describe, for each of the items listed under clauses
(a) and (b) of this Section, (i) if that item is secured by any property or
asset of the Company or any Company Subsidiary, the nature of that security, and
(ii) if that item is covered in whole or in part by a Guaranty of any
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<PAGE> 25
Stockholder or any Related Person or Affiliate of any Stockholder, the name and
address of the guarantor.
4.18 RECEIVABLES. Except as accurately set forth in Schedule 4.18 of the
Disclosure Statement, all of the accounts and notes or other advances receivable
of the Company and the Company Subsidiaries reflected on the Current Balance
Sheet were collected, or are collectible, in the respective amounts so
reflected, net of the reserves, if any, reflected in the Current Balance Sheet.
Annex 6 is a complete, accurate and detailed list with respect to all
receivables of the Company which had not been collected as of, and were
reflected on, the Current Balance Sheet Date.
4.19 OWNED AND LEASED REAL PROPERTIES. (a) Schedule 4.19(a) of the
Disclosure Statement accurately lists and correctly describes in all Material
respects (i) all real properties owned or leased by the Company or any Company
Subsidiary and, for each of those properties, the address thereof, the type and
square footage of each structure located thereon, and the use thereof in the
business of the Company or the Company Subsidiary, (ii) whether each such
property was or is currently owned by any Stockholder or any Related Person or
Affiliate of any Stockholder (other than the Company or any Company Subsidiary),
and (iii) with respect to any leased property, the expiration date of the lease.
(b) The Company has provided IDG with true, complete, and correct
copies of all title reports and insurance policies owned or in the possession
of the Company or any Company Subsidiary relating to any of the real properties
listed as being owned in Schedule 4.19(a) of the Disclosure Statement. Except
as accurately set forth in Schedule 4.19(b) or those reports and policies, and
except for Permitted Liens, the Company or a Company Subsidiary owns in fee,
and has good, valid, and marketable title to each property listed in Schedule
4.19 as being owned, free and clear of all Liens.
(c) The Company has provided IDG with true, complete, and correct
copies of all leases under which the Company or a Company Subsidiary is leasing
each of the properties listed in Schedule 4.19(a) of the Disclosure Statement as
being leased and, except as accurately set forth in Schedule 4.19(c) of the
Disclosure Statement (i) each of those leases is, to the knowledge of the
Company and the Management Stockholders, valid and binding on the lessor party
thereto, and (ii) the lessee party thereto has not sublet any of the leased
space to any Person other than the Company or a Company Subsidiary.
(d) The fixed assets of the Company or any Company Subsidiary are
located at one or more of the real properties listed in Schedule 4.19 of the
Disclosure Statement and, except as accurately set forth in Schedule 4.19(d),
are well-maintained and adequate for the purposes for which they presently are
being used or held for use, ordinary wear and tear excepted.
4.20 OWNED AND LEASED PROPERTY, PLANT, AND EQUIPMENT. (a) Schedule
4.20(a) of the Disclosure Statement is an accurate and complete list, in all
Material respects, of all of the Property, Plant, and Equipment owned or leased
by the Company or any Company Subsidiary, which list states, in each case,
whether such properties were previously or presently owned, as
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<PAGE> 26
the case may be, by any Stockholder or any Related Person or Affiliate of any
Stockholder (other than the Company or any Company Subsidiaries).
(b) Except as accurately set forth in Schedule 4.20(b) of the
Disclosure Statement, the Company or a Company Subsidiary has good, valid, and
marketable title to each property listed as being owned, free and clear of all
Liens, except for Permitted Liens.
(c) The Company has provided IDG with true, complete, and correct
copies of all leases under which the Company or a Company Subsidiary is leasing
the Property, Plant, and Equipment listed in Schedule 4.20(a) of the Disclosure
Statement as being leased, and all leases referred to in Schedule 4.20(a)(i)
are, to the knowledge of the Company and the Management Stockholders, valid and
binding on the lessor party thereto, and (ii) the lessee party thereto has
not sublet any of the leased property to any Person other than the Company or a
Company Subsidiary, except as set forth in Schedule 4.20(c).
(d) Except as accurately set forth in Schedule 4.20(d) of the
Disclosure Statement, all of the Property, Plant, and Equipment listed therein
are in good working order and condition, ordinary wear and tear excepted, and
adequate for the purposes for which they presently are being used or held for
use.
4.21 PROPRIETARY RIGHTS. Except as accurately set forth in Schedule 4.21
of the Disclosure Statement, the Company or a Company Subsidiary owns or has
the legal right to use all Proprietary Rights that are necessary to the conduct
of its business as now conducted, in each case free of any claims or
infringements known to the Company or any Management Stockholder. Schedule
4.21 of the Disclosure Statement accurately lists these Proprietary Rights and
indicates those owned by the Company or any Company Subsidiary and, for those
not listed as so owned, the agreement or other arrangement pursuant to which
the Company or any Company Subsidiary is entitled to possess and use such
Proprietary Rights. Except as accurately set forth in Schedule 4.21, (a) no
consent of any Person will be required for the use of any of these Proprietary
Rights by IDG or the Surviving Corporation following the Effective Time, and
(b) no governmental registration of any of these Proprietary Rights has lapsed
or expired or been canceled, abandoned, opposed, or the subject of any
reexamination request.
4.22 TITLE TO OTHER PROPERTIES. The Company or a Company Subsidiary has
good and valid title to, or holds under a lease valid and binding on the lessor
party thereto, all its tangible personal properties and assets (other than
Property, Plant, and Equipment) that individually is, or in the aggregate are,
Material to the Company.
4.23 COMMITMENTS. (a) The Schedules of the Disclosure Statement
indicated below are complete and accurate lists of each of the following (each
a "Company Commitment") to which the Company or a Company Subsidiary is a party
or by which any of their properties are bound and that presently remain
executory in whole or in any part:
(i) each partnership, joint venture, or cost-sharing agreement
(Schedule 4.23(a)(i));
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<PAGE> 27
(ii) each guaranty or suretyship, indemnification or contribution
agreement, or performance bond (Schedule 4.23(a)(ii));
(iii) each instrument, agreement, or other obligation evidencing or
relating to Indebtedness or to money lent or to be lent to another Person
(Schedule 4.23(a)(iii));
(iv) each contract to purchase or sell real property or any
Material Property, Plant, and Equipment (Schedule 4.23(iv));
(v) each agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants, or attorneys
(other than in connection with this Acquisition Agreement and the
transactions contemplated hereby) involving total payments within any
12-month period in excess of $10,000 and that is not terminable without
penalty and on no more than 30 days' prior notice (Schedule 4.23(a)(v));
(vi) each Related Party Agreement involving total payments within
any 12-month period in excess of $10,000 and that is not terminable
without penalty on no more than 30 days' prior notice (Schedule
4.23(a)(vi));
(vii) each agreement for the acquisition or provision of services,
supplies, equipment, inventory, fixtures, or other property involving
more than $10,000 in the aggregate (Schedule 4.23(a)(vii));
(viii) each contract containing any noncompetition agreement,
covenant, or undertaking (Schedule 4.23(a)(viii));
(ix) each agreement providing for the purchase from a supplier of
all or substantially all the requirements of the Company or any Company
Subsidiary of a particular product or service (Schedule 4.23(a)(ix)); or
(x) each other agreement or commitment not made in the ordinary
course of business, or that is Material to the Company, its Business or
assets (Schedule 4.23(a)(x)).
True, correct, and complete copies of all written Company Commitments, have
heretofore been delivered or made available to IDG, and true, correct, and
complete written descriptions of all oral Company Commitments, have been
disclosed on the Schedules of the Disclosure Statement set forth above. Except
as accurately set forth in Section 4.23(b)(i) of the Disclosure Statement, (i)
there are no existing or asserted defaults, events of default, or events,
occurrences, acts, or omissions that, with the giving of notice or lapse of
time or both, would constitute defaults or events of default by the Company or
any Company Subsidiary or, to the knowledge of the Company or the Management
Stockholders, any other party thereto under any Company Commitment; (ii) no
penalties have been incurred, nor are there any amendments pending, with
respect to any of the Company Commitments that are Material to the Company.
The Company Commitments are in full force and effect and are valid and
enforceable obligations of the
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<PAGE> 28
Company or the Company Subsidiaries which are parties thereto and, to the
knowledge of the Company or the Management Stockholders, the other parties
thereto in accordance with their respective terms; and (iii) no defenses,
off-sets, or counterclaims have been asserted or, to the knowledge of the
Company or the Management Stockholders, may be made by any party thereto
(other than by the Company of a Company Subsidiary), nor has the Company or a
Company Subsidiary, as the case may be, waived any rights thereunder, except as
accurately described in Schedule 4.23(b)(i) of the Disclosure Statement.
(b) Except as accurately disclosed in Schedule 4.23(b)(ii) of the
Disclosure Statement or contemplated hereby or by any Transaction Document to
which the Company or any Company Subsidiary or Management Stockholder is a
party, (i) neither the Company nor any Company Subsidiary or Management
Stockholder has received notice of any plan or intention of any other party to
any Company Commitment to exercise any right to cancel or terminate any Company
Commitment, and neither the Company nor any Company Subsidiary or Management
Stockholder knows of any condition or state of facts that would justify the
exercise of such a right; and (ii) neither the Company nor any Company
Subsidiary or Management Stockholder currently contemplates, or has reason to
believe any other Person currently contemplates, any amendment or change to any
Company Commitment.
4.24 CAPITAL EXPENDITURES. Schedule 4.24 of the Disclosure Statement
accurately sets forth the detail and total amount of capital expenditures
currently budgeted to be incurred by the Company or any Company Subsidiary
during the balance of the Company's current fiscal year. Except as accurately
set forth in Schedule 4.24, to the knowledge of the Company or the Management
Stockholders, no condition or state of facts exists that will cause the total
capital expenditures of the Company or any Company Subsidiary for Property,
Plant, and Equipment during the next three fiscal years to exceed by a Material
amount the amount budgeted for capital expenditures of that type by the Company
or any Company Subsidiary for the current fiscal year in order to maintain the
types and levels of sales and services the Company and the Company Subsidiaries
presently provide.
4.25 INVENTORIES. Except as accurately set forth in Schedule 4.25 of the
Disclosure Statement, (a) all inventories, net of reserves determined in
accordance with GAAP, of the Company and each Company Subsidiary that are
classified as such on the Current Balance Sheet are, to the knowledge of the
Company or the Management Stockholders, merchantable and salable or usable in
the ordinary course of business of the Company or the Company Subsidiaries; (b)
the inventories reflected in the Financial Statements, as at the Balance Sheet
Date (i) were reasonable in relation to the then existing circumstances of the
Company and the Company Subsidiaries on a consolidated basis and classified as
current assets in accordance with GAAP, (ii) were consistently reflected with
past practices, and (iii) fairly reflect the average inventory levels
maintained during the 12-month period ended on that date; and (c) neither the
Company nor any Company Subsidiary depends on any single vendor for a Material
portion of its inventories, the loss of business with which could have a
Material Adverse Effect on the Company, or ever has had difficulty, Material to
the Company, in obtaining its inventories. The information set forth on Annex
5 is complete and accurate with respect to all items of inventory
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of the Company and any Company Subsidiary that has been held by the Company or
any such Company Subsidiary for two years or more prior to the Current Balance
Sheet Date.
4.26 INSURANCE. Except as indicated on Schedule 4.26(a) of the
Disclosure Statement, Schedule 4.26(a) sets forth (a) a list of all insurance
policies carried by the Company or any Company Subsidiary; and Schedule 4.26(b)
sets forth an accurate list of all insurance loss runs and worker's compensation
claims received for the most recently ended three policy years to the extent
reasonably available. True, complete, and correct copies of all insurance
policies carried by the Company or any Company Subsidiary that are presently in
effect have been provided to IDG, and all such insurance policies have been
issued by insurers of recognized responsibility and currently are, and will
remain without interruption through the Closing Date, in full force and effect.
No insurance carried by the Company or any Company Subsidiary has been canceled
by the insurer during the past five years, and neither the Company nor any
Company Subsidiary has ever been denied insurance coverage in any regard or to
any degree. Neither the Company nor any Company Subsidiary or Management
Stockholder has received any notice or other communication from any issuer of
any such insurance policy of any Material increase in any deductibles, retained
amounts, or premiums payable thereunder, and, to the knowledge of the Company or
the Management Stockholders, no such increase in deductibles, retainages, or
premiums is threatened.
4.27 EMPLOYEE MATTERS. (a) Cash Compensation. Schedule 4.27(a) of the
Disclosure Statement accurately lists the names, titles, and rates of annual
Cash Compensation, at the Current Balance Sheet Date and at the date hereof (and
the portions thereof attributable to salary or the equivalent, fixed bonuses,
discretionary bonuses, and other Cash Compensation, respectively) of all
employees (including all employees who are officers or directors), nonemployee
officers, nonemployee directors, and key consultants and independent contractors
of the Company or any Company Subsidiary that have been paid during the past
fiscal year, or reasonably expect to be paid during the current fiscal year,
aggregate compensation in excess of $50,000.
(b) Engagement and Non-Competition Agreements. Schedule 4.27(b) of
the Disclosure Statement accurately lists all Engagement and Non-Competition
Agreements remaining executory in whole or in part on the date hereof, and the
Company has provided IDG with true, complete, and correct copies of all such
Engagement and Non-Competition Agreements. Neither the Company nor any Company
Subsidiary is a party to any oral Engagement and Non-Competition Agreement with
any Person.
(c) Other Compensation Plans. Schedule 4.27(c) of the Disclosure
Statement accurately lists all Other Compensation Plans either in effect at the
date hereof or to become effective after the date hereof. The Company has
provided IDG with a true, correct, and complete copy of each of those Other
Compensation Plans that is in writing and an accurate description of each of
those Other Compensation Plans that are oral. Except as accurately set forth in
Schedule 4.27(c) of the Disclosure Statement, each of the Other Compensation
Plans, may be unilaterally amended or terminated by the Company or any Company
Subsidiary without liability
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to any of them, except as to benefits accrued thereunder prior to any such
amendment or termination.
(d) ERISA Benefit Plans. Schedule 4.27(d) of the Disclosure
Statement accurately lists each ERISA Benefit Plan maintained by, sponsored in
whole or in part by, or contributed to by, the Company, any Company Subsidiary
or any ERISA Affiliate currently, or at any time during the six-year period
ending on the date hereof, under which employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries are eligible
to participate, including, but not limited to, all pension, retirement, profit
sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plans, medical, vision,
dental or other health plans, life insurance plans, and all other employee
benefit plans or fringe benefit plans. Schedule 4.27(d) of the Disclosure
Statement classifies each of the ERISA Benefit Plans as an ERISA Pension Benefit
Plan or a Welfare Plan. The Company has provided IDG with a true, correct, and
complete copy of each ERISA Benefit Plan, all related trust agreements and
amendments, actuarial reports and valuations for the most recent three years,
summary plan descriptions, prospectuses, annual report form 5500s or similar
forms (and attachments thereto) for the most recent three years, all Internal
Revenue Service determination letters, and any related documents requested by
IDG.
(e) Employee Policies And Procedures. Schedule 4.27(e) of the
Disclosure Statement accurately lists all Employee Policies and Procedures. The
Company has provided IDG with a copy of all written Employee Policies and
Procedures and a written description of all Material unwritten Employee
Policies and Procedures.
(f) Unwritten Amendments. Except as accurately described in
Schedule 4.27(f) of the Disclosure Statement, no Material unwritten amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any of the Employment Agreements, Other Compensation Plans,
ERISA Benefit Plans, or Employee Policies and Procedures.
(g) Labor Compliance. To the knowledge of the Company or the
Management Stockholders, the Company and each Company Subsidiary has been and
is in compliance with all applicable Governmental Requirements respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and neither the Company nor any Company Subsidiary is liable
for any arrears of wages or penalties for failure to comply with any of the
foregoing. Neither the Company nor any Company Subsidiary has engaged in any
unfair labor practice or discriminated on the basis of race, color, religion,
sex, sexual orientation, national origin, age, disability, or handicap in its
employment conditions or practices. Except as accurately set forth in Schedule
4.27(g) of the Disclosure Statement, there are no (i) unfair labor practice
charges or complaints or racial, color, religious, sex, sexual orientation,
national origin, age, disability, or handicap discrimination charges or
complaints pending or, to the knowledge of the Company, threatened against the
Company or any Company Subsidiary before any Governmental Authority (nor, to
the knowledge of the Company or the Management Stockholders, does any valid
basis therefor exist) or (ii) existing or, to the knowledge of the Company or
the Management Stockholders, threatened labor strikes, disputes, grievances,
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controversies, or other labor troubles affecting the Company or any Company
Subsidiary (nor, to the knowledge of the Company or the Management Stockholders,
does any valid basis therefor exist).
(h) Unions. Except as set forth in Schedule 4.27(h) of the
Disclosure Statement, neither the Company nor any Company Subsidiary or ERISA
Affiliate has ever been a party to any agreement with any union, labor
organization, or collective bargaining unit. No employees of the Company or
any Company Subsidiary are represented by any union, labor organization, or
collective bargaining unit. Except as accurately set forth in Schedule 4.27(h)
of the Disclosure Statement, to the knowledge of the Company or the Management
Stockholders, none of the employees of the Company or any Company Subsidiary
has threatened to organize or join a union, labor organization, or collective
bargaining unit.
(i) No Aliens. All employees of the Company or any Company
Subsidiary are citizens of, or are authorized in accordance with federal
immigration laws to be employed in, the United States.
(j) Change Of Control Benefits. Except as accurately set forth in
Schedule 4.27(j) of the Disclosure Statement, neither the execution and delivery
of this Acquisition Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee from the Company or any
Company Subsidiary under any ERISA Benefit Plan, Other Compensation Plan or
otherwise, (ii) increase any benefits otherwise payable under any ERISA Benefit
Plan or Other Compensation Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit. Neither the Company nor any Company
Subsidiary, or any ERISA Affiliate, is obligated, contingently or otherwise,
under any agreement to pay any amount that would be treated as a "parachute
payment," as defined in Section 280G(b) of the Internal Revenue Code (determined
without regard to Section 280G(b)(2)(A)(ii) of the Internal Revenue Code).
(k) Retirees. Except as accurately set forth in Schedule 4.27(k)
of the Disclosure Statement, neither the Company nor any Company Subsidiary has
any obligation or commitment to provide medical, dental, or life insurance
benefits to or on behalf of any of its employees who may retire or any of its
former employees who have retired, except as may be required pursuant to the
continuation of coverage provisions of Section 4980B of the Code and the
applicable parallel provisions of ERISA.
4.28 COMPLIANCE WITH ERISA, ETC. (a) Compliance. Each of the ERISA
Benefit Plans and Other Compensation Plans (i) is in substantial compliance
with all applicable provisions of ERISA, the Code, and all other applicable
Governmental Requirements, (ii) has been administered, operated and managed in
accordance with its governing documents, and (iii) has timely filed or
distributed all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including annual reports, summary annual reports (form 5500s), summary plan
descriptions, actuarial reports, PBGC-1 Forms, or returns).
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(b) Qualification. Except as accurately set forth on Schedule 4.28
(b), all ERISA Pension Benefit Plans that are intended to be qualified under
Section 401(a) of the Code (the "Qualified Plans") are so qualified and have
received a favorable determination letter from the IRS, and the Company or any
Management Stockholders is not aware of any circumstances likely to result in
the revocation of any such favorable determination letter. To the extent that
any Qualified Plans have not been amended to comply with applicable Governmental
Requirements, the remedial amendment period permitting retroactive amendment of
these Qualified Plans has not expired and will not expire within 120 days after
the Effective Time.
(c) No Defined Benefit Plans. Neither the Company nor any Company
Subsidiary, or any ERISA Affiliate, maintains, or within the past six years has
maintained, an ERISA Pension Benefit Plan that is or was a "defined benefit
plan" subject to Title IV of ERISA.
(d) No Prohibited Transactions, Etc. With respect to each ERISA
Benefit Plan, neither such plan, nor any trustee, administrator, fiduciary,
agent or employee thereof, and none of the Stockholders, nor the Company or any
Company Subsidiary has engaged in any Prohibited Transaction with respect to
such ERISA Benefit Plan. With respect to each ERISA Pension Benefit Plan (i)
all minimum funding standards required by law with respect to funding of
benefits payable or to be payable under such plan have been met; (ii) there is
no accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(a) of ERISA; and (iii) there have been no terminations, partial
terminations, or discontinuances of contributions without a determination by
the IRS that such action does not adversely affect the tax-qualified status of
that plan.
(e) COBRA. With respect to ERISA Benefit Plans qualifying as "group
health plans" under Section 4980B of the Code or Section 607(l) or 609 of ERISA
and related regulations (relating to the benefit continuation rights imposed by
"COBRA" or qualified medical child support orders), the Company, each Company
Subsidiary, and the Stockholders have complied (and at the Effective Time will
have complied) in all Material respects with all reporting, disclosure, notice,
election and other benefit continuation and coverage requirements imposed
thereunder as and when applicable to those plans, and neither the Company nor
any Company Subsidiary has incurred (or will incur) any direct or indirect
liability or is (or will be) subject to any loss, assessment, excise tax
penalty, loss of federal income tax deduction or other sanction, arising on
account of or in respect of any direct or indirect failure by the Company, any
Company Subsidiary or any Stockholder, at any time prior to the Effective Time,
to comply with any such federal or state benefit continuation or coverage
requirement.
(f) Financial Disclosure. The Company and each Company Subsidiary
have made, and as of the Effective Date will have made or accrued, all payments
and contributions required, or reasonably expected to be required, to be made
under the provisions of each ERISA Benefit Plan or Other Compensation Plan, or
required to be made under applicable laws, rules and regulations, with respect
to any period prior to the Effective Date, such amounts to be determined using
the ongoing actuarial and funding assumptions of such plan. The Financial
Statements and the Current Balance Sheet reflect the approximate total pension,
medical and
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other benefit liability for all ERISA Benefit Plans and Other Compensation
Plans, and no Material funding changes or irregularities are reflected thereon
which would cause such statements to be not representative of prior periods.
(g) Multiemployer Plans. Except as set forth in Schedule 4.28(g) of
the Disclosure Statement, neither the Company nor any Company Subsidiary, and no
ERISA Affiliate of any of them, is, or at any time during the six-year period
ended on the date hereof was, obligated to contribute to a Multiemployer Plan.
Neither the Company nor any Company Subsidiary, and no ERISA Affiliate of any of
them, has taken, or intends to take, any action and no event has occurred which
has resulted or could reasonably be expected to result in withdrawal liability
under Title IV of ERISA with respect to any Multiemployer Plan.
(h) Claims And Litigation. Except as accurately set forth in
Schedule 4.28(h) of the Disclosure Statement, no Litigation or claims (other
than routine claims for benefits) are pending or, to the knowledge of the
Company or the Management Stockholders, threatened against, or with respect to,
any of the ERISA Benefit Plans or Other Compensation Plans or with respect to
any fiduciary, administrator, sponsor (in their capacities as such), or any
party-in-interest thereof.
(i) Excise Taxes, Damages And Penalties. With respect to any ERISA
Benefit Plan or Other Compensation Plan, no act, omission or transaction has
occurred which would result in the imposition on the Company or any Company
Subsidiary of (i) breach of fiduciary duty liability damages under Section 409
of ERISA, (ii) a civil penalty assessed pursuant to subsection (c), (i) or (l)
of Section 502 of ERISA, or (iii) any excise tax under applicable provisions of
the Code.
(j) VEBA Welfare Trust. Any trust which is intended to be exempt
from federal income taxation pursuant to Section 501(c)(9) of the Code,
satisfies the requirements of that section and has received a favorable
determination letter from the IRS regarding that exempt status and has not,
since receipt of the most recent favorable determination letter, been amended or
operated in a way that would adversely affect that exempt status.
(k) Amendments and Termination. Except as set forth in Schedule
4.28(k) of the Disclosure Statement, the Company and each Company Subsidiary
have the right to amend, modify, or terminate any ERISA Benefit Plan or Other
Compensation Plan without incurring any liability thereunder, except as to any
benefits accrued prior to such amendment, modification, or termination. Prior to
the Effective Date, the Company and each Company Subsidiary agree not to amend
or modify any ERISA Benefit Plan or Other Compensation Plan or take any other
action which results in an increase in liability under such ERISA Benefit Plan
or Other Compensation Plan. To the extent IDG adopts or continues any ERISA
Benefit Plan or Other Compensation Plan, nothing contained in this Acquisition
Agreement limits or restricts IDG's right to amend, modify, or terminate any of
such plans in such manner as IDG deems appropriate
4.29 TAXES. (a) Each of the following representations and warranties in
this Section 4.29 is qualified to the extent set forth in Schedule 4.29 of the
Disclosure Statement.
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(b) All Returns required to be filed with respect to any Tax for
which the Company or any Company Subsidiary is liable have been duly and timely
filed with the appropriate Taxing Authority. All such Returns were correct and
complete in all Material respects, and each Tax shown to be payable on each such
Return has been paid. Each Tax payable by the Company or any Company Subsidiary
by assessment has been timely paid in the amount assessed, and adequate reserves
have been established on the consolidated books of the Company or the Company
Subsidiary for all Taxes for which the Company or any Company Subsidiary is
liable, but the payment of which is not yet due. Neither the Company nor any
Company Subsidiary is, or ever has been, liable for any Tax payable by reason of
the income or property of a Person other than the Company or a Company
Subsidiary. The Company and each Company Subsidiary has timely filed true,
correct and complete declarations of estimated Tax in each jurisdiction in which
any such declaration is required to be filed by it. No Liens for Taxes exist
upon the assets of the Company or any Company Subsidiary except Liens for Taxes
which are not yet due. Neither the Company nor any Company Subsidiary is, or
ever has been, subject to Tax in any jurisdiction outside of the United States.
No Litigation with respect to any Tax for which the Company or any Company
Subsidiary is asserted to be liable is pending or, to the knowledge of the
Company or any of the Management Stockholders, threatened and no basis which the
Company or any of the Management Stockholders believes to be valid exists on
which any claim for any such Tax can be asserted against the Company or any
Company Subsidiary. There are no requests for rulings or determinations in
respect of any taxes pending between the Company or any Company Subsidiary and
any Taxing Authority. No extension of any period during which any Tax may be
assessed or collected and for which the Company or any Company Subsidiary is or
may be liable has been granted to any Taxing Authority. Neither the Company nor
any Company Subsidiary is or has been a party to any tax allocation or sharing
agreement. All amounts required to be withheld by the Company or any Company
Subsidiary and paid to governmental agencies for income, social security,
unemployment insurance, sales, excise, use and other Taxes have been collected
or withheld and paid to the proper Taxing Authority. The Company and each
Company Subsidiary have made all deposits required by law to be made with
respect to employees' withholding and other employment taxes.
(c) Neither the Company nor any Stockholder is a "foreign person,"
as that term is referred to in Section 1445(f)(3) of the Code.
(d) The Company has not filed a consent pursuant to Section 341(f)
of the Code or any comparable provision of any other tax statute and has not
agreed to have Section 341(f)(2) of the Code or any comparable provision of any
other tax statute apply to any disposition of an asset. The Company has not
made, is not obligated to make and is not a party to any agreement that could
require it to make any payment that is not deductible under Section 280G of the
Code. No asset of the Company or of any Company Subsidiary is subject to any
provision of applicable law which eliminates or reduces the allowance for
depreciation or amortization in respect of that asset below the allowance
generally available to an asset of its type. No accounting method changes of the
Company or of any Company Subsidiary exist or are proposed or threatened which
could give rise to an adjustment under Section 481 of the Code.
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4.30 GOVERNMENT CONTRACTS. Except as accurately set forth in Schedule
4.30 of the Disclosure Statement, neither the Company nor any Company
Subsidiary is a party to any governmental contract subject to price
redetermination or renegotiation.
4.31 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
accurately set forth in Schedule 4.31 of the Disclosure Statement, none of the
following has occurred with respect to the Company or any Company Subsidiary:
(a) any circumstance, condition, event, or state of facts (either
singularly or in the aggregate), other than conditions affecting the industrial
distribution business in general, which has caused, is causing, or will cause a
Material Adverse Effect on the Company;
(b) any change in its authorized or outstanding Capital Stock or
Derivative Securities;
(c) any Restricted Payment, except any declaration or payment of
dividends by any Company Subsidiary solely to the Company;
(d) any increase in, or any commitment or promise to increase, the
rates of Cash Compensation, or the amounts or other benefits paid or payable
under any Company ERISA Pension Plan or Other Compensation Plan, except for
ordinary and customary bonuses and salary increases for employees (other than
the Stockholders or an Immediate Family Member) at the times and in the amounts
consistent with its past practice;
(e) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, that will, or could reasonably
expect to, have a Material Adverse Effect on the Company or on the Surviving
Corporation;
(f) any distribution, sale, or transfer of, or any Company
Commitment to distribute, sell, or transfer, any of its assets or properties of
any kind that singularly is, or in the aggregate are, Material to the Company,
other than distributions, sales, or transfers in the ordinary course of its
business and consistent with its past practices to Persons other than the
Stockholders or an Immediate Family Member or Affiliates;
(g) any cancellation of, or agreement to cancel, any Indebtedness,
obligation, or other liability owing to it, including any Indebtedness,
obligation, or other liability of any Stockholder or any Related Person or
Affiliate thereof;
(h) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets, property, or
rights or requiring consent of any Person to the transfer and assignment of any
such assets, property, or rights;
(i) any purchase or acquisition of, or agreement, plan, or
arrangement to purchase or acquire, any property, rights, or assets, or the
entering of any other transaction, outside of the ordinary course of its
business consistent with its past practices;
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(j) any waiver of any of its rights or claims that singularly is,
or in the aggregate are, Material to the Company;
(k) any incurrence by it of any Indebtedness or any Guaranty not
constituting its Indebtedness, or any Company Commitment to incur any
Indebtedness or any such Guaranty;
(l) any investment in the Capital Stock, Derivative Securities, or
Indebtedness of any Person other than a Permitted Investment;
(m) except in accordance with the Company's consolidated capital
expenditure budget for the Company's current fiscal year, any capital
expenditure or series of related capital expenditures by the Company and the
Company Subsidiaries collectively in excess of $50,000, or commitments by the
Company and the Company Subsidiaries to make capital expenditures aggregating
in excess of $50,000; or
(n) any cancellation or termination of a Material Agreement of the
Company.
4.32 BANK RELATIONS; POWERS OF ATTORNEY. The Company has provided IDG
with Schedule 4.32 which sets forth:
(a) the name of each financial institution in which the Company or
any Company Subsidiary has borrowing or investment arrangements, deposit or
checking accounts, or safe deposit boxes;
(b) the types of those arrangements and accounts, including, as
applicable, names in which accounts or boxes are held, the account or box
numbers, and the name of each Person authorized to draw thereon or have access
thereto; and
(c) the name of each Person holding a general or special power of
attorney from the Company or any Company Subsidiary and a description of the
terms of each such power.
4.33 RELATIONS WITH GOVERNMENTS, ETC.. Neither the Company nor any
Company Subsidiary has made, offered, or agreed to offer anything of value to
any governmental official, political party, or candidate for government office
that would cause the Company or any Company Subsidiary to be in violation of
the Foreign Corrupt Practices Act of 1977 or any Governmental Requirement to a
similar effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IDG
5.04 ORGANIZATION; POWER. IDG is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, and has
all requisite corporate power and authority under the laws of its Organization
State and its Charter Documents to own or lease
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and to operate its properties presently and following the Effective Time and to
carry on its business as now conducted and as proposed to be conducted
following the Effective Time. IDG has not engaged in any operations since its
organization other than in connection with its formation and capitalization and
the transactions contemplated by this Acquisition Agreement and the Companion
Agreements.
5.05 AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS; REQUIRED
CONSENTS. (a) The execution, delivery, and performance by IDG of this
Acquisition Agreement and each Transaction Document to which it is a party, and
the consummation of the Acquisition Transaction and the other transactions
contemplated hereby and thereby, are within its corporate power under its
Charter Documents and the applicable Governmental Requirements of its
Organization State, and has been duly authorized by all proceedings, including
actions permitted to be taken in lieu of proceedings, as may be permitted under
its Charter Documents and the applicable Governmental Requirements of its
Organization State.
(b) This Acquisition Agreement has been, and each of the Transaction
Documents to which IDG is a party, when executed and delivered to the other
parties thereto (or, if applicable, in the case of the Certificates of Merger,
the applicable Governmental Authorities), will have been, duly executed and
delivered by it and is, or when so executed and delivered will be, its legal,
valid, and binding obligation, enforceable against it in accordance with its
terms, except as that enforceability may be (i) limited by any applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether that enforceability is considered
in a proceeding in equity or at law).
(c) The execution, delivery, and performance in accordance with
their respective terms by IDG of the Transaction Documents to which it is a
party have not and will not (i) violate, breach, or constitute a default under
(A) the Charter Documents of IDG, (B) any Governmental Requirement applicable to
IDG, or (C) any Material Agreement of IDG, (ii) result in the acceleration or
mandatory prepayment of any Indebtedness, or any Guaranty not constituting
Indebtedness, of IDG or afford any holder of any of that Indebtedness, or any
beneficiary of any Guaranty, the right to require IDG to redeem, purchase, or
otherwise acquire, reacquire, or repay any of that Indebtedness, or to perform
any Guaranty, (iii) cause or result in the imposition of, or afford any Person
the right to obtain, any Lien upon any property or assets of IDG (or upon any
revenues, income, or profits of IDG therefrom), or (iv) result in the
revocation, cancellation, suspension, or Material modification, singularly or
in the aggregate, of any Governmental Approval possessed by IDG at the date
hereof and necessary for the ownership, lease, or operation of its properties
or the carrying on of its business as now conducted, including any necessary
Governmental Approval under each applicable Environmental Law.
(d) Except for (i) if applicable, the filing of the Certificates of
Merger with the applicable Governmental Authorities, (ii) filings of the
Registration Statement under the Securities Act and the SEC order declaring the
Registration Statement effective under the
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Securities Act, (iii) as may be required by the HSR Act, or (iv) as may be
required by applicable state securities or blue sky laws, no Governmental
Approvals are required to be obtained, and no reports or notices to or filings
with any Governmental Authority are required to be made, by IDG for the
execution, delivery, or performance by IDG of the Transaction Documents to
which it is a party, the enforcement against IDG, as the case may be, of its
obligations thereunder, or the consummation of the Acquisition Transaction and
the other transactions contemplated thereby.
5.06 CHARTER DOCUMENTS.. IDG has delivered to the Company true,
complete, and correct copies of the Charter Documents of IDG. No breach or
violation of any Charter Document of IDG has occurred and is continuing.
5.07 CAPITAL STOCK OF IDG. (a) Immediately prior to the Effective Time,
(i) the authorized Capital Stock of IDG will be comprised of (A) 50,000,000
shares of IDG Common Stock and (B) 10,000,000 shares of preferred stock, $.10
par value per share, (ii) before giving effect to the Acquisition Transaction
and the merger or other acquisition transactions contemplated by the Companion
Agreements, (A) the number of shares of IDG Common Stock then issued and
outstanding will be as set forth in the Registration Statement when it becomes
effective under the Securities Act, (B) no shares of the IDG preferred stock
then will be issued or outstanding, and (C) IDG will have reserved for issuance
pursuant to Other Compensation Plans or the exercise of Derivative Securities
the number of shares of IDG Common Stock set forth in the Registration
Statement when it becomes effective under the Securities Act.
(b) All shares of IDG Common Stock outstanding immediately prior
to the Effective Time, and all shares of IDG Common Stock to be issued pursuant
to Section 2.04 and the IPO, when issued, (i) have been or will be duly
authorized and validly issued in accordance with the Organization State of IDG
and its Charter Documents and (ii) will be fully paid and nonassessable. None
of the shares of IDG Common Stock to be issued pursuant to Section 2.04 and the
IPO, will, when issued, be issued in breach or violation of (i) any applicable
statutory or contractual preemptive rights, or any other rights of any kind
(including any rights of first offer or refusal), of any Person or (ii) the
terms of any Derivative Securities.
5.08 SUBSIDIARIES. Immediately prior to the Closing Date, (a) IDG will
have no Subsidiaries other than Newco and any Entity defined as "Newco" in the
Companion Agreements, (b) IDG will not own, of record or beneficially, directly
or indirectly through any Person or otherwise (except pursuant hereto or to the
Companion Agreements), any Capital Stock or Derivative Securities of any Entity
not described in the Private Placement Memorandum as a Subsidiary of IDG (in
the case of IDG) or any Entity (in the case of Newco).
5.09 LIABILITIES. Except as disclosed in the Private Placement
Memorandum, IDG has no Material liabilities of any kind other than those
incurred in connection with this Acquisition Agreement and the Companion
Agreements and the transactions contemplated hereby and thereby, including the
IPO.
5.10 COMPLIANCE WITH LAWS; NO LITIGATION. IDG is in compliance with all
Governmental Requirements applicable to it, and no Litigation is pending or, to
the knowledge
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of IDG, threatened to which IDG or any IDG Subsidiary is or may become a party
that (a) questions or involves the validity or enforceability of any obligation
of IDG under any Transaction Document, (b) seeks (or reasonably may be expected
to seek) (i) to prevent or delay consummation by IDG of the transactions
contemplated by this Acquisition Agreement to be consummated by IDG, as the
case may be, or (ii) Damages from IDG in connection with any such consummation.
5.11 NO BROKERS. Except with respect to the retention and remuneration
of the Barth Smith Company, IDG has not, directly or indirectly, in connection
with this Acquisition Agreement or the transactions contemplated hereby (a)
employed any broker, finder, or agent or (b) agreed to pay or incurred any
obligation to pay any broker's or finder's fee, any sales commission, or any
similar form of compensation.
5.12 PRIVATE PLACEMENT MEMORANDUM. At the date hereof, to the knowledge
of IDG, the Private Placement Memorandum (other than the disclosures, including
the historical financial statements and the notes thereto, of the Founding
Companies, to which this Section 5.12 does not apply) does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not materially misleading in
the light of the circumstances under which those statements are made.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
6.02 ACCESS AND COOPERATION; DUE DILIGENCE. (a) From the date hereof
until the Closing Date, the Company will (i) afford to the Representatives of
IDG reasonable access to all of the key employees, sites, properties, and books
and records of the Company and any Company Subsidiary, (ii) provide IDG with
such additional financial and operational data and other information relating
to the business and properties of the Company and the Company Subsidiaries as
IDG may from time to time reasonably request, and (iii) cooperate with IDG and
its Representatives in the preparation of any documents or other material that
may be required in connection with any Transaction Documents or any Companion
Transaction Documents. Each Selling Stockholder and the Company will treat all
Confidential Information obtained by them in connection with the negotiation and
performance of this Acquisition Agreement or the due diligence investigations
conducted with respect to each Other Founding Company as confidential in
accordance with the provisions of Section 11.14.
(b) Each of the Company and the Selling Stockholders will use their
best efforts to secure, as soon as practicable after the date hereof, all
approvals or consents of third Persons as may be necessary to consummate the
transactions contemplated hereby.
(c) From the date hereof until the Closing Date, IDG will (i)
afford to the Representatives of the Company and the Selling Stockholders
access to all of the sites, properties, and books and records of IDG and any
IDG Subsidiary, (ii) provide the Company with such additional financial and
operational data and other information relating to the business
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and properties of IDG and any IDG Subsidiary as the Company or any Selling
Stockholder may from time to time reasonably request, and (iii) cooperate with
the Company and the Selling Stockholders and their respective Representatives in
the preparation of any documents or other material that may be required in
connection with any Transaction Documents.
(d) If this Acquisition Agreement is terminated pursuant to Section
12.01, IDG promptly will return to the Company all written Confidential
Information of the Company or any Company Subsidiary it or any of its
Representatives then possesses or has under their respective control.
6.03 CONDUCT OF BUSINESS PENDING CLOSING. From the date hereof until the
Effective Time, except as set forth in Schedule 6.03 of the Disclosure
Statement, the Company will, and will cause each Company Subsidiary to:
(a) carry on their businesses in substantially the same manner as
they have heretofore and not introduce any material new method of management,
operation or accounting;
(b) maintain their properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all their obligations under agreements relating to or
affecting their assets, properties, and other rights;
(d) keep in full force and effect without interruption all their
present insurance policies or other comparable insurance coverage;
(e) use reasonable commercial efforts to (i) maintain and preserve
their business organizations intact, (ii) retain their present employees, and
(iii) maintain their relationships with suppliers, customers, and others having
business relations with them;
(f) comply with all applicable Governmental Requirements; and
(g) except as required or expressly permitted by this Acquisition
Agreement, maintain the instruments and agreements governing their outstanding
Indebtedness and Material Agreements on their present terms and not enter into
new or amended Indebtedness or instruments or agreements other than in the
ordinary course of business consistent with past practices, without the prior
written consent of IDG (which consent will not be unreasonably withheld).
6.04 PROHIBITED ACTIVITIES. From the date hereof until the Effective
Time, without the prior written consent of IDG or unless as required or
expressly permitted by this Acquisition Agreement, the Company and the
Management Stockholders will not, and will not permit any Company Subsidiary
to:
(a) make any change in its Charter Documents;
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(b) issue or repurchase any of its Capital Stock or issue or
otherwise create any Derivative Securities;
(c) make any Restricted Payment, other than (i) a distribution of
80% the gross proceeds from the sale of any of the Designated Inventory arising
from and after the date hereof through the date immediately proceeding the
Closing Date or (ii) in the case of any Company that is an S Corporation,
distributions, not to exceed in the aggregate 46% of the Company's taxable
income for the period beginning on the first day of its current tax year and
ending on the Closing Date. For purposes of clause (ii) above, the taxable
income of a Company that is an S corporation shall be determined pursuant to
Code section 1363(b), except that the items described in Code section
1366(b)(1) shall not be separately stated.
(d) make any investments, other than Permitted Investments, in the
Capital Stock, Derivative Securities, or Indebtedness of any Person;
(e) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures in a single transaction or
a series of related transactions involving an aggregate amount of more than
$50,000 otherwise than in the ordinary course of its business and consistent
with its past practice;
(f) increase or commit or promise to increase the Cash Compensation
payable or to become payable to any officer, director, stockholder, employee or
agent, consultant, or independent contractor of the Company or any Company
Subsidiary or make any discretionary bonus or management fee payment to any
such Person, except bonuses or salary increases to employees (other than the
Stockholders or an Immediate Family Member) at the times and in the amounts
consistent with its past practice;
(g) create, assume, or permit to be created or imposed any Liens
(other than Permitted Liens) upon any of its assets or properties, whether now
owned or hereafter acquired, except for purchase money Liens incurred in
connection with the acquisition of equipment acquired in the ordinary course of
business consistent with past practices, and necessary or desirable for the
conduct of the business of the Company or any Company Subsidiary;
(h) except as provided in Schedule 6.04 of the Disclosure
Statement, (i) adopt, establish, amend, or terminate any ERISA Employee Benefit
Plan, or any Other Compensation Plan or Employee Policies and Procedures, or
(ii) take any discretionary action, or omit to take any contractually required
action, if that action or omission could either (A) deplete the assets of any
ERISA Employee Benefit Plan or any Other Compensation Plan or (B) increase the
liabilities or obligations under any such plan;
(i) sell, assign, lease, or otherwise transfer or dispose of any of
its owned or leased property (whether real or personal, tangible or intangible)
or equipment (A) to any Related Person or (B) to any Person other than in the
ordinary course of its business and consistent with its past practice;
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(j) negotiate for the acquisition of any business or the start-up
of any new business;
(k) merge, consolidate, or effect a share exchange with, or agree to
merge, consolidate, or effect a share exchange with, any other Entity;
(l) sell, transfer, or otherwise convey or dispose of any Company
Capital Stock;
(m) waive any of its material rights or claims, provided that it may
negotiate and adjust bills in the course of good faith disputes with customers
in a manner consistent with past practices, but such adjustments will not be
deemed to be included in Schedule 4.18 of the Disclosure Statement unless
specifically listed in the Supplemental Information;
(n) commit a material breach of or amend or terminate any Material
Agreement of the Company or any of its Governmental Approvals; or
(o) enter into any other transaction (i) outside the ordinary
course of its business and consistent with its past practice or (ii) prohibited
hereby.
6.05 NO SHOP; RELEASE OF DIRECTORS. (a) The Company and the Selling
Stockholders agree that, from the date hereof and until the first to occur of
the Effective Time or the termination of this Acquisition Agreement in
accordance with Article XII, neither the Company nor any Selling Stockholder,
nor any officer or director thereto shall, and the Company and each Selling
Stockholder will direct and use their best efforts to cause each of their
respective Representatives not to, (i) initiate, solicit, or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer (including any proposal or offer to the Stockholders) with respect to a
merger, acquisition, consolidation, or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company or any Company Subsidiary (any such proposal or offer
being an "Acquisition Proposal"), (ii) engage in any activities, discussions, or
negotiations concerning, or provide any Confidential Information respecting, the
Company or any Company Subsidiary, any Other Founding Company, or IDG to, or
have any discussions with, any Person relating to an Acquisition Proposal, or
(iii) otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. The Company and each Selling Stockholder will immediately
cease and cause to be terminated any existing activities, discussions, or
negotiations with any Persons conducted heretofore with respect to any of the
foregoing, and each will take the steps necessary to inform the Persons referred
to in the first sentence of this Section 6.05(a) of the obligations undertaken
in this Section 6.05(a), and will notify IDG immediately if any such inquiries
or proposals are received by, any such information is requested from, or any
such discussions or negotiations are sought to be initiated or continued with,
the Company or any Selling Stockholder (including the detail of any such
discussions or negotiations).
(b) Each of the Company and the Selling Stockholders hereby (i)
waives every right, if any, the Governmental Requirements of the Company's
Organization State afford the Company or the Selling Stockholders to require
the Company's directors, in the exercise of their fiduciary duties in their
capacity as such, to engage in any of the activities prohibited by this
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Section 6.05 and (ii) releases each such person from any and all liability he or
she might otherwise have to the Company or any Stockholders but for this
release.
6.06 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
will, if applicable, (a) satisfy any requirement for notice of the transactions
contemplated by this Acquisition Agreement under applicable collective
bargaining agreements and (b) provide IDG with proof that any required notice
has been sent.
6.07 NOTIFICATION OF CERTAIN MATTERS. The Selling Stockholders and the
Company shall give prompt notice to IDG of (a) the existence or occurrence of
each condition or any facts that will or reasonably could be expected to cause
any representation or warranty of the Company or any Selling Stockholder
contained herein to be untrue or incorrect in any material respect at or prior
to the Closing or on the Closing Date and (b) any material failure of any
Selling Stockholder or the Company to comply with or satisfy any covenant,
condition, or agreement to be complied with or satisfied by that Person
hereunder. IDG shall give prompt notice to the Company of the existence or
occurrence of each condition or any facts that will or reasonably could be
expected to cause any representation or warranty of IDG or, if applicable,
Newco, contained herein to be untrue or inaccurate at or prior to the Closing
or on the Closing Date, any Material failure of IDG or, if applicable, Newco to
comply with or satisfy any covenant, condition, or agreement to be complied
with or satisfied by it hereunder. The delivery of any notice pursuant to this
Section 6.07 shall not be deemed to modify the representations or warranties
herein of the party delivering that notice, or any other party (which
modification may be made only pursuant to Section 6.08), modify the conditions
set forth in Article VII, or limit or otherwise affect the remedies available
hereunder to the party receiving that notice.
6.08 SUPPLEMENTAL INFORMATION. The Company and each of the Selling
Stockholders agree that, with respect to the representations and warranties of
that party contained in this Acquisition Agreement, that party will have the
continuing obligation until the Closing Date to provide IDG promptly with such
additional supplemental Information (the "Supplemental Information"), in the
form of (a) amendments to then existing Schedules to the Disclosure Statement
or (b) additional Schedules to the Disclosure Statement, as would be necessary,
in the light of the circumstances, conditions, events, and any facts then known
to such party, to make each of those representations and warranties true and
correct as of the Closing Date. For purposes only of determining whether the
conditions to the obligations of IDG and, if applicable, Newco that are
specified in Sections 7.05 have been satisfied, and not for any purpose under
Article IX, the Disclosure Statements as of the Closing Date shall be deemed to
be the Disclosure Statements as of the date hereof as amended or supplemented
by the Supplemental Information provided to IDG prior to the Closing pursuant
to this Section 6.08; provided, however, that if the Supplemental Information
so provided discloses the existence of circumstances, conditions, events, or
any of facts that, in any combination thereof, have had a Material Adverse
Effect on the Company that was not reflected in the determination of the
Transaction Value, or in the sole judgment of IDG (which shall be conclusive
for purposes of this Section 6.08 and Article XII, but not for any purpose of
Article IX), are having or will have a Material Adverse Effect on the Company
or the Surviving Corporation, as the case may be, then IDG will be entitled
either (i) to terminate this Acquisition Agreement pursuant to Section
12.01(a)(iii) and to treat as a Seller
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Indemnified Loss or a Stockholder Indemnified Loss for all purposes of Article
IX (which treatment will not prejudice the right of any Selling Stockholder
under Article IX to contest a Damages Claim made by IDG in respect of any Seller
Indemnified Loss or Stockholder Indemnified Loss) all Damages to the Company or
the Surviving Corporation that are attributable to the circumstances,
conditions, events and any facts first disclosed herein after the date hereof in
the Supplemental Information. IDG will provide the Company and the Selling
Stockholders with copies of the Registration Statement, including all
pre-effective amendments thereto, promptly after the filing thereof with the SEC
under the Securities Act.
6.09 COOPERATION IN CONNECTION WITH THE IPO. The Company and the
Management Stockholders will (a) provide IDG, the Underwriter, and their
Representatives with all the Information concerning the Company or any of the
Stockholders that is reasonably requested by IDG or the Underwriter from time
to time in connection with effecting the IPO and (b) cooperate with IDG and the
Underwriter and their respective Representatives in the preparation and
amendment of the Registration Statement (including any of the Financial
Statements required in connection therewith) and in responding to the comments
of the SEC staff, if any, with respect thereto. The Company and the Management
Stockholders, and each Selling Stockholder (with respect to information relating
solely to such Selling Stockholder), agree promptly to advise IDG if, at any
time during the period in which a prospectus relating to the IPO is required to
be delivered under the Securities Act, any information contained in the then
current Registration Statement prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and
provide IDG with the information needed to correct or complete that disclosure.
6.10 ADDITIONAL FINANCIAL STATEMENTS. The Company will furnish to IDG
(a) as soon as available and in any event within 30 days after the end of each
of the Company's fiscal quarters that ends prior to the IPO Pricing Date, an
unaudited balance sheet of the Company, consolidated with any Company
Subsidiary (as may be required under GAAP), as of the end of that fiscal
quarter and the related consolidated statements of income or operations, cash
flows and stockholders' or other owners' equity for that fiscal quarter and for
the period of the Company's fiscal year ended with that quarter, in each case
(i) setting forth in comparative form the figures for the corresponding portion
of the Company's previous fiscal year and (ii) prepared in accordance with GAAP
applied on a basis consistent (A) throughout the periods indicated (excepting
footnotes) and (B) with the basis on which the Initial Financial Statements and
the Current Balance Sheet were prepared; and (b) if requested by IDG in
connection with any amendment of the Registration Statement and promptly
following any such request, such summary consolidated operating or other
financial information of the Company and the Company Subsidiaries as of the end
of either the first or second fiscal month in any of the Company's fiscal
quarters as IDG may request.
6.11 TERMINATION OF PLANS. If requested by IDG, the Company will, or
will cause the applicable Company Subsidiary to, if permitted by all applicable
Governmental Requirements to do so, terminate each agreement or plan identified
in Schedule 4.27(c) or (d) of the Disclosure Statement as a "Plan To Be
Terminated" prior to the Effective Time.
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6.12 DISPOSITION OF UNWANTED ASSETS. At or prior to the Closing, the
Company will make all arrangements and take all such actions as are necessary
and satisfactory to IDG to dispose of, prior to the Effective Time, those
assets of it or any Company Subsidiary that are listed in Schedule 6.12.
6.13 HSR ACT MATTERS. If IDG shall determine that filings pursuant to
and under the HSR Act are necessary or appropriate in connection with the
effectuation of the Acquisition Transaction or the consummation of the
acquisitions contemplated by the Companion Agreements, and shall advise the
Company in writing of that determination, the Company and the Management
Stockholders will promptly compile and file under the HSR Act such information
respecting it as the HSR Act requires of Company or the Stockholders, and the
expiration or termination of the applicable waiting period and any extension
thereof under the HSR Act shall be deemed a condition precedent to the Closing.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING
7.02 THE CLOSING AND CERTAIN ACTIONS. The consummation of the
transactions contemplated by this Acquisition Agreement (the "Closing") shall
take place at the offices of Kilpatrick Stockton LLP, 1100 Peachtree Street,
Atlanta, Georgia, at 10:00 a.m., Eastern Time, or at such later time, on a day
after the IPO Pricing Date as IDG, in consultation with the Underwriter, shall
specify as the Closing Date (the "Closing Date") and the IPO Closing Date (the
"IPO Closing Date"). IDG shall provide written notice thereof as promptly as
practicable to the Selling Stockholders or, if applicable, the Stockholders'
Agent. As soon as possible following such notice, and not later than two (2)
business days before such scheduled Closing Date, the parties hereto agree to
take all actions that are reasonable and necessary as may be requested by IDG to
(i) effect the Acquisition Transaction, including, but not limited to, if
applicable, (A) the execution of a Certificate of Merger (1) meeting the
requirements of the GBCC and the law of the Organization State of the Company,
and (2) providing that such merger will become effective on the IPO Closing Date
and (B) the preparations for filing of that Certificate with the Secretary of
State of Georgia and with the appropriate filing authority in the Organization
State of the Company, (ii) verify the location of the certificates evidencing
the outstanding shares of Company Capital Stock to be exchanged for the
Acquisition Consideration pursuant to Section 2.05, and (iii) satisfy the
document delivery requirements set forth in Sections 7.03 and 7.04 to which the
obligations of the parties to effect the Acquisition Transaction and the other
transactions contemplated hereby are conditioned (all such actions are referred
to as the "Pre-Closing"). The actions taken as part of the Pre-Closing will not
include either the completion of the Acquisition Transaction (but, if
applicable, may include the preliminary filing of the Certificate of Merger,
with specification for a delayed Effective Time) or the delivery of the
Acquisition Consideration pursuant to Section 2.05. Thereafter, on the Closing
Date, the Acquisition Transaction will become effective pursuant to Section
2.02, and all transactions contemplated by this Acquisition Agreement to be
closed or completed on the Closing Date, including the surrender of the Company
Capital Stock in exchange for the
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Acquisition Consideration, will simultaneously close and be consummated
effective immediately prior to the effectiveness of the closing of the IPO.
7.03 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY AT THE CLOSING. The
obligation of each party hereto to take the actions contemplated to be taken by
that party at the Closing is subject to the satisfaction of each of the
following conditions on or prior to the Closing Date:
(a) No Litigation. No Litigation shall be pending on the Closing
Date to restrain, prohibit, or otherwise materially interfere with, or to obtain
Material Damages or other relief from IDG or, if applicable, Newco in connection
with, the consummation of the Acquisition Transaction or the IPO;
(b) Governmental Approvals. All Governmental Approvals (other than
the acceptance for filing of the Certificates of Merger, if applicable)
required to be obtained by the Company, the Selling Stockholders, IDG, or, if
applicable, Newco in connection with the consummation of the Acquisition
Transaction and the IPO shall have been obtained, except for those that would
not have a Material Adverse Effect if not obtained;
(c) The Registration Statement and IPO. (i) The Underwriter shall
have agreed in writing (the "Underwriting Agreement", which shall include the
related pricing agreement, if any) to purchase from IDG on a firm commitment
basis for resale to the public initially at the IPO Price, subject to the
conditions set forth in the Underwriting Agreement, such number of shares of IDG
Common Stock covered by the Registration Statement as, when multiplied by the
IPO Price, shall equal at least, without giving effect to the exercise or
existence of any over-allotment option granted to the Underwriter, $30 million
for the sale of a number of shares of IDG Common Stock that is equal to not more
than 45% of the total outstanding shares of IDG Common Stock immediately upon
the closing of the IPO; (ii) the Registration Statement, as amended to cover the
offering, issuance, and sale by IDG of such number of shares of IDG Common Stock
at the IPO Price (which need not be set forth in the Registration Statement when
it becomes effective under the Securities Act) as described in clause (i) above
shall have been declared effective under the Securities Act by the SEC; (iii) no
stop order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC, and the SEC shall not have initiated or threatened to
initiate Litigation for that purpose; and (iv) the IPO, on terms consistent with
those described in clause (i) hereof, shall be closed simultaneously with this
Acquisition Transaction; and
(d) Shareholder Approval. The Acquisition Agreement and the
transactions contemplated herein shall have been approved by the Stockholders
of the Company in compliance with the laws of the Organization State and
Charter Documents of the Company.
7.04 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The obligations of the Company and each Selling Stockholder with
respect to actions to be taken by them at or before the Closing are subject to
the satisfaction, or the written waiver by the Company and the Selling
Stockholders, or the Stockholders' Agent on behalf of each Selling
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Stockholder, pursuant to Section 11.04 on or before the Closing Date of, in
addition to the conditions specified in Section 7.03, all of the following
conditions:
(a) Representations And Warranties. All of the representations and
warranties of IDG and, if applicable, Newco in Article V shall be true and
correct in all Material respects as of the Closing Date as though made as of
and at that time;
(b) Delivery Of Documents. IDG shall have delivered to the Company, with
copies for each Selling Stockholder:
(i) an IDG officer's certificate respecting the representations
and warranties of IDG and, if applicable, Newco in Article V and compliance with
the covenants of IDG and, if applicable, Newco in Article VI and in the form
thereof attached as an exhibit to the Closing Memorandum;
(ii) opinions dated the Closing Date and addressed to the Company
and the Selling Stockholders from Counsel for IDG and, if applicable, Newco
substantially in the forms thereof attached as exhibits to the Closing
Memorandum;
(iii) a certificate of the secretary or any assistant secretary of
IDG in the form thereof (without attachments thereto) attached as an exhibit to
the Closing Memorandum and respecting, and to which is attached, (A) the Charter
Documents of IDG and, if applicable, Newco (certified by the appropriate officer
of the Organization State of IDG or, if applicable, Newco in the case of the
certificates of incorporation included therein); (B) the resolutions of the
boards of directors of IDG and, if applicable, Newco respecting the approval of
the entering and delivery of this Acquisition Agreement and the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby; (C) a certificate respecting the incumbency and true signatures of the
IDG and, if applicable, Newco officers who executed this Acquisition Agreement
or will execute any of the Transaction Documents on behalf of IDG and, if
applicable, Newco, respectively; (D) a specimen certificate evidencing shares of
IDG Common Stock; (E) the prospectus included in the Registration Statement when
it became effective; and (F) a facsimile copy of the Underwriting Agreement as
executed and delivered by IDG and the Underwriter; and
(iv) certificates, dated as of a Current Date, duly issued by the
appropriate officer of the Organization State of IDG or, if applicable, Newco,
showing IDG or Newco to be in good standing and authorized to do business in
that State.
7.05 CONDITIONS TO THE OBLIGATIONS OF IDG AND NEWCO. The obligations of
IDG and, if applicable, Newco with respect to actions to be taken by them at or
before the Closing are subject to the satisfaction, or written waiver by IDG
and, if applicable, Newco pursuant to Section 11.04, on or before the Closing
Date of, in addition to the conditions specified in Section 7.03, all of the
following conditions:
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(a) Representations And Warranties. All the representations and
warranties of the Stockholders and the Company in Articles III and IV shall be
true and correct in all Material respects as of the Closing Date as though made
as of and at that time;
(b) Delivery Of Documents. The Selling Stockholders and the Company, as
applicable, shall have delivered to IDG:
(i) a Company officer's certificate, signed by an officer of the
Company, respecting the truthfulness of the representations and warranties of
the Company in Article IV and compliance with the covenants of the Company in
Article VI and elsewhere in the Acquisition Agreement and in the form thereof
attached as an exhibit to the Closing Memorandum;
(ii) opinions dated the Closing Date and addressed to IDG from
Counsel for the Company and the Selling Stockholders substantially in the form
thereof attached as exhibits to the Closing Memorandum;
(iii) a certificate of the secretary or any assistant secretary of
the Company in the form thereof (without attachments thereto) attached as an
exhibit to the Closing Memorandum and respecting, and to which is attached, (A)
the Charter Documents of the Company and each Company Subsidiary; (B) the
resolutions of the board of directors of the Company respecting the approval of
the entering and delivery of this Acquisition Agreement and the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby; and (C) a certificate respecting the incumbency and true signatures of
the Company officers who executed this Acquisition Agreement or will execute any
of the Transaction Documents on behalf of the Company;
(iv) from each Selling Stockholder, an executed certificate
respecting the truthfulness of the representations and warranties of the
respective Selling Stockholder in Article III and compliance with the covenants
of the Selling Stockholder in the Acquisition Agreement in substantially the
form thereof attached as an exhibit to the Closing Memorandum;
(v) for the Company and each Company Subsidiary, a certificate,
dated as of a Current Date, duly issued by the appropriate Governmental
Authorities in its Organization State and, unless waived by IDG, in each other
jurisdiction listed for it in Schedule 4.04 of the Disclosure Statement, showing
it to be in good standing and authorized to do business in its Organization
State and those other jurisdictions and that all state franchise and/or income
tax returns and taxes due by it in its Organization State and those other
jurisdictions for all periods prior to the Closing have been filed and paid; and
(vi) an executed original of each of the Transaction Documents, as
appropriate.
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(c) Closing of Companion Agreements. The transactions contemplated
in the Companion Agreements shall have closed and each of the Companion
Transaction Documents shall have been delivered to IDG as contemplated therein.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
8.02 DISCLOSURE. If, subsequent to the IPO Pricing Date and prior to the
25th day after the date of the Final Prospectus, any Selling Stockholder
becomes aware of any fact or circumstance that would change (or, if after the
Effective Time, would have changed) a representation or warranty of the Company
or any Selling Stockholder in this Acquisition Agreement or would affect any
document delivered pursuant hereto in any Material respect, that Selling
Stockholder will promptly give notice of that fact or circumstance to IDG.
8.03 PREPARATION AND FILING OF TAX RETURNS. Each party hereto will, and
will cause its Affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in filing any
Return, amended Return, or claim for refund, in determining a liability for
Taxes, or a right to a refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. This cooperation and information shall include
providing copies of all relevant portions of the relevant Returns, together
with such accompanying schedules and work papers, documents relating to rulings
or other determinations by Taxing Authorities, and records concerning the
ownership and Tax bases of property as are relevant that a party possesses.
Each party will make its employees, if any, reasonably available on a mutually
convenient basis at its cost to provide an explanation of any documents or
information so provided. Subject to the preceding sentence, each party required
to file Returns pursuant to this Acquisition Agreement shall bear all costs
attributable to the preparation and filing of those Returns.
8.04 DIRECTORS. IDG will cause such corporate proceedings as on its part
will be necessary to cause each of the persons, if any, who are named in the
Final Prospectus as persons who will become members of the board of directors of
IDG following the Effective Time, to be appointed to that board when that
prospectus so provides.
8.05 REMOVAL OF GUARANTIES, IDG will use its best efforts to cause any
Stockholder Guaranties listed in Schedule 8.05 to be terminated within 60 days
following the Effective Time.
ARTICLE IX
INDEMNIFICATION
9.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the provisions
of this Acquisition Agreement will survive the Closing and the Effective Time
indefinitely
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notwithstanding any investigation at any time made by or on behalf of any party
hereto or the provision of any Supplemental Information pursuant to Section
6.08, provided that the representations and warranties set forth in Articles IV,
V, and VI and in any certificate delivered in connection herewith with respect
to any of those representations and warranties will terminate and expire on the
second anniversary of the Effective Time, except as follows: (a) the
representations and warranties that relate expressly or by necessary implication
to Taxes, ERISA or other employment or labor matters, or the Governmental
Requirements referred to in clause (iii) of Section 9.03(a) will survive until
the expiration of the applicable statutes of limitations (including all periods
of extension and tolling); and (b) the representations and warranties that
relate expressly or by necessary implication to the environment or Environmental
Laws will survive for a period of seven years from the Effective Time, provided,
however, that the representation and warranties of Section 4.16(c) should
survive indefinitely. After a representation and warranty has terminated and
expired, no indemnification will or may be sought pursuant to this Article IX on
the basis of that representation and warranty, unless prior to such termination
and expiration a claim therefor had been presented in writing by the Person
seeking indemnification pursuant to this Article IX on the basis of that
representation and warranty.
9.03 INDEMNIFICATION OF SELLER INDEMNIFIED PARTIES. (a) Subject to the
provisions of Sections 9.02 and 9.07, the Selling Stockholders covenant and
agree that they, jointly and severally, will indemnify each Seller Indemnified
Party against, and hold each Seller Indemnified Party harmless from and in
respect of, all Damages Claims that arise from, are based on, or relate or
otherwise are attributable to (i) any breach of the representations and
warranties of the Management Stockholders or the Company set forth in Article
IV or in certificates delivered in connection herewith, (ii) any nonfulfillment
of any covenant or agreement on the part of the Management Stockholders or the
Company under this Acquisition Agreement, (iii) any liability under the
Securities Act, the Exchange Act, or other applicable Governmental Requirement
that arises out of or is based on (A) any untrue statement or alleged untrue
statement of a Material fact relating to the Company, any Company Subsidiary,
or any Stockholder that is (1) provided to IDG or its counsel by the Company or
the Selling Stockholders, and (2) contained in any preliminary prospectus
relating to the IPO, the Registration Statement, or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or (B) any
omission or alleged omission to state therein a Material fact relating to the
Company, any Company Subsidiary, or the Stockholders required to be stated
therein or necessary to make the statements therein not misleading, and not
provided to IDG or its counsel by the Company or the Selling Stockholders (each
such Damages Claim being a "Seller Indemnified Loss"); provided, however, that
no Selling Stockholder shall be obligated to indemnify any Seller Indemnified
Party against any Seller Indemnified Loss to the extent that such untrue
statement (or alleged untrue statement) was made in, or such omission (or
alleged omission) occurred in, any preliminary prospectus and any Stockholder
timely provided, in writing, corrected or the necessary additional information
to IDG and its counsel for inclusion in the Final Prospectus.
(b) Subject to the provisions of Section 9.07, each Selling Stockholder,
severally and not jointly with any other Person, covenants and agrees that he
will indemnify each Seller Indemnified Party against, and hold each Seller
Indemnified Party harmless from and in respect
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<PAGE> 51
of, all Damages Claims that arise from, are based on, or relate or otherwise are
attributable to (i) any breach of the representations and warranties of that
Selling Stockholder, solely as to that Selling Stockholder, set forth in Article
III or in certificates delivered by that Selling Stockholder and relating to
those representations and warranties, (ii) any nonfulfillment of any several,
and not joint and several, agreement on the part of that Selling Stockholder
under this Acquisition Agreement, or (iii) any liability under the Securities
Act, the Exchange Act, or other applicable Governmental Requirement that arises
out of or is based on (A) any untrue statement or alleged untrue statement of a
material fact relating solely to that Selling Stockholder that is (1) provided
to IDG or its counsel by that Selling Stockholder and (2) contained in any
preliminary prospectus relating to the IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or (B) any omission or alleged omission to state therein a material
fact relating solely to that Selling Stockholder required to be stated therein
or necessary to make the statements therein not misleading, and not provided to
IDG or its counsel by that Selling Stockholder (each such Damages Claim being a
"Stockholder Indemnified Loss"); provided, however, that no Selling Stockholder
shall be obligated to indemnify any Seller Indemnified Party against any
Stockholder Indemnified Loss to the extent that such untrue statement (or
alleged untrue statement) was made in, or such omission (or alleged omission)
occurred in, any preliminary prospectus and the Selling Stockholder timely
provided, in writing, corrected or the necessary additional information to IDG
and its counsel for inclusion in the Final Prospectus.
9.04 INDEMNIFICATION OF IDG INDEMNIFIED PARTIES. IDG covenants and
agrees that it will indemnify each IDG Indemnified Party against, and hold each
IDG Indemnified Party harmless from and in respect of, all Damages Claims that
arise from, are based on, or relate or otherwise are attributable to (i) any
breach by IDG or, if applicable, Newco of its representations and warranties
set forth herein or in its certificates delivered to the Company or the Selling
Stockholders in connection herewith, (ii) any nonfulfillment of any covenant or
agreement on the part of IDG or, if applicable, Newco under this Acquisition
Agreement (each such Damages Claim being an "IDG Indemnified Loss"); or (iii)
any liability under the Securities Act, the Exchange Act, or other applicable
Governmental Requirement that arises out of or is based on (A) any untrue
statement or alleged untrue statement of a Material fact relating to IDG or, if
applicable, Newco, or any of the Other Founding Companies contained in any
preliminary prospectus relating to the IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or (B) any omission or alleged omission to state therein a Material
fact relating to IDG, Newco, or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made.
9.05 CONDITIONS OF INDEMNIFICATION. All claims for indemnification under
this Acquisition Agreement shall be asserted and resolved as follows in this
Section 9.05.
(a) A party claiming indemnification under this Acquisition
Agreement (an "Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party claim or
claims asserted against the Indemnified Party ("Third Party Claim") that could
give rise to a right of indemnification under this
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<PAGE> 52
Acquisition Agreement (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to that claim (if any), an
estimate of the amount of Damages attributable to the Third Party Claim to the
extent feasible (which estimate shall not be conclusive of the final amount of
such claim), and the basis for the Indemnified Party's request for
indemnification under this Acquisition Agreement, and (iii) if the Third Party
Claim may create a Seller Indemnified Loss or a Stockholder Indemnified Loss,
notify the Escrow Agent as required in the Escrow Agreement of such potential
claim. Except as set forth in Section 9.02, the failure to promptly deliver a
Claim Notice shall not relieve the Indemnifying Party of its obligations to the
Indemnified Party with respect to the related Third Party Claim, except to the
extent that the resulting delay is materially prejudicial to the defense of that
claim. Within 15 days after receipt of any Claim Notice (the "Election Period"),
the Indemnifying Party shall notify the Indemnified Party whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article IX with respect to that Third Party Claim and, if the
Indemnifying Party does not dispute its potential liability to the Indemnified
Party with respect to that Third Party Claim, whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against that Third Party Claim.
(b) If the Indemnifying Party does not dispute its potential liability to
the Indemnified Party and notifies the Indemnified Party within the Election
Period that the Indemnifying Party elects to assume the defense of the Third
Party Claim, then the Indemnifying Party shall have the right to defend, at its
sole cost and expense, that Third Party Claim by all appropriate proceedings,
which proceedings shall be prosecuted diligently by the Indemnifying Party to a
final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 9.05(b) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect to that
Third Party Claim and otherwise cooperate with the Indemnifying Party in the
defense of that Third Party Claim; provided, however, that the Indemnifying
Party shall not enter into any settlement with respect to any Third Party Claim
that purports to limit the activities of, or otherwise restricts in any way,
any Indemnified Party or any Affiliate of any Indemnified Party without the
prior consent of that Indemnified Party (which consent may be withheld in the
sole discretion of that Indemnified Party). The Indemnified Party is hereby
authorized, at the sole cost and expense of the Indemnifying Party, to file,
during the Election Period, any motion, answer, or other pleadings that the
Indemnified Party shall deem necessary or appropriate to protect its interests.
The Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this Section 9.05(b) and will bear its own costs and expenses with
respect to that participation; provided, however, that if the named parties to
any such action (including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party, and the Indemnified Party has been advised by
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the Indemnifying Party, then
the Indemnified Party may employ separate counsel at the expense of the
Indemnifying Party, and, on its written notification of that employment, the
Indemnifying Party shall not have the right to assume or continue the defense of
such action on behalf of the Indemnified Party.
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(c) If the Indemnifying Party (i) within the Election Period (A) disputes
its potential liability to the Indemnified Party under this Article IX, (B)
elects not to defend the Indemnified Party pursuant to Section 9.05(a) or (C)
fails to notify the Indemnified Party that the Indemnifying Party elects to
defend the Indemnified Party pursuant to Section 9.05(b) or (ii) elects to
defend the Indemnified Party pursuant to Section 9.05(c) but fails to prosecute
diligently and promptly or otherwise dispose of or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a
written notice to the Indemnified Party to the effect that the Indemnifying
Party disputes its potential liability to the Indemnified Party under this
Article IX and if such dispute is resolved in favor of the Indemnifying Party,
the Indemnifying Party shall not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this Section 9.05 or of the
Indemnifying Party's participation therein at the Indemnified Party's request,
and the Indemnified Party shall reimburse the Indemnifying Party in full for
all reasonable costs and expenses of such litigation. The Indemnifying Party
may participate in, but not control, any defense or settlement controlled by
the Indemnified Party pursuant to this Section 9.05(c), and the Indemnifying
Party shall bear its own costs and expenses with respect to such participation.
(d) If any Indemnified Party has a claim against any Indemnifying Party
hereunder that does not involve a Third Party Claim, the Indemnified Party
shall transmit to the Indemnifying Party a written notice (the "Indemnity
Notice") describing in reasonable detail the nature of the claim, an estimate
of the amount of Damages attributable to that claim to the extent feasible
(which estimate shall not be conclusive of the final amount of such claim), and
the basis of the Indemnified Party's request for indemnification under this
Acquisition Agreement. If the Indemnifying Party does not notify the
Indemnified Party within 15 days from its receipt of the Indemnity Notice that
the Indemnifying Party disputes such claim, the claim specified by the
Indemnified Party in the Indemnity Notice shall conclusively be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed such claim, as provided above, such dispute may be resolved by
proceedings in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of such dispute within 30 days after notice of a dispute
is given.
(e) Payments of all amounts owing by an Indemnifying Party pursuant to
this Article IX relating to a Third Party Claim shall be made within 30 days
after the latest of (i) the settlement of that Third Party Claim, (ii) the
expiration of the period for appeal of a final adjudication of that Third Party
Claim, or (iii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Acquisition Agreement. Payments of all amounts owing by an Indemnifying Party
pursuant to Section 9.05(d) shall be made within 30 days after the later of (i)
the expiration of the 30-day Indemnity Notice period or (ii) the expiration of
the period for appeal of a final adjudication of the Indemnifying Party's
liability to the Indemnified Party under this Acquisition Agreement.
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9.06. REMEDIES NOT EXCLUSIVE. The remedies provided in this Acquisition
Agreement shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
9.07. LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding the
provisions of Section 9.03, no Selling Stockholder shall be required to pay any
indemnification under Section 9.03(a) or 9.03(b) until the aggregate liability
of the Selling Stockholders in respect of all Seller Indemnified Losses and
Stockholder Indemnified Losses exceeds, and only to the extent the aggregate
amount does exceed, the Threshold Amount. In no event shall (i) the aggregate
of (A) the joint and several liability of the Selling Stockholders under
Section 9.03(a), and (B) the several liability of the Selling Stockholders
under Section 9.03(b), exceed 1.3334 times the Transaction Value (the
"Indemnification Limit"), and (ii) the aggregate liability of any Selling
Stockholder (other than a Management Stockholder) exceed that Selling
Stockholder's Pro Rata Share of the Indemnification Limit; provided, however,
that each Management Stockholder's aggregate joint and several liability may
equal, but shall not exceed, the aggregate Pro Rata Share of the
Indemnification Limit for all of the Management Stockholders taken as a whole.
For purposes of determining the amount of any Seller Indemnified Loss or
Stockholder Indemnified Loss, no effect will be given to any resulting Tax
benefit to any Seller Indemnified Party.
(b) Notwithstanding the provisions of Section 9.04, IDG shall not be
required to pay any indemnification to any of the IDG Indemnified Parties until
the aggregate liability of IDG in respect of all IDG Indemnified Losses,
exceeds, and only to the extent the aggregate amount does exceed, the Threshold
Amount. In no event shall IDG be liable under this Acquisition Agreement,
including Section 9.04, for any amount in excess of the Transaction Value. For
purposes of determining the amount of IDG Indemnified Losses, no effect will be
given to any resulting Tax benefit to any IDG Indemnified Party.
9.08 SPECIAL INDEMNIFICATION CONSIDERATIONS REGARDING SELLING
STOCKHOLDERS. Notwithstanding any of the provisions set forth in this Article
IX, each Selling Stockholder hereby expressly authorizes and permits IDG to
set-off any Seller Indemnified Loss or Stockholder Indemnified Loss, whether
such liability is joint or several, against the Escrowed Shares according to
the terms and conditions set forth in the Escrow Agreement. If the acquisition
contemplated in the Acquisition Agreement is consummated, each Selling
Stockholder hereby waives any rights of contribution or subrogation that they
each may have against the Company with respect to any indemnification claim
raised by a Seller Indemnified Party.
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EXHIBIT 10.5
INDUSTRIAL DISTRIBUTION GROUP, INC.
STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION............................................................................1
1.1 Establishment of the Plan............................................................................1
1.2 Purpose of the Plan...................................................................................1
1.3 Duration of the Plan..................................................................................2
ARTICLE 2. DEFINITIONS.....................................................................................................2
ARTICLE 3. ADMINISTRATION..................................................................................................9
3.1 The Committee.........................................................................................9
3.2 Authority of the Committee............................................................................9
3.3 Decisions Binding....................................................................................10
ARTICLE 4. SHARES SUBJECT TO THE PLAN.....................................................................................10
4.1 Number of Shares.....................................................................................10
4.2 Lapsed Awards........................................................................................11
4.3 Adjustments In Authorized Shares.....................................................................11
ARTICLE 5. ELIGIBILITY AND PARTICIPATION..................................................................................12
ARTICLE 6. STOCK OPTIONS..................................................................................................13
6.1 Grant of Options.....................................................................................13
6.2 Agreement............................................................................................13
6.3 Option Price.........................................................................................14
6.4 Duration of Options..................................................................................14
6.5 Exercise of Options..................................................................................14
6.6 Payment..............................................................................................15
6.7 Limited Transferability..............................................................................16
6.8 Shareholder Rights...................................................................................17
ARTICLE 7. STOCK APPRECIATION RIGHTS......................................................................................17
7.1 Grants of SARs.......................................................................................17
7.2 Duration of SARs.....................................................................................17
7.3 Exercise of SAR......................................................................................18
7.4 Determination of Payment of Cash and/or Common Stock Upon Exercise of SAR............................18
7.5 Nontransferability...................................................................................18
7.6 Shareholder Rights...................................................................................19
ARTICLE 8. RESTRICTED STOCK; STOCK AWARDS.................................................................................19
</TABLE>
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<TABLE>
<S> <C> <C>
8.1 Grants...............................................................................................19
8.2 Restricted Period; Lapse of Restrictions.............................................................20
8.3 Rights of Holder; Limitations Thereon................................................................21
8.4 Delivery of Unrestricted Shares......................................................................22
8.5 Nonassignability of Restricted Stock.................................................................23
ARTICLE 9. PERFORMANCE SHARE AWARDS.......................................................................................23
9.1 Award................................................................................................23
9.2 Earning the Award....................................................................................23
9.3 Payment..............................................................................................24
9.4 Shareholder Rights...................................................................................24
ARTICLE 10. BENEFICIARY DESIGNATION.......................................................................................25
ARTICLE 11. DEFERRALS.....................................................................................................25
ARTICLE 12. RIGHTS OF EMPLOYEES...........................................................................................26
12.1 Employment..........................................................................................26
12.2 Participation.......................................................................................26
ARTICLE 13. CHANGE IN CONTROL.............................................................................................26
13.1 Definition..........................................................................................26
13.2 Limitation on Awards................................................................................29
ARTICLE 14. AMENDMENT, MODIFICATION AND TERMINATION.......................................................................30
14.1 Amendment, Modification and Termination.............................................................30
14.2 Awards Previously Granted...........................................................................30
14.3 Compliance With Code Section 162(m).................................................................31
ARTICLE 15. WITHHOLDING...................................................................................................31
15.1 Tax Withholding.....................................................................................31
15.2 Share Withholding...................................................................................31
ARTICLE 16. INDEMNIFICATION...............................................................................................32
ARTICLE 17. SUCCESSORS....................................................................................................32
ARTICLE 18. LEGAL CONSTRUCTION............................................................................................33
18.1 Gender and Number...................................................................................33
18.2 Severability........................................................................................33
18.3 Requirements of Law.................................................................................33
18.4 Regulatory Approvals and Listing....................................................................33
18.5 Securities Law Compliance...........................................................................34
18.6 Governing Law.......................................................................................34
</TABLE>
<PAGE> 4
INDUSTRIAL DISTRIBUTION GROUP, INC.
STOCK INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Industrial Distribution Group, Inc., a
Delaware corporation (hereinafter referred to as the "COMPANY"), hereby
establishes a stock incentive award plan known as the "Industrial Distribution
Group, Inc. Stock Incentive Plan" (the "Plan"), as set forth in this document.
The Plan permits the grant of Incentive Stock Options, Nonqualified Stock
Options, Restricted Stock, Stock Awards, Performance Share Awards and Stock
Appreciation Rights.
The Plan shall become effective on the date it is approved by the
Board of Directors (the "EFFECTIVE DATE"), subject to approval of the Plan by
the Company's stockholders within the 12-month period immediately thereafter,
and shall remain in effect as provided in SECTION 1.3.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to secure for the
Company and its shareholders the benefits of the incentive inherent in stock
ownership in the Company by employees who are largely responsible for its
future growth and continued success. The Plan promotes the success and enhances
the value of the Company by linking the personal interests of Participants (as
defined below) to those of
<PAGE> 5
the Company's shareholders, and by providing Participants with an incentive for
outstanding performance.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract and retain the services of Participants upon
whose judgment, interest and special effort the successful conduct of its
operation largely depends.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective
Date, and shall remain in effect, subject to the right of the Board of
Directors to amend or terminate the Plan at any time pursuant to ARTICLE 14,
until the day prior to the tenth (10th) anniversary of the Effective Date.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
(a) "Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and
provisions applicable to Awards granted to Participants under
this Plan.
(b) "Award" means, individually or collectively, a grant under
this Plan of Incentive Stock Options, Nonqualified Stock
Options, Restricted Stock, Stock Awards, Performance Share
Awards or Stock Appreciation Rights.
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(c) "Beneficial Owner" or "Beneficial Ownership" shall have the
meaning ascribed to such term in Rule 13d-3 of the Exchange
Act.
(d) "Board" or "Board of Directors" means the Board of Directors
of the Company.
(e) "Cause" means: (i) willful misconduct on the part of a
Participant that is materially detrimental to the Company; or
(ii) the conviction of a Participant for the commission of a
felony. The existence of "Cause" under either (i) or (ii)
shall be determined by the Committee. Notwithstanding the
foregoing, if the Participant has entered into an employment
agreement that is binding as of the date of employment
termination, and if such employment agreement defines
"Cause," and/or provides a means of determining whether
"Cause" exists, such definition of "Cause" and means of
determining its existence shall supersede this provision.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the committee appointed by the Board to
administer the Plan with respect to grants of Awards, as
specified in ARTICLE 3. Such members must be persons who
satisfy the definition of outside director under Section
162(m) of the Code.
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(h) "Common Stock" means the common stock of the Company, par
value $.01 per share.
(i) "Company" means Industrial Distribution Group, Inc., a
Delaware corporation, or any successor thereto as provided in
ARTICLE 17.
(j) "Corresponding SAR" means an SAR that is granted in relation
to a particular Option and that can be exercised only upon
the surrender to the Company, unexercised, of that portion of
the Option to which the SAR relates.
(k) "Director" means any individual who is a member of the Board
of Directors of the Company.
(l) "Disability" shall have the meaning ascribed to such term in
the Company's long-term disability plan covering the
Participant, or in the absence of such plan, a meaning
consistent with Section 22(e)(3) of the Code.
(m) "Employee" means any salaried employee of the Company, or the
Company's Subsidiaries. Directors who are not otherwise
employed by the Company or the Company's Subsidiaries shall
not be considered Employees under this Plan.
(n) "Effective Date" shall have the meaning ascribed to such term
in SECTION 1.1.
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(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(p) "Fair Market Value" shall be determined as follows:
(i) If, on the relevant date, the Shares are traded on
a national or regional securities exchange or on
The Nasdaq Stock Market ("Nasdaq") and closing
sale prices for the Shares are customarily quoted,
on the basis of the closing sale price on the
principal securities exchange on which the Shares
may then be traded or, if there is no such sale on
the relevant date, then on the immediately
preceding day on which a sale was reported;
(ii) If, on the relevant date, the Shares are not
listed on any securities exchange or traded on
Nasdaq, but nevertheless are publicly traded and
reported on Nasdaq without closing sale prices for
the Shares being customarily quoted, on the basis
of the mean between the closing bid and asked
quotations in such other over-the-counter market
as reported by Nasdaq; but, if there are no bid
and asked quotations in the over-the-counter
market as reported by Nasdaq on that date, then
the mean between the closing bid and asked
quotations in the over-the-counter market as
reported by Nasdaq on the immediately preceding
day such bid and asked prices were quoted; and
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<PAGE> 9
(iii) If, on the relevant date, the Shares are not
publicly traded as described in (i) or (ii), on
the basis of the good faith determination of the
Committee.
(q) "Incentive Stock Option" or "ISO" means an option to purchase
Shares granted under ARTICLE 6 which is designated as an
Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code.
(r) "Initial Value" means, with respect to a Corresponding SAR,
the Option Price per share of the related Option, and with
respect to an SAR granted independently of an Option, the
Fair Market Value of one share of Common Stock on the date of
grant.
(s) "Insider" shall mean an Employee who is, on the relevant
date, an officer or a director, or a ten percent (10%)
beneficial owner of any class of the Company's equity
securities that is registered pursuant to Section 12 of the
Exchange Act or any successor provision, as "officer" and
"director" are defined under Section 16 of the Exchange Act.
(t) "Named Executive Officer" means a Participant who, as of the
date of vesting and/or payout of an Award is one of the group
of "covered employees," as defined in the regulations
promulgated under Code Section 162(m), or any successor
statute.
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<PAGE> 10
(u) "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares granted under ARTICLE 6, and which is not
intended to meet the requirements of Code Section 422.
(v) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
(w) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee. The Option Price may not be less
than the Fair Market Value of a Share on the date the Option
is granted.
(x) "Participant" means an Employee or non-Employee Director who
has been determined by the Committee to contribute
significantly to the profits or growth of the Company and who
has been granted an Award under the Plan which is
outstanding.
(y) "Performance Share Award" means an Award, which, in
accordance with and subject to an Agreement, will entitle the
Participant, or his estate or beneficiary in the event of the
Participant's death, to receive cash, Common Stock or a
combination thereof.
(z) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) thereof.
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<PAGE> 11
(aa) "Retirement" shall mean retiring from employment with the
Company or any Subsidiary upon attaining the age of 65.
(bb) "Restricted Stock" means an Award of Common Stock granted in
accordance with the terms of ARTICLE 8 and the other
provisions of the Plan, and is nontransferable and subject to
a substantial risk of forfeiture. Shares of Common Stock
shall cease to be Restricted Stock when, in accordance with
the terms hereof and the applicable Agreement, they become
transferable and free of substantial risk of forfeitures.
(cc) "SAR" means a stock appreciation right that entitles the
holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the amount
determined by the Committee and specified in an Agreement. In
the absence of such specification, the holder shall be
entitled to receive in cash, with respect to each share of
Common Stock encompassed by the exercise of such SAR, the
excess of the Fair Market Value on the date of exercise over
the Initial Value. References to "SARs" include both
Corresponding SARs and SARs granted independently of Options,
unless the context requires otherwise.
(dd) "Shares" means the shares of Common Stock of the Company.
(ee) "Stock Award" means a grant of Shares under ARTICLE 8 that is
not generally subject to restrictions and pursuant to which a
certificate for the Shares is transferred to the Employee.
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(ff) "Subsidiary" means any corporation, partnership, joint
venture or other entity in which the Company has a fifty
percent (50%) or greater voting interest.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board that
is granted authority to administer the Plan, with such Committee consisting of
not less than two (2) Directors who meet the "non-employee director"
requirements of Rule 16b-3 or any successor thereto under the Exchange Act. The
members of the Committee shall be appointed from time to time by, and shall
serve at the discretion of, the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full power to select the Employees and non-Employee
Directors who are responsible for the future growth and success of the Company
who shall participate in the Plan (who may change from year to year); determine
the size and types of Awards; determine the terms and conditions of Awards in a
manner consistent with the Plan (including conditions on the exercisability of
all or a part of an Option or SAR, restrictions on transferability and vesting
provisions on Restricted Stock or Performance Share Awards and the duration of
the Awards); construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend or waive rules and regulations
for the Plan's administration; and (subject to the provisions of ARTICLE 14)
amend the terms and conditions of any
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outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan, including accelerating the
time any Option or SAR may be exercised and establishing different terms and
conditions relating to the effect of the termination of employment or other
services to the Company. Further, the Committee shall make all other
determinations which may be necessary or advisable in the Committee's opinion
for the administration of the Plan. All expenses of administering this Plan
shall be borne by the Company.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all Persons,
including the Company, the shareholders, Employees, Participants and their
estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in SECTION
4.3, the total number of Shares available for grant of Awards under the Plan
shall be an aggregate ____________________________ ______________ Shares. These
Shares may, in the discretion of the Company, be either authorized but unissued
Shares or Shares held as treasury shares, including Shares purchased by the
Company.
The following rules shall apply for purposes of the determination of
the number of Shares available for grant under the Plan:
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(a) While an Option, SAR, Stock Award, Restricted
Stock Award or Performance Share Award is
outstanding, it shall be counted against the
authorized pool of Shares, regardless of its
vested status.
(b) The grant of an Option, SAR, Stock Award,
Restricted Stock Award or Performance Share Award
shall reduce the Shares available for grant under
the Plan by the number of Shares subject to such
Award.
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires or lapses for any reason, or if Shares are withheld in
payment of the Option Price or for withholding taxes, any Shares subject to
such Award or that are withheld shall again be available for the grant of an
Award under the Plan. However, in the event that prior to the Award's
cancellation, termination, expiration or lapse, the holder of the Award at any
time received one or more "benefits of ownership" pursuant to such Award (as
defined by the Securities and Exchange Commission, pursuant to any rule or
interpretation promulgated under Section 16 of the Exchange Act), the Shares
subject to such Award shall not again be made available for regrant under the
Plan.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete
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liquidation of the Company, such adjustment shall be made in the number and
class of Shares which may be delivered under the Plan, and in the number and
class of and/or price of Shares subject to outstanding Awards granted under the
Plan, as may be determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Award shall always be a whole
number and the Committee shall make such adjustments as are necessary to insure
Awards of whole Shares.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Any key Employee of the Company or any Subsidiary, including any such
Employee who is also a director of the Company or any Subsidiary, or any
non-Employee Director, whose judgment, initiative and efforts contribute or may
be expected to contribute materially to the successful performance of the
Company or any Subsidiary shall be eligible to receive an Award under the Plan.
In determining the individuals to whom such an Award shall be granted and the
number of Shares which may be granted pursuant to that Award, the Committee
shall take into account the duties of the respective individual, his or her
present and potential contributions to the success of the Company or any
Subsidiary, and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan. No person who is a
member of the Committee shall be eligible to be granted any Award under the
Plan.
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ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each
Participant. An Option may be granted with or without a Corresponding SAR. No
Participant may be granted ISOs (under the Plan and all other incentive stock
option plans of the Company and any Subsidiary) which are first exercisable in
any calendar year for Common Stock having an aggregate Fair Market Value
(determined as of the date an Option is granted) that exceeds $100,000. The
preceding annual limit shall not apply to NQSOs. The Committee may grant a
Participant ISOs, NQSOs or a combination thereof, and may vary such Awards
among Participants. The maximum number of Shares subject to Options which can
be granted under the Plan during any 12 month period to any Participant is
_____________ Shares.
6.2 AGREEMENT. Each Option grant shall be evidenced by an Agreement
that shall specify the Option Price, the duration of the Option, the number of
Shares to which the Option pertains and such other provisions as the Committee
shall determine. The Option Agreement shall further specify whether the Award
is intended to be an ISO or an NQSO. Any portion of an Option that is not
designated as an ISO or otherwise fails or is not qualified as an ISO (even if
designated as an ISO) shall be a NQSO. If the Option is granted in connection
with a Corresponding SAR, the Agreement shall also specify the terms that apply
to the exercise of the Option and Corresponding SAR.
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6.3 OPTION PRICE. The Option Price for each grant of an ISO or NQSO
shall not be less than one hundred percent (100%) of the Fair Market Value of a
Share on the date the ISO is granted. In no event, however, shall any
Participant who, at any time would otherwise be granted an Option, owns (within
the meaning of Section 424(d) of the Code) stock of the Company possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company be eligible to receive an ISO at an Option Price less than
one hundred ten percent (110%) of the Fair Market Value of a share on the date
the ISO is granted.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date of its
grant; provided, further, however, that any ISO granted to any Participant who
at such time owns (within the meaning of Section 424(d) of the Code) stock of
the Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, shall be exercisable not later
than the fifth (5th) anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, including conditions related to
the employment of the Participant with the Company or any Subsidiary, which
need not be the same for each grant or for each Participant. Each Option shall
be exercisable for such number of Shares and at such time or times, including
periodic installments, as may be determined by the Committee at the time of the
grant. The Committee may
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provide for accelerated vesting and other rights upon the occurrence of a
Change in Control of the Company. Except as otherwise provided in the Agreement
and ARTICLE 13, the right to purchase Shares that are exercisable in periodic
installments shall be cumulative so that when the right to purchase any Shares
has accrued, such Shares or any part thereof may be purchased at any time
thereafter until the expiration or termination of the Option. The exercise or
partial exercise of either an Option or its Corresponding SAR shall result in
the termination of the other to the extent of the number of Shares with respect
to which the Option or Corresponding SAR is exercised.
6.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares. The Option Price upon exercise of any Option shall be payable to
the Company in full, either: (a) in cash, (b) cash equivalent approved by the
Committee, (c) if approved by the Committee, by tendering previously acquired
Shares (or delivering a certification of ownership of such Shares) having an
aggregate Fair Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered must have been held by the
Participant for the period required by law, if any, prior to their tender to
satisfy the Option Price), or (d) by a combination of (a), (b) and (c). The
Committee also may allow cashless exercises as permitted under Federal Reserve
Board's Regulation T, subject to applicable securities law restrictions, or by
any other means which the Committee determines to be consistent with the Plan's
purpose and applicable law.
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As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s), and may place appropriate
legends on the certificates representing such Shares.
6.7 LIMITED TRANSFERABILITY. If permitted by the Committee in the
Agreement, a Participant may transfer an Option granted hereunder, including
but not limited to transfers to members of his or her Immediate Family (as
defined below), to one or more trusts for the benefit of such Immediate Family
members, or to one or more partnerships where such Immediate Family members are
the only partners, if (i) the Participant does not receive any consideration in
any form whatsoever for such transfer, (ii) such transfer is permitted with
respect to applicable tax laws, and (iii) the Participant is an Insider, such
transfer is permitted under Rule 16b-3 of the Exchange Act as in effect from
time to time. Any Option so transferred shall continue to be subject to the
same terms and conditions in the hands of the transferee as were applicable to
said Option immediately prior to the transfer thereof. Any reference in any
such Agreement to the employment by or performance of services for the Company
by the Participant shall continue to refer to the employment of, or performance
by, the transferring Participant. For purposes hereof, "IMMEDIATE FAMILY" shall
mean the Participant and the Participant's spouse, children and grandchildren.
Any Option that is granted pursuant to any Agreement that did not initially
expressly allow the transfer of said Option and that has not been amended to
expressly permit such transfer, shall not be transferable by the Participant
otherwise than by will or by the laws
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of descent and distribution and such Option thus shall be exercisable in the
Participant's lifetime only by the Participant.
6.8 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to Shares subject to his Option until the issuance of
such Shares to the Participant pursuant to the exercise of such Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANTS OF SARS. The Committee shall designate Participants to whom
SARs are granted, and will specify the number of Shares of Common Stock subject
to each grant. An SAR may be granted with or without a related Option. All SARs
granted under this Plan shall be subject to an Agreement in accordance with the
terms of this Plan. A payment to the Participant upon the exercise of a
Corresponding SAR may not be more than the difference between the Fair Market
Value of the Shares subject to the ISO on the date of grant and the Fair Market
Value of the Shares on the date of exercise of the Corresponding SAR. The
maximum number of Shares underlying SARs which can be awarded under the Plan
during any 12 month period to any Participant is __________ Shares.
7.2 DURATION OF SARS. The duration of an SAR shall be set forth in the
Agreement as determined by the Committee. An SAR that is granted as a
Corresponding SAR shall have the same duration as the Option to which it
relates. An SAR shall terminate due to the Participant's termination of
employment at the same time as the date specified in
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ARTICLE 6 with respect to Options, regardless of whether the SAR was granted in
connection with the grant of an Option.
7.3 EXERCISE OF SAR. An SAR may be exercised in whole at any time or
in part from time to time and at such times and in compliance with such
requirements as the Committee shall determine as set forth in the Agreement;
provided, however, that a Corresponding SAR that is related to an Incentive
Stock Option may be exercised only to the extent that the related Option is
exercisable and only when the Fair Market Value exceeds the Option Price of the
related ISO. An SAR granted under this Plan may be exercised with respect to
any number of shares less than a full number of whole shares for which the SAR
could be exercised. A partial exercise of an SAR shall not affect the right to
exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the SAR.
The exercise of either an Option or Corresponding SAR shall result in the
termination of the other to the extent of the number of Shares with respect to
which the Option or its Corresponding SAR is exercised.
7.4 DETERMINATION OF PAYMENT OF CASH AND/OR COMMON STOCK UPON EXERCISE
OF SAR. At the Committee's discretion, the amount payable as a result of the
exercise of an SAR may be settled in cash, Common Stock, or a combination of
cash and Common Stock. A fractional share shall not be deliverable upon the
exercise of an SAR, but a cash payment shall be made in lieu thereof.
7.5 NONTRANSFERABILITY. Each SAR granted under the Plan shall be
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of the Participant to whom the SAR is
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granted, the SAR may be exercised only by the Participant. No right or interest
of a Participant in any SAR shall be liable for, or subject to any lien,
obligation or liability of such Participant. A Corresponding SAR shall be
subject to the same restrictions on transfer as the ISO to which it relates.
Notwithstanding the foregoing, a Participant may transfer an SAR
(other than a Corresponding SAR that relates to an Incentive Stock Option)
under the same rules and conditions as are set forth in SECTION 6.7.
7.6 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to Shares subject to his SAR until the issuance of
Shares (if any) to the Participant pursuant to the exercise of such SAR.
ARTICLE 8. RESTRICTED STOCK; STOCK AWARDS
8.1 GRANTS. The Committee may from time to time in its discretion
grant Restricted Stock and Stock Awards to Participants and may determine the
number of Shares of Restricted Stock or Stock Awards to be granted. The
Committee shall determine the terms and conditions of, and the amount of
payment, if any, to be made by the Employee for, such Restricted Stock. A grant
of Restricted Stock may, in addition to other conditions, require the
Participant to pay for such Shares of Restricted Stock, but the Committee may
establish a price below Fair Market Value at which the Participant can purchase
the Shares of Restricted Stock. Each grant of Restricted Stock shall be
evidenced by an Agreement
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containing terms and conditions not inconsistent with the Plan as the Committee
shall determine to be appropriate in its sole discretion.
8.2 RESTRICTED PERIOD; LAPSE OF RESTRICTIONS. At the time a grant of
Restricted Stock is made, the Committee shall establish a period or periods of
time (the "RESTRICTED PERIOD") applicable to such grant which, unless the
Committee otherwise provides, shall not be less than one year. Subject to the
other provisions of this SECTION 8, at the end of the Restricted Period all
restrictions shall lapse and the Restricted Stock shall vest in the
Participant. At the time a grant is made, the Committee may, in its discretion,
prescribe conditions for the incremental lapse of restrictions during the
Restricted Period and for the lapse or termination of restrictions upon the
occurrence of other conditions in addition to or other than the expiration of
the Restricted Period with respect to all or any portion of the Restricted
Stock. Such conditions may, but need not, include without limitation:
(a) The death, Disability or Retirement of the Employee
to whom Restricted Stock is granted, or
(b) The occurrence of a Change in Control (as defined in
SECTION 13.1).
The Committee may also, in its discretion, shorten or terminate the Restricted
Period, or waive any conditions for the lapse or termination of restrictions
with respect to all or any portion of the Restricted Stock at any time after
the date the grant is made.
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8.3 RIGHTS OF HOLDER; LIMITATIONS THEREON. Upon a grant of Restricted
Stock, a stock certificate (or certificates) representing the number of Shares
of Restricted Stock granted to the Participant shall be registered in the
Participant's name and shall be held in custody by the Company or a bank
selected by the Committee for the Participant's account. Following such
registration, the Participant shall have the rights and privileges of a
shareholder as to such Restricted Stock, including the right to receive
dividends, if and when declared by the Board of Directors, and to vote such
Restricted Stock, except that the right to receive cash dividends shall be the
right to receive such dividends either in cash currently or by payment in
Restricted Stock, as the Committee shall determine, and except further that,
the following restrictions shall apply:
(a) The Participant shall not be entitled to delivery of
a certificate until the expiration or termination of
the Restricted Period for the Shares represented by
such certificate and the satisfaction of any and all
other conditions prescribed by the Committee;
(b) None of the Shares of Restricted Stock may be sold,
transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted
Period and until the satisfaction of any and all
other conditions prescribed by the Committee; and
(c) All of the Shares of Restricted Stock that have not
vested shall be forfeited and all rights of the
Participant to such Shares of Restricted Stock shall
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terminate without further obligation on the part of
the Company, unless the Participant has remained an
employee (or non-Employee Director) of the Company
or any of its Subsidiaries, until the expiration or
termination of the Restricted Period and the
satisfaction of any and all other conditions
prescribed by the Committee applicable to such
Shares of Restricted Stock. Upon the forfeiture of
any shares of Restricted Stock, such forfeited
Shares shall be transferred to the Company without
further action by the Participant and shall, in
accordance with SECTION 4.2, again be available for
grant under the Plan.
With respect to any Shares received as a result of adjustments under
SECTION 4.3 hereof and any Shares received with respect to cash dividends
declared on Restricted Stock, the Participant shall have the same rights and
privileges, and be subject to the same restrictions, as are set forth in this
SECTION 8.
8.4 DELIVERY OF UNRESTRICTED SHARES. Upon the expiration or
termination of the Restricted Period for any Shares of Restricted Stock and the
satisfaction of any and all other conditions prescribed by the Committee, the
restrictions applicable to such Shares of Restricted Stock shall lapse and a
stock certificate for the number of Shares of Restricted Stock with respect to
which the restrictions have lapsed shall be delivered, free of all such
restrictions except any that may be imposed by law, to the holder of the
Restricted Stock. The Company shall not be required to deliver any fractional
Share but will pay, in lieu thereof, the Fair Market Value (determined as of
the date the
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restrictions lapse) of such fractional share to the holder thereof. Prior to or
concurrently with the delivery of a certificate for Restricted Stock, the
holder shall be required to pay an amount necessary to satisfy any applicable
federal, state and local tax requirements as set out in ARTICLE 15 below.
8.5 NONASSIGNABILITY OF RESTRICTED STOCK. Unless the Committee
provides otherwise in the Agreement, no grant of, nor any right or interest of
a Participant in or to, any Restricted Stock, or in any instrument evidencing
any grant of Restricted Stock under the Plan, may be assigned, encumbered or
transferred except, in the event of the death of a Participant, by will or the
laws of descent and distribution.
ARTICLE 9. PERFORMANCE SHARE AWARDS
9.1 AWARD. The Committee may designate Participants to whom
Performance Shares Awards will be granted at any time and from time to time for
no consideration and specify the number of shares of Common Stock covered by
the Award. No more than _________ Performance Shares may be earned by a
Participant with respect to any performance period.
9.2 EARNING THE AWARD. A Performance Share Award, or portion thereof,
will be earned, and the Participant will be entitled to receive Common Stock, a
cash payment or a combination thereof, only upon the achievement by the
Participant, the Company, or a Subsidiary of such performance objectives as the
Committee, in its discretion, shall prescribe on the date of grant. The
performance objectives applicable to Awards intended to qualify under Code
Section 162(m) shall be
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selected from among the following measures: return on equity or assets,
earnings per share, total earnings, earnings growth, return on capital,
economic value added and increase in Fair Market Value of the Shares. The
determination as to whether such objectives have been achieved shall be made by
the Committee, and such determination shall be conclusive; provided, however,
that the period in which such performance is measured shall be at least one
year.
9.3 PAYMENT. In the discretion of the Committee, the amount payable
when a Performance Share Award is earned may be settled in cash, by the grant
of Common Stock or a combination of cash and Common Stock. The aggregate Fair
Market Value of the Common Stock received by the Participant pursuant to a
Performance Share Award, together with any cash paid to the Participant, shall
be equal to the aggregate Fair Market Value, on the date the Performance Shares
are earned, of the number of shares of Common Stock equal to each Performance
Share earned. A fractional share will not be deliverable when a Performance
Share Award is earned, but a cash payment will be made in lieu thereof.
9.4 SHAREHOLDER RIGHTS. No Participant shall have, as a result of
receiving a Performance Share Award, any rights as a shareholder until and to
the extent that the Performance Shares are earned and Common Stock is
transferred to such Participant. If the Agreement so provides, a Participant
may receive a cash payment equal to the dividends that would have been payable
with respect to the number of shares of Common Stock covered by the Award
between (a) the date that the Performance Shares are awarded and (b) the date
that a transfer of Common Stock to the Participant, cash settlement, or
combination thereof is made pursuant to the Performance Share Award. A
Participant may not sell,
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transfer, pledge, exchange, hypothecate, or otherwise dispose of a Performance
Share Award or the right to receive Common Stock thereunder other than by will
or the laws of descent and distribution. After a Performance Share Award is
earned and paid in Common Stock, a Participant will have all the rights of a
shareholder with respect to the Common Stock so awarded.
ARTICLE 10. BENEFICIARY DESIGNATION
To the extent applicable, each Participant under the Plan may, from
time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his or her death before he or she receives any or all of such
benefit. Each such designation shall revoke all prior designations by the same
Participant, shall be in a form prescribed by the Company and shall be
effective only when filed by the Participant, in writing, with the Company
during the Participant's lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of a beneficiary or beneficiaries
other than the spouse.
ARTICLE 11. DEFERRALS
The Committee may permit a Participant to defer to another plan or
program such Participant's receipt of Shares that would otherwise be due
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to such Participant by virtue of the exercise of an Option or the vesting of
Restricted Stock. If any such deferral election is required or permitted, the
Committee shall, in its sole discretion, establish rules and procedures for
such payment deferrals.
ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company or a Subsidiary to terminate any Participant's
employment or engagement by the Company at any time, nor confer upon any
Participant any right to continue in the employ or service of the Company or a
Subsidiary. For purposes of the Plan, transfer of employment of a Participant
between the Company and any one of its Subsidiaries (or between Subsidiaries)
shall not be deemed a termination of employment.
12.2 PARTICIPATION. No Employee shall have the right to be selected
to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
13.1 DEFINITION. For purposes of the Plan, a "Change in Control"
shall be deemed to have occurred if:
(a) An acquisition by any Person of Beneficial Ownership
of the shares of Common Stock of the Company then
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outstanding (the "COMPANY COMMON STOCK OUTSTANDING")
or the voting securities of the Company then
outstanding entitled to vote generally in the
election of directors (the "COMPANY VOTING
SECURITIES OUTSTANDING"), if such acquisition of
Beneficial Ownership results in the Person
beneficially owning (within the meaning of Rule
13d-3 promulgated under the Exchange Act)
twenty-five percent (25%) or more of the Company
Common Stock Outstanding or twenty-five percent
(25%) or more of the combined voting power of the
Company Voting Securities Outstanding; provided,
that immediately prior to such acquisition such
Person was not a direct or indirect Beneficial Owner
of twenty-five percent (25%) or more of the Company
Common Stock Outstanding or twenty-five percent
(25%) or more of the combined voting power of
Company Voting Securities Outstanding, as the case
may be; or
(b) The approval of the shareholders of the Company of a
reorganization, merger, consolidation, complete
liquidation or dissolution of the Company, the sale
or disposition of all or substantially all of the
assets of the Company or similar corporate
transaction (in each case referred to in this
SECTION 13 as a "CORPORATE TRANSACTION") or, if
consummation of such Corporate Transaction is
subject, at the time of such approval by
shareholders, to the consent of any government or
governmental agency, the obtaining of such consent
(either explicitly or implicitly); or
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(c) A change in the composition of the Board such that
the individuals who, as of the Effective Date,
constitute the Board (such Board shall be
hereinafter referred to as the "INCUMBENT Board")
cease for any reason to constitute at least a
majority of the Board; provided, however, for
purposes of this SECTION 13 that any individual who
becomes a member of the Board subsequent to the
Effective Date whose election, or nomination for
election by the Company's shareholders, was approved
by a vote of at least a majority of those
individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed
to be such pursuant to this proviso) shall be
considered as though such individual were a member
of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of
office occurs as a result of either an actual or
threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act, including any successor to such
Rule), or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person
other than the Board, shall not be so considered as
a member of the Incumbent Board.
Notwithstanding the provisions set forth in
subsections (a) and (b), the following shall not
constitute a Change in Control for purposes of this
Plan: (1) any acquisition of shares of Common Stock
by, or
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consummation of a Corporate Transaction with, any
Subsidiary or any employee benefit plan (or related
trust) sponsored or maintained by the Company or an
affiliate; or (2) any acquisition of shares of
Common Stock, or consummation of a Corporate
Transaction, following which more than fifty percent
(50%) of, respectively, the shares then outstanding
of common stock of the corporation resulting from
such acquisition or Corporate Transaction and the
combined voting power of the voting securities then
outstanding of such corporation entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities
who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting
Securities Outstanding immediately prior to such
acquisition or Corporate Transaction in
substantially the same proportions as their
ownership, immediately prior to such acquisition or
Corporate Transaction, of the Company Common Stock
Outstanding and Company Voting Securities
Outstanding, as the case may be.
13.2 LIMITATION ON AWARDS. Notwithstanding any other provisions of the
Plan, if the right to receive or benefit from any Award under this Plan, either
alone or together with payments that a Participant has the right to receive
from the Company or a Subsidiary, would constitute a "parachute payment" (as
defined in Section 280G of the Code), all such payments shall be reduced to the
largest amount that will result in no
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portion being subject to the excise tax imposed by Section 4999 of the Code.
ARTICLE 14. AMENDMENT, MODIFICATION AND TERMINATION
14.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any
time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part; provided, that, unless approved by the holders of a majority
of the total number of Shares of the Company represented and voted at a meeting
at which a quorum is present, no amendment shall be made to the Plan if such
amendment would (a) materially modify the eligibility requirements provided in
ARTICLE 5; (b) increase the total number of Shares (except as provided in
SECTION 4.3) which may be granted under the Plan, as provided in SECTION 4.1;
(c) extend the term of the Plan; or (d) amend the Plan in any other manner
which the Board, in its discretion, determines should become effective only if
approved by the shareholders even though such shareholder approval is not
expressly required by the Plan or by law.
14.2 AWARDS PREVIOUS GRANTED. No termination, amendment or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award. The Committee shall, with the written consent
of the Participant holding such Award, have the authority to cancel Awards
outstanding and grant replacement Awards therefor.
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14.3 COMPLIANCE WITH CODE SECTION 162(M). At all times when the
Committee determines that compliance with Code Section 162(m) is desired, all
Awards granted under this Plan shall comply with the requirements of Code
Section 162(m). In addition, in the event that changes are made to Code Section
162(m) to permit greater flexibility with respect to any Award or Awards under
the Plan, the Committee may, subject to this ARTICLE 14, make any adjustments
it deem appropriate.
ARTICLE 15. WITHHOLDING
15.1 TAX WITHHOLDING. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising in connection with an Award under this Plan.
15.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options, or upon any other taxable event arising as a result of
Awards granted hereunder which are to be paid in the form of Shares,
Participants may elect, subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction. All elections shall be irrevocable, made in writing, signed by
the Participant, and elections by Insiders shall additionally comply with all
legal requirements applicable to Share transactions by such Participants.
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ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall be in addition to any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
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ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
18.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4 REGULATORY APPROVALS AND LISTING. The Company shall not be
required to issue any certificate or certificates for Shares under the Plan
prior to (i) obtaining any approval from any governmental agency which the
Company shall, in its discretion, determine to be necessary or advisable, (ii)
the admission of such shares to listing on any national securities exchange or
Nasdaq on which the Company's Shares may be listed, and (iii) the completion of
any registration or other qualification of such Shares under any state or
federal law or ruling or regulations of any governmental body which the Company
shall, in its sole discretion, determine to be necessary or advisable.
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Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security"
or "equity security" offered pursuant to the Plan to any Insider may not be
sold or transferred for at least six (6) months after the date of grant of such
Award. The terms "equity security" and "derivative security" shall have the
meanings ascribed to them in the then-current Rule 16(a) under the Exchange
Act.
18.5 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provisions of
the Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
18.6 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Georgia.
AS APPROVED BY THE BOARD OF DIRECTORS OF INDUSTRIAL DISTRIBUTION
GROUP, INC. ON JULY 10, 1997.
Industrial Distribution Group, Inc.
By:
----------------------------------
Name: Martin S. Pinson
Title: Chairman and Chief Executive Officer
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of June, 1997, by and between Martin S. Pinson, a resident of
the State of Maryland ("Executive"), and IDN FORMATION CORP., a Georgia
corporation to be reincorporated in Delaware under the name "Industrial
Distribution Group, Inc. ("IDG").
W I T N E S S E T H:
WHEREAS, IDG is engaged in the business of providing flexible
procurement solutions for industrial users and certain other users that have
maintenance, repair, operating, and production supplies requirements; and
WHEREAS, IDG desires to induce Executive to enter into employment with
IDG for the period provided in this Agreement, and Executive is willing to
accept such employment with IDG on a full-time basis, all in accordance with the
terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly acknowledged, the parties
hereby covenant and agree as follows:
1. DUTIES AND EXTENT OF SERVICES
1.1 POSITION AND DUTIES. IDG hereby enters into this Agreement to
evidence and provide for the employment of Executive as Chairman and Chief
Executive Officer of IDG. Consistent with the policies, guidelines, and
directives adopted or established by the Board of Directors of IDG, acting
pursuant to and in accordance with lawful authority, Executive shall be
responsible for the development, establishment, and implementation of policy and
strategic initiatives for IDG, with authority and responsibility consistent with
his positions as the principal executive officer and Chairman of the Board of
Directors of IDG. Executive shall be appointed as a member of the Board of
Directors of IDG upon execution of this Agreement, and Executive shall be
entitled to serve as a member of IDG's Board of Directors at all times during
the term of this Agreement. Executive shall only be required to report directly
to the Board of Directors of IDG. Executive agrees to serve, without additional
compensation, in a similar executive capacity with subsidiaries of IDG and in
such other executive capacities as may be designated by the Board of Directors
of IDG, consistent with the positions, responsibilities, and authority of
Executive hereunder. Neither Executive's employment hereunder nor any other
position referred to in the preceding sentence shall require Executive to
relocate his primary residence from his current location, and Executive may
perform his duties at such geographic locations as he may determine in his
reasonable discretion, giving due regard to the location of his primary
residence,
<PAGE> 2
the location of IDG's principal offices, and the best interest of IDG. The
immediately preceding sentence represents a material and substantial part of
this Agreement.
1.2 EXTENT OF SERVICES. Executive agrees to devote his full working
time, energy, and skill to the business of IDG and its affiliates and to the
promotion of IDG's interests and to discharge Executive's duties in good faith
and in a professional manner. Executive affirms and represents that he is under
no obligation to any former employer or other party that is in any way
inconsistent with, or that imposes any restriction upon, his acceptance of
employment hereunder with IDG, the employment of Executive by IDG, or
Executive's undertakings under this Agreement.
2. TERM
The term of this Agreement (the "Term") shall commence on June 1, 1997
(the "Effective Date") and shall continue for a three-year period, unless and
until this Agreement has been terminated in accordance with Section 7 hereto.
3. COMPENSATION
3.1 BASE SALARY. IDG shall pay to Executive a base annual salary (the
"Base Salary") of Two Hundred Fifty Thousand Dollars ($250,000) for each fiscal
year during the Term (prorated for any partial fiscal year) subject, however, to
being increased for each fiscal year beginning January 1, 1998, to such higher
amount as may be approved by the Board of Directors of IDG. All Base Salary
shall be paid in equal periodic installments in accordance with IDG's normal
payroll policies, as may be in effect or modified during the Term.
3.2 GENERAL INCENTIVE COMPENSATION AND SAVINGS PROGRAMS. IDG hereby
agrees that, as of June 1, 1997, Executive shall be entitled to participate, to
an extent consistent with Executive's title and Base Salary, in an incentive
compensation program that shall be established by IDG, and in all savings
programs, including stock option or other stock-based compensation plans or
profit sharing plans, 401(k) plans, or other savings programs, as may be
established in general by IDG for similarly situated officers, other key
employees, or employees as a group.
Nothing contained herein and no action taken in respect of any
bonus (or otherwise in respect of this Section 3.2) shall create or be construed
to create a trust of any kind. Executive's right to receive any bonus pursuant
to this Section 3.2 shall be no greater than the right of an unsecured general
creditor of IDG to receive payment from IDG. Any bonus paid under this Section
3.2 or otherwise shall be paid from the general funds of IDG, and no special or
separate fund shall be established, and no segregation of assets shall be made,
to assure payment of any bonus hereunder.
3.3 WITHHOLDINGS, PAYROLL TAXES AND OTHER DEDUCTIONS. The payment of
Base Salary and any other compensation hereunder shall be subject to
withholdings and payroll taxes required by applicable law, and such other
deductions as may be required under IDG's employee benefit plans in which
Executive has elected to participate.
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4. BENEFITS.
During Executive's employment hereunder, Executive shall:
(a) be eligible to participate in employee fringe benefits and
any pension or profit sharing plans that may be provided by IDG for its
executive employees in general in accordance with the provisions of any
such plans, as the same may be in effect from time to time;
(b) be eligible to participate in any medical and health plans
or other employee welfare benefit plans that may be provided by IDG for
its executive employees in general in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(c) be entitled to annual paid vacation in accordance with IDG
policy that may be applicable to executive employees from time to time;
and
(d) be entitled to sick leave, sick pay, and disability
benefits in accordance with any IDG policy that may be applicable to
executive employees from time to time.
5. CONFIDENTIAL INFORMATION
5.1 DEFINITION. For purposes of this Agreement, "Confidential
Information" shall mean any and all trade secrets and other information
considered by IDG as being confidential and concerning the business and affairs
of IDG, including but not limited to (a) product specifications, discoveries,
improvements, processes, marketing and service methods or techniques, formulae,
designs, styles, specifications, data bases, computer programs (whether in
source code or object code), know-how, strategies, data, customer lists, current
and anticipated customer requirements, price lists, market studies, business
plans, and any other information, however documented, that is a trade secret of
IDG, or any of its affiliates; (b) information concerning the business and
affairs of IDG (which includes, but is not limited to, historical financial
statements, financial projections and budgets, historical and projected sales,
capital spending budgets and plans, business plans, the names and background of
key personnel, personnel training and techniques and materials, and sales
techniques and materials of IDG), however documented; and (c) notes, analyses,
compilations, studies, summaries, and other material prepared by or for IDG
containing or based, in whole or in part, on any information included in the
foregoing; provided, however, Confidential Information shall not include any
information that Executive demonstrates was or became generally known or
available to the public other than as a result of an unauthorized or unlawful
disclosure directly or indirectly by Executive.
5.2 ACKNOWLEDGMENTS AND AGREEMENTS BY EXECUTIVE. Executive hereby
acknowledges, agrees, and covenants as follows:
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<PAGE> 4
(a) Executive's employment hereunder creates a relationship of
confidence and trust between Executive and IDG and its affiliates with
respect to the Confidential Information of IDG and its affiliates and
other information pertaining to the businesses of any client or
customer of IDG or its affiliates that may be made known to Executive
by IDG or any of its affiliates, or by any client or customer of IDG or
any of its affiliates, or learned by Executive during the period of
Executive's employment under this Agreement.
(b) Executive possesses or will possess Confidential
Information that has been, or will be, created, discovered, or
developed by, or otherwise becomes known or disclosed to Executive
(including, without limitation, information created, discovered, or
developed by, or made known to, Executive during the period of
Executive's employment hereunder or during discussions with or
investigations of IDG in contemplation of such employment), which
information Executive acknowledges has or may have commercial value to
IDG or its affiliates in the businesses in which they are or proposed
to be engaged.
(c) Executive hereby agrees that Executive will keep
confidential and will hold for IDG's sole benefit all Confidential
Information, which Executive acknowledges is, or shall be, proprietary
to IDG or its affiliates.
(d) Executive also agrees that Executive will not, without the
prior approval of the Board of Directors of IDG, use for Executive's
benefit or disclose at any time during Executive's employment by IDG,
or thereafter, except to the extent required for the performance by
Executive of Executive's duties as an employee of IDG, any information
obtained or developed by Executive while in the employ of IDG with
respect to the products, employees, financial affairs, or methods of
design, distribution, marketing, service, or procurement of any
customer, client, or supplier of IDG or any of its affiliates, or any
confidential matter with respect thereto, except information that at
the time is generally known to the public other than as a result of
disclosure by Executive not permitted hereunder.
(e) Executive acknowledges and agrees that a remedy at law for
any breach or threatened breach of the provisions of this Section 5
would be inadequate and, therefore, agrees that IDG shall be entitled
to injunctive relief in addition to any other available rights and
remedies in case of any such breach or threatened breach; provided,
however, that nothing contained herein shall be construed as
prohibiting IDG or any of its affiliates from pursuing any other rights
and remedies available for any such breach or threatened breach.
(f) Executive agrees that upon termination of Executive's
employment by IDG for any reason, Executive shall forthwith return to
IDG, or destroy to the satisfaction of IDG, all Confidential
Information in whatever form such information is in the possession of
Executive or under Executive's control, and shall additionally return
all documents and other property that is in Executive's possession or
under Executive's
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<PAGE> 5
control and belonging to IDG or any of its affiliates that Executive
does not otherwise have a valid independent right to possess or
control.
6. NO RECRUITMENT; NON-COMPETITION
6.1 PROHIBITED ACTIVITIES. During Executive's employment hereunder and
for one (1) year after the termination of Executive's employment hereunder,
Executive will not, directly or indirectly, for any reason, for his own account,
or on behalf of or together with any other person:
(a) solicit, induce, or conspire with, or attempt to solicit,
induce, or conspire with, any of the officers or employees of IDG or
any of its affiliates (IDG and its affiliates collectively being "IDG"
for purposes of this Section 6) to terminate their employment or
relationship with, or to compete against, IDG;
(b) solicit or induce, or attempt to solicit or induce, any of
the customers or suppliers of IDG, with whom Executive has dealt with
or otherwise has or had direct dealings with during the twenty-four
(24) month period prior to such attempted solicitation or inducement,
to terminate their business relationship with IDG;
(c) divert or attempt to divert any or all of such customers'
or suppliers' business with them from them in violation of this
Agreement or applicable law (including the violation of any trade
secrets law); or
(d) be engaged as an officer or director or in any other
managerial or sales capacity or as an owner, co-owner, or other
investor of or in, whether as an employee, independent contractor,
consultant or advisor, or sales representative or distributor of any
kind, in a business that sells any products or provides any services in
competition with IDG within a radius of 100 miles of each location in
which IDG was engaged in business on the date hereof or, to the extent
permitted by and enforceable under applicable law, in which IDG is so
engaged on the date of Executive's termination.
Notwithstanding the foregoing, Executive may own and hold as a passive
investment up to one percent (1%) of the outstanding capital stock of a
competing entity if that class of capital stock is listed for trading or
quotation on a national or regional stock exchange registered with the SEC or on
The Nasdaq Stock Market.
6.2 DAMAGES. Because of the difficulty in measuring the economic losses
that may be incurred by IDG as a result of any breach by Executive of the
covenants in Section 6.1, and because of the immediate and irreparable damage
that could be caused to IDG for which it would have no other adequate remedy,
Executive agrees that IDG may enforce the provisions of Section 6.1 by any
equitable or legal means, including seeking an appropriate injunction or
restraining order against Executive if a breach of any of those provisions
occurs.
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<PAGE> 6
6.3 REASONABLE RESTRAINT. The parties hereto each agree that Sections
6.1 and 6.2 impose a reasonable restraint on Executive in light of the position
of Executive with IDG, the activities and business of IDG on the date hereof,
and the current business plans of IDG (of which Executive acknowledges that he
is aware).
6.4 SEVERABILITY; REFORMATION. The covenants in this Section 6 are
severable and separate, and the unenforceability of any specific covenant in
this Section 6 is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Section 6. If any court of competent
jurisdiction shall determine that the scope, time, or territorial restrictions
set forth in Section 6.1 are unreasonable as applied to Executive, the parties
hereto acknowledge their mutual intention and agreement that those restrictions
be enforced to the fullest extent the court deems reasonable, and thereby shall
be reformed to that extent as applied to Executive.
6.5 INDEPENDENT COVENANT. All of the covenants in this Section 6 are
intended by each party hereto to be, and shall be construed as, an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of Executive against IDG, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by IDG
of any covenant in this Section 6. It is specifically agreed that the period
specified in Section 6.1 shall be computed by excluding from that computation
any time during which Executive is in violation of any provision of Section 6.1.
6.6 MATERIALITY. IDG and Executive hereby agree that this Section 6 is
a material and substantial part of this Agreement.
7. TERMINATION OF EMPLOYMENT
7.1 BY IDG. (a) Executive's employment under this Agreement may be
terminated by IDG at any time for good cause. For the purposes of this Section
7.1, "good cause" shall mean: (i) Executive's breach of a material provision of
this Agreement; (ii) the conviction or indictment (or its procedural equivalent)
of, or the entering of a plea of guilty or no contest by, Executive with respect
to an act or acts involving moral turpitude that constitutes a felony under
applicable law; (iii) the commission by Executive of an act or acts of
dishonesty that subjects IDG or any of its affiliates to material loss or
detriment, including the misappropriation (or attempted misappropriation) of any
of IDG or any of its affiliate's funds, as determined by the Board of Directors
of IDG; or (iv) Executive's habitual neglect of, or refusal to perform,
Executive's duties under this Agreement, or deliberate and intentional disregard
of lawful instructions from the Board of Directors of IDG; provided, however,
that with respect to clauses (i) and (iv) above, Executive shall have received
written notice of such alleged breach, neglect, refusal, or disregard, as the
case may be, from the Board of Directors of IDG and shall have failed within
thirty (30) days after the receipt of such notice to cure and correct such
alleged breach, neglect, refusal, or disregard (or to begin in good faith to
effect such cure and correction if such cure or correction cannot practically be
completed within such 30-day period).
(b) If Executive's employment is terminated under this Section 7.1, IDG
shall have no further obligation to Executive hereunder except to pay to
Executive, in cash on the effective
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date of such termination, any amount accrued but unpaid hereunder as of the
termination date, and except for the provisions contained in Sections 5, 6, and
8, which shall specifically survive such termination.
7.2 BY DEATH. If Executive dies, this Agreement shall terminate on the
date of Executive's death. In such event, IDG shall pay promptly to Executive's
designated beneficiary or, if no designated beneficiary, to Executive's estate,
any compensation or other amount earned or accrued as of the date of Executive's
death but not yet paid and any other payments to which Executive is entitled
pursuant to Section 3 or Section 4 hereof. If this Agreement is terminated
pursuant to this Section 7.2, Executive or his estate shall be entitled to
receive a cash payment equal to the present value (based on IDG's then current
cost of borrowing) of his Base Salary for the balance of the Term, payable
within 30 days of the date of termination. Executive shall also be entitled to
receive the bonus payment provided for in Section 3.2 hereof for the fiscal year
in which the termination occurred. Further, all stock options theretofore
granted to Executive by IDG shall remain in force and effect and shall be
exercisable until their expiration date, provided that any such options
otherwise subject to vesting based solely on the lapse of time shall be
immediately vested in full.
7.3 BY DISABILITY. If Executive becomes unable to perform his normal
duties hereunder as a result of his incapacity due to physical or mental illness
for a period of at least one hundred eighty (180) consecutive days, IDG shall
have the option to terminate this Agreement upon the expiration of such period
(the "Disability Date"). In such an event, IDG shall pay to Executive (within
thirty (30) days thereof) all amounts accrued but unpaid as of the Disability
Date and, in the manner and at the times set forth in Section 3.1 above, an
amount equal to the difference between (a) the Base Salary payable for the
remainder of the Term and (b) the monthly payments made to Executive under any
disability insurance coverage provided to Executive pursuant to Section 4
hereof. Executive shall also be entitled to receive the bonus payment provided
for in Section 3.2 hereof for the fiscal year in which the termination occurred.
Further, all stock options theretofore granted to Executive by IDG shall remain
in force and effect and shall be exercisable until their expiration date,
provided that any such options otherwise subject to vesting based solely on the
lapse of time shall be immediately vested in full. If Executive's employment is
terminated by IDG as a result of a disability, as provided in this Section 7.3,
this Agreement shall terminate and neither party shall have any further
obligation to the other, except as provided above, and except for the provisions
contained in Sections 5, 6, and 8, which shall specifically survive such
termination.
7.4 BY DISCHARGE. If Executive's employment under the terms of this
Agreement is terminated by IDG for any reason other than cause, death, or
disability (in any such case a "Discharge"), then IDG shall pay to Executive, on
the date of Discharge, a lump sum cash amount equal to the present value of the
sum of (a) the greater of (i) twelve (12) months Base Salary, and (ii) the
amount of Base Salary that otherwise would have been payable to Executive for
the remainder of the Term plus (b) the bonus payment provided for in Section 3.2
hereof for the fiscal year in which the termination occurs. For purposes of the
present value calculation required by the preceding sentence, the parties shall
use as a rate IDG's then current cost of borrowing. Such payment shall be in
addition to other payments, if any, to which Executive is
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entitled pursuant to Section 3 or Section 4 hereof. In addition, all stock
options theretofore granted to Executive shall remain in force and effect and
shall be exercisable until their expiration date, provided that any such options
otherwise subject to vesting based solely on the lapse of time shall be
immediately vested in full. The provisions of Sections 5, 6, and 8 shall
continue without regard to such Discharge or termination of this Agreement.
7.5 BY EXECUTIVE. If (a) IDG significantly reduces Executive's
authority or duties as provided for in this Agreement or Executive's standing
within IDG as a function of Executive's relationships with the Board or with
other members of management of IDG, or Executive's responsibilities for or
control over the direction or operation of IDG's business and personnel, (b) a
change of control of IDG occurs that is not consented to by Executive, (c)
Executive is not elected or retained as Chairman and Chief Executive Officer and
as a director of IDG, or (d) Executive is required by IDG, without his consent,
to relocate his primary residence from his current location, then, in any such
event, Executive may terminate this Agreement and such termination shall be
treated (subject to the provisions of the last sentence of this Section 7.5) as
if it were a Discharge under Section 7.4; provided that the Board of Directors
of IDG shall have received written notice from Executive of any reduction
described in clause (a) above upon which Executive proposes to base a
termination and IDG shall have failed within thirty (30) days thereafter to
reverse or cure the situation giving rise to the grounds asserted by Executive.
For purposes hereof, "change of control" shall mean (e) the acquisition by a
person or entity other than Executive or an affiliate of Executive, whether in
one or several transactions, by exchange, merger, consolidation, assignment,
stock spin-off, stock split-up, or other transaction (other than pursuant to a
registered underwritten public offering of voting stock by IDG), of an amount of
the voting stock of IDG, or of the right to vote or to direct the voting of such
amount of voting stock, sufficient to elect a majority of the Board of Directors
of IDG, or (f) a change in the membership of the Board of Directors of IDG such
that a majority of the members are persons who are not Continuing Directors. For
purposes of this Agreement, a "Continuing Director" is a person who is a member
of the Board of Directors of IDG on the date hereof or a person who is elected
as a director of IDG upon the nomination by or approval of a majority of the
Continuing Directors in office. If Executive terminates this Agreement due to a
change of control, then in lieu of the payment provided for in Section 7.4(a),
Executive shall receive a cash payment equal to the present value (based on
IDG's then current cost of borrowing) of Executive's Base Salary for the
remainder of the Term, or for a period of two years, whichever period is longer,
payable within thirty (30) days of the date of the occurrence of such event.
7.6 BY MUTUAL CONSENT. Nothing contained in this Agreement shall
prevent the parties from acting by mutual consent with respect to any matter,
including the terms or conditions for a termination of this Agreement, provided
that evidence thereof is in a writing signed by the party to be bound thereby.
8. LEGAL EXPENSE REIMBURSEMENTS
8.1 INDEMNIFICATION LEGAL EXPENSES. Without limiting the scope of any
indemnification to which Executive is or may be entitled under applicable law or
pursuant to IDG's Certificate of Incorporation, Bylaws, or contract for
indemnification of officers or
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directors of IDG, IDG shall indemnify and hold Executive harmless from and
against the costs and expenses (including attorneys' fees and costs) of
Executive's defense with respect to any suit, investigation, or other action or
proceeding instituted or threatened against Executive by any person, agency,
body, or other entity that is based on, arises out of, or is related to any
position that Executive has after the date hereof with IDG or any of its
subsidiaries or other affiliates or otherwise related to the performance by
Executive of any duty or responsibility under this Agreement. To the maximum
extent permitted by applicable law, IDG agrees to advance to Executive the
amount of such costs and expenses as they are incurred by Executive (upon
written request by Executive therefor, accompanied by reasonably detailed
explanation of the basis for such advance(s)), and Executive agrees, to the
extent that such agreement may be required by applicable law to permit such
advances, to account to IDG for such advance(s), including to refund to IDG any
such amount that it may ultimately be determined (according to applicable law)
that Executive is not entitled to receive as indemnification or reimbursement
for such costs and expenses as a result of the final disposition of the
underlying suit, investigation, or other action or proceeding in respect of
which such costs or expenses were incurred. IDG agrees to take such corporate
action as may be necessary or advisable, if requested by Executive, to
authorize, approve, or effectuate and implement the rights conferred upon
Executive in this Section 8.1.
8.2 ATTORNEY'S FEES. If either Executive or IDG institutes an action
against the other in order to enforce the terms of this Agreement, whether in
court or by arbitration, the prevailing party shall receive its reasonable
attorney's fees from the non-prevailing party. Both parties agree to submit to
the court or arbitrator(s), as the case may be, the issue of deciding which
party, if either, is the prevailing party for purposes of this Section 8.2, and
in such case to decide the amount of attorney's fees that is reasonable in the
circumstances.
8.3 SURVIVAL. The provisions of this Section 8 shall survive any
termination of Executive's employment or of this Agreement.
9. MISCELLANEOUS AND GENERAL
9.1 NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or
interest hereunder may be assigned by Executive, Executive's beneficiaries, or
legal representatives without IDG's prior written consent; provided, however,
that nothing in this Section 9.1 will preclude Executive from designating a
beneficiary to receive any benefits payable hereunder upon Executive's death or
incapacity. Notwithstanding the foregoing, this Agreement and any right or
interest of IDG hereunder may be assigned by IDG to any of its affiliates
without the consent of Executive; provided, however, that in the event of such
an assignment without the consent of Executive, IDG will remain liable for the
payment of all amounts payable to Executive hereunder.
(b) Except as required by law, no right to receive payments
under this Agreement will be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment levy or similar
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process or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action will be null, void and of no effect.
9.2 WAIVER. The waiver by any party to this Agreement of a breach by
the other party of any of the provisions of this Agreement shall not operate as
or be construed as a waiver of any different or subsequent breach.
9.3 ENTIRE AGREEMENT. This Agreement constitutes and expresses the
entire agreement of the parties with respect to the subject matter hereof.
9.4 GOVERNING LAW; CHOICE OF FORUM; ETC. (a) This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware (without regard to its rules of conflicts of laws); and the
laws of that state shall govern all of the rights, remedies, liabilities,
powers, and duties of the parties under this Agreement and of any arbitrator or
arbitrators to whom any matter hereunder may be submitted for resolution by the
parties hereto, as contemplated by and pursuant to Title 6, Section 2708 of the
Delaware Code.
(b) Any legal action or proceeding with respect to this
Agreement that alleges a breach of Sections 5, 6, or 8 shall be brought
exclusively in the federal courts located in the State of Delaware, assuming
subject matter jurisdiction thereof (which each party agrees not to challenge),
and by execution and delivery of this Agreement, Executive and IDG irrevocably
consent to the personal jurisdiction of such courts for the adjudication of such
matters; provided, however, that upon agreement of both parties, any such matter
may be submitted to arbitration pursuant to Section 9.4(c). Executive and IDG
irrevocably waive any objection, including any objection to the laying of venue
or based on the grounds of forum non conveniens, that either may now or
hereafter have to the bringing of any action or proceeding in such jurisdiction
for adjudication of such matter.
(c) Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, other than an allegation of a breach of
Sections 5, 6, or 8 hereof, shall be settled by arbitration in the District of
Columbia in accordance with the applicable rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
9.5 SEVERABILITY. Should any clause or any other portion of this
Agreement be determined to be void or unenforceable for any reason, such
determination shall not affect the validity or enforceability of any other
clause or portion of this Agreement, all of which shall remain in full force and
effect, unless the result of any such invalidity or unenforceability shall be to
cause a material failure of consideration to the party seeking to sustain the
validity or enforceability of the subject provision.
9.6 NOTICES. All notices and other communications hereunder shall be
deemed to have been duly given on (a) the date of receipt if delivered
personally or (b) the third business day after deposit in the United States
Mail, if sent certified mail, postage prepaid, to IDG at its address provided
following its signature to this Agreement (Attention: Chief Operating Officer),
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or to Executive at the address provided following Executive's signature to this
Agreement, as the case may be, or to such other address as one party shall have
given to the other in accordance with this provision.
9.7 EFFECT OF CAPTIONS AND HEADINGS. The captions and headings
contained herein are for convenience only, do not constitute a part of this
Agreement, and shall not be used in construing it.
IN WITNESS WHEREOF, the parties have executed this Agreement, as an
instrument under seal, as of the day and year first written above.
[SEAL] "IDG"
Attest: IDN FORMATION CORP.
By:
- ------------------------------------ -------------------------------------
Secretary or Assistant Secretary Douglass C. Smith, President
Address: 2500 Royal Place
Tucker, Georgia 30084
"EXECUTIVE"
(SEAL)
----------------------------------
MARTIN S. PINSON
Address: 7205 Blacklock Road
Bethesda, Maryland 20817
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<PAGE> 1
EXHIBIT 10.7
FORM OF EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the ____ day of ________, 1997, by and between Douglass C. Smith, a
resident of the State of Georgia ("Executive"), and INDUSTRIAL DISTRIBUTION
GROUP, INC., a Delaware corporation ("IDG").
W I T N E S S E T H:
WHEREAS, IDG is engaged in the business of providing flexible
procurement solutions for industrial users and certain other users that have
maintenance, repair, operating, and production supplies requirements; and
WHEREAS, IDG desires to induce Executive to enter into employment with
IDG for the period provided in this Agreement, and Executive is willing to
accept such employment with IDG on a full-time basis, all in accordance with
the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly acknowledged, the parties
hereby covenant and agree as follows:
1. DUTIES AND EXTENT OF SERVICES
1.1 POSITION AND DUTIES. IDG hereby enters into this Agreement to
evidence and provide for the employment of Executive as President and Chief
Operating Officer of IDG. Consistent with the policies, guidelines, and
directives adopted or established by the Board of Directors of IDG, acting
pursuant to and in accordance with lawful authority, Executive shall be in
charge of directing, supervising, and coordinating the activities of all
operating subsidiaries and other business units of IDG, and, together with the
Chief Executive Officer of IDG, shall be directly involved in the development,
establishment, and implementation of policy and strategic initiatives for IDG,
with authority and responsibility consistent with his position as the principal
operating officer of IDG. Executive shall be entitled to serve as a member of
IDG's Board of Directors at all times during the term of this Agreement.
Executive shall report to the Chief Executive Officer of IDG. Executive agrees
to serve, without additional compensation, in a similar executive capacity with
subsidiaries of IDG and in such other executive capacities as may be designated
by the Board of Directors of IDG, consistent with the positions,
responsibilities, and authority of Executive hereunder. Neither Executive's
employment hereunder nor any other position referred to in the preceding
sentence shall require Executive to relocate his primary residence from his
current location, and Executive may perform his duties at such geographic
locations as he may determine in his reasonable discretion, giving due regard
to the location of his primary residence, the location of IDG's principal
offices, and the best interest of IDG. IDG hereby confirms to Executive that
its principal offices are located in the Atlanta, Georgia
<PAGE> 2
metropolitan area and shall continue to be so located during the Term hereof
(as defined below) unless otherwise determined by a two-thirds (2/3) majority
vote of the Board of Directors of IDG. Each of the immediately preceding two
sentences represents a material and substantial part of this Agreement.
1.2 EXTENT OF SERVICES. Executive agrees to devote his full
working time, energy, and skill to the business of IDG and its affiliates and
to the promotion of IDG's interests and to discharge Executive's duties in good
faith and in a professional manner. Executive affirms and represents that he is
under no obligation to any former employer or other party that is in any way
inconsistent with, or that imposes any restriction upon, his acceptance of
employment hereunder with IDG, the employment of Executive by IDG, or
Executive's undertakings under this Agreement.
2. TERM
The term of this Agreement (the "Term") shall commence on ___________,
1997 (the "Effective Date") and shall continue for a three-year period, unless
and until this Agreement has been terminated in accordance with Section 7
hereto.
3. COMPENSATION
3.1 BASE SALARY. IDG shall pay to Executive a base annual salary
(the "Base Salary") of Two Hundred Fifty Thousand Dollars ($250,000) for each
fiscal year during the Term (prorated for any partial fiscal year) subject,
however, to being increased for each fiscal year beginning January 1, 1998, to
such higher amount as may be approved by the Board of Directors of IDG. All
Base Salary shall be paid in equal periodic installments in accordance with
IDG's normal payroll policies, as may be in effect or modified during the Term.
3.2 GENERAL INCENTIVE COMPENSATION AND SAVINGS PROGRAMS. IDG
hereby agrees that, from the Effective Date, Executive shall be entitled to
participate, to an extent consistent with Executive's title and Base Salary, in
the incentive compensation program established by IDG, and in all savings
programs, including stock option or other stock-based
compensation plans or profit sharing plans, 401(k) plans, or other savings
programs, as may be established in general by IDG for similarly situated
officers, other key employees, or employees as a group.
Nothing contained herein and no action taken in respect of
any bonus (or otherwise in respect of this Section 3.2) shall create or be
construed to create a trust of any kind. Executive's right to receive any bonus
pursuant to this Section 3.2 shall be no greater than the right of an unsecured
general creditor of IDG to receive payment from IDG. Any bonus paid under this
Section 3.2 or otherwise shall be paid from the general funds of IDG, and no
special or separate fund shall be established, and no segregation of assets
shall be made, to assure payment of any bonus hereunder.
3.3 WITHHOLDINGS, PAYROLL TAXES AND OTHER DEDUCTIONS. The payment
of Base Salary and any other compensation hereunder shall be subject to
withholdings and payroll taxes
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<PAGE> 3
required by applicable law, and such other deductions as may be required under
IDG's employee benefit plans in which Executive has elected to participate.
4. BENEFITS.
During Executive's employment hereunder, Executive shall:
(a) be eligible to participate in employee fringe benefits and
any pension or profit sharing plans that may be provided by IDG for its
executive employees in general in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(b) be eligible to participate in any medical and health plans or
other employee welfare benefit plans that may be provided by IDG for its
executive employees in general in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(c) be entitled to annual paid vacation in accordance with IDG
policy that may be applicable to executive employees from time to time;
(d) be entitled to sick leave, sick pay, and disability benefits in
accordance with any IDG policy that may be applicable to executive
employees from time to time; and
(e) be entitled, without limitation of the foregoing, to the
continuation by IDG on terms acceptable to Executive of (and IDG hereby
agrees to so continue) the life and disability insurance policies and
related program described on Schedule A hereto that are currently being
maintained for Executive by the predecessor business to which IDG is
succeeding by merger on the Effective Date.
5. CONFIDENTIAL INFORMATION
5.1 DEFINITION. For purposes of this Agreement, "Confidential
Information" shall mean any and all trade secrets and other information
considered by IDG as being confidential and concerning the business and affairs
of IDG, including but not limited to (a) product specifications, discoveries,
improvements, processes, marketing and service methods or techniques, formulae,
designs, styles, specifications, data bases, computer programs (whether in
source code or object code), know-how, strategies, data, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, and any other information, however documented, that is a trade
secret of IDG, or any of its affiliates within the meaning set forth in
O.C.G.A. ss. 10-1-761; (b) information concerning the business and affairs of
IDG (which includes, but is not limited to, historical financial statements,
financial projections and budgets, historical and projected sales, capital
spending budgets and plans, business plans, the names and background of key
personnel, personnel training and techniques and materials, and sales
techniques and materials of IDG), however documented; and (c) notes, analyses,
compilations,
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<PAGE> 4
studies, summaries, and other material prepared by or for IDG containing or
based, in whole or in part, on any information included in the foregoing;
provided, however, Confidential Information shall not include any information
that Executive demonstrates was or became generally known or available to the
public other than as a result of an unauthorized or unlawful disclosure
directly or indirectly by Executive.
5.2 ACKNOWLEDGMENTS AND AGREEMENTS BY EXECUTIVE. Executive hereby
acknowledges, agrees, and covenants as follows:
(a) Executive's employment hereunder creates a relationship of
confidence and trust between Executive and IDG and its affiliates with
respect to the Confidential Information of IDG and its affiliates and
other information pertaining to the businesses of any client or customer
of IDG or its affiliates that may be made known to Executive by IDG or any
of its affiliates, or by any client or customer of IDG or any of its
affiliates, or learned by Executive during the period of Executive's
employment under this Agreement.
(b) Executive possesses or will possess Confidential Information that
has been, or will be, created, discovered, or developed by, or otherwise
becomes known or disclosed to Executive (including, without limitation,
information created, discovered, or developed by, or made known to,
Executive during the period of Executive's employment hereunder or during
discussions with or investigations of IDG in contemplation of such
employment), which information Executive acknowledges has or may have
commercial value to IDG or its affiliates in the businesses in which they
are or proposed to be engaged.
(c) Executive hereby agrees that Executive will keep confidential
and will hold for IDG's sole benefit all Confidential Information, which
Executive acknowledges is, or shall be, proprietary to IDG or its
affiliates.
(d) Executive also agrees that Executive will not, without the prior
approval of the Board of Directors of IDG, use for Executive's benefit or
disclose at any time during Executive's employment by IDG, or thereafter,
except to the extent required for the performance by Executive of
Executive's duties as an employee of IDG, any information obtained or
developed by Executive while in the employ of IDG with respect to the
products, employees, financial affairs, or methods of design,
distribution, marketing, service, or procurement of any customer, client,
or supplier of IDG or any of its affiliates, or any confidential matter
with respect thereto, except information that at the time is generally
known to the public other than as a result of disclosure by Executive not
permitted hereunder.
(e) Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 5 would be
inadequate and, therefore, agrees that IDG shall be entitled to injunctive
relief in addition to any other available rights and remedies in case of
any such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting IDG or any of its
affiliates
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<PAGE> 5
from pursuing any other rights and remedies available for any such
breach or threatened breach.
(f) Executive agrees that upon termination of Executive's employment
by IDG for any reason, Executive shall forthwith return to IDG, or destroy
to the satisfaction of IDG, all Confidential Information in whatever form
such information is in the possession of Executive or under Executive's
control, and shall additionally return all documents and other property
that is in Executive's possession or under Executive's control and
belonging to IDG or any of its affiliates that Executive does not
otherwise have a valid independent right to possess or control.
6. NO RECRUITMENT; NON-COMPETITION
6.1 PROHIBITED ACTIVITIES. During Executive's employment hereunder and
for one (1) year after the termination of Executive's employment hereunder,
Executive will not, directly or indirectly, for any reason, for his own
account, or on behalf of or together with any other person:
(a) solicit, induce, or conspire with, or attempt to solicit,
induce, or conspire with, any of the officers or employees of IDG or any
of its affiliates (IDG and its affiliates collectively being "IDG" for
purposes of this Section 6) to terminate their employment or relationship
with, or to compete against, IDG;
(b) solicit or induce, or attempt to solicit or induce, any of the
customers or suppliers of IDG, with whom Executive has dealt with or
otherwise has or had direct dealings with during the twenty-four (24)
month period prior to such attempted solicitation or inducement, to
terminate their business relationship with IDG;
(c) divert or attempt to divert any or all of such customers' or
suppliers' business with them from them in violation of this Agreement or
applicable law (including the violation of any trade secrets law); or
(d) be engaged as an officer or director or in any other managerial
or sales capacity or as an owner, co-owner, or other investor of or in,
whether as an employee, independent contractor, consultant or advisor, or
sales representative or distributor of any kind, in a business that sells
any products or provides any services in competition with IDG within a
radius of 100 miles of each location in which IDG was engaged in business
on the date hereof or, to the extent permitted by and enforceable under
applicable law, in which IDG is so engaged on the date of Executive's
termination.
Notwithstanding the foregoing, Executive may own and hold as a passive
investment up to one percent (1%) of the outstanding capital stock of a
competing entity if that class of capital stock is listed for trading or
quotation on a national or regional stock exchange registered with the SEC or
on The Nasdaq Stock Market.
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<PAGE> 6
6.2 DAMAGES. Because of the difficulty in measuring the economic
losses that may be incurred by IDG as a result of any breach by Executive of
the covenants in Section 6.1, and because of the immediate and irreparable
damage that could be caused to IDG for which it would have no other adequate
remedy, Executive agrees that IDG may enforce the provisions of Section 6.1 by
any equitable or legal means, including seeking an appropriate injunction or
restraining order against Executive if a breach of any of those provisions
occurs.
6.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 6.1 and 6.2 impose a reasonable restraint on Executive in light of the
position of Executive with IDG, the activities and business of IDG on the date
hereof, and the current business plans of IDG (of which Executive acknowledges
that he is aware).
6.4 SEVERABILITY; REFORMATION. The covenants in this Section 6 are
severable and separate, and the unenforceability of any specific covenant in
this Section 6 is not intended by any party hereto to, and shall not, affect
the provisions of any other covenant in this Section 6. If any court of
competent jurisdiction shall determine that the scope, time, or territorial
restrictions set forth in Section 6.1 are unreasonable as applied to Executive,
the parties hereto acknowledge their mutual intention and agreement that those
restrictions be enforced to the fullest extent the court deems reasonable, and
thereby shall be reformed to that extent as applied to Executive.
6.5 INDEPENDENT COVENANT. All of the covenants in this Section 6 are
intended by each party hereto to be, and shall be construed as, an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of Executive against IDG, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
IDG of any covenant in this Section 6. It is specifically agreed that the
period specified in Section 6.1 shall be computed by excluding from that
computation any time during which Executive is in violation of any provision of
Section 6.1.
6.6 MATERIALITY. IDG and Executive hereby agree that this Section 6
is a material and substantial part of this Agreement.
7. TERMINATION OF EMPLOYMENT
7.1 BY IDG. (a) Executive's employment under this Agreement may be
terminated by IDG at any time for good cause. For the purposes of this Section
7.1, "good cause" shall mean: (i) Executive's breach of a material provision of
this Agreement; (ii) the conviction or indictment (or its procedural
equivalent) of, or the entering of a plea of guilty or no contest by, Executive
with respect to an act or acts involving moral turpitude that constitutes a
felony under applicable law; (iii) the commission by Executive of an act or
acts of dishonesty that subjects IDG or any of its affiliates to material loss
or detriment, including the misappropriation (or attempted misappropriation) of
any of IDG or any of its affiliate's funds, as determined by the Board of
Directors of IDG; or (iv) Executive's habitual neglect of, or refusal to
perform, Executive's duties under this Agreement, or deliberate and intentional
disregard of lawful instructions from the Board of Directors of IDG; provided,
however, that with respect to clauses (i) and (iv) above, Executive shall have
received written notice of such alleged breach, neglect,
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refusal, or disregard, as the case may be, from the Board of Directors of IDG
and shall have failed within thirty (30) days after the receipt of such notice
to cure and correct such alleged breach, neglect, refusal, or disregard (or to
begin in good faith to effect such cure and correction if such cure or
correction cannot practically be completed within such 30-day period).
(b) If Executive's employment is terminated under this Section 7.1,
IDG shall have no further obligation to Executive hereunder except to pay to
Executive, in cash on the effective date of such termination, any amount
accrued but unpaid hereunder as of the termination date, and except for the
provisions contained in Sections 5, 6, and 8, which shall specifically survive
such termination.
7.2 BY DEATH. If Executive dies, this Agreement shall terminate on the
date of Executive's death. In such event, IDG shall pay promptly to Executive's
designated beneficiary or, if no designated beneficiary, to Executive's estate,
any compensation or other amount earned or accrued as of the date of
Executive's death but not yet paid and any other payments to which Executive is
entitled pursuant to Section 3 or Section 4 hereof. Executive shall also be
entitled to receive the bonus payment provided for in Section 3.2 hereof for
the fiscal year in which the termination occurred. Further, all stock options
theretofore granted to Executive by IDG shall remain in force and effect and
shall be exercisable until their expiration date, provided that any such
options otherwise subject to vesting based solely on the lapse of time shall be
immediately vested in full.
7.3 BY DISABILITY. If Executive becomes unable to perform his normal
duties hereunder as a result of his incapacity due to physical or mental
illness for a period of at least one hundred eighty (180) consecutive days, IDG
shall have the option to terminate this Agreement upon the expiration of such
period (the "Disability Date"). In such an event, IDG shall pay to Executive
(within thirty (30) days thereof) all amounts accrued but unpaid as of the
Disability Date and, in the manner and at the times set forth in Section 3.1
above, an amount equal to the difference between (a) the Base Salary payable
for the remainder of the Term and (b) the monthly payments made to Executive
under any disability insurance coverage provided to Executive pursuant to
Section 4 hereof. Executive shall also be entitled to receive the bonus payment
provided for in Section 3.2 hereof for the fiscal year in which the termination
occurred. Further, all stock options theretofore granted to Executive by IDG
shall remain in force and effect and shall be exercisable until their
expiration date, provided that any such options otherwise subject to vesting
based solely on the lapse of time shall be immediately vested in full. If
Executive's employment is terminated by IDG as a result of a disability, as
provided in this Section 7.3, this Agreement shall terminate and neither party
shall have any further obligation to the other, except as provided above, and
except for the provisions contained in Sections 5, 6, and 8, which shall
specifically survive such termination.
7.4 BY DISCHARGE. If Executive's employment under the terms of this
Agreement is terminated by IDG for any reason other than cause, death, or
disability (in any such case a "Discharge"), then IDG shall pay to Executive,
on the date of Discharge, a lump sum cash amount equal to the present value of
the sum of (a) the greater of (i) twelve (12) months Base Salary, and (ii) the
amount of Base Salary that otherwise would have been payable to Executive
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for the remainder of the Term plus (b) the bonus payment provided for in
Section 3.2 hereof for the fiscal year in which the termination occurs. For
purposes of the present value calculation required by the preceding sentence,
the parties shall use as a rate IDG's then current cost of borrowing. Such
payment shall be in addition to other payments, if any, to which Executive is
entitled pursuant to Section 3 or Section 4 hereof. In addition, all stock
options theretofore granted to Executive shall remain in force and effect and
shall be exercisable until their expiration date, provided that any such
options otherwise subject to vesting based solely on the lapse of time shall be
immediately vested in full. The provisions of Sections 5, 6, and 8 shall
continue without regard to such Discharge or termination of this Agreement.
7.5 BY EXECUTIVE. If (a) IDG significantly reduces Executive's authority
or duties as provided for in this Agreement or Executive's standing within IDG
as a function of Executive's relationships with the Board or with other members
of management of IDG, or Executive's responsibilities for or control over the
direction or operation of IDG's business and personnel, (b) a change of control
of IDG occurs that is not consented to by Executive, (c) Executive is not
elected or retained as President and Chief Operating Officer and as a director
of IDG, or (d) Executive is required by IDG, without his consent, to relocate
his primary residence from his current location, or IDG changes its principal
offices other than in accordance with Section 1.1, then, in any such event,
Executive may terminate this Agreement and such termination shall be treated as
if it were a Discharge under Section 7.4; provided that the Board of Directors
of IDG shall have received written notice from Executive of any reduction
described in clause (a) above upon which Executive proposes to base a
termination and IDG shall have failed within thirty (30) days thereafter to
reverse or cure the situation giving rise to the grounds asserted by Executive.
For purposes hereof, "change of control" shall mean (e) the acquisition by a
person or entity other than Executive or an affiliate of Executive, whether in
one or several transactions, by exchange, merger, consolidation, assignment,
stock spin-off, stock split-up, or other transaction (other than pursuant to a
registered underwritten public offering of voting stock by IDG), of an amount
of the voting stock of IDG, or of the right to vote or to direct the voting of
such amount of voting stock, sufficient to elect a majority of the Board of
Directors of IDG, or (f) a change in the membership of the Board of Directors
of IDG such that a majority of the members are persons who are not Continuing
Directors. For purposes of this Agreement, a "Continuing Director" is a person
who is a member of the Board of Directors of IDG on the date hereof or a person
who is elected as a director of IDG upon the nomination by or approval of a
majority of the Continuing Directors in office. If Executive terminates this
Agreement due to a change of control, then in lieu of the payment provided for
in Section 7.4(a), Executive shall receive a cash payment equal to the present
value (based on IDG's then current cost of borrowing) of Executive's Base
Salary for the remainder of the Term, or for a period of two years, whichever
period is longer, payable within thirty (30) days of the date of the occurrence
of such event.
7.6 BY MUTUAL CONSENT. Nothing contained in this Agreement shall prevent
the parties from acting by mutual consent with respect to any matter, including
the terms or conditions for a termination of this Agreement, provided that
evidence thereof is in a writing signed by the party to be bound thereby.
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8. LEGAL EXPENSE REIMBURSEMENTS
8.1 INDEMNIFICATION LEGAL EXPENSES. Without limiting the scope of any
indemnification to which Executive is or may be entitled under applicable law
or pursuant to IDG's Certificate of Incorporation, Bylaws, or contract for
indemnification of officers or directors of IDG, IDG shall indemnify and hold
Executive harmless from and against the costs and expenses (including
attorneys' fees and costs) of Executive's defense with respect to any suit,
investigation, or other action or proceeding instituted or threatened against
Executive by any person, agency, body, or other entity that is based on, arises
out of, or is related to any position that Executive has after the date hereof
with IDG or any of its subsidiaries or other affiliates or otherwise related to
the performance by Executive of any duty or responsibility under this
Agreement. To the maximum extent permitted by applicable law, IDG agrees to
advance to Executive the amount of such costs and expenses as they are incurred
by Executive (upon written request by Executive therefor, accompanied by
reasonably detailed explanation of the basis for such advance(s)), and
Executive agrees, to the extent that such agreement may be required by
applicable law to permit such advances, to account to IDG for such advance(s),
including to refund to IDG any such amount that it may ultimately be determined
(according to applicable law) that Executive is not entitled to receive as
indemnification or reimbursement for such costs and expenses as a result of the
final disposition of the underlying suit, investigation, or other action or
proceeding in respect of which such costs or expenses were incurred. IDG agrees
to take such corporate action as may be necessary or advisable, if requested by
Executive, to authorize, approve, or effectuate and implement the rights
conferred upon Executive in this Section 8.1.
8.2 ATTORNEY'S FEES. If either Executive or IDG institutes an action
against the other in order to enforce the terms of this Agreement, whether in
court or by arbitration, the prevailing party shall receive its reasonable
attorney's fees from the non-prevailing party. Both parties agree to submit to
the court or arbitrator(s), as the case may be, the issue of deciding which
party, if either, is the prevailing party for purposes of this Section 8.2, and
in such case to decide the amount of attorney's fees that is reasonable in the
circumstances.
8.3 SURVIVAL. The provisions of this Section 8 shall survive any
termination of Executive's employment or of this Agreement.
9. MISCELLANEOUS AND GENERAL
9.1 NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or
interest hereunder may be assigned by Executive, Executive's beneficiaries, or
legal representatives without IDG's prior written consent; provided, however,
that nothing in this Section 9.1 will preclude Executive from designating a
beneficiary to receive any benefits payable hereunder upon Executive's death or
incapacity. Notwithstanding the foregoing, this Agreement and any right or
interest of IDG hereunder may be assigned by IDG to any of its affiliates
without the consent of Executive; provided, however, that in the event of such
an assignment without the consent of Executive, IDG will remain liable for the
payment of all amounts payable to Executive hereunder.
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<PAGE> 10
(b) Except as required by law, no right to receive payments under
this Agreement will be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action will be null, void
and of no effect.
9.2 WAIVER. The waiver by any party to this Agreement of a breach by the
other party of any of the provisions of this Agreement shall not operate as or
be construed as a waiver of any different or subsequent breach.
9.3 ENTIRE AGREEMENT. This Agreement constitutes and expresses the entire
agreement of the parties with respect to the subject matter hereof.
9.4 GOVERNING LAW; CHOICE OF FORUM; ETC. (a) This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Georgia (without regard to its rules of conflicts of laws); and the
laws of that state shall govern all of the rights, remedies, liabilities,
powers, and duties of the parties under this Agreement and of any arbitrator or
arbitrators to whom any matter hereunder may be submitted for resolution by the
parties hereto.
(b) Any legal action or proceeding with respect to this Agreement
that alleges a breach of Sections 5, 6, or 8 shall be brought exclusively in
the federal or state courts located in the State of Georgia, assuming subject
matter jurisdiction thereof (which each party agrees not to challenge), and by
execution and delivery of this Agreement, Executive and IDG irrevocably consent
to the personal jurisdiction of such courts for the adjudication of such
matters; provided, however, that upon agreement of both parties, any such
matter may be submitted to arbitration pursuant to Section 9.4(c). Executive
and IDG irrevocably waive any objection, including any objection to the laying
of venue or based on the grounds of forum non conveniens, that either may now
or hereafter have to the bringing of any action or proceeding in such
jurisdiction for adjudication of such matter.
(c) Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, other than an allegation of a breach of
Sections 5, 6, or 8 hereof, shall be settled by arbitration in Atlanta, Georgia
in accordance with the applicable rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
9.5 SEVERABILITY. Should any clause or any other portion of this
Agreement be determined to be void or unenforceable for any reason, such
determination shall not affect the validity or enforceability of any other
clause or portion of this Agreement, all of which shall remain in full force
and effect, unless the result of any such invalidity or unenforceability shall
be to cause a material failure of consideration to the party seeking to sustain
the validity or enforceability of the subject provision.
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<PAGE> 11
9.6 NOTICES. All notices and other communications hereunder shall be
deemed to have been duly given on (a) the date of receipt if delivered
personally or (b) the third business day after deposit in the United States
Mail, if sent certified mail, postage prepaid, to IDG at its address provided
following its signature to this Agreement (Attention: Chief Executive Officer),
or to Executive at the address provided following Executive's signature to this
Agreement, as the case may be, or to such other address as one party shall have
given to the other in accordance with this provision.
9.7 EFFECT OF CAPTIONS AND HEADINGS. The captions and headings contained
herein are for convenience only, do not constitute a part of this Agreement,
and shall not be used in construing it.
IN WITNESS WHEREOF, the parties have executed this Agreement, as an
instrument under seal, as of the day and year first written above.
[SEAL] "IDG"
Attest: INDUSTRIAL DISTRIBUTION GROUP, INC.
By:
- -------------------------------- ------------------------------------
Secretary or Assistant Secretary Martin S. Pinson
Chairman and Chief Executive Officer
Address: 2500 Royal Place
Tucker, Georgia 30084
"EXECUTIVE"
----------------------------------- (SEAL)
DOUGLASS C. SMITH
Address: 1894 Breckenridge Drive
Atlanta, Georgia 30345
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<PAGE> 12
DOUGLASS C. SMITH
EMPLOYMENT AGREEMENT
SCHEDULE "A"
<TABLE>
<S> <C> <C>
Paul Revere Insurance Group Disability Income 0279465803
The Guardian Disability Income G 606173-8
Commercial Union Life Insurance Company Universal Life PT 259937
General American Life Insurance Company Whole Life 1970694
</TABLE>
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as
of the 1st day of June, 1997, by and between Jack P. Healey, a resident of the
State of Georgia ("Executive"), and IDN FORMATION CORP., a Georgia corporation
to be reincorporated in Delaware under the name "Industrial Distribution Group,
Inc." ("IDG").
W I T N E S S E T H:
WHEREAS, IDG is engaged in the business of providing flexible procurement
solutions for industrial users and certain other users that have maintenance,
repair, operating, and production supplies requirements; and
WHEREAS, IDG desires to induce Executive to enter into employment with IDG
for the period provided in this Agreement, and Executive is willing to accept
such employment with IDG on a full-time basis, all in accordance with the terms
and conditions set forth below.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly acknowledged, the parties
hereby covenant and agree as follows:
1. DUTIES AND EXTENT OF SERVICES
1.1 POSITION AND DUTIES. IDG hereby enters into this Agreement to
evidence and provide for the employment of Executive as Vice President and
Chief Financial Officer of IDG. Consistent with the policies, guidelines, and
directives adopted or established by the Board of Directors of IDG, acting
pursuant to and in accordance with lawful authority, and subject to the
direction of the Chief Executive Officer, Executive shall be responsible for
financial affairs, including financial reporting, banking relationships,
financial planning and budgeting, accounting, financial controls, and related
functions. Executive shall report directly to the Chief Executive Officer.
Executive agrees to serve, without additional compensation, in a similar
executive capacity with subsidiaries of IDG and in such other executive
capacities as may be designated by the Board of Directors of IDG, consistent
with the positions, responsibilities, and authority of Executive hereunder.
Neither Executive's employment hereunder nor any other position referred to in
the preceding sentence shall require Executive to relocate his primary
residence from his current location; provided, however, that IDG may require
Executive to relocate to the geographic area in which its Chief Executive
Officer or its Chief Operating Officer is situated if neither such officer is
then situated in the Atlanta, Georgia metropolitan area and IDG has otherwise
acted to relocate its principal offices from such metropolitan area. The
immediately preceding sentence represents a material and substantial part of
this Agreement.
<PAGE> 2
1.2 EXTENT OF SERVICES. Executive agrees to devote his full working time,
energy, and skill to the business of IDG and its affiliates and to the
promotion of IDG's interests and to discharge Executive's duties in good faith
and in a professional manner. Executive affirms and represents that he is under
no obligation to any former employer or other party that is in any way
inconsistent with, or that imposes any restriction upon, his acceptance of
employment hereunder with IDG, the employment of Executive by IDG, or
Executive's undertakings under this Agreement.
2. TERM
The term of this Agreement (the "Term") shall commence on June 1, 1997
(the "Effective Date") and shall continue for a three-year period, unless and
until this Agreement has been terminated in accordance with Section 7 hereto.
3. COMPENSATION
3.1 BASE SALARY. IDG shall pay to Executive a base annual salary
(the "Base Salary") of One Hundred Fifty Thousand Dollars ($150,000) for each
fiscal year during the Term (prorated for any partial fiscal year) subject,
however, to being increased for each fiscal year beginning January 1, 1998, to
such higher amount as may be approved by the Board of Directors of IDG. All
Base Salary shall be paid in equal periodic installments in accordance with
IDG's normal payroll policies, as may be in effect or modified during the Term.
3.2 GENERAL INCENTIVE COMPENSATION AND SAVINGS PROGRAMS. IDG hereby
agrees that, as of June 1, 1997, Executive shall be entitled to participate, to
an extent consistent with Executive's title and Base Salary, in an incentive
compensation program that shall be established by IDG, and in all savings
programs, including stock option or other stock-based compensation plans or
profit sharing plans, 401(k) plans, or other savings programs, as may be
established in general by IDG for similarly situated officers, other key
employees, or employees as a group.
Nothing contained herein and no action taken in respect of any bonus
(or otherwise in respect of this Section 3.2) shall create or be construed to
create a trust of any kind. Executive's right to receive any bonus pursuant to
this Section 3.2 shall be no greater than the right of an unsecured general
creditor of IDG to receive payment from IDG. Any bonus paid under this Section
3.2 or otherwise shall be paid from the general funds of IDG, and no special or
separate fund shall be established, and no segregation of assets shall be made,
to assure payment of any bonus hereunder.
3.3 WITHHOLDINGS, PAYROLL TAXES AND OTHER DEDUCTIONS. The payment of
Base Salary and any other compensation hereunder shall be subject to
withholdings and payroll taxes required by applicable law, and such other
deductions as may be required under IDG's employee benefit plans in which
Executive has elected to participate.
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<PAGE> 3
4. BENEFITS.
During Executive's employment hereunder, Executive shall:
(a) be eligible to participate in employee fringe benefits and any
pension or profit sharing plans that may be provided by IDG for its
executive employees in general in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(b) be eligible to participate in any medical and health plans or
other employee welfare benefit plans that may be provided by IDG for its
executive employees in general in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(c) be entitled to annual paid vacation in accordance with IDG
policy that may be applicable to executive employees from time to time;
and
(d) be entitled to sick leave, sick pay, and disability benefits in
accordance with any IDG policy that may be applicable to executive
employees from time to time.
5. CONFIDENTIAL INFORMATION
5.1 DEFINITION. For purposes of this Agreement, "Confidential
Information" shall mean any and all trade secrets and other information
considered by IDG as being confidential and concerning the business and affairs
of IDG, including but not limited to (a) product specifications, discoveries,
improvements, processes, marketing and service methods or techniques, formulae,
designs, styles, specifications, data bases, computer programs (whether in
source code or object code), know-how, strategies, data, customer lists,
current and anticipated customer requirements, price lists, market studies,
business plans, and any other information, however documented, that is a trade
secret of IDG, or any of its affiliates within the meaning set forth in
O.C.G.A. ss. 10-1-761; (b) information concerning the business and affairs of
IDG (which includes, but is not limited to, historical financial statements,
financial projections and budgets, historical and projected sales, capital
spending budgets and plans, business plans, the names and background of key
personnel, personnel training and techniques and materials, and sales
techniques and materials of IDG), however documented; and (c) notes, analyses,
compilations, studies, summaries, and other material prepared by or for IDG
containing or based, in whole or in part, on any information included in the
foregoing; provided, however, Confidential Information shall not include any
information that Executive demonstrates was or became generally known or
available to the public other than as a result of an unauthorized or unlawful
disclosure directly or indirectly by Executive.
5.2 ACKNOWLEDGMENTS AND AGREEMENTS BY EXECUTIVE. Executive hereby
acknowledges, agrees, and covenants as follows:
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<PAGE> 4
(a) Executive's employment hereunder creates a relationship of
confidence and trust between Executive and IDG and its affiliates with
respect to the Confidential Information of IDG and its affiliates and
other information pertaining to the businesses of any client or customer
of IDG or its affiliates that may be made known to Executive by IDG or
any of its affiliates, or by any client or customer of IDG or any of its
affiliates, or learned by Executive during the period of Executive's
employment under this Agreement.
(b) Executive possesses or will possess Confidential Information that
has been, or will be, created, discovered, or developed by, or
otherwise becomes known or disclosed to Executive (including, without
limitation, information created, discovered, or developed by, or made
known to, Executive during the period of Executive's employment hereunder
or during discussions with or investigations of IDG in contemplation of
such employment), which information Executive acknowledges has or may
have commercial value to IDG or its affiliates in the businesses in which
they are or proposed to be engaged.
(c) Executive hereby agrees that Executive will keep confidential and
Will hold for IDG's sole benefit all Confidential Information, which
Executive acknowledges is, or shall be, proprietary to IDG or its
affiliates.
(d) Executive also agrees that Executive will not, without the prior
approval of the Board of Directors of IDG, use for Executive's benefit or
disclose at any time during Executive's employment by IDG, or thereafter,
except to the extent required for the performance by Executive of
Executive's duties as an employee of IDG, any information obtained or
developed by Executive while in the employ of IDG with respect to the
products, employees, financial affairs, or methods of design,
distribution, marketing, service, or procurement of any customer, client,
or supplier of IDG or any of its affiliates, or any confidential matter
with respect thereto, except information that at the time is generally
known to the public other than as a result of disclosure by Executive not
permitted hereunder.
(e) Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 5 would be
inadequate and, therefore, agrees that IDG shall be entitled to injunctive
relief in addition to any other available rights and remedies in case of
any such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting IDG or any of its
affiliates from pursuing any other rights and remedies available for any
such breach or threatened breach.
(f) Executive agrees that upon termination of Executive's employment
by IDG for any reason, Executive shall forthwith return to IDG, or destroy
to the satisfaction of IDG, all Confidential Information in whatever form
such information is in the possession of Executive or under Executive's
control, and shall additionally return all documents and other property
that is in Executive's possession or under Executive's
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<PAGE> 5
control and belonging to IDG or any of its affiliates that Executive does
not otherwise have a valid independent right to possess or control.
6. NO RECRUITMENT; NON-COMPETITION
6.1 PROHIBITED ACTIVITIES. During Executive's employment hereunder and
for one (1) year after the termination of Executive's employment hereunder,
Executive will not, directly or indirectly, for any reason, for his own
account, or on behalf of or together with any other person:
(a) solicit, induce, or conspire with, or attempt to solicit,
induce, or conspire with, any of the officers or employees of IDG or any
of its affiliates (IDG and its affiliates collectively being "IDG" for
purposes of this Section 6) to terminate their employment or relationship
with, or to compete against, IDG;
(b) solicit or induce, or attempt to solicit or induce, any of the
customers or suppliers of IDG, with whom Executive has dealt with or
otherwise has or had direct dealings with during the twenty-four (24)
month period prior to such attempted solicitation or inducement, to
terminate their business relationship with IDG;
(c) divert or attempt to divert any or all of such customers' or
suppliers' business with them from them in violation of this Agreement or
applicable law (including the violation of any trade secrets law); or
(d) be engaged as an officer or director or in any other managerial
or sales capacity or as an owner, co-owner, or other investor of or in,
whether as an employee, independent contractor, consultant or advisor, or
sales representative or distributor of any kind, in a business that sells
any products or provides any services in competition with IDG within a
radius of 100 miles of each location in which IDG was engaged in business
on the date hereof or, to the extent permitted by and enforceable under
applicable law, in which IDG is so engaged on the date of Executive's
termination.
Notwithstanding the foregoing, Executive may own and hold as a
passive investment up to one percent (1%) of the outstanding capital stock of a
competing entity if that class of capital stock is listed for trading or
quotation on a national or regional stock exchange registered with the SEC or
on The Nasdaq Stock Market.
6.2 DAMAGES. Because of the difficulty in measuring the economic losses
that may be incurred by IDG as a result of any breach by Executive of the
covenants in Section 6.1, and because of the immediate and irreparable damage
that could be caused to IDG for which it would have no other adequate remedy,
Executive agrees that IDG may enforce the provisions of Section 6.1 by any
equitable or legal means, including seeking an appropriate injunction or
restraining order against Executive if a breach of any of those provisions
occurs.
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<PAGE> 6
6.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 6.1 and 6.2 impose a reasonable restraint on Executive in light
of the position of Executive with IDG, the activities and business of IDG
on the date hereof, and the current business plans of IDG (of which
Executive acknowledges that he is aware).
6.4 SEVERABILITY; REFORMATION. The covenants in this Section 6 are
severable and separate, and the unenforceability of any specific covenant
in this Section 6 is not intended by any party hereto to, and shall not,
affect the provisions of any other covenant in this Section 6. If any
court of competent jurisdiction shall determine that the scope, time, or
territorial restrictions set forth in Section 6.1 are unreasonable as
applied to Executive, the parties hereto acknowledge their mutual
intention and agreement that those restrictions be enforced to the fullest
extent the court deems reasonable, and thereby shall be reformed to that
extent as applied to Executive.
6.5 INDEPENDENT COVENANT. All of the covenants in this Section 6 are
intended by each party hereto to be, and shall be construed as, an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against IDG,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by IDG of any covenant in this Section 6. It is
specifically agreed that the period specified in Section 6.1 shall be
computed by excluding from that computation any time during which
Executive is in violation of any provision of Section 6.1.
6.6 MATERIALITY. IDG and Executive hereby agree that this Section 6
is a material and substantial part of this Agreement.
7. TERMINATION OF EMPLOYMENT
7.1 BY IDG. (a) Executive's employment under this Agreement may be
terminated by IDG at any time for good cause. For the purposes of this
Section 7.1, "good cause" shall mean: (i) Executive's breach of a material
provision of this Agreement; (ii) the conviction or indictment (or its
procedural equivalent) of, or the entering of a plea of guilty or no
contest by, Executive with respect to an act or acts involving moral
turpitude that constitutes a felony under applicable law; (iii) the
commission by Executive of an act or acts of dishonesty that subjects IDG
or any of its affiliates to material loss or detriment, including the
misappropriation (or attempted misappropriation) of any of IDG or any of
its affiliate's funds, as determined by the Board of Directors of IDG; or
(iv) Executive's habitual neglect of, or refusal to perform, Executive's
duties under this Agreement, or deliberate and intentional disregard of
lawful instructions from the Board of Directors of IDG; provided, however,
that with respect to clauses (i) and (iv) above, Executive shall have
received written notice of such alleged breach, neglect, refusal, or
disregard, as the case may be, from the Board of Directors of IDG and
shall have failed within thirty (30) days after the receipt of such notice
to cure and correct such alleged breach, neglect, refusal, or disregard
(or to begin in good faith to effect such cure and correction if such cure
or correction cannot practically be completed within such 30-day period).
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<PAGE> 7
(b) If Executive's employment is terminated under this Section 7.1, IDG
shall have no further obligation to Executive hereunder except to pay to
Executive, in cash on the effective date of such termination, any amount
accrued but unpaid hereunder as of the termination date, and except for the
provisions contained in Sections 5, 6, and 8, which shall specifically survive
such termination.
7.2 BY DEATH. If Executive dies, this Agreement shall terminate on the
date of Executive's death. In such event, IDG shall pay promptly to Executive's
designated beneficiary or, if no designated beneficiary, to Executive's estate,
any compensation or other amount earned or accrued as of the date of
Executive's death but not yet paid and any other payments to which Executive is
entitled pursuant to Section 3 or Section 4 hereof. If this Agreement is
terminated pursuant to this Section 7.2, Executive or his estate shall be
entitled to receive a cash payment equal to the present value (based on IDG's
then current cost of borrowing) of his Base Salary for the balance of the Term,
payable within 30 days of the date of termination. Executive shall also be
entitled to receive the bonus payment provided for in Section 3.2 hereof for
the fiscal year in which the termination occurred. Further, all stock options
theretofore granted to Executive by IDG shall remain in force and effect and
shall be exercisable until their expiration date, provided that any such
options otherwise subject to vesting based solely on the lapse of time shall be
immediately vested in full.
7.3 BY DISABILITY. If Executive becomes unable to perform his normal
duties hereunder as a result of his incapacity due to physical or mental
illness for a period of at least one hundred eighty (180) consecutive days, IDG
shall have the option to terminate this Agreement upon the expiration of such
period (the "Disability Date"). In such an event, IDG shall pay to Executive
(within thirty (30) days thereof) all amounts accrued but unpaid as of the
Disability Date and, in the manner and at the times set forth in Section 3.1
above, an amount equal to the difference between (a) the Base Salary payable
for the remainder of the Term and (b) the monthly payments made to Executive
under any disability insurance coverage provided to Executive pursuant to
Section 4 hereof. Executive shall also be entitled to receive the bonus payment
provided for in Section 3.2 hereof for the fiscal year in which the termination
occurred. Further, all stock options theretofore granted to Executive by IDG
shall remain in force and effect and shall be exercisable until their
expiration date, provided that any such options otherwise subject to vesting
based solely on the lapse of time shall be immediately vested in full. If
Executive's employment is terminated by IDG as a result of a disability, as
provided in this Section 7.3, this Agreement shall terminate and neither party
shall have any further obligation to the other, except as provided above, and
except for the provisions contained in Sections 5, 6, and 8, which shall
specifically survive such termination.
7.4 BY DISCHARGE. If Executive's employment under the terms of this
Agreement is terminated by IDG for any reason other than cause, death, or
disability (in any such case a "Discharge"), then IDG shall pay to Executive,
on the date of Discharge, a lump sum cash amount equal to the present value of
the sum of (a) the greater of (i) twelve (12) months Base Salary, and (ii) the
amount of Base Salary that otherwise would have been payable to Executive for
the remainder of the Term plus (b) the bonus payment provided for in Section
3.2 hereof for the fiscal year in which the termination occurs. For purposes of
the present value calculation
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<PAGE> 8
required by the preceding sentence, the parties shall use as a rate IDG's then
current cost of borrowing. Such payment shall be in addition to other payments,
if any, to which Executive is entitled pursuant to Section 3 or Section 4
hereof. In addition, all stock options theretofore granted to Executive shall
remain in force and effect and shall be exercisable until their expiration
date, provided that any such options otherwise subject to vesting based solely
on the lapse of time shall be immediately vested in full. The provisions of
Sections 5, 6, and 8 shall continue without regard to such Discharge or
termination of this Agreement.
7.5 BY EXECUTIVE. If (a) IDG significantly reduces Executive's authority
or duties as provided for in this Agreement or Executive's standing within IDG
as a function of Executive's title or responsibilities or Executive's
relationships with the Board or with other members of management of IDG, (b) a
change of control of IDG occurs that is not consented to by Executive, or (c)
Executive is required by IDG, without his consent, to relocate his primary
residence from his current location other than in accordance with Section 1.1,
then, in any such event, Executive may terminate this Agreement and such
termination shall be treated (subject to the provisions of the last sentence of
this Section 7.5) as if it were a Discharge under Section 7.4; provided that
the Board of Directors of IDG shall have received written notice from Executive
of any reduction described in clause (a) above upon which Executive proposes to
base a termination and IDG shall have failed within thirty (30) days thereafter
to reverse or cure the situation giving rise to the grounds asserted by
Executive. For purposes hereof, "change of control" shall mean (d) the
acquisition by a person or entity other than Executive or an affiliate of
Executive, whether in one or several transactions, by exchange, merger,
consolidation, assignment, stock spin-off, stock split-up, or other transaction
(other than pursuant to a registered underwritten public offering of voting
stock by IDG), of an amount of the voting stock of IDG, or of the right to vote
or to direct the voting of such amount of voting stock, sufficient to elect a
majority of the Board of Directors of IDG, or (e) a change in the membership of
the Board of Directors of IDG such that a majority of the members are persons
who are not Continuing Directors. For purposes of this Agreement, a "Continuing
Director" is a person who is a member of the Board of Directors of IDG on the
date hereof or a person who is elected as a director of IDG upon the nomination
by or approval of a majority of the Continuing Directors in office. If
Executive terminates this Agreement due to a change of control, then in lieu of
the payment provided for in Section 7.4(a), Executive shall receive a cash
payment equal to the present value (based on IDG's then current cost of
borrowing) of Executive's Base Salary for the remainder of the Term, or for a
period of two years, whichever period is longer, payable within thirty (30)
days of the date of the occurrence of such event.
7.6 BY MUTUAL CONSENT. Nothing contained in this Agreement shall prevent
the parties from acting by mutual consent with respect to any matter, including
the terms or conditions for a termination of this Agreement, provided that
evidence thereof is in a writing signed by the party to be bound thereby.
8. LEGAL EXPENSE REIMBURSEMENTS
8.1 INDEMNIFICATION LEGAL EXPENSES. Without limiting the scope of any
indemnification to which Executive is or may be entitled under applicable law
or pursuant to
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<PAGE> 9
IDG's Certificate of Incorporation, Bylaws, or contract for indemnification of
officers or directors of IDG, IDG shall indemnify and hold Executive harmless
from and against the costs and expenses (including attorneys' fees and costs)
of Executive's defense with respect to any suit, investigation, or other action
or proceeding instituted or threatened against Executive by any person, agency,
body, or other entity that is based on, arises out of, or is related to any
position that Executive has after the date hereof with IDG or any of its
subsidiaries or other affiliates or otherwise related to the performance by
Executive of any duty or responsibility under this Agreement. To the maximum
extent permitted by applicable law, IDG agrees to advance to Executive the
amount of such costs and expenses as they are incurred by Executive (upon
written request by Executive therefor, accompanied by reasonably detailed
explanation of the basis for such advance(s)), and Executive agrees, to the
extent that such agreement may be required by applicable law to permit such
advances, to account to IDG for such advance(s), including to refund to IDG any
such amount that it may ultimately be determined (according to applicable law)
that Executive is not entitled to receive as indemnification or reimbursement
for such costs and expenses as a result of the final disposition of the
underlying suit, investigation, or other action or proceeding in respect of
which such costs or expenses were incurred. IDG agrees to take such corporate
action as may be necessary or advisable, if requested by Executive, to
authorize, approve, or effectuate and implement the rights conferred upon
Executive in this Section 8.1.
8.2 ATTORNEY'S FEES. If either Executive or IDG institutes an action
Against the other in order to enforce the terms of this Agreement, whether in
court or by arbitration, the prevailing party shall receive its reasonable
attorney's fees from the non-prevailing party. Both parties agree to submit to
the court or arbitrator(s), as the case may be, the issue of deciding which
party, if either, is the prevailing party for purposes of this Section 8.2, and
in such case to decide the amount of attorney's fees that is reasonable in the
circumstances.
8.3 SURVIVAL. The provisions of this Section 8 shall survive any
termination of Executive's employment or of this Agreement.
9. MISCELLANEOUS AND GENERAL
9.1 NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or
interest hereunder may be assigned by Executive, Executive's beneficiaries, or
legal representatives without IDG's prior written consent; provided, however,
that nothing in this Section 9.1 will preclude Executive from designating a
beneficiary to receive any benefits payable hereunder upon Executive's death or
incapacity. Notwithstanding the foregoing, this Agreement and any right or
interest of IDG hereunder may be assigned by IDG to any of its affiliates
without the consent of Executive; provided, however, that in the event of such
an assignment without the consent of Executive, IDG will remain liable for the
payment of all amounts payable to Executive hereunder.
(b) Except as required by law, no right to receive payments under
this Agreement will be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment levy or similar
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<PAGE> 10
process or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action will be null, void and of no effect.
9.2 WAIVER. The waiver by any party to this Agreement of a breach by the
other party of any of the provisions of this Agreement shall not operate as or
be construed as a waiver of any different or subsequent breach.
9.3 ENTIRE AGREEMENT. This Agreement constitutes and expresses the entire
agreement of the parties with respect to the subject matter hereof.
9.4 GOVERNING LAW; CHOICE OF FORUM; ETC. (a) This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Georgia (without regard to its rules of conflicts of laws); and the
laws of that state shall govern all of the rights, remedies, liabilities,
powers, and duties of the parties under this Agreement and of any arbitrator or
arbitrators to whom any matter hereunder may be submitted for resolution by the
parties hereto.
(b) Any legal action or proceeding with respect to this Agreement
that alleges a breach of Sections 5, 6, or 8 shall be brought exclusively in
the federal or state courts located in the State of Georgia, assuming subject
matter jurisdiction thereof (which each party agrees not to challenge), and by
execution and delivery of this Agreement, Executive and IDG irrevocably consent
to the personal jurisdiction of such courts for the adjudication of such
matters; provided, however, that upon agreement of both parties, any such
matter may be submitted to arbitration pursuant to Section 9.4(c). Executive
and IDG irrevocably waive any objection, including any objection to the laying
of venue or based on the grounds of forum non conveniens, that either may now
or hereafter have to the bringing of any action or proceeding in such
jurisdiction for adjudication of such matter.
(c) Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, other than an allegation of a breach of
Sections 5, 6, or 8 hereof, shall be settled by arbitration in Atlanta, Georgia
in accordance with the applicable rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
9.5 SEVERABILITY. Should any clause or any other portion of this
Agreement be determined to be void or unenforceable for any reason, such
determination shall not affect the validity or enforceability of any other
clause or portion of this Agreement, all of which shall remain in full force
and effect, unless the result of any such invalidity or unenforceability shall
be to cause a material failure of consideration to the party seeking to sustain
the validity or enforceability of the subject provision.
9.6 NOTICES. All notices and other communications hereunder shall be
deemed to have been duly given on (a) the date of receipt if delivered
personally or (b) the third business day after deposit in the United States
Mail, if sent certified mail, postage prepaid, to IDG at its address provided
following its signature to this Agreement (Attention: Chief Executive Officer
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<PAGE> 11
or Chief Operating Officer), or to Executive at the address provided following
Executive's signature to this Agreement, as the case may be, or to such other
address as one party shall have given to the other in accordance with this
provision.
9.7 EFFECT OF CAPTIONS AND HEADINGS. The captions and headings contained
herein are for convenience only, do not constitute a part of this Agreement,
and shall not be used in construing it.
IN WITNESS WHEREOF, the parties have executed this Agreement, as an
instrument under seal, as of the day and year first written above.
[SEAL] "IDG"
Attest: INDUSTRIAL DISTRIBUTION GROUP, INC.
By:
- -------------------------------- --------------------------------------
Secretary or Assistant Secretary Douglass C. Smith, President
Address: 2500 Royal Place
Tucker, Georgia 30084
"EXECUTIVE"
---------------------------------(SEAL)
JACK P. HEALEY
Address: 2244 Chimney Swift Circle
Marietta, Georgia 30062
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<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
Associated Suppliers, Inc.
B & J Industrial Supply Company
Cramer Industrial Supplies, Inc.
Grinding Supplies Company
Industrial Distribution Group, Inc.
J.J. Stangel Co.
Shearer Industrial Supply Co.
Slater Industrial Supply, Inc.
Tri-Star Industrial Supply, Inc.
<PAGE> 1
EXHIBIT 23.2
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of this registration
statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
July 17, 1997
<PAGE> 1
EXHIBIT 23.3
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made part of this registration
statement.
/s/ Miller & Co. LLP
York, Pennsylvania
July 17, 1997
<PAGE> 1
EXHIBIT 23.4
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Schenck & Associates, SC
Green Bay, Wisconsin
July 17, 1997
<PAGE> 1
EXHIBIT 23.5
We hereby consent to the inclusion and use of our audit report respecting the
financial statements of Tri-Star Industrial Supply, Inc., St. Louis, Missouri,
at and for the years ended September 30, 1996 and 1995, in the Registration
Statement on Form S-1 of Industrial Distribution Group, Inc., and to the
references made to our firm in such Registration Statement.
/s/ Baird, Kurtz & Dobson
St. Louis, Missouri
July 17, 1997
