<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
INDUSTRIAL DISTRIBUTION GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
(INDUSTRIAL DISTRIBUTION GROUP, INC. LOGO)
March 31, 1999
To Our Stockholders:
On behalf of the Board of Directors and management of Industrial
Distribution Group, Inc., I cordially invite you to the Annual Meeting of
Stockholders to be held on Thursday, May 6, 1999, at 10:00 a.m., Pacific Time,
at The Argent Hotel, 50 Third Street, San Francisco, California.
At the Annual Meeting, stockholders will be asked to elect eight directors
of the Company, all of the nominees for which are currently directors of the
Company. Information about the nominees and certain other matters is contained
in the accompanying Proxy Statement. A copy of the Company's 1998 Annual Report
to Stockholders, which contains financial statements and other important
information about the Company's business, is also enclosed.
It is important that your shares of stock be represented at the meeting,
regardless of the number of shares you hold. You are encouraged to specify your
voting preferences by marking and dating the enclosed proxy card. However, if
you wish to vote for re-electing the directors, all you need to do is sign and
date the proxy card.
Please complete and return the proxy card in the enclosed envelope, whether
or not you plan to attend the meeting. If you do attend and wish to vote in
person, you may revoke your proxy at that time.
I hope you are able to attend, and look forward to seeing you.
Sincerely,
Richard M. Seigel
Chairman of the Board
<PAGE> 3
INDUSTRIAL DISTRIBUTION GROUP, INC.
950 EAST PACES FERRY ROAD
SUITE 1575
ATLANTA, GEORGIA 30326
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1999
---------------------
To the Stockholders of
Industrial Distribution Group, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of
Industrial Distribution Group, Inc. will be held at 10:00 a.m., Pacific Time, on
Thursday, May 6, 1999, at The Argent Hotel, 50 Third Street, San Francisco,
California for the following purposes:
1. To elect eight directors to constitute the Board of Directors to
serve until the next annual meeting and until their successors are elected
and qualified; and
2. To consider such other matters as may properly come before the
meeting and any adjournment or postponement thereof.
Only stockholders of record on March 22, 1999, are entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponement thereof.
By order of the Board of Directors,
Jack P. Healey
Secretary
March 31, 1999
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE FILL IN,
DATE, SIGN, AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED BUSINESS
REPLY ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT
THE ANNUAL MEETING, YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
<PAGE> 4
(INDUSTRIAL DISTRIBUTION GROUP, INC. LOGO)
---------------------
PROXY STATEMENT
---------------------
DATED MARCH 31, 1999
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1999
This Proxy Statement is furnished to stockholders in connection with the
solicitation of proxies by the Board of Directors of Industrial Distribution
Group, Inc. ("IDG" or the "Company") for use at IDG's 1999 Annual Meeting of
Stockholders ("Annual Meeting") to be held on Thursday, May 6, 1999, including
any postponement, adjournment, or adjournments thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting. Management intends to mail
this Proxy Statement and the accompanying form of proxy to stockholders on or
about March 31, 1999.
Only stockholders of record at the close of business on March 22, 1998 (the
"Record Date"), are entitled to notice of and to vote in person or by proxy at
the Annual Meeting. As of the Record Date, there were 8,496,873 shares of common
stock, $.01 par value per share ("Common Stock"), of IDG outstanding and
entitled to vote at the Annual Meeting. The presence of a majority of such
shares is required, in person or by proxy, to constitute a quorum for the
conduct of business at the Annual Meeting. Each share is entitled to one vote on
any matter submitted for vote by the stockholders. The vote required for
approval of each matter submitted to the stockholders is described with the
discussion of that matter in this Proxy Statement.
Proxies in the accompanying form, duly executed and returned to the
management of the Company, and not revoked, will be voted at the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the stockholder
at any time prior to the voting of the proxy by delivery of a subsequently dated
proxy, by written notification to the Secretary of the Company, or by personally
withdrawing the proxy at the Annual Meeting and voting in person.
Proxies that are executed, but that do not contain any specific
instructions, will be voted for the election of all the nominees for directors
specified herein and in the discretion of the persons appointed as proxies on
any other matter that may properly come before the Annual Meeting or any
postponement, adjournment, or adjournments thereof, including any vote to
postpone or adjourn the Annual Meeting.
A copy of the Company's 1998 Annual Report to Stockholders (including
substantive excerpts from the Company's Annual Report on Form 10-K) is being
furnished herewith to each stockholder of record as of the close of business on
the Record Date. Additional copies of the 1998 Annual Report to Stockholders
will be provided free of charge upon written request to:
INDUSTRIAL DISTRIBUTION GROUP, INC.
950 EAST PACES FERRY ROAD
SUITE 1575
ATLANTA, GEORGIA 30326
ATTN.: INVESTORS RELATIONS DEPARTMENT
If the person requesting the Annual Report was not a stockholder of record
on the Record Date, the request must include a representation that the person
was a beneficial owner of Common Stock on that date. Copies of any exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 will also be furnished on request and upon payment of the Company's
expenses in furnishing the exhibits.
<PAGE> 5
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The following table sets forth the information concerning the beneficial
ownership of Common Stock, which is the only class of voting stock of the
Company, at March 15, 1999, by (i) each person known to the Company to
beneficially own more than 5% of the Common Stock, (ii) each director, nominee
for director, and designated highly compensated executive officer, and (iii) all
directors and executive officers of the Company as a group. Unless otherwise
indicated below, the persons named below had sole voting and investment power
with respect to all shares of the Common Stock shown as beneficially owned by
them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED PERCENT(1)
- ------------------------ ------------------- ----------
<S> <C> <C> <C>
Edmundson International, Inc.
Consolidated Electrical Distributors, Inc.
Portshire Corp.
Lincolnshire Associates Ltd. (2)........................ 1,021,000 12.02%
Employees' Retirement Plan of Consolidated
Electrical Distributors, Inc.
Dimensional Fund Advisors, Ind.(3)....................................... 536,500 6.31%
Andrew B. Shearer(4)..................................................... 515,639 6.07%
William J. Burkland(5)................................................... 143,957 1.69%
Douglass C. Smith(6)..................................................... 130,249 1.53%
George L. Sachs, Jr.(7).................................................. 57,901 *
Jack P. Healey(8)........................................................ 36,093 *
David K. Barth(9)........................................................ 28,066 *
William T. Parr(10)...................................................... 7,200 *
William R. Fenoglio(11).................................................. 8,000 *
Richard M. Seigel(11).................................................... 16,000 *
All Directors and Executive Officers as a Group (11 persons)............. 943,105(12) 11.10%
</TABLE>
- ---------------
* Denotes less than 1%.
(1) The percentages shown are based on 8,496,873 shares of Common Stock
outstanding on March 15, 1999 plus, as to each person and group listed, the
number of shares of Common Stock deemed owned by such holder pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), assuming the exercise of options held by such holder that
are exercisable within 60 days of March 15, 1999.
(2) The address of Edmundson International, Inc. ("Edmundson") and Consolidated
Electrical Distributors, Inc. ("CED") is 31356 Via Colinas, Westlake
Village, California 91362. The address of Portshire Corp. ("Portshire") and
Lincolnshire Associates, Ltd. ("Lincolnshire") is 2550 Midway Road, Suite
220, Carrollton, Texas 75006. The address of Employees' Retirement Plan of
Consolidated Electrical Distributors, Inc. (the "Retirement Plan") is 700
S. Flower Street (c/o BNY Western Trust Co.), Los Angeles, CA 90071. The
listed owners are affiliated with each other and therefore the aggregate
number of shares listed above could be voted together. Specifically, CED is
the sole shareholder of Edmundson; Edmundson is the sole shareholder of
Portshire; and, Portshire is the general partner of Lincolnshire. The
listed owners have filed a Schedule 13D with the SEC as members of a group.
(3) The address of Dimensional Fund Advisors, Inc. is 1229 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401. The listed owner has filed a Schedule 13G
with the SEC and claims voting and investment power with respect to all
536,500 shares.
(4) Includes 750 shares subject to exercisable options. The address for Mr.
Shearer is 3100 Farmtrail Road, York, PA 17402.
(5) Includes an aggregate of 300 shares held by Mr. Burkland as custodian for
his three minor children and 750 shares subject to exercisable options.
Does not include an aggregate of 28,966 shares owned by Mr. Burkland's
wife, with respect to which Mr. Burkland disclaims beneficial ownership.
2
<PAGE> 6
(6) Does not include an aggregate of 372,331 shares owned by Mr. Smith's wife
and his two adult daughters, with respect to which Mr. Smith disclaims
beneficial ownership. Includes 6,375 shares subject to exercisable options.
(7) Includes 875 shares subject to exercisable options.
(8) Includes 6,933 shares subject to exercisable options.
(9) Includes 5,000 shares subject to exercisable options.
(10) Includes 5,000 shares subject to exercisable options; does not include an
aggregate of 1,200 shares owned by Mr. Parr's wife, with respect to which
Mr. Parr disclaims beneficial ownership.
(11) Includes 5,000 shares subject to exercisable options.
(12) Includes an aggregate of 35,683 shares subject to exercisable options that
are held by the persons in the group.
ELECTION OF DIRECTORS
(ITEM NUMBER 1 ON THE PROXY CARD)
The Bylaws of IDG provide that the Board of Directors shall consist of not
less than three nor more than fifteen directors, with the exact number being set
from time to time by the Board. The Board presently consists of eight directors,
each of whom serves until the next annual meeting of stockholders and until his
successor, if there is to be one, is elected and qualified. Each of the nominees
is listed below and is presently serving as a director of the Company.
Directors are elected by a plurality of the votes cast by the holders of
shares of Common Stock entitled to vote for the election of directors at a
meeting at which a quorum is present. A quorum will be present for the Annual
Meeting when the holders of a majority of the shares outstanding on the Record
Date are present in person or by proxy. An abstention and a broker non-vote are
included in determining whether a quorum is present, but will not affect the
outcome of the vote for the election of directors. Unless otherwise indicated on
a proxy, all duly executed proxies granted by the holders of Common Stock will
be voted individually at the Annual Meeting for the election of each nominee.
Each nominee has indicated that he will serve if elected, but if the situation
should arise that any nominee is no longer able or willing to serve, the proxy
may be voted for the election of such other person as may be designated by the
Board of Directors. Each person elected as a director shall serve a term that
continues until the next annual meeting and until his successor, if there is to
be one, is duly elected and qualified.
PRESIDENT
DAVID K. BARTH BARTH SMITH COMPANY
Mr. Barth, age 55, 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 and which assisted the Company with its formation in
1997. 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. Mr.
Barth is a member of the Executive, Audit and Compensation Committees of the
Board of Directors.
VICE PRESIDENT
WILLIAM J. BURKLAND B&J INDUSTRIAL SUPPLY COMPANY
Mr. Burkland, age 37, 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 ("B&J"), one of the companies that founded the Company
in 1997. From 1992 to 1994, Mr. Burkland served as B&J's Director of
International Sales, during which time he initiated, managed, and expanded B&J's
international business. Mr. Burkland is a member of the Operations Committee of
the Board of Directors.
3
<PAGE> 7
CHIEF EXECUTIVE OFFICER (RETIRED)
WILLIAM R. FENOGLIO AUGAT, INC.
Mr. Fenoglio, age 59, 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 Standex
International, Inc., and he has served as Chairman of the Board of Connecticut
Business & Industry Association. Mr. Fenoglio is a member of the Executive,
Audit, and Compensation Committees of the Board of Directors.
VICE CHAIRMAN
WILLIAM T. PARR J. SMITH LANIER & CO.
Mr. Parr, age 62, 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 Company, Inc. 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, Inc. Mr. Parr is
a member of the Executive, Audit and Compensation Committees of the Board of
Directors.
PRESIDENT
GEORGE L. SACHS, JR. TRI-STAR INDUSTRIAL SUPPLY, INC.
Mr. Sachs, age 57, is a co-founder of the Company. Mr. Sachs has served
since 1985 as the President of Tri-Star Industrial Supply, Inc. ("Tri-Star"),
one of the companies that founded the Company in 1997, 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 is a member of the Operations Committee of the Board of Directors.
CHAIRMAN OF THE BOARD
ACTING CHIEF EXECUTIVE OFFICER AND PRESIDENT
RICHARD M. SEIGEL INDUSTRIAL DISTRIBUTION GROUP, INC.
Mr. Seigel, age 53, became Chairman of the Board on March 4, 1999, and
Acting Chief Executive Officer and President on March 8, 1999. Mr. Seigel is the
retired former Chairman and Chief Executive Officer of SYSCO Food Services of
Los Angeles, a subsidiary of SYSCO Corporation, with which he had held the
position of Senior Vice President Foodservice operations. Prior to that Mr.
Seigel was President of Continental Foodservice Company, a national distributor
of foodservice products. Mr. Seigel is a member of the Executive, Audit and
Compensation Committees of the Board of Directors.
PRESIDENT
ANDREW B. SHEARER SHEARER INDUSTRIAL SUPPLY CO.
Mr. Shearer, age 35, is a co-founder of the Company. Mr. Shearer has served
since 1991 as the President of Shearer Industrial Supply Co. ("Shearer"), one of
the companies that founded the Company in 1997. Prior to becoming President, Mr.
Shearer was employed by Shearer in various positions from 1985. Mr. Shearer is a
member of the Operations Committee of the Board of Directors.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DOUGLASS C. SMITH THE DISTRIBUTION GROUP, INC.
Mr. Smith, age 58, is a co-founder of the Company. Mr. Smith serves as the
Chairman and Chief Executive Officer of The Distribution Group, Inc. ("TDG"),
one of the companies that founded the Company
4
<PAGE> 8
in 1997. Mr. Smith served as President and Chief Operating Officer of the
Company from its inception until June 1998. Mr. Smith was a co-founder in 1981
of TDG and previously served as its President and Chief Executive Officer from
inception until it was acquired by the Company in September 1997. Mr. Smith was
also a co-founder in 1972, and President, of Boring & Smith Industries, Inc., a
predecessor of TDG. Mr. Smith is a member of the Operations Committee of the
Board of Directors.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors of the Company meets on a regular basis to
supervise, review, and direct the business and affairs of the Company. During
the Company's 1998 fiscal year, the Board held seven meetings. The Board of
Directors has established an Executive Committee, an Audit Committee, a
Compensation Committee and an Operations Committee to which it has assigned
certain responsibilities in connection with the governance and management of the
Company's affairs. The Company has no standing nominating committee or other
committee performing similar functions.
Each of the directors attended at least 75% of the Board meetings and
meetings of committees on which he served.
Executive Committee. The Executive Committee, pursuant to authority
delegated by the Board, from time to time considers certain matters in lieu of
convening a meeting of the full Board, subject to any restrictions in applicable
law related to the delegation of certain powers to a committee of the Board.
Messrs. Barth, Fenoglio, Parr, and Seigel, comprise the members of the Executive
Committee. The Executive Committee held seven meetings during fiscal 1998.
Audit Committee. The Audit Committee recommends the appointment of
independent public accountants, reviews the scope of audits proposed by the
independent public accountants, reviews audit reports on various aspects of
corporate operations, and periodically consults with the independent public
accountants on matters relating to internal financial controls and procedures.
Messrs. Barth, Fenoglio, Parr, and Seigel comprise the members of the Audit
Committee. The Audit Committee held four meetings during fiscal 1998.
Compensation Committee. The Compensation Committee is responsible for the
review and approval of compensation of employees above a certain salary level,
the review of management recommendations relating to incentive compensation
plans, the administration of the Company's stock option and stock purchase
plans, the review of compensation of directors, and consultation with management
and the Board on senior executive continuity and organizational matters. Messrs.
Barth, Fenoglio, Parr, and Seigel comprise the members of the Compensation
Committee. The Compensation Committee held five meetings during fiscal 1998.
Messrs. Fenoglio and Seigel comprise the members of a subcommittee of the
Compensation Committee to act with respect to certain matters of compensation to
the Company's most highly compensated executive officers in order to comply with
requirements of Section 162(m) of the Internal Revenue Code.
Operations Committee. The Operations Committee was formed in August 1998
as an ad hoc committee consisting of the inside directors of the
Company -- Messrs. Burkland, Sachs, Shearer, and Smith -- in order to serve as
an executive operations committee of the Company. The members of the Operations
Committee collectively discharge the chief operating function of the Company.
Mr. Seigel, as Acting Chief Executive Officer, and Jack P. Healey, the Company's
Chief Financial Officer, are ex officio members of the Operating Committee.
DIRECTORS' COMPENSATION
The Company pays its outside directors an annual fee of $10,000, payable
quarterly. The Company will pay the Chairman of the Board an additional annual
fee in 1999 of $15,000, 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. The Company also pays
health insurance costs for Messrs. Barth and Seigel; such costs were $7,638 for
each in 1998.
5
<PAGE> 9
On September 23, 1997, the Company granted each outside director (Messrs.
Barth, Fenoglio, Parr, and Seigel) options to purchase 15,000 shares of Common
Stock at a price of $17.00 per share. On March 4, 1999, the Company granted each
outside director options to purchase 15,000 shares of Common Stock at a price of
$6 7/16 per share and granted Mr. Seigel, as the Chairman of the Board, options
to purchase an additional 25,000 shares of Common Stock at $6 7/16 per share. On
March 4, 1999, the Company granted each of Messrs. Burkland, Sachs, Shearer, and
Smith, as members of the Operations Committee of the Board of Directors, options
to purchase 25,000 shares of Common Stock at a price of $6 7/16 per share. All
such options vest in three equal installments on the first three anniversaries
of the respective dates of grant.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by
the Company for services rendered during the fiscal year ended December 31,
1998, to or for the Company's chief executive officer and each of the Company's
two other executive officers who were paid or accrued at least $100,000 during
fiscal 1998 (the "Named Executive Officers"). The Company was organized in
February 1997, did not have any executive officers until June 1997, and did not
conduct any operations until September 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
-------------------------- COMPENSATION
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS OPTIONS/SARS(#) COMPENSATION
- ------------------------------ ------ -------- ------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Martin S. Pinson.......................... 1998 $250,000 -- -- $1,000
Chairman of the Board and 1997 $145,833 -- 103,800 --
Chief Executive Officer(1)
Douglass C. Smith......................... 1998 161,644 -- -- $2,041
President and Chief 1997 219,286 -- 27,000 --
Operating Officer(2)
Jack P. Healey............................ 1998 175,000 25,000 -- $3,271
Senior Vice President, 1997 87,500 40,000 20,800 --
Chief Financial Officer
and Secretary(3)
</TABLE>
- ---------------
(1) Mr. Pinson's employment by the Company commenced June 1, 1997 and ended
March 8, 1999 upon his resignation as Chief Executive Officer and President
of the Company.
(2) Mr. Smith's compensated employment by the Company as President and Chief
Operating Officer was from September 29, 1997 to August 24, 1998. Prior to
September 29, 1997, he had served the Company without compensation from it,
while being employed and compensated as an executive officer of TDG, which
became a subsidiary of the Company pursuant to the Company's consummation of
its acquisition of the nine founding companies on September 29, 1997.
Effective on August 25, 1998, Mr. Smith resigned his executive officer
positions with the Company and returned full time to TDG as its Chairman and
Chief Executive Officer. Mr. Smith's compensation reflected in the table
includes all amounts paid to him by TDG or the Company for 1997 and by the
Company only for 1998 through August 24, 1998.
(3) Mr. Healey's employment by the Company commenced June 1, 1997.
6
<PAGE> 10
The Company did not grant any options to its Named Executive Officers
during fiscal 1998. The following table sets forth the fiscal year-end value of
unexercised options held by the Named Executive Officers at the end of fiscal
1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END AT FISCAL YEAR END(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Martin S. Pinson............................... 34,600 69,200(2) $0 $0
Douglass C. Smith.............................. 6,750 20,250 $0 $0
Jack P. Healey................................. 6,933 13,867 $0 $0
</TABLE>
- ---------------
(1) As required by the rules of the Securities and Exchange Commission, the
value of unexercised in-the-money options is calculated based on the closing
sale price of the Company's Common Stock on the New York Stock Exchange
("NYSE") as of the last business day of its fiscal year, December 31, 1998,
which was $7 5/8 per share. Because the closing sale price of the Company's
Common Stock on December 31, 1998 was less than the exercise price of the
options, no unexercised options were in-the-money.
(2) In connection with his separation from the Company on March 8, 1999, the
Company accelerated the vesting in full of all options held by Mr. Pinson.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Smith and Healey. The
agreements provide for a base salary of $250,000 and $175,000 per year for
Messrs. 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. Mr. Healey's employment agreement has a three-year
term from June 1, 1997, and Mr. Smith's employment agreement has a three-year
term from September 29, 1997. The agreement with Mr. Smith was amended on August
24, 1998 to relate to his new positions with TDG rather than with the Company,
but the financial and economic terms were essentially unchanged.
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 would otherwise be entitled
for the fiscal year in which such termination occurs. Both of the agreements
contain customary proscriptions against misuse of Company information,
competition with the Company, and solicitation of employees of the Company.
SEPARATION AGREEMENT WITH FORMER CEO
In connection with the resignation of Martin S. Pinson as Chairman of the
Board and Chief Executive Officer of the Company, the Company entered into a
separation agreement with Mr. Pinson as of March 8, 1999. Pursuant to this
agreement, the Company paid Mr. Pinson $312,500 as severance and consideration
for releases from him and the termination of all obligations by the Company
under its former employment agreement with Mr. Pinson, and it accelerated the
vesting in full of all options for Common Stock that had been granted to Mr.
Pinson. The Company also conveyed some incidental items of personal office
equipment to Mr. Pinson, and it has permitted Mr. Pinson to use the Company's
office space in Chevy Chase, Maryland through April 30, 1999 and thereafter to
June 30, 1999, unless the space is earlier sublet to other parties.
7
<PAGE> 11
CERTAIN TRANSACTIONS
FORMATION OR COMBINATION RELATED MATTERS
The Company will pay Barth Smith Company, a consulting firm in which David
K. Barth, a director of the Company, has a 75% ownership interest, an amount
equal to 1% of the cash payment ultimately paid to a dissenting stockholder of
TDG in connection with formation of the Company (the "Combination").
Upon consummation of the Combination, the Company succeeded to certain real
property leases as lessee with respect to which stockholders of the Company
(former stockholders of certain of the nine companies that formed the Company
(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, the
Company leases 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) 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; (iv) Hazelton and
Lancaster, Pennsylvania from a trust of which Andrew B. Shearer and his father,
brother, and sisters are the beneficiaries; and (v) 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 directors of the Company, and
Mr. Shearer is also a principal stockholder of the Company.
Prior to the Combination, B&J had agreed to pay Charles T. Burkland, a
former president and 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. Mr.
Burkland is the father of William J. Burkland, a director of the Company.
OTHER RELATED PARTY MATTERS
IDG had an agreement with Barth Smith Company during 1998, pursuant to
which that company provided services to assist IDG in the implementation of its
acquisition program. Pursuant to the agreement, IDG paid Barth Smith Company a
monthly retainer of $12,500 plus certain expenses and a transaction fee for each
acquisition, and Barth Smith Company would have been entitled to bonus payments
if IDG met certain revenues and earnings targets for fiscal 1998. IDG paid Barth
Smith Company under this agreement an aggregate of $304,000 for 1998. The
agreement was extended and revised as of January 1, 1999 to provide for payment
by IDG of a monthly retainer of $15,000 plus certain expenses, but no
transaction fee or bonus with respect to acquisitions. The agreement may be
terminated by IDG upon 60 days' written notice to Barth Smith Company.
Since January 1998, TDG and the Company have paid approximately $572,000 in
insurance premiums, of which $50,000 constituted a servicing fee, to J. Smith
Lanier & Co., an independent insurance agency, in connection with business and
health insurance purchased by TDG and the Company. William T. Parr, a director
of the Company, is the Vice Chairman of, and has a 12% ownership interest in, J.
Smith Lanier & Co.
In July 1998, an operating subsidiary of the Company, entered into a real
property lease as lessee with respect to which Andrew B. Shearer is the lessor.
The property is located in York, Pennsylvania and serves as the Company's
primary distribution center in the Mid-Atlantic region. The term of the lease is
for ten years and commenced upon completion of the construction of office and
warehouse space in December 1998. Annual rent under the lease will be $319,215.
The Company believes that the monthly rent and other terms of this lease are not
less favorable to the Company than could be obtained from unaffiliated parties
for a
8
<PAGE> 12
comparable property in the York, Pennsylvania area. Mr. Shearer is a principal
stockholder and director of the Company.
On August 27, 1998, the Company made an interest-free loan of $218,282 to
John L. Crum, the Company's Vice President and Chief Information Officer, in
connection with his employment by the Company in order to replace financing
related to his Texas residence that had been provided by his former employer.
The loan is secured by a second mortgage on the personal residence owned by Mr.
Crum in Texas. The loan originally matured on February 28, 1999, but has been
extended to mature on February 28, 2000. In connection with the extension of the
loan, it will bear interest at the rate of 8% per annum after May 29, 1999.
POLICY RESPECTING RELATED PARTY TRANSACTIONS
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 is responsible for
reviewing all related party transactions on a continuing basis and potential
conflict of interest situations where appropriate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Pinson, Parr, and Seigel served as members of the Company's
Compensation Committee throughout the 1998 fiscal year. Mr. Fenoglio was
appointed to the Compensation Committee on March 5, 1998. Mr. Pinson's
resignation as a director on March 4, 1999 discontinued his membership, and Mr.
Barth was appointed to the Compensation Committee effective March 4, 1999. Mr.
Pinson was the Chairman of the Board and Chief Executive Officer of the Company
during his service on the Compensation Committee, and Mr. Seigel is now Chairman
of the Board and Acting Chief Executive Officer and President of the Company.
None of the other members of the Committee is an officer or former officer of
the Company.
None of the executive officers of the Company served as either (1) a member
of the compensation committee or (2) a director of any entity of which any
member of the Compensation Committee is an executive officer. In addition, none
of the executive officers of the Company served as a member of the compensation
committee of any entity of which any member of the Board of Directors is an
executive officer.
REPORT OF COMPENSATION COMMITTEE
This report sets forth the factors currently being used in the Company's
compensation programs for its executive officers and describes the basis on
which fiscal 1998 compensation determinations were made with respect to the
executive officers of the Company, including Mr. Pinson, the Chief Executive
Officer during 1998, and the other Named Executive Officers of the Company.
GENERAL COMPENSATION PHILOSOPHY
The Compensation Committee (the "Committee") is still developing the
programs and policies for the compensation of the Company's executive officers,
which it expects will link the compensation of executive officers to the
performance of the Company and its business units. The Committee intends that
such a link will align the financial interests of the Company's executive
officers with those of its stockholders.
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<PAGE> 13
The Committee has identified several objectives that it expects to reflect
in the Company's compensation programs and policies, and it has determined that
the Company will use a combination of base salary, short-term and long-term
incentive plans, and performance bonus criteria in order to tie executive
compensation to increases in the Company's earnings and return on stockholders'
equity. While specific amounts and parameters will be established after further
review and analysis, the Committee expects that the Company's compensation
programs will consist of the following basic components:
- Reasonably competitive base salaries, in light of the Company's stage of
development and position within its industry;
- The issuance of performance-based stock options;
- Potentially significant annual incentive bonuses under the Company's
Management Incentive Program; and
- Customary benefits.
The Committee expects to complete its formulation of the Company's
compensation programs and policies for executive officers during 1999, and
thereafter it will review and determine the appropriateness of the compensation
paid to each of the executive officers of the Company from time to time in light
of its compensation philosophy. While promoting initiative and providing
incentives for superior performance by executives on behalf of the Company for
the benefit of its stockholders, the Committee also will seek to assure that the
Company is able to compete for and retain talented personnel who will lead the
Company in achieving levels of financial performance that will enhance
stockholder value over the long-term as well as the short-term.
BASE SALARIES
The Company has established the current base salaries of its executive
officers without reference to specific Company performance criteria. The base
salaries for all three executive officers during fiscal 1998 were determined by
negotiations conducted prior to the constitution of the Committee in 1997. Such
base salaries were intended to be set at a level slightly below the competitive
amounts paid to executive officers of similar businesses in structure, size, and
market orientation. The Committee reviews salaries of the Company's executive
officers on an annual basis.
STOCK INCENTIVE PLAN
During fiscal 1998, the Company granted options to purchase an aggregate of
200,694 shares of Company Common Stock to 112 employees, of which 30,000 were
granted to the Company's executive officers, pursuant to its Stock Incentive
Plan. Under the Stock Incentive Plan, the Company is permitted to issue stock
options that are qualified as incentive stock options under the IRC, options
that are not so qualified, direct awards of shares of stock, stock appreciation
rights and other forms of awards that use (or are based on) shares of Common
Stock. To date, the Company has issued only non-qualified stock options under
the Stock Incentive Plan.
Stock options are awarded to executive officers and other persons both to
recognize outstanding contributions that they have made to the Company's
financial performance, and to encourage and provide incentives to continue to
make such contributions. While the Company has the flexibility to grant below-
market options, its policy has been to grant options at fair market value, with
vesting over a period of several years, in order to better align the personal
interests of optionees with those of the stockholders of the Company.
ANNUAL INCENTIVE COMPENSATION
The Company provides annual incentive compensation to executive officers of
the Company through its Management Incentive Program. The Management Incentive
Program is designed to offer compensation opportunities that are tied directly
to Company performance. In addition, the Management Incentive Program
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<PAGE> 14
is designed to foster equity ownership in the Company by executive officers and
all other participants. The Management Incentive Program, at least as it relates
to the designated Executive Officers of the Company, is administered by a
subcommittee of the Committee that will include only those members who qualify
as "outside" directors under Section 162(m) of the IRC. Pursuant to the
Management Incentive Program, that subcommittee establishes the specific
criteria and performance measures each year that are applicable to the Company's
designated Executive Officers for the purpose of earning incentive compensation
or bonuses for such year under the Management Incentive Program.
BENEFITS
Executives are also eligible to participate in the Company's regular
employee benefit programs, including a 401(k) retirement savings plan, group
medical and dental coverage, group life insurance, group long-term disability
insurance, and other group benefit plans. Substantially all decisions with
respect to such benefits are made on a group basis, and no individual decisions
were made with respect to the executive officers during fiscal 1998.
COMPENSATION OF CEO
Until Mr. Pinson's separation from the Company on March 8, 1999, the
Company had compensated him from June 1, 1997, for his service as Chairman and
Chief Executive Officer under the terms of his employment agreement, which
required an annual base salary of $250,000, subject to an annual adjustment at
the discretion of the Board of Directors, and eligibility for an annual bonus
determined by the Board of Directors. Mr. Pinson was also eligible to
participate in employee benefit plans as generally made available to senior
management of the Company, including the Stock Incentive Plan and the Management
Incentive Program. The Board of Directors delegated to the Committee its
authority to make such determinations pursuant to the agreement with Mr. Pinson.
The Committee did not approve any base salary increase or any bonus for Mr.
Pinson.
Under the terms negotiated with Mr. Pinson for his employment prior to the
consummation of the Combination by the Company, Mr. Pinson was granted the right
to purchase 69,200 shares of Common Stock for an aggregate of $600 and was
granted stock options under the Stock Incentive Plan, which were originally
scheduled to vest one-third on each of September 23, 1998, 1999, and 2000, to
purchase 103,800 shares at a price of $17.00 per share. In connection with Mr.
Pinson's separation from the Company, all such options were immediately vested.
(Other aspects of the separation agreement with Mr. Pinson are discussed above
under "Executive Compensation -- Separation Agreement with Former CEO".) The
Committee did not grant any other options or rights to purchase shares to Mr.
Pinson.
The Committee believes that the compensation terms of Mr. Pinson's
employment agreement (as well as the terms for the initial purchase of shares
and the grant of options, in the circumstances in which they were granted) were
consistent with the fundamental elements that it expects will comprise the
Company's executive compensation philosophy. The base salary to Mr. Pinson was
somewhat less than what the Committee believes existed in the Company's
industry, and the opportunities for bonus compensation were tied to the
Company's performance in terms of value to its stockholders.
Mr. Seigel, who became the Company's Chairman of the Board in connection
with the separation of Mr. Pinson, is also serving as Acting Chief Executive
Officer of the Company pending the hiring of a person to fill that position long
term. Mr. Seigel is serving without compensation for such services. The
Committee anticipates that it will employ parameters similar to those reflected
in the former employment agreement with Mr. Pinson in negotiating appropriate
compensation terms for its new Chief Executive Officer.
David K. Barth -- William R. Fenoglio -- William T. Parr -- Richard M. Seigel
(Current Members of Committee)
11
<PAGE> 15
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return of the Company's Common Stock against the
cumulative total return of the Russell 2000 Index and the Media General SIC Code
508 -- machinery, equipment and supplies -- Index for the period commencing on
September 24, 1997 and ending on December 31, 1998.
<TABLE>
<CAPTION>
Industrial
Measurement Period Distribution SIC Code Russell 2000
(Fiscal Year Covered) Group, Inc. Index Index
<S> <C> <C> <C>
09/24/97 100.00 100.00 100.00
09/30/97 100.00 100.00 100.00
12/31/97 74.70 90.91 96.65
03/31/98 88.99 99.84 106.37
06/30/98 73.81 86.66 101.41
09/30/98 30.06 57.12 80.98
12/31/98 36.31 56.71 93.94
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee,
appoints each year the firm that will serve as the Company's independent public
accountants. The Board has appointed Arthur Andersen LLP, which firm served as
independent public accountants for the Company during the past fiscal year, to
serve as such accountants for the current fiscal year. Such appointment is not
subject to ratification or other vote by the stockholders.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting, with the opportunity to make a statement if he or she desires to
do so, and is expected to be available to respond to appropriate questions.
STOCKHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING
Any stockholder who wishes to present a proposal appropriate for
consideration at the Company's 2000 Annual Meeting of Stockholders must submit
the proposal in proper form to the Company at its address set forth on the first
page of this Proxy Statement no later than November 30, 1999 for the proposal to
be considered for inclusion in the Company's proxy statement and form of proxy
relating to such Annual Meeting.
12
<PAGE> 16
OTHER MATTERS
All of the expenses involved in preparing, assembling, and mailing this
Proxy Statement and the materials enclosed herewith and soliciting proxies will
be paid by the Company. It is estimated that such costs will be nominal. The
Company may reimburse banks, brokerage firms and other custodians, nominees, and
fiduciaries for expenses reasonably incurred by them in sending proxy materials
to beneficial owners of stock. The solicitation of proxies will be conducted
primarily by mail but may include telephone, telegraph, or oral communications
by directors, officers, or regular employees of the Company, acting without
special compensation.
The Board of Directors is aware of no other matters, except for those
incidental to the conduct of the Annual Meeting, that are to be presented to
stockholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any postponement,
adjournment, or adjournments thereof, it is the intention of the persons named
in the proxy to vote the proxy in accordance with their judgment.
Stockholders are urged to fill in, date, and sign the accompanying form of
proxy and return it to the Company as soon as possible.
By order of the Board of Directors,
Jack P. Healey
Secretary
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<PAGE> 17
(Industrial Distribution Group, Inc. Logo)
<PAGE> 18
COMMON STOCK
OF INDUSTRIAL DISTRIBUTION GROUP, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS FOR THE MAY 6, 1999
ANNUAL MEETING OF STOCKHOLDERS.
The undersigned hereby appoints Richard M. Seigel and Jack P. Healey, and
each of them, the proxy of the undersigned to vote the Common Stock of the
undersigned at the Annual Meeting of Stockholders of INDUSTRIAL DISTRIBUTION
GROUP, INC. (the "Company") to be held on May 6, 1999, and any adjournment or
postponement thereof.
1. Election of directors
David K. Barth, William J. Burkland, William R. Fenoglio, William T. Parr,
George L. Sachs, Jr., Richard M. Seigel, Andrew B. Shearer, and Douglass C.
Smith
[ ] FOR all nominees for director listed above (except as marked to the
contrary).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
[ ] WITHHOLD AUTHORITY to vote for an individual nominee. Write name(s) below.
- --------------------------------------------------------------------------------
(Continued on other side)
(Continued from other side)
2. In accordance with their best judgment with respect to any other matters that
may properly come before the meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ELECTION AS DIRECTORS OF THE
PERSONS NAMED IN THE PROXY AND ACCOMPANYING PROXY STATEMENT AND UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY
WILL BE SO VOTED.
Date: ----------------, 1999
------------------------------
Please sign this Proxy exactly
as name appears on the Proxy.
NOTE: WHEN SIGNING AS
ATTORNEY, TRUSTEE,
ADMINISTRATOR, OR GUARDIAN,
PLEASE GIVE YOUR TITLE AS
SUCH. IN THE CASE OF JOINT
TENANTS, EACH JOINT OWNER MUST
SIGN.
