<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
The Coast Distribution System, 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] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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
THE COAST DISTRIBUTION SYSTEM, INC.
1982 ZANKER ROAD
SAN JOSE, CALIFORNIA 95112
(408) 436-8611
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 11, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of The
Coast Distribution System, Inc. a Delaware corporation (the "Company"), will be
held at the Executive Offices of the Company, 1982 Zanker Road, San Jose,
California, on Tuesday, August 11, 1998, at 10:00 A.M., Pacific Time, for the
following purposes, as more fully described in the accompanying Proxy Statement:
(1) To elect the following Class I nominee to serve as a director of the
Company for a term of three years or until his successor is elected and
has qualified:
Robert S. Throop
(2) To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only stockholders of record at the close of business on June 15, 1998 will
be entitled to vote at the meeting or any adjournment or postponement thereof.
By Order of the Board of Directors
Sandra A. Knell
Secretary
July 14, 1998
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING YOU SHOULD COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. ANY
STOCKHOLDER PRESENT AT THE MEETING MAY WITHDRAW HIS OR HER PROXY AND VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING. STOCKHOLDERS ATTENDING THE
MEETING WHOSE SHARES ARE HELD IN THE NAME OF A BROKER OR OTHER NOMINEE WHO
DESIRE TO VOTE THEIR SHARES AT THE MEETING SHOULD BRING WITH THEM A PROXY OR
LETTER FROM THAT FIRM CONFIRMING THEIR OWNERSHIP OF SHARES.
<PAGE> 3
THE COAST DISTRIBUTION SYSTEM, INC.
1982 ZANKER ROAD
SAN JOSE, CALIFORNIA, CA 95112
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
AUGUST 11, 1998
------------------------
INTRODUCTION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of The Coast Distribution System, Inc., a
Delaware corporation (the "Company"), for use at its 1998 Annual Meeting of
Stockholders to be held on Tuesday, August 11, 1998, at 10:00 A.M., at the
Executive Offices of the Company, 1982 Zanker Road, San Jose, California. It is
contemplated that this solicitation of proxies will be made exclusively by mail;
however, if it should appear desirable to do so in order to ensure adequate
representation at the meeting, directors, officers and employees of the Company
may communicate with stockholders, brokerage houses and others by telephone,
telegraph or in person to request that proxies be furnished and may reimburse
banks, brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses in forwarding proxy materials to the beneficial owners of
the shares held by them. All expenses incurred in connection with this
solicitation shall be borne by the Company.
Holders of shares of common stock of the Company ("stockholders") who
execute proxies retain the right to revoke them at any time before they are
voted. Any proxy given by a stockholder may be revoked or superseded by
executing a later dated proxy, by giving notice of revocation to the Secretary
of the Company, 1982 Zanker Road, San Jose, California 95112, in writing prior
to or at the meeting or by attending the meeting and voting in person. A proxy,
when executed and not so revoked, will be voted in accordance with the
instructions given in the proxy. If a choice is not specified in the proxy, the
proxy will be voted "FOR" the election, as a director, of the nominee named in
this Proxy Statement. This Proxy Statement is first being mailed to stockholders
on or about July 15, 1998.
VOTING SECURITIES
The shares of common stock constitute the only outstanding class of voting
securities of the Company. Only the stockholders of the Company of record as of
the close of business on June 15, 1998 (the "Record Date"), will be entitled to
vote at the meeting or any adjournment or postponement thereof. As of the Record
Date, there were 5,279,854 shares of common stock outstanding and entitled to
vote. Each stockholder is entitled to one vote for each share of common stock
held as of the Record Date. Abstentions and broker non-votes are each included
in the determination of the number of shares present and voting for the purpose
of determining whether a quorum is present.
All stockholders entitled to vote at the Annual Meeting may cumulate the
votes in the election of directors. With cumulative voting, each stockholder is
entitled to a number of votes equal to the number of directors to be elected
multiplied by the number of shares of common stock held by such stockholder, and
those votes may be cast for a single candidate for director or distributed among
as many candidates as such stockholder desires. However, in accordance with the
applicable provisions of the Company's Certificate of Incorporation, no
stockholder may cumulate votes for any candidate for director unless the name of
such candidate is placed in nomination before the voting and any stockholder,
before the voting, gives oral or written notice to the Secretary of the Company
at the Annual Meeting of such stockholder's intention to cumulate his or her
votes. If such notice is given by any stockholder entitled to vote at the Annual
Meeting, then every stockholder entitled to vote at the Annual Meeting will be
entitled to cumulate his or her votes in
<PAGE> 4
the election of directors. The proxies solicited by the Board of Directors
confer discretionary authority in the proxy holders to cumulate votes and to
allocate such votes among the nominees of the Board of Directors as such proxy
holders deem appropriate so that, if shares are voted cumulatively in the
election of directors, the maximum number of such nominees will be elected. Such
proxy holders do not intend to cumulate votes at the Annual Meeting, but they
reserve the right to do so if cumulative voting is properly elected by a
stockholder of the Company that is not one of such proxy holders.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 15, 1998, information regarding
the ownership of the Company's outstanding common stock by each person known to
management to own, beneficially or of record, more than five percent (5%) of the
common stock and by each director and the Named Officers of the Company and all
directors and officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
------------------- ------------ --------
<S> <C> <C>
Thomas R. McGuire........................................... 670,579(2) 12.6%
1982 Zanker Road
San Jose, CA 95112
Linder Growth Fund.......................................... 501,000(3) 9.5%
Ryback Management Corporation
7711 Carondelet Avenue
P.O. Box 16900
St. Louis, MO 63105
Dimensional Fund Advisors Inc............................... 404,600(4) 7.7%
1299 Ocean Avenue
Santa Monica, CA 90401
Xerox Corporation........................................... 403,914 7.7%
800 Long Ridge Road
Stamford, CT 06904
John E. Turco............................................... 220,192(5) 4.2%
Louis B. Sullivan........................................... 128,470(5) 2.4%
Brian P. Friedman........................................... 108,813(6) 2.1%
Ben A. Frydman.............................................. 11,000(5) *
Robert S. Throop............................................ 13,000(5) *
Sandra A. Knell............................................. 78,965(7) 1.5%
Jeffrey R. Wannamaker....................................... 58,990(7) 1.1
David A. Berger............................................. 53,331(7) 1.0
Dennis A. Castagnola........................................ 15,046(7) *
All directors and officers as a group (10 persons).......... 1,358,386(8) 24.7%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise noted below, the persons named in the table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them, subject to community property laws where applicable.
(2) Does not include an aggregate of 50,016 shares held in trust for the benefit
of Mr. McGuire's adult children, as to which Mr. McGuire disclaims
beneficial ownership. Includes 26,500 shares subject to outstanding stock
options exercisable during the period ending August 15, 1998.
(3) Based on information contained in a report filed with the Securities and
Exchange Commission by Ryback Management Corporation ("Ryback"), Linder
Growth Fund, a registered investment company ("Linder"), holds sole voting
and dispositive power with respect to all 501,000 shares. Ryback is Linder's
registered investor advisor.
2
<PAGE> 5
(4) In a report filed with the Securities and Exchange Commission, Dimensional
Fund Advisors, Inc., a registered investment advisor ("DFA"), has reported
that all 404,600 shares are held in portfolios of DFA Investment Dimensions
Group, Inc., a registered open ended investment company or in series of the
DFA Investment Trust Company, a Delaware business trust , or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans for which DFA serves as investment manager. DFA
disclaims beneficial ownership of all such shares.
(5) Includes shares subject to outstanding stock options, as follows: Mr.
Sullivan -- 10,000 shares; Mr. Turco -- 10,000 shares; Mr. Frydman -- 10,000
shares; and Mr. Throop -- 8,000 shares.
(6) Includes 68,313 shares owned directly by Mr. Friedman, 10,000 shares owned
by a family foundation, 500 shares held by his wife as custodian for a minor
child, and 30,000 shares which may be purchased by exercise of stock
options. Mr. Friedman is an Executive Vice President of Furman Selz, LLC,
which is an investment bank firm that provided financial advisory services
to the Company in 1997.
(7) Includes shares subject to outstanding stock options exercisable during the
period ending August 15, 1998, as follows: Ms. Knell -- 41,000 shares; Mr.
Wannamaker -- 41,000 shares; Mr. Berger -- 35,000 shares; and Mr.
Castagnola -- 4,050 shares.
(8) Includes 222,000 shares subject to outstanding stock options exercisable
during the 60-day period ending August 15, 1998.
3
<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTORS
Currently, there are five (5) members of the Board of Directors. The
Company's Bylaws provide for a classified Board of Directors with one class of
directors elected each year for a term of three years. The Director in Class I,
Robert S. Throop, holds office until the 1998 Annual Stockholders Meeting; the
Directors in Class II, Louis B. Sullivan and John E. Turco, hold office until
the 1999 Annual Stockholders Meeting; and the Directors in Class III, Thomas R.
McGuire and Ben A. Frydman, hold office until the 2000 Annual Stockholders
Meeting.
Unless authority to vote for the Class I Nominee has been withheld in the
proxy, the persons named in the enclosed proxy intend to vote at the Annual
Meeting for the election of Robert S. Throop, who is an incumbent director, as
the Class I Director of the Company to serve for a term of three years or until
his successor is elected and qualified. Under Delaware law, the nominee
receiving the highest number of votes will be elected as the Class I Director at
the Annual Meeting. As a result, proxies voted to "Withhold Authority," which
will be counted, and broker non-votes, which will not be counted, will have no
practical effect.
Mr. Throop has consented to serve as a Director if he is elected at the
Annual Meeting. If any nominee becomes unavailable for any reason before the
election, then the enclosed proxy will be voted for the election of such
substitute nominees, if any, as shall be designated by the Board of Directors.
The Board of Directors has no reason to believe that the nominee will become
unavailable to serve.
The names and certain information, as of June 15, 1998, concerning Robert
Throop, the nominee for election as a Class I Director, and the continuing
Directors, are set forth below. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" THE ELECTION OF THE NOMINEE NAMED BELOW.
NOMINEE AND DIRECTORS
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH THE COMPANY
------------ -------------------------
<S> <C>
CLASS I NOMINEE
Robert S. Throop, 60 Director
CLASS II DIRECTORS
Louis B. Sullivan, 73 Director
John E. Turco, 67 Director
CLASS III DIRECTORS
Thomas R. McGuire, 54 Chairman and Chief Executive Officer
and Director
Ben A. Frydman, 51 Director and Assistant Secretary
</TABLE>
Robert S. Throop has served as a Director since 1995. Until his retirement
in late 1996, and for more than five years prior thereto, Mr. Throop was the
Chairman and Chief Executive Officer of Anthem Electronics, Inc. ("Anthem"),
which is a national distributor of semiconductor and computer products. Mr.
Throop is also a director of Arrow Electronics, Inc., the corporate parent of
Anthem, and the Manitowoc Company, both of which are public companies.
Louis B. Sullivan has served as a Director since 1977, and has been a
rancher and private investor since March 1984.
John E. Turco has served as a Director since 1977, and has been a private
investor since 1988, investing primarily in agricultural businesses.
Thomas R. McGuire is a founder of the Company and has been a Director since
1977. For more than the past five years he has been Chairman of the Board and
Chief Executive Officer of the Company. From 1981 until August 1985 he also
served as the Company's Chief Financial Officer and Secretary.
4
<PAGE> 7
Ben A. Frydman has served as a director since 1988. Mr. Frydman is, and for
more than the past five years has been, engaged in the private practice of law,
as a member and shareholder of Stradling Yocca Carlson & Rauth, a Professional
corporation, which provided legal services to the Company in 1997.
There are no family relationships among any of the Company's officers or
directors.
BOARD MEETINGS
The Board of Directors of the Company held five meetings during the fiscal
year ended December 31, 1997. In 1997, each of the Directors attended at least
75% of the number of meetings of the Board and of the number of meetings of the
Committees on which he served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established standing Audit, Compensation and
Stock Option Committees.
The Audit Committee was established to meet with the independent public
accountants to review planned audit procedures and to review with the
independent public accountants and management the results of audits, including
any recommendations of the independent public accountants for improvements in
accounting procedures and internal controls. John E. Turco and Robert S. Throop
are currently the members of the Audit Committee, which held one meeting during
the fiscal year ended December 31, 1997.
The Compensation Committee reviews programs in the areas of employee and
incentive compensation plans, administers the Company's Stock Purchase Plans,
and reviews and makes recommendations to the Board of Directors with respect to
base salary adjustments and bonuses for all officers and other key personnel of
the Company. Louis B. Sullivan, John E. Turco and Robert S. Throop are currently
the members of the Compensation Committee, which held one meeting during the
fiscal year ended December 31, 1997.
The Stock Option Committee is responsible for administering the Company's
Stock Option Plans. The Stock Option Committee currently consists of Robert S.
Throop and Louis B. Sullivan. The Stock Option Committee held one meeting during
the fiscal year ended December 31, 1997.
The Board of Directors does not have a Nominating Committee. Instead, the
Board of Directors, as a whole, identifies and screens candidates for membership
on the Company's Board of Directors.
DIRECTOR'S COMPENSATION
Directors who also are Company employees receive no compensation for
serving as directors. Non-employee directors are paid a retainer of $6,000 per
year and receive $1,500 for each Board of Directors' meeting attended and are
reimbursed for the out-of-pocket expenses incurred in attending those meetings.
No compensation is paid for attending meetings of Committees of the Board of
Directors on which directors serve. Pursuant to the Company's 1993 Employee
Stock Option Plan, each year each non-employee director is automatically granted
an option to purchase 2,000 shares of the Company's common stock at an exercise
price that is equal to the fair market value of the shares on the date of grant.
These options become fully exercisable six months after the date of grant. Upon
joining the Board, each new non-employee director receives an option to purchase
2,000 shares, which becomes exercisable in full one year after the date of
grant.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based on its review of copies of reporting forms and certifications of the
Company's directors and executive officers, the Company believes that all filing
requirements under Section 16(a) of the Securities Exchange Act of 1934
applicable to its directors and executive officers in the year ended December
31, 1997 were satisfied.
5
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation received for the fiscal year
ended December 31, 1997, by the Company's Chief Executive Officer, and the other
executive officers whose salary and bonuses exceeded $100,000 for fiscal year
1997 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- -------------------
SECURITIES
UNDERLYING
OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS(1) (#)
--------------------------- ---- --------- -------- -------------------
<S> <C> <C> <C> <C>
Thomas R. McGuire 1997 $248,303 $ -0- 47,500
Chairman of the Board and 1996 263,532 59,250 -0-
Chief Executive Officer 1995 257,765 -0- 12,500
Sandra A. Knell 1997 134,039 -0- 20,000
Chief Financial Officer and 1996 121,192 30,500 -0-
Executive Vice President 1995 101,442 -0- 5,000
Jeffrey R. Wannamaker 1997 134,039 -0- 20,000
Executive Vice President 1996 121,192 30,500 -0-
1995 101,442 -0- 5,000
David A. Berger 1997 106,542 -0- 20,000
Executive Vice President 1996 102,248 30,500 -0-
1995 101,442 -0- 5,000
Dennis A. Castagnola 1997 108,437 -0- 12,500
Senior Vice President 1996 94,313 22,100 -0-
1995 76,082 -0- 12,500
</TABLE>
- ---------------
(1) Bonuses were awarded under annual incentive compensation plans.
OPTION GRANTS
Set forth below is certain information regarding options to purchase common
stock of the Company that were granted to the Named Officers by the Company in
the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
OF OPTIONS AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS ALL EMPLOYEES PRICE EXPIRATION --------------------------
NAME GRANTED(1) IN FISCAL YEAR(2) ($/SHARE)(3) DATE 5% 10%
---- ---------- ----------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. McGuire 47,500 30.9% $4.125 1/16/07 $123,215 $312,265
Sandra A. Knell 20,000 13.0 4.125 1/16/07 51,880 131,480
Jeffrey R. Wannamaker 20,000 13.0 4.125 1/16/07 51,880 131,480
David A. Berger 20,000 13.0 4.125 1/16/07 51,880 131,480
Dennis A. Castagnola 12,500 8.1 4.125 1/16/07 32,425 82,175
</TABLE>
- ---------------
(1) These options vest in five equal annual installments of 20% of the shares
covered by such options. Each option is subject to termination in the event
of the optionee's cessation of employment with the Company.
(2) During 1997, options to purchase an aggregate of 153,500 shares were granted
to all employees, including the Named Officers and each non-employee
director received options to purchase 2,000 shares.
(3) The exercise price may be paid in cash, in shares of the Company's common
stock valued at fair market value on the date of exercise, or through a
cashless exercise procedure.
(4) There is no assurance that the values that may be realized on exercise of
such options will be at or near the values estimated in the table, which
utilizes arbitrary compounded rates of growth of the price of the Company's
stock of 5% and 10% per year.
6
<PAGE> 9
OUTSTANDING OPTIONS
There were no option exercises by any of the Named Officers in 1997. The
following table provides information with respect to the number of unexercised
options held by the Named Officers as of December 31, 1997. None of those
options were "in the money" options as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT DECEMBER 31,
1997
------------------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
Thomas R. McGuire 13,250 46,750
Sandra A. Knell 27,500 19,500
Jeffrey R. Wannamaker 27,500 19,500
David A. Berger 27,500 19,500
Dennis A. Castagnola 4,050 11,750
</TABLE>
- ---------------
(1) The closing price of the Company's common stock on December 31, 1997 on the
American Stock Exchange was $3.125.
COMPENSATION COMMITTEE INTERLOCKS
In fiscal year 1997 the members of the Compensation Committee were Louis B.
Sullivan, John E. Turco and Robert S. Throop, who are non-employee directors of
the Company.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee is a standing committee of the Board of
Directors of the Company. The Compensation Committee is responsible for adopting
and evaluating the effectiveness of compensation policies and programs for the
Company and for making determinations regarding the compensation of the
Company's executive officers, subject to review by the full Board of Directors.
The following report is submitted by the members of the Compensation
Committee with respect to the executive compensation policies established by the
Compensation Committee and compensation paid or awarded to executive officers
for fiscal year 1997.
Compensation Policies and Objectives
In adopting compensation programs for executive officers, as well as other
employees of the Company, the Compensation Committee is guided by three basic
principles:
- The Company must offer competitive salaries to be able to attract and
retain highly-qualified and experienced executives and other management
personnel.
- Annual executive compensation in excess of base salaries should be tied
primarily to the Company's performance.
- The financial interests of the Company's senior executives should be
aligned with the financial interests of the stockholders, primarily
through stock option grants and other equity-based compensation programs
which reward executives for improvements in the market performance of the
Company's common stock.
7
<PAGE> 10
Salaries and Employee Benefits Programs.
In order to retain executives and other key employees, and to be able to
attract additional well-qualified executives when the need arises, the Company
strives to offer salaries and health care and other employee benefit programs to
its executives and other key employees which are comparable to those offered by
competing businesses.
In establishing salaries for executive officers, the Compensation Committee
reviews (i) the historical performance of the executives; and (ii) available
information regarding prevailing salaries and compensation programs offered by
competing businesses. Another factor which is considered in establishing
salaries of executive officers is the cost of living in Northern California
where the Company is headquartered, as such cost generally is higher than in
other parts of the country.
In 1997 Mr. McGuire voluntarily decreased his salary by approximately
$15,000 as part of a cost cutting program initiated by the Company. The 1997
salaries of the other Named Officers include a full year of salary increases
effectuated during 1996 to bring their salaries in line with prevailing
executive salaries at comparable companies.
In order to retain qualified management personnel, the Company has followed
the practice of seeking to promote executives from within the Company whenever
that is practicable. The Board of Directors believes that this policy enhances
employee morale and provides continuity of management. Typically, modest salary
increases are made in conjunction with such promotions.
Performance-Based Compensation.
The Compensation Committee believes that, as a general rule, annual
compensation in excess of base salaries should be made dependent primarily on
the Company's performance. Accordingly, at the beginning of each fiscal year,
the Compensation Committee establishes an incentive compensation program for
executive officers and other key management personnel under which executive
officers and other key management personnel may earn bonuses, in amounts ranging
from 5% to 100% of their annual salaries, provided the Company achieves or
exceeds the earnings goal established for the year.
The earnings goal is established on the basis of the annual operating plan
that is initially developed by management, submitted to the Board of Directors
for its review, possible modification and approval. The annual operating plan,
which is designed to maximize profitability within the constraints of prevailing
economic and competitive conditions, some of which are outside the control of
the Company, is developed on the basis of (i) the Company's performance in the
prior year; (ii) estimates of sales revenue for the plan year based upon recent
market conditions and trends and other factors which, based on historical
experience, are expected to affect the level of sales that can be achieved;
(iii) historical operating costs and cost savings that management believes can
be realized; and (iv) competitive conditions faced by the Company. By taking all
of these factors into account, the earnings goal in the annual operating plan,
which is also the basis on which bonus awards are determined under the incentive
plan, is fixed at what is believed to be a realistic level so as to make the
incentives meaningful to executives and to avoid penalizing executives and other
key management personnel for conditions outside of their control.
In certain instances, bonuses under the incentive plan are awarded not only
on the basis of the Company's overall profitability, but also on the achievement
by an executive of specific objectives within his or her area of responsibility.
For example, a bonus may be awarded for an executive's efforts in achieving
greater than anticipated cost savings, or establishing new or expanding existing
markets for the Company's products. Typically, the maximum bonus that may be
awarded for achievement of specific objectives is determined at the beginning of
the year to provide the requisite incentive for such performance.
As a result of this performance-based bonus program, executive compensation
generally increases in those years in which the Company's profitability
increases. On the other hand, in years in which the Company experiences less
than anticipated profit growth, bonuses, and therefore also total executive
compensation, tend to be lower. The Company did not achieve the earnings goal
that had been established for 1997, and,
8
<PAGE> 11
accordingly, no bonuses were awarded to executive officers under the incentive
compensation program described above.
Stock Options and Equity-Based Programs.
In order to align the financial interests of senior executives and other
key employees with those of the stockholders, the Company grants stock options
to its senior executives and other key employees on a periodic basis and makes
contributions to an employee stock purchase plan under which officers and
employees may elect to have a portion of their salaries withheld and used,
together with the Company's contributions, to purchase common stock of the
Company. Stock option grants, in particular, reward senior executives and other
key employees for performance that results in increases in the market price of
the Company's common stock, which directly benefits all stockholders. Moreover,
generally options are granted on terms which provide that the options become
exercisable in cumulative annual installments, generally over a
three-to-five-year period. The Compensation Committee believes that these
features of the option grants not only provide an incentive for senior
executives to remain in the employ of the Company, but also makes the Company's
earnings performance and longer term growth in share prices important for the
executives who receive stock options.
During 1997, the Company granted options to purchase 47,500 shares of its
common stock to Mr. McGuire and an aggregate of 72,500 to the other the Named
Officers of the Company. The Company also made contributions to the Company's
Employee Stock Purchase Plan, which were designed to increase management
ownership of the Company's common stock and provide them with a continuing
interest in the Company's share performance.
Louis B. Sullivan
John E. Turco
Robert S. Throop
Notwithstanding anything to the contrary set forth in the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the foregoing Report, and
the performance graph on page 10, shall not be incorporated by reference into
any such filings.
9
<PAGE> 12
COMPANY PERFORMANCE
The following graph shows a five-year comparison of cumulative total
returns for the Company, the American Stock Exchange composite index (the "AMEX
Composite"), and an index of peer group companies (the "Peer Group") selected by
the Company as described below.
COMPARISON OF CUMULATIVE TOTAL RETURN
(COMPANY, AMEX COMPOSITE, PEER GROUP)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD COAST DISTRIBUTION
(FISCAL YEAR COVERED) SYSTEM, INC PEER GROUP BROAD MARKET
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 116.67 107.52 118.81
1994 145.24 102.29 104.95
1995 114.29 128.64 135.28
1996 69.05 140.19 142.74
1997 59.52 183.46 171.76
</TABLE>
The graph above compares the performance of the Company with that of (i)
the AMEX Composite index and (ii) a Peer Group consisting of six original
equipment manufacturers that compete in the same markets as the Company. The
Company is the only publicly-traded company whose primary activity is the
wholesale distribution of recreational vehicle and boating parts and
accessories. The Peer Group consists of Brunswick Corporation, Coachmen
Industries Inc., Fleetwood Enterprises, Inc., Outboard Marine Corporation, Thor
Industries, Inc. and Winnebago Industries, Inc. Source: Media General Financial
Services, P.O. Box 85333, Richmond, VA 23293, Phone: 1-(800) 446-7922, Fax:
1-(804) 649-6826.
The total cumulative return on investment (change in the period-end stock
price plus reinvested dividends) for each of the periods for the Company, the
AMEX Composite and the Peer Group is based on the stock price or index at the
end of fiscal 1992.
INDEPENDENT ACCOUNTANTS
Grant Thornton provided audit services to the Company during 1997 and
during the first quarter of 1998, which included the examination of the
Company's financial statements for the year ended December 31, 1997. The Company
has not yet selected auditors for fiscal year 1998. A representative of Grant
Thornton is expected to be present at the Annual Meeting to respond to
appropriate questions from stockholders, and will have an opportunity to make a
statement if he so desires.
10
<PAGE> 13
ANNUAL REPORT
The 1997 Annual Report to Stockholders of the Company is being sent with
this Proxy Statement to each stockholder of record as of the Record Date. The
Annual Report is not to be regarded as proxy solicitation material.
STOCKHOLDER PROPOSALS
Any stockholder desiring to submit a proposal for action at the 1999 Annual
Meeting of Stockholders and presentation in the Company's Proxy Statement with
respect to such meeting should arrange for such proposal to be delivered to the
Company at its principal place of business no later than April 10, 1999 in order
to be considered for inclusion in the Company's proxy statement relating to that
meeting. Matters pertaining to such proposals, including the number and length
thereof, eligibility of persons entitled to have such proposals included and
other aspects are regulated by the Securities Exchange Act of 1934, Rules and
Regulations of the Securities and Exchange Commission and other laws and
regulations to which interested persons should refer.
OTHER MATTERS
Management is not aware of any other matters to come before the Annual
Meeting. If any other matter not mentioned in this Proxy Statement is brought
before the Annual Meeting, the proxy holders named in the enclosed Proxy will
have discretionary authority to vote all proxies with respect thereto in
accordance with their judgment.
By Order of the Board of Directors
Sandra A. Knell
Secretary
July 14, 1998
COPIES OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K, AS AMENDED, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
WILL BE PROVIDED TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
SECRETARY, THE COAST DISTRIBUTION SYSTEM, 1982 ZANKER ROAD, SAN JOSE, CALIFORNIA
95112.
11
<PAGE> 14
PROXY
THE COAST DISTRIBUTION SYSTEM, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS -- AUGUST 11, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas R. McGuire, Louis B. Sullivan, John
E. Turco, and each of them, individually, as attorneys and Proxies, with full
power of substitution, to represent the undersigned and to vote, as designated
below, all the shares of Common Stock of The Coast Distribution System, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the Company's Executive Offices ,
1982 Zanker Road, San Jose, California, at 10:00 A.M. on Tuesday, August 11,
1998.
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
[ ] FOR THE NOMINEE LISTED BELOW [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) (to vote for the nominees listed below)
</TABLE>
Robert S. Throop
2. IN THEIR DISCRETION, UPON OTHER BUSINESS WHICH PROPERLY COMES BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
IMPORTANT -- PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY
<PAGE> 15
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER ON THE REVERSE SIDE OF THIS PROXY. WHERE NO DIRECTION IS GIVEN, SUCH
SHARES WILL BE VOTED "FOR" THE ELECTION, AS A DIRECTOR, OF THE NOMINEE NAMED ON
THE REVERSE SIDE OF THIS PROXY. THIS PROXY CONFERS DISCRETIONARY AUTHORITY TO
CUMULATE VOTES FOR ANY OR ALL OF THE NOMINEES FOR ELECTION OF DIRECTORS FOR
WHICH AUTHORITY TO VOTE HAS NOT BEEN WITHHELD.
Date , 1998
--------------------------
(Signature of Shareholder)
--------------------------
Please sign your name
exactly as it appears
hereon. Executors,
administrators, guardians,
officers of corporations,
and others signing in
fiduciary capacity should
state their full titles as
such.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
