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:
[ ] 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-12
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:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] 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.:
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(3) Filing Party:
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(4) Date Filed:
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(IDG LOGO)
INDUSTRIAL DISTRIBUTION GROUP, INC.
April 16, 2002
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 Wednesday, May 15, 2002, at 1:00 p.m., Eastern Time,
at 950 E. Paces Ferry Road, Suite 1575, Atlanta, Georgia.
At the Annual Meeting, stockholders will be asked to elect two directors of
the Company, 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 2001 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 the enclosed proxy card. Please complete, sign,
date 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,
/s/ Andrew B. Shearer
Andrew B. Shearer
President and Chief Executive Officer
INDUSTRIAL DISTRIBUTION GROUP, INC.
950 EAST PACES FERRY ROAD
SUITE 1575
ATLANTA, GEORGIA 30326
------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 2002
------------------------------------
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 1:00 p.m., Eastern Time,
Wednesday, May 15, 2002, at 950 E. Paces Ferry Road, Suite 1575, Atlanta,
Georgia for the following purposes:
1. To elect two directors to the Board of Directors to serve until
their term has expired and until their successors, if there are to be any,
are elected and qualified.
2. To consider such other matters as may properly come before the
meeting and any adjournment or postponement thereof.
Only stockholders of record on April 1, 2001, are entitled to notice of and
to vote at the Annual Meeting and any adjournment or postponement.
BY ORDER OF THE BOARD OF DIRECTORS,
/S/ JACK P. HEALEY
Jack P. Healey
Secretary
APRIL 16, 2002
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. 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.
(IDG LOGO)
INDUSTRIAL DISTRIBUTION GROUP, INC.
---------------------------------------------------------
PROXY STATEMENT
DATED APRIL 16, 2002
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 2002
---------------------------------------------------------
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 2002 Annual Meeting of
Stockholders ("Annual Meeting") to be held on Wednesday, May 15, 2002, 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 April 16, 2002.
Only stockholders of record at the close of business on April 1, 2002 (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 8,769,760 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 the two 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 2001 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 2001 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.: INVESTOR 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,
2001 will also be furnished on request and upon payment of the Company's
expenses in furnishing the exhibits.
1
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 February 15, 2002, by (1) each person known to the Company to
beneficially own more than 5% of the Common Stock, (2) each director, nominee
for director, and designated highly compensated executive officer, and (3) 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.
SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED PERCENT(1)
------------------------ ------------------- ----------
Edmundson International, Inc. )
Consolidated Electrical Distributors, Inc. )
Portshire Corp. )
Lincolnshire Associates Ltd. ) (2) 1,232,700 14.1%
Employees' Retirement Plan of )
Consolidated Electrical Distributors, )
Inc. )
Dimensional Fund Advisors, Ind.(3).......................... 642,300 7.3%
Gabelli Funds, LLC ) (4)
GAMCO Investors, Inc. ) 450,000 5.1%
Andrew B. Shearer(5)........................................ 557,833 6.3%
William J. Burkland(6)...................................... 170,410 1.9%
George L. Sachs, Jr.(7)..................................... 97,234 1.1%
Jack P. Healey(8)........................................... 44,443 *
Thomas W. Aldridge, Jr.(9).................................. 18,206 *
Martin C. Burkland(10)...................................... 183,918 2.1%
Mark W. Fuller.............................................. 77,896 *
Jeffrey W. Hayes(11)........................................ 4,486 *
Charles A. Lingenfelter(12)................................. 62,300 *
David K. Barth(13).......................................... 51,066 *
William T. Parr(14)......................................... 17,200 *
William R. Fenoglio(15)..................................... 21,000 *
Richard M. Seigel(16)....................................... 74,000 *
All Directors and Executive Officers as a Group (13
persons)(17).............................................. 1,379,992 15.4%
------------------------
* Denotes less than 1%.
(1) The percentages shown are based on 8,769,670 shares of Common Stock
outstanding on February 15, 2002 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 February 28, 2002.
(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, California
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 sponsor of the Retirement Plan and 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 Securities and Exchange Commission (the
"Commission") as members of a group.
2
(3) The address of Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401. The listed owner has filed a
Schedule 13G with the Commission and claims voting and investment power
with respect to all 642,300 shares.
(4) The address of Gabelli Funds, LLC and GAMCO Investors, Inc. is One
Corporate Center, Rye, New York 10580-1435. The listed owners are
affiliated with each other and therefore the aggregate number of shares
listed above could be voted together. Specifically, both entities are
wholly owned subsidiaries of Gabelli Asset Management, Inc. The listed
owners have filed a Schedule 13D with the Commission but do not admit that
they constitute a group.
(5) Includes 25,000 shares subject to exercisable options. The address for Mr.
Shearer is 3100 Farmtrail Road, York, PA 17402.
(6) Includes an aggregate of 300 shares held by Mr. Burkland as custodian for
his three minor children and 25,000 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.
(7) Includes 25,000 shares subject to exercisable options.
(8) Includes 10,000 shares subject to exercisable options.
(9) Includes 11,250 shares subject to exercisable options.
(10) Includes 600 shares subject to exercisable options, and 200 shares held by
Mr. Burkland as custodian for his two minor children.
(11) Does not include an aggregate of 2,016 shares owned by Mr. Hayes' wife,
with respect to which Mr. Hayes disclaims beneficial ownership.
(12) Includes 12,000 shares subject to exercisable options.
(13) Includes 15,000 shares subject to exercisable options. Does not include an
aggregate of 9,000 shares owned by Mr. Barth's adult children, with respect
to which Mr. Barth disclaims beneficial ownership.
(14) Includes 15,000 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.
(15) Includes 15,000 shares subject to exercisable options.
(16) Includes 40,000 shares subject to exercisable options.
(17) Includes an aggregate of 193,850 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 seven directors,
each of whom serves until the expiration of his term and until his successor, if
there is to be one, is elected and qualified.
The Board of Directors is divided into three classes as equal in number as
possible. The terms of service of each class is staggered so that each director
serves a three-year term. Two directors are to be elected at the 2002 Annual
Meeting of Stockholders to serve in Class I, which will have a term expiring in
2005. 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 holder of
shares of Common Stock entitled to vote for the election of directors at a
meeting at which 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 either 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. Information with respect to each nominee, including
biographical information for at least the last five years, is set forth below.
3
NOMINEES FOR ELECTION WHOSE TERMS WILL EXPIRE IN 2005 (CLASS I)
PRESIDENT (RETIRED)
GEORGE L. SACHS, JR. IDG ST. LOUIS
Mr. Sachs, age 60, is retired and a co-founder of the Company. Mr. Sachs
served from 1985 through 2001, when he retired, as the President of the IDG St.
Louis business unit, formerly Tri-Star Industrial Supply, Inc. ("Tri-Star"), one
of the companies that founded the Company in 1997. He served as Tri-Star's Vice
President-Finance from 1978 to 1985. Prior to joining Tri-Star, Mr. Sachs served
as an Audit Manager for Arthur Andersen & Co. from 1968 to 1978.
PRESIDENT (RETIRED)
DAVID K. BARTH BARTH SMITH COMPANY
Mr. Barth, age 58, is retired and a member of the faculty of the Lake
Forest Graduate School of Business. He is the past President of Barth Smith
Company, an investment and management consulting firm, 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 is a
member of the Executive and Compensation Committees of the Board of Directors.
CONTINUING DIRECTORS
Information with respect to each continuing director, including
biographical information for at least the last five years, is set forth below.
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2003 (CLASS II)
VICE PRESIDENT
WILLIAM J. BURKLAND IDG SEATTLE
Mr. Burkland, age 40, is a co-founder of the Company. Mr. Burkland has
served since 1994 as a Vice President of the IDG Seattle business unit, formerly
B&J Industrial Supply Company ("B&J"), one of the companies that founded the
Company in 1997. Prior to becoming Vice President of B&J, Mr. Burkland held
various positions with B&J from the time he joined in 1986.
CHIEF EXECUTIVE OFFICER (RETIRED)
WILLIAM R. FENOGLIO AUGAT, INC.
Mr. Fenoglio, age 62, 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,
Compensation and Audit Committees of the Board of Directors.
VICE CHAIRMAN
WILLIAM T. PARR J. SMITH LANIER & CO.
Mr. Parr, age 65, has served as Vice Chairman and a director of J. Smith
Lanier & Co., an insurance placement company, since 1980. Mr. Parr is currently
a director of ITC DeltaCom, Inc., and he also currently serves as a director of
ITC Holding Company, Inc. and several of its subsidiaries. Mr. Parr is a member
of the Executive, Audit and Compensation Committees of the Board of Directors.
4
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2004 (CLASS III)
CHAIRMAN OF THE BOARD
RICHARD M. SEIGEL INDUSTRIAL DISTRIBUTION GROUP, INC.
Mr. Seigel, age 56, became Chairman of the Board in March 1999, and served
as President and Acting Chief Executive Officer of the Company from March 1999
to November 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 AND CHIEF EXECUTIVE OFFICER
ANDREW B. SHEARER INDUSTRIAL DISTRIBUTION GROUP, INC.
Mr. Shearer, age 38, is a co-founder of the Company, and became President
and Chief Executive Officer of the Company in August 2001. Mr. Shearer had
served since 1991 as the President of the IDG York business unit, formerly
Shearer Industrial Supply Co. ("Shearer"), one of the companies that founded the
Company in 1997. Mr. Shearer is a member of the Executive 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 2001 fiscal year, the Board held eight meetings. The Board of
Directors has established an Executive Committee, an Audit Committee, and a
Compensation 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, Shearer, and Seigel, currently comprise the
members of the Executive Committee. The Executive Committee held two meetings
during fiscal 2001.
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. Fenoglio, Parr, and Seigel comprise the members of the Audit Committee.
The Audit Committee held nine meetings during fiscal 2001.
Compensation Committee. The Compensation Committee is responsible for the
review and approval of compensation of senior management, 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 six meetings during fiscal 2001. 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.
5
DIRECTORS' COMPENSATION
The Company pays its outside directors an annual fee of $20,000, payable
quarterly, and an additional $15,000 annually to its non-executive Chairman of
the Board. The Company also pays each director $1,000 for each meeting attended
in person, 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 July 2001, due to economic conditions and their effect on the
Company, the outside directors voluntarily reduced their fees for the remainder
of 2001. Specifically, the directors accepted fees for the second half of 2001
at the rate of $2,500 per quarter with an additional $3,750 per quarter being
paid to the Chairman of the Board. In addition, the fee for attending meetings
in person was eliminated for the second half of 2001. Fees for 2002 continued at
the reduced rate during the first quarter. The Company also pays certain health
insurance costs for Messrs. Barth, Fenoglio, Parr and Seigel; such costs were
$48,368 in total for 2001. The Company will also pay these health insurance
costs for Mr. Sachs in 2002.
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,
2001, to or for those individuals who served as the Company's chief executive
officer during 2001 and each of the Company's four other most highly compensated
executive officers during fiscal 2001 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------
AWARDS
ANNUAL COMPENSATION ----------------------------
--------------------------- RESTRICTED SECURITIES
FISCAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS AWARD(S) OPTIONS/SARS(#) COMPENSATION
------------------------------ ------ -------- ------- ---------- --------------- ------------
Patrick O'Keefe............ 2001 $166,146 -- -- 100,000 $12,371
President and Chief 2000 $275,000 -- -- -- $ 6,382
Executive Officer(1) 1999 $ 22,916 -- $387,500 -- $ 272
Andrew B. Shearer.......... 2001 $175,000 $36,000 -- 111,833(3) $ 1,567
President and Chief
Executive Officer(2)
Jack P. Healey............. 2001 $209,167 -- -- 16,933(4) $ 3,765
Senior Vice President, 2000 $205,000 -- -- -- $ 4,587
Chief Financial Officer 1999 $187,500 $22,000 -- -- $ 3,271
and Secretary
Thomas W. Aldridge, Jr. ... 2001 $209,167 -- -- 10,000 $ 7,085
Senior Vice President 2000 $207,000 -- -- -- $ 1,658
1999 $195,000 -- -- -- $ 3,271
------------------------
(1) Mr. O'Keefe served as President and Chief Executive Officer of the Company
from December 1, 1999 to August 14, 2001. As of December 31, 2001, in
connection with his separation, the Company had paid Mr. O'Keefe an
aggregate of $219,000 in cash, and had additional obligations to Mr. O'Keefe
estimated to be $63,000, as severance and consideration for releases from
him and the termination of all other obligations by the Company to him.
These arrangements with Mr. O'Keefe are discussed below under "Separation
Agreement with Former CEO."
(2) Mr. Shearer became the President and Chief Executive Officer of the Company
on August 15, 2001. Prior to that time, Mr. Shearer served as President of
the Company's York business unit.
(3) In September 2000, Mr. Shearer surrendered options to purchase 5,500 shares
of the Company's common stock.
(4) In September 2000, Mr. Healey surrendered options to purchase 20,800 shares
of the Company's common stock.
6
The following table sets forth the number and potential realizable value of
stock options granted in 2001.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NO. OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERMS(3)
OPTION/SARS EMPLOYEES IN EXERCISE OR EXPIRATION -----------------------
GRANTED(1) FISCAL YEAR BASE PRICE DATE 5% 10%
----------- ------------ ----------- ---------- ---------- ----------
Patrick S. O'Keefe...... 100,000(2) 23.6% $2.50 01/24/11 $157,224 $398,436
Andrew B. Shearer....... 11,833 2.8% 1.80 05/16/11 13,395 33,946
100,000 23.6% 1.75 08/14/11 110,057 278,905
Jack P. Healey.......... 16,933 4.0% 1.80 05/16/11 19,168 48,576
Thomas W. Aldridge,
Jr. .................. 10,000 2.4% 1.80 05/16/11 11,320 28,687
------------------------
(1) Except as otherwise noted, all options vest beginning one year from the date
of grant in 33 1/3% increments on the anniversary of the date of grant.
(2) All options vested upon Mr. O'Keefe's separation from the Company on August
14, 2001.
(3) Based on assumed rates of stock price appreciations, as required by the
Commission.
The following table sets forth the fiscal year-end value of unexercised
options held by the Named Executive Officers at the end of fiscal 2001.
FISCAL YEAR-END OPTION VALUES
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
----------- -------------- ----------- -------------
Patrick O'Keefe.............................. 200,000(2) -- -- --
Andrew B. Shearer............................ 16,667 120,166 -- --
Jack P. Healey............................... 6,667 20,266 -- --
Thomas W. Aldridge, Jr....................... 11,250 13,750 -- --
------------------------
(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, 2001,
which was $1.50 per share. Because the closing sale price of the Company's
Common Stock on December 31, 2001 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 August 14, 2001, the
Company accelerated the vesting in full of all options held by Mr. O'Keefe.
SEPARATION AGREEMENT WITH FORMER CEO
In connection with the resignation of Patrick S. O'Keefe as President and
Chief Executive Officer of the Company, the Company entered into a separation
agreement with Mr. O'Keefe as of August 14, 2001. Pursuant to this agreement,
and as severance and in consideration for releases from Mr. O'Keefe and the
termination of all other obligations of the Company to him, the Company paid Mr.
O'Keefe his base salary through November 15, 2001, accelerated the vesting of
options he held for an aggregate of 200,000 shares of the Common Stock,
purchased all rights of Mr. O'Keefe under an agreement relating to his 100,000
restricted shares of Common Stock, and agreed to provide certain other benefits,
including health and disability insurance through May 2004, to Mr. O'Keefe. As
of December 31, 2001, the Company had paid Mr. O'Keefe
7
an aggregate of $219,000 in cash, and had additional obligations to him
estimated to be $63,000 pursuant to these arrangements all of which was recorded
as an expense in 2001.
CERTAIN TRANSACTIONS
FORMATION OR COMBINATION RELATED MATTERS
Upon consummation of the formation of the Company (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 (1)
Spokane, Washington from a company in which the father of William J. Burkland
has a 25% ownership interest; (2) Whitehall, Pennsylvania from Andrew B.
Shearer; (3) Reading, Pennsylvania from a trust of which Andrew B. Shearer and
his father, mother, sisters, and deceased brother's estate are the
beneficiaries; and (4) 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 the
President and Chief Executive Officer and 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 74 years old, and his spouse is 70 years old. Mr.
Burkland is the father of William J. Burkland, a director of the Company.
OTHER RELATED PARTY MATTERS
During 2001, the Company has paid approximately $1,470,301 in insurance
premiums, of which $110,750 constituted servicing and consulting fees to J.
Smith Lanier & Co., an independent insurance agency, in connection with business
and health insurance purchased by the Company. William T. Parr, a director of
the Company, is the Vice Chairman of, and has less than 10% 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 expires in December 2008 with annual rent under the lease of
$319,215. The Company believes that the annual rent and other terms of this
lease are not less favorable to the Company than could be obtained from
unaffiliated parties for a comparable property in the York, Pennsylvania area.
Mr. Shearer is the President and Chief Executive Officer, a principal
stockholder and a director of the Company.
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.
8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Barth, Fenoglio, Parr, and Seigel served as members of the
Company's Compensation Committee throughout the 2001 fiscal year. Mr. Seigel is
the Chairman of the Board 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 2001 compensation determinations were made with respect to the
executive officers of the Company, including the Chief Executive Officer and the
other Named Executive Officers of the Company.
GENERAL COMPENSATION PHILOSOPHY
The Compensation Committee (the "Committee") seeks to develop programs and
policies for the compensation of the Company's executive officers that 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.
The Committee has identified several objectives for the Company's
compensation programs and policies, and it has determined that, to achieve these
objectives, 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 are established
after further review and analysis, 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 stock options and restricted shares of stock;
- Significant annual incentive bonus opportunities under the Company's
Management Incentive Program; and
- Customary benefits.
The Committee's formulation of the Company's compensation programs and
policies for executive officers is monitored and reviewed on an ongoing basis in
order for the Committee to 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 and developments in the Company's industry and
generally. 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 seeks 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 the executive officers, including the new Chief Executive Officer,
during 2001 were established in negotiations with the approval of the Committee.
Such base salaries were intended to be competitive when compared to amounts paid
to executive officers of similar businesses in structure, size, and market
orientation. The Committee reviews salaries of the Company's
9
executive officers on an annual basis. On June 1, 2001, all of the Company's
executive officers voluntarily reduced their base salaries to reflect current
trends in the industry.
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 Internal Revenue
Code (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.
During fiscal 2001, the Company granted options to purchase an aggregate of
424,088 shares of Company Common Stock to 186 employees, 226,933 of which were
granted to individuals who were executive officers at the time of the respective
grants, pursuant to its Stock Incentive Plan. During fiscal 2000, the Company
accepted the surrender of options to purchase an aggregate of 26,300 shares of
Company Common Stock from executive officers of the Company. These options were
out-of-the-money and were surrendered by the executive officers, along with
options surrendered by other employees, to reduce the number of options
outstanding under the Stock Incentive Plan. The issuance of options to the
executive officers in 2001 occurred more than six months after the surrender of
the old options and were not viewed by the Committee as a repricing or
reissuance of the surrendered options.
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. The Management Incentive Program, at least as it relates
to 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, the 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. Incentive
compensation for executive officers is currently based upon attaining certain
earnings per share targets approved by the Board of Directors.
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 2001.
COMPENSATION OF CEO
Mr. Shearer became the Company's President and Chief Executive Officer on
August 15, 2001. Mr. Shearer's annual base salary is $250,000, which he
immediately voluntarily reduced to $225,000 in 2001. Mr. Shearer is eligible for
an annual bonus determined by the Board of Directors. In connection with his
appointment as President and Chief Executive Officer, Mr. Shearer also received
options to purchase 100,000 shares of Common Stock that vest in equal increments
of 33 1/3% on each of the first three anniversaries of the
10
date of grant. The Committee believes that the compensation terms of Mr.
Shearer's employment are consistent with the fundamental elements that comprise
the Company's executive compensation philosophy. The Committee believes that the
base salary to Mr. Shearer is competitive with the Company's industry, and the
opportunities for value from the stock options are tied to increases in the
price levels of the Company's Common Stock and thus to enhanced value to the
Company's stockholders. Mr. Shearer is 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.
Until Mr. O'Keefe's separation from the Company on August 14, 2001, the
Company had compensated him from December 1, 1999, for his service as Chief
Executive Officer and President with an annual base salary of $275,000, which
was subject to review annually, and to consideration for an annual bonus by the
Board of Directors. In June 2001, Mr. O'Keefe voluntarily reduced his base
salary to $247,500. In connection with his employment, Mr. O'Keefe also received
100,000 shares of Common Stock, which were restricted and subject to forfeiture
over a four year period from December 1, 1999, and options to purchase 400,000
shares of Common Stock vesting in 25% increments on the first four anniversaries
of the date of grant. In January 2001, the Company granted Mr. O'Keefe options
to purchase 100,000 shares of Common Stock under the Company's Stock Incentive
Plan vesting in 25% increments on the date of grant and the first three
anniversaries of the date of grant. (In July 2001, Mr. O'Keefe surrendered
300,000 of the options granted to him in December 1999.) Mr. O'Keefe 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.
In connection with Mr. O'Keefe's separation, the Company made payments to
and entered into other arrangements with him that are discussed above under
"Executive Compensation -- Separation Agreement with Former CEO."
This report is respectfully submitted by the Compensation Committee of the
Board of Directors.
David K. Barth, Chairman -- William R. Fenoglio -- William T. Parr -- Richard M.
Seigel
REPORT OF AUDIT COMMITTEE
The Audit Committee is comprised of two independent members and one member
that is not classified as independent by the listing standards of the New York
Stock Exchange ("NYSE"). Richard M. Seigel is not considered independent under
the NYSE's standards because he served as Acting President and Chief Executive
Officer from March 8, 1999 until November 30, 1999, during which time, the
Company conducted a search for a permanent President and Chief Executive
Officer. Even though Mr. Seigel is not considered independent by the standards
of the NYSE until November 2002, the Board of Directors determined to use the
limited exemption in accordance with Section 303.02(D) of the NYSE listing
standards to appoint him to the Audit Committee. The Board made this
determination based upon Mr. Seigel's knowledge of distribution processes and
issues specific to the integration of highly acquisitive companies. The Audit
Committee acts under a written charter adopted and approved by the Board of
Directors in August 2000.
The responsibilities of the Audit Committee include recommending to the
Board of Directors an accounting firm to be engaged as independent auditors. In
addition, the Audit Committee is responsible for recommending to the Board of
Directors that the financial statements be included in the Annual Report to
shareholders.
Effective July 23, 2001, the Audit Committee recommended the engagement of
Ernst & Young LLP as the Company's independent auditors, which engagement was
effective for the 2001 fiscal year. The Audit Committee met and reviewed each
quarterly report that the Company filed and discussed each report with the
Company's independent auditors. The Audit Committee has reviewed and discussed
the audited financial statements for the fiscal year ended December 31, 2001
with management, and has discussed with Ernst & Young LLP, the independent
auditors, the matters required to be discussed by the Statement on Auditing
Standards No. 61 (Communication with Audit Committees). The Audit Committee has
received and
11
reviewed the written disclosures and the letter from Ernst & Young LLP required
by Independence Standards Board Standard No. 1 (Independence Discussion with
Audit Committees), and has discussed with Ernst & Young LLP its independence
from the Company.
Based on the reports and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Committee referred to
above and in the Audit Committee Charter, the Committee recommended to the Board
of Directors that the audited consolidated financial statements of the Company
be included in the Annual Report on Form 10-K for the year ended December 31,
2001 for filing with the Securities and Exchange Commission.
This report is respectfully submitted by the Audit Committee of the Board
of Directors.
William R. Fenoglio, Chairman
William T. Parr
Richard M. Seigel
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, 2001.
(PERFORMANCE GRAPH)
-------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
-------------------------------------------------------------------------------------------------------
Industrial Distribution
Group 100.00 74.70 36.31 15.48 8.33 7.14
Machinery Equipment,
Supplies 100.00 90.91 57.46 49.21 58.45 48.08
Russell 2000 Index 100.00 96.65 93.94 112.35 107.50 108.59
Note: Base price date is September 24, 1997.
12
INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee,
appoints each year the firm that will serve as the Company's independent
auditors. The Board has appointed Ernst & Young LLP to serve as such independent
auditors for the current fiscal year. Such appointment is not subject to
ratification or other vote by the stockholders. A representative of Ernst &
Young 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.
Effective July 23, 2001, the Audit Committee of the Board of Directors
engaged the accounting firm of Ernst & Young LLP as independent auditors for the
year ending December 31, 2001. Arthur Andersen LLP was dismissed effective July
23, 2001. The change was recommended by the Company's management and approved by
the Audit Committee of the Board of Directors.
During the two most recent fiscal years and subsequent interim period
preceding the date of this report, there were no disagreements with Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure, auditing scope or procedure, or any reportable events.
The report of Arthur Andersen LLP on the Company's financial statements for
the last two years ending December 31, 2000 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.
The Company did not consult with Ernst & Young LLP during the two years
ended December 31, 2000 or subsequent interim period prior to July 23, 2001 on
either the application of accounting principles or type of opinion Ernst & Young
LLP might issue on the Company's financial statements.
AUDIT FEES
Ernst & Young LLP billed the Company aggregate fees of $248,000 for
professional services rendered for the audit of financial statements for fiscal
year 2001, and the reviews of financial statements included in Forms 10-Q filed
during fiscal year 2001. Arthur Andersen LLP billed the Company aggregate fees
of $75,000 for professional services rendered for the audit of financial
statements for fiscal year 2000, and the review of financial statements included
in Forms 10-Q filed during fiscal year 2001.
ALL OTHER FEES
Ernst & Young LLP billed the Company aggregate fees of $472,000 for all
other services, which consisted entirely of tax services, rendered to it during
fiscal year 2001. Arthur Andersen LLP billed the Company aggregate fees of
$12,000 for all other services rendered to it during fiscal year 2001.
STOCKHOLDERS' PROPOSALS FOR 2003 ANNUAL MEETING
Any stockholder who wishes to present a proposal appropriate for
consideration at the Company's 2003 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, 2002 for the proposal to
be considered for inclusion in the Company's proxy statement and form of proxy
relating to such Annual Meeting.
13
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,
/S/ JACK P. HEALEY
Jack P. Healey
14
(IDG LOGO)
COMMON STOCK
OF INDUSTRIAL DISTRIBUTION GROUP, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS FOR THE MAY 15, 2002
ANNUAL MEETING OF STOCKHOLDERS.
The undersigned hereby appoints Andrew B. Shearer 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 15, 2002, and any adjournment or
postponement thereof.
1. Election of directors to serve in Class I (Term Expiring 2005)
David K. Barth and George L. Sachs, Jr.
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.
----------------------------------------------------------------------
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.
----------------------------------
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.
Date: _________________________, 2002