UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

þ Preliminary Proxy Statement		o Confidential, for Use of the Commission Only (as permitted by Rule
o Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a—12

Industrial Distribution Group, Inc.

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a—6(i)(l) and 0—11.

	(1)		Title of each class of securities to which transaction applies: Common Stock
	(2)		Aggregate number of securities to which transaction applies: 9,790,868
	(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): $10.30 per share plus the assumption of debt
	(4)		Proposed maximum aggregate value of transaction: $113,000,000
	(5)		Total fee paid: $4,440.90

o		Fee paid previously with preliminary materials.
o		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:

INDUSTRIAL DISTRIBUTION GROUP, INC.

 

March [ • ], 2008

 

To Our Stockholders:

 

On behalf of the Board of Directors and management of Industrial Distribution Group, Inc., I cordially invite you to attend a Special Meeting of Stockholders, to be held on May 1, 2008, beginning at 11:00 a.m., Eastern Time, at 1100 Peachtree Street, 28th Floor, South Conference Room, Atlanta, Georgia 30309.

 

At the Special Meeting, stockholders will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger (as amended), which we refer to as the “merger agreement”, dated as of February 20, 2008, among Project Athena Holding Corporation (“Athena”), Project Athena Merger Corporation (“Merger Sub”), a wholly-owned subsidiary of Athena, and Industrial Distribution Group, Inc. (“IDG”, “we”, “us”, or “our”), providing for the acquisition of IDG by Athena. If the merger is completed, IDG will become a wholly-owned subsidiary of Athena, and you will receive $10.30 in cash, without interest and less any applicable withholding taxes, for each share of common stock that you own, and you will cease to have an ownership interest in IDG. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement. You are encouraged to read it in its entirety.

 

After careful consideration, our board of directors has unanimously approved the merger agreement and determined and declared that the merger and the merger agreement are advisable and in the best interest of our stockholders. OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” ADOPTION OF THE MERGER AGREEMENT.

 

The proxy statement accompanying this letter provides you with information about the merger and the Special Meeting. Please read the entire proxy statement carefully. You may also obtain additional information about us from documents we filed with the Securities and Exchange Commission.

 

Your Vote is Very Important. The merger cannot be completed unless IDG stockholders holding a majority of the outstanding shares entitled to vote at the Special Meeting vote to adopt the merger agreement. If you do not vote, it will have the same effect as a vote against the adoption of the merger agreement.

 

Whether or not you plan to attend the Special Meeting in person, please complete, sign, date and return promptly the enclosed proxy card. If you hold shares through a broker or other nominee, you should follow the procedures provided by your broker or nominee. These actions will not limit your right to vote in person if you wish to attend the Special Meeting and vote in person.

 

If you have any questions or need assistance voting your shares, please call MacKenzie Partners, Inc., which is assisting us with obtaining proxies for the Special Meeting. Stockholders should call toll-free at (800) 322-2885; banks and brokers may call collect at (212) 929-5500.

 

I thank you in advance for your cooperation and continued support.

 

Sincerely,

Charles A. Lingenfelter
President and Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated March [ • ], 2008 and is first being
mailed to stockholders on or about March [ • ], 2008.

INDUSTRIAL DISTRIBUTION GROUP, INC.
950 EAST PACES FERRY ROAD
SUITE 1575
ATLANTA, GEORGIA 30326

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 1, 2008

 

 

To the Stockholders of

Industrial Distribution Group, Inc.:

 

NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Industrial Distribution Group, Inc. will be held at 11:00 a.m., Eastern Time on May 1, 2008, at 1100 Peachtree Street, 28th Floor, South Conference Room, Atlanta, Georgia 30309, for the following purposes:

 

1. Adoption of the Merger Agreement with Athena.  To consider and vote on a proposal to adopt the Agreement and Plan of Merger (as amended), dated as of February 20, 2008, among Athena, Merger Sub and Industrial Distribution Group, Inc.

 

2. Adjournment or Postponement of the Special Meeting.  To consider and vote on a possible proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement.

 

3. Other Matters.  To transact such other business as may properly come before the Special Meeting or any adjournment or postponement thereof.

 

Only stockholders of record of our common stock as of the close of business on March 24, 2008, are entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement of the Special Meeting.

 

Your vote is important, regardless of the number of shares of common stock you own. The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote at the Special Meeting. Even if you plan to attend the Special Meeting in person, we request that you complete, sign, date and return the enclosed proxy card and thus ensure that your shares will be represented at the Special Meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be counted as a vote “FOR” the adoption of the merger agreement, “FOR” any proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, in order to permit further solicitation of proxies, and in accordance with the discretion of the persons named as proxies on any other matters properly brought before the Special Meeting for a vote.

 

If you fail to vote by proxy or in person, it will have the same effect as a vote against the adoption of the merger agreement, but will not affect any adjournment or postponement vote to permit further solicitation of proxies. If you wish to vote in person at the Special Meeting, you may withdraw your proxy, if previously given, and vote in person.

 

Under the Delaware General Corporation Law, holders of our common stock who do not vote in favor of adopting the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if (i) they submit a written demand for an appraisal prior to the vote on the adoption of the merger agreement, (ii) they do not vote or otherwise submit a proxy in favor of the merger agreement, and (iii) they comply with the procedures under the Delaware General Corporation Law explained in the accompanying proxy statement. See the section captioned “Appraisal Rights”.

 

Please carefully read the proxy statement and other material concerning our company, the merger and related matters enclosed with this notice for a more complete statement regarding the matters to be acted upon at the Special Meeting.

 

PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.

 

BY ORDER OF THE BOARD OF DIRECTORS,

Jack P. Healey
Secretary

 

March [ • ], 2008

 

INDUSTRIAL DISTRIBUTION GROUP, INC.
950 EAST PACES FERRY ROAD
SUITE 1575
ATLANTA, GEORGIA 30326

 

 

PROXY STATEMENT

 

SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 1, 2008

 

TABLE OF CONTENTS

 

 

 

SUMMARY

	•	adoption by our stockholders of the merger agreement;
	•	our delivery to Athena of a certificate with respect to our satisfaction of certain conditions set forth in the merger agreement, and each of Athena’s and Merger Sub’s delivery to us of a certificate with respect to the satisfaction by each of certain conditions set forth in the merger agreement;
	•	expiration or termination of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the “HSR Act”;
	•	consummation of the transactions under the merger agreement shall not have been made illegal by governmental order, decree or ruling; and
	•	receipt of all material consents, approvals and authorizations legally required to consummate the transactions under the merger agreement.

	•	the $10.30 per share in cash to be paid as merger consideration represents a 12.6% premium to the closing trading price of $9.15 on July 27, 2007 (the trading day just prior to the date on which we announced formation of the Special Committee to explore our strategic alternatives), and a 11.8% premium to the closing trading price of $9.21 on February 19, 2008 (the trading day just prior to the date on which we announced the execution of the merger agreement), notwithstanding the general decline in the stock prices of our publicly traded competitors (and the overall decline in certain broader stock market indices) since July 27, 2007;
	•	the merger consideration will be paid in cash, which provides certainty and immediate value to our stockholders;
	•	consummation of the merger is not subject to a financing condition;
	•	the relatively limited “public float” and low trading volume for our common stock, which effectively limits our stockholders’ ability to trade significant amounts of shares without depressing our stock price;
	•	the financial and other terms of the merger agreement, which, among other things, permit our board of directors to exercise its fiduciary duties under corporate law to consider unsolicited acquisition proposals and to change its recommendation with respect to the merger;
	•	Athena’s obligation to pay us a termination fee under certain circumstances if it breaches the merger agreement or fails to timely meet material obligations under the merger agreement;
	•	the substantial costs and implications for our profitability of remaining independent as a public company, in light of the relatively small size and scale of our operations for the foreseeable future;
	•	the increasing level of uncertainties associated with our business as a result of actual and anticipated deteriorating general economic conditions affecting our industry and capital markets;
	•	the attractiveness of the merger compared to other strategic alternatives reasonably available to us;
	•	the results of the confidential but extensive solicitation of proposals to acquire our company, which was conducted by the Special Committee and its financial advisor, Robert W. Baird & Co. Incorporated (“Baird”); and
	•	the financial analyses reviewed and discussed by Baird with the Special Committee and our board of directors, and the opinion of Baird, as of February 20, 2008, with respect to the fairness, from a financial point of view, to the holders of our common stock of the consideration to be received by them in the merger.

	•	our executive officers and directors will receive cash consideration for their vested and unvested stock options and certain of their shares of restricted stock;
	•	one of our executive officers, along with certain non-management personnel, will be entitled to certain payments for remaining with our company if the merger (or another change in control transaction) is consummated; and
	•	the merger agreement provides for indemnification and liability insurance arrangements for each of our current and former directors and officers.

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

Q:		What is the date, time and place of the Special Meeting?
A:		The Special Meeting will be held at 1100 Peachtree Street, 28th Floor, South Conference Room, Atlanta, Georgia 30309 on May 1, 2008, beginning at 11:00 a.m., Eastern Time.
Q:		Who is soliciting my proxy?
A:		This proxy is being solicited by the board of directors of IDG. We have engaged MacKenzie Partners, Inc. to assist in our solicitation.
Q:		What am I being asked to vote on?
A:		You are being asked to consider and vote on the following:

	•	Proposal 1 — adoption of the merger agreement;
	•	Proposal 2 — possible adjournment or postponement of the Special Meeting, if necessary or appropriate, in order to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement; and
	•	the transaction of any other business that may properly come before the Special Meeting or any adjournments or postponements of the Special Meeting.

Q:		What is the proposed transaction?
A:		If the merger agreement is adopted by our stockholders and the other closing conditions are satisfied or waived, IDG will merge with Merger Sub, a direct wholly-owned subsidiary of Athena, and Athena will become the sole stockholder of IDG. Each holder of shares of IDG common stock outstanding immediately prior to the merger (except for shares of unvested restricted stock) will receive $10.30 per share in cash, without interest and less any applicable withholding tax, for each share of common stock they own (other than shares owned by us, Athena or Merger Sub, or any subsidiary thereof, and other than shares owned by stockholders properly demanding appraisal rights).
Q:		How does our board of directors recommend that I vote?
A:		Our board of directors unanimously recommends that you vote:

	•	“FOR” Proposal 1 — adoption of the merger agreement; and
	•	“FOR” Proposal 2 — approval to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to approve the merger agreement.

Q:		What vote of our stockholders is required to adopt the proposals?
A:		The votes required to adopt the proposals are as follows:

	•	Proposal 1 — adoption of the merger agreement — requires the affirmative vote of the holders of a majority of our outstanding shares of common stock entitled to vote at the Special Meeting, whether or not the shares are present at the Special Meeting; and
	•	Proposal 2 — adjournment or postponement of the Special Meeting, if necessary or appropriate, in order to solicit additional proxies — requires an affirmative vote cast by the holders of a majority of our shares of common stock, entitled to vote and present at the Special Meeting.

Q:		Who is entitled to vote at the Special Meeting?
A:		Only stockholders of record as of the close of business on March 24, 2008, the record date for the Special Meeting, are entitled to receive notice of and to vote at the Special Meeting. You will have one vote at the Special Meeting for each share of common stock you owned at the close of business on the record date. On the

		record date, [          ] shares of common stock, held by approximately [          ] holders of record, were outstanding and are entitled to be voted at the Special Meeting.
Q:		How many shares must be present or represented at the Special Meeting in order to conduct business?
A:		Holders of a majority of the shares of common stock entitled to vote must be present, in person or represented by proxy, before we may transact business at the Special Meeting. This is called a “quorum”. Both abstentions and broker non-votes (which are discussed below) are counted for the purpose of determining the presence of a quorum.
Q:		What do I need to do now? How do I vote?
A:		We urge you to read this proxy statement, including its annexes and the documents referred to in this proxy statement, carefully, and to consider how the merger affects you. If you are a stockholder of record, then you can ensure that your shares are voted at the Special Meeting by completing, signing, dating and mailing each proxy card accompanying this proxy statement and returning it in the envelope provided.

Q:		How are votes counted?
A:		For Proposal 1 — adoption of the merger agreement — you may vote “FOR”, “AGAINST” or “ABSTAIN”. An abstention will not count as a vote cast on Proposal 1, but will count for the purpose of determining whether a quorum is present. As a result, if you “ABSTAIN”, it has the same effect as a vote “AGAINST” adoption of the merger agreement.

Q:		If my broker holds my shares in “street name”, will my broker vote my shares for me?
A:		No, unless you provide specific instructions to your broker on how to vote. Therefore, you must give instructions to your broker if you want your shares to be voted. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. Unless you follow the instructions, your shares will not be voted.

Q:		May I vote in person?
A:		Yes. Shares held in your name as the stockholder “of record” may be voted in person at the Special Meeting. Shares owned beneficially by you, but held “of record” for you in street name by your broker, a trustee or another nominee may be voted in person by you only if you obtain a legal proxy from the broker, trustee or other nominee who holds your shares “of record” giving you the right to vote the shares at the Special Meeting.

Q:		What is the difference between holding shares as a stockholder “of record” and as a beneficial owner?
A:		Most of our stockholders hold their shares through a broker, trustee or other nominee (such as a bank) rather than directly in their own name. As summarized below, there are some distinctions between shares owned of record and those owned beneficially.

	•	Stockholder of Record.  If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered to be the stockholder of record with respect to those shares, and these proxy materials are being sent directly to you. As the stockholder of record, you have the right to grant your proxy directly to us or to vote in person at the Special Meeting. We have enclosed a proxy card for you to use.
	•	Beneficial Owner.  If your shares are held in a brokerage account, by a trustee or by another nominee (such as a bank), you are considered the beneficial owner of shares held in “street name”, but the shares are considered to be held “of record” by such broker, trustee or other nominee. In that case, we initially sent these proxy materials to that other person as the stockholder of record, and they have been forwarded to you by that person, together with a voting instruction card. As the beneficial owner, you have the right to direct your broker, trustee or nominee how to vote, and you are also invited to attend the Special Meeting.

Q:		May I attend the Special Meeting?
A:		You are entitled to attend the Special Meeting only if you were a stockholder as of the close of business on the record date, or if you hold a valid proxy for the Special Meeting. You should be prepared to present photo identification for admittance. If you are a stockholder of record, your name will be verified against the list of stockholders of record on the record date prior to your being admitted to the Special Meeting.

Q		When should I return my proxy card?
A:		You should return your proxy card as soon as possible, in order to ensure that it is received in time for your shares to be voted at the Special Meeting.
Q:		May I change my vote after I have mailed my signed proxy card?
A:		Yes. You may change your vote at any time before the shares of common stock reflected on your proxy card are voted at the Special Meeting. If your shares are registered in your name, you may do this in any of three ways:

	•	first, you may deliver to our Secretary a written notice (dated later than the date of your proxy card) stating that you would like to revoke your proxy;
	•	second, you may complete, execute and deliver to our Secretary a new, later-dated proxy card for the same shares, provided the new proxy card is received before the polls close at the Special Meeting; or
	•	third, you may attend the meeting and vote in person.

Q:		Should I send in my stock certificate(s) now?
A:		No. If and when the merger is completed, you will receive written instructions, including a document called a “letter of transmittal”, for exchanging your shares of common stock for the merger consideration.
Q:		Who will bear the cost of the solicitation?
A:		The expense of soliciting proxies for use by our board of directors will be borne by IDG. We have retained MacKenzie Partners, Inc. to aid in the solicitation of proxies for the Special Meeting at a cost of approximately $10,000 plus reimbursement of out-of-pocket fees and expenses. In addition, we may reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by certain of our directors, officers and employees, personally or by telephone, facsimile or other means of communication. No additional compensation will be paid to these individuals for such services.
Q:		What does it mean if I receive more than one proxy card?
A:		You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive.
Q:		How can I obtain a separate set of voting materials?
A:		If you share an address with another stockholder, you may receive only one set of proxy materials, unless you have provided contrary instructions. However, each stockholder will receive his or her own proxy card. If you wish to receive a separate set of proxy materials, please call MacKenzie Partners, Inc. toll-free at (800) 322-2885 (banks and brokers may call collect at (212) 929-5500) to request a separate copy of these materials. You will be provided with a separate copy of the materials, free of charge, if you request them. In addition, stockholders who share a single address but receive multiple copies of the proxy materials may request that, if additional materials are provided in the future, they receive a single copy, by contacting MacKenzie Partners, Inc. at the phone number set forth above.
Q:		What happens if I sell my shares before the Special Meeting?
A:		The record date for the Special Meeting is earlier than the date of the Special Meeting and earlier than the date on which the merger is expected to be completed. If you transfer your shares of common stock after the record date but before the Special Meeting, you will retain your right to vote at the Special Meeting, but you will have transferred the right to receive the merger consideration if the merger agreement is adopted by our stockholders and the merger is completed. Therefore, in order to receive the merger consideration of $10.30 per share, you must hold your shares through the effective time of the merger.
Q:		When do you expect the merger to be completed?
A:		We are working to complete the merger as quickly as possible, but we cannot predict the exact timing. The closing of the merger will occur as soon as practicable, but no later than the second business day, after the satisfaction or (to the extent permitted by law) waiver of all of the closing conditions provided in the merger agreement, or on such other date as IDG and Athena may agree in writing. On the closing date, a certificate of merger will be filed with the Secretary of State of the State of Delaware that will state whether the merger will

		become effective immediately upon acceptance of that filing, or at such later time as the parties may have agreed and specified in the certificate of merger.
Q:		When will I receive the merger consideration for my shares?
A:		If and when the merger is completed, you will receive written instructions, including a letter of transmittal, that will explain how to exchange your shares for the merger consideration. When you properly complete and return the required documentation described in the written instructions, you will receive payment of the merger consideration for your shares from the paying agent. If you are the beneficial owner of shares of common stock that are held in “street name”, the broker, trustee or other nominee that holds the shares of record for you will complete the letter of transmittal with respect to your shares and receive payment of the merger consideration on your behalf. The merger consideration with respect to such shares will be credited to your account with such broker, trustee or other nominee promptly following such payment after the merger.
Q:		Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares?
A:		Yes. As a holder of our common stock, you are entitled to seek appraisal of the fair value of your shares under the Delaware General Corporation Law if the merger is completed, but only if you satisfy certain conditions, which conditions are described in this proxy statement under the caption “Appraisal Rights” beginning on page   . The judicially determined fair value of your shares could be greater than, equal to or less than the $10.30 in cash per share that you would otherwise be entitled to receive under the terms of the merger agreement.
Q:		Who can help answer my other questions?
A:		If you have additional questions about the Special Meeting or the merger, including the procedures for voting your shares, or if you would like additional copies, without charge, of this proxy statement, you should contact our proxy solicitor, MacKenzie Partners, Inc., toll-free at (800) 322-2885 (banks and brokers may call collect at (212) 929-5500). If your broker holds your shares, you may also call your broker for additional information.

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain “forward-looking statements”, within the meaning of the Private Securities Litigation Reform Act of 1995, about our plans, objectives, expectations and intentions. Forward-looking statements include information concerning expected operating results and future performance of our company, the expected completion and timing of the merger and other information relating to the merger. Generally, the words “looking forward”, “believe”, “expect”, “intend”, “estimate”, “anticipate”, “likely”, “project”, “may”, “will” and similar expressions identify or indicate forward-looking statements. You should read statements that contain these words carefully. They discuss our future expectations or state other forward-looking information, and may involve known or unknown risks and uncertainties over which we have no control. Such risks and uncertainties include, but are not limited to:

 

 

We believe that the assumptions on which our forward-looking statements are based are reasonable. However, we cannot assure you that the actual results or developments we anticipate will be realized or, if realized, that they will have the expected effects on our business or operations. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Forward-looking statements speak only as of the date of this proxy statement or the date of any document incorporated by reference in this document. Except as required by applicable law or regulation, we do not undertake to update publicly these forward-looking statements, whether as a result of future events, new information or otherwise.

 

This proxy statement is furnished in connection with the solicitation of proxies in connection with a Special Meeting of our stockholders.

 

We will hold the Special Meeting at 1100 Peachtree Street, 28th Floor, South Conference Room, Atlanta, Georgia 30309 on May 1, 2008, beginning at 11:00 a.m., Eastern Time.

 

At the Special Meeting, (1) we will ask you to adopt the merger agreement and (2) if necessary or appropriate, we may ask you to approve the adjournment or postponement of the Special Meeting in order to solicit additional proxies if there are insufficient votes at the time of the meeting to approve the merger agreement. In addition, you may be asked to vote on other business that is properly brought before the Special Meeting. We are not currently aware of any additional business that may come before the Special Meeting.

 

Our board of directors unanimously approved the merger agreement after it determined and declared that the merger and the merger agreement are advisable and in the best interest of our stockholders. Accordingly, our board of directors unanimously recommends that you vote “FOR” adoption of the merger agreement and “FOR” approval of any proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, in order to solicit additional proxies if there are insufficient votes at the time of the meeting to approve the merger agreement.

 

Only holders of record of our common stock at the close of business on March 24, 2008, the record date, are entitled to notice of and to vote at the Special Meeting. On the record date, [          ] shares of common stock were issued and outstanding and held by approximately [          ] holders of record. Each holder of record of our common stock will be entitled to one vote per share at the Special Meeting.

 

The holders of a majority of our outstanding shares of common stock entitled to vote must be present, either in person or by proxy, to constitute a quorum at the Special Meeting. We will count abstentions, either in person or by proxy, and broker non-votes (discussed below) for the purpose of establishing a quorum. If a quorum is not present, in person or by proxy, at the Special Meeting, the holders of a majority of the common stock represented at the Special Meeting may adjourn the meeting, in order to solicit additional proxies. If a quorum is not present at the Special Meeting, it is expected that the meeting will be adjourned or postponed, in order to solicit additional proxies.

 

If you hold shares beneficially in “street name” and do not provide your broker with voting instructions, your shares will constitute “broker non-votes”. Broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and such instructions are not given. A broker non-vote with respect to Proposal 1 will have the same effect as a vote against Proposal 1, because adoption of Proposal 1 requires the affirmative vote of the holders of a majority of the shares entitled to vote at the Special Meeting. A broker non-vote will not count as a vote cast on Proposal 2 and will not affect the outcome of the vote because adoption of Proposal 2 requires the affirmative vote of the holders of a majority of the shares entitled to vote at the Special Meeting and cast in person or by proxy.

 

The adoption of the merger agreement (Proposal 1) requires the affirmative vote of the holders of a majority of the shares entitled to vote on the merger agreement at the Special Meeting. If you abstain from voting, either in person or by proxy, or do not instruct your broker or other nominee how to vote your shares, it will have the same effect as a vote against the adoption of the merger agreement. Adjournment or postponement of the Special Meeting in order to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement (Proposal 2) requires the affirmative vote of the holders of a majority of the shares entitled to vote at the Special Meeting that are cast in person or by proxy. If you abstain from voting, either in person or by proxy, or do not instruct your broker or other nominee how to vote your shares, it will have no effect on the outcome of the vote because adoption of Proposal 2 requires the affirmative vote of the holders of a majority of the shares entitled to vote at the Special Meeting and cast in person or by proxy.

 

To vote your shares, you should mark, sign, date and return each enclosed proxy card in the enclosed postage-paid envelope. Returning a proxy card does not limit your right to vote in person should you decide to attend the Special Meeting. If your shares are held in the name of a broker, trustee or other nominee, you will be provided voting instructions from the nominee and, in order to vote at the Special Meeting, you must obtain a legal proxy, executed in your name, from the nominee.

 

If you return your proxy card, and it is completed, signed and dated, your shares will be voted at the Special Meeting in accordance with your instructions. If you return your proxy card and it is unsigned or undated, or both, then your vote cannot be counted. If you return your proxy card, and it is signed and dated, but you do not fill out the voting instructions on the proxy card, the shares represented by your proxy card will be voted “FOR” Proposal 1 and “FOR” Proposal 2, and in accordance with the discretion of the persons named as proxies on any other matters properly brought before the Special Meeting for a vote.

Stockholders who hold their shares of common stock in “street name” — meaning in the name of a broker, trustee or other nominee who is the record holder — should follow the directions provided by the nominee regarding how to instruct such nominee to vote their shares.

 

We do not expect that any matter other than the matters discussed in this proxy statement will be brought before the Special Meeting. If, however, any other matters are properly presented, the persons named as proxies will vote in accordance with their judgment as to matters that they believe to be in the best interest of our stockholders.

 

DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER OF YOUR STOCK CERTIFICATES WILL BE MAILED TO YOU AS SOON AS PRACTICABLE IF AND WHEN THE MERGER IS COMPLETED.

 

If you hold your shares in your name, you have the unconditional right to revoke your proxy at any time prior to its exercise by employing any of the following three methods:

 

 

Any written notice of revocation should be delivered to our Secretary at or before the taking of the vote at the Special Meeting. Revocation of your proxy, without any further action, will mean your shares will not be voted at the Special Meeting or counted towards satisfying the quorum requirements. Your attendance at the Special Meeting will not revoke your proxy unless you specifically request to vote at the Special Meeting.

 

If you have instructed your broker to vote your shares, you must follow directions received from your broker to change your vote. You cannot vote shares held in “street name” by returning a proxy card directly to us or by voting in person at the Special Meeting, unless you obtain a legal proxy from your broker or other “street name” holder.

 

The board of directors of IDG is soliciting your proxy. In addition to the solicitation of proxies by use of the mail, our directors, officers and other employees may solicit the return of proxies by personal interview, telephone, e-mail or facsimile. We will not pay additional compensation to any of these individuals for their solicitation efforts, but we will reimburse them for any out-of-pocket expense they incur in their solicitation efforts. We will request that brokerage houses and other custodians, nominees and fiduciaries forward solicitation materials to the beneficial owners of stock registered in their names. We will bear all costs of preparing, assembling, printing and mailing the notice of the Special Meeting, this proxy statement, the enclosed proxy cards and any additional materials, as well as the cost incurred by brokers or other nominees in forwarding solicitation materials to the beneficial owners of stock and all other costs of solicitation.

 

We have retained MacKenzie Partners, Inc. to aid in the solicitation of proxies for the Special Meeting. MacKenzie Partners, Inc. will receive a base fee of $10,000, plus reimbursement of out-of-pocket fees and expenses, and may receive additional amounts depending upon the extent of assistance we require and request.

 

Stockholders who have questions regarding the materials, need assistance voting their shares or require additional copies of the proxy statement or proxy card, should contact:

 

MacKenzie Partners, Inc.
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
(800) 322-2885 (Toll free)

 

We are not currently aware of any business to be acted upon at the Special Meeting other than the matters discussed in this proxy statement. If other matters do properly come before the Special Meeting, or any adjournment or postponement of the Special Meeting is proposed, we intend that shares of common stock represented by properly submitted proxies will be voted by the persons named as proxies on the proxy card in accordance with their discretion. In addition, the grant of a proxy will confer discretionary authority on the persons named as proxies on the proxy card to vote in accordance with their best judgment on procedural matters incident to the conduct of the Special Meeting. Any adjournment or postponement may be made without notice by an announcement made at the Special Meeting.

 

If the persons named as proxies on the proxy card are asked to vote for one or more adjournments or postponements of the meeting for matters incidental to the conduct of the meeting, such persons will have the authority to vote in their discretion on such matters. However, if the persons named as proxies on the proxy card are asked to vote for one or more adjournments or postponements of the meeting in order to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to adopt the merger agreement, they will only have the authority to vote on such matter as instructed by you or your proxy or, if no instructions are provided, in favor of such adjournment or postponement. Any adjournment or postponement of the Special Meeting for the purpose of soliciting additional proxies will allow our stockholders who have already granted their proxies to revoke them at any time prior to their use.

 

Industrial Distribution Group, Inc.  IDG is a Delaware corporation with executive offices located at 950 East Paces Ferry Road, Suite 1575, Atlanta, Georgia 30326. Our telephone number is (404) 949-2100. IDG is a nationwide distributor of products and services that create competitive advantages for its customers, including a full line of maintenance, repair, operating and production (MROP) products. We have a strong reputation as a specialty distributor with considerable technical and product application expertise found in our more specialized lines that include cutting tools, hand and power tools, abrasives, material handling equipment, coolants, lubricants, and safety products. Currently, we serve over 12,000 active customers, representing a diverse group of large and mid-sized national and international corporations including PPG Industries, Danaher Corporation, BorgWarner, Inc., Kennametal, Inc., Honeywell, The Boeing Company, Corning Incorporated, Case New Holland, and Duracell. We currently have a presence in 43 of the top 75 industrial markets in the United States.

 

Athena.  Athena is a Delaware corporation headquartered in Beverly Hills, California. Its address is c/o Platinum Equity, 360 North Crescent Drive, Beverly Hills, California 90210. Its telephone number is (310) 712-1850. Athena is an affiliate of Platinum Equity established for the purpose of the acquisition of IDG. Platinum Equity is a global firm specializing in the merger, acquisition and operation of companies that provide services and solutions to customers in a broad range of business markets, including information technology, telecommunications, manufacturing and entertainment distribution.

 

Merger Sub.  Merger Sub is a newly-incorporated Delaware corporation and a direct, wholly-owned subsidiary of Athena. Its address is c/o Platinum Equity, 360 North Crescent Drive, Beverly Hills, California 90210. Its telephone number is (310) 712-1850. Merger Sub was formed exclusively for the purpose of effecting the merger. Merger Sub has not engaged in any business except in anticipation of the merger.

 

We entered into the merger agreement with Athena on February 20, 2008, upon the unanimous approval of our board of directors, following its unanimous recommendation by the three independent directors who comprised our board’s Strategic Alternatives Review Committee (the “Special Committee”) after an approximately six-month long strategic review process. Our board of directors formed the Special Committee and authorized the strategic review in late July 2007 in order to identify and evaluate potential options to enhance our business and unlock realizable value for our stockholders. The general context for that decision by our board of directors is summarized below, followed by a discussion of the specific circumstances leading to the merger agreement with Athena.

Our common stock has been publicly traded since September 24, 1997, when we completed our initial public offering in tandem with our formation through the simultaneous combination of nine previously private and unaffiliated MROP companies. The initial public offering price for our common stock was $17.00 per share, and our common stock subsequently traded as high as $22.56 per share in October 1997. Since that time, the trading price for our common stock declined to an all-time low of $1.19 per share in 2001, and we faced potential delisting from the New York Stock Exchange (“NYSE”). (While we successfully rehabilitated our listing status with the NYSE, we nonetheless moved the listing for our common stock in May 2004 from the NYSE to the Nasdaq Stock Market in an effort to improve the trading profile for our common stock.) Between October 2001 and May 2004, the trading price for our common stock fluctuated between $1.19 and $8.55 per share, reaching or exceeding the $8.00 per share level in March 2004, for the first time since January 1999. In July 2005, the trading price reached the $10.00 per share level for the first time in seven years. The trading prices for our common stock continued to fluctuate widely, however, as it declined three months later (in October 2005) to a new low of $6.58 per share before reaching its new five-year high of $13.60 per share in May 2007, from which it again declined to $9.15 per share on July 27, 2007, which was the last trading date prior to the announcement that our board had decided to form the Special Committee to consider strategic alternatives.

 

Throughout the five-year period preceding the formation of the Special Committee, the trading volume for our common stock had been consistently low, with a daily average of 35,652 shares; during that period, the “public float” for our common stock — which is the number of shares owned by non-affiliates — ranged between approximately 6.3 million and 8.2 million shares. On July 27, 2007, our public float was 7.8 million shares and the daily average trading volume for our common stock had been 11,429 shares and 21,111 shares for the preceding 30 and 90-day trading periods, respectively. As a result of our small public float and low-volume or “thin” trading profile, the trading price for our common stock has been subject to wide fluctuations on the basis of very modest trading activity. For example, on June 11, 2007, the trading price for our common stock declined 3.82% from $11.25 per share at market close on the prior day to $10.82 per share on the basis of 21,931 shares trading that day; on June 25, 2007, the trading price increased 4.36%, from $10.33 per share at market close on the prior day to $10.78 per share on the basis of 6,035 shares trading; on July 18, 2007, the trading price declined 2.52% from $10.72 per share at market close on the prior day to $10.45 per share on the basis of 15,478 shares trading.

 

Those examples are illustrative of the highly unstable market conditions that had been confronting investors more generally in considering trades in our common stock. These conditions indicated that the trading market for our common stock was not sufficiently active or stable to provide our stockholders with meaningful liquidity for their investment. It was not possible, as a practical matter, for a large number of stockholders (or a stockholder with a significant holding) to realize the value of an investment in our common stock, by accessing the public market to make significant trades, without depressing our stock price. Moreover, because there was no research coverage of us by the professional analyst community, the trading profile of our common stock — and its inevitable illiquidity consequences for our stockholders — was not likely to improve significantly in the absence of an extraordinary development.

 

Our board was concerned about the above circumstances, and it was also concerned about the implications for our profitability (and related earnings per share performance) of the substantial expenses associated with public company securities law compliance obligations for a company of our size and scale of operations. For fiscal year 2006, we had paid third parties approximately $2.1 million for such expenses, and we were estimating at least that amount for fiscal year 2007. The board recognized that the confluence of these circumstances and factors was also adversely affecting our ability to plan and implement successfully our strategic initiatives for future growth and improved profitability, as well as our stockholders’ ability, as a practical matter, to realize the enhancement in value that we were seeking to create. The board was also aware in July 2007 that several of our significant stockholders were concerned about those matters and were interested in our consideration of potential alternatives for creating enhanced and realizable value for all stockholders. Upon considering these matters, the board reached three primary conclusions: (i) that a comprehensive review and assessment of potential strategic alternatives was the prudent and proper path to take in order to address the above concerns; (ii) that the review should be conducted through a process that would be facilitated and assisted by an independent professional financial advisor; and (iii) that such a process was an essential predicate for the board to confirm or revise its then strategic analysis of our prospects and options.

 

In deciding to undertake such a review, the board also concluded that it would be advisable to have the initial work conducted by a committee of independent directors, which would have the time and flexibility to focus in

depth on the details of the broad-ranging scope of information and activities that a comprehensive strategic alternatives review process would require. The board thus formed the Special Committee and gave it broad authority and unrestricted access to our resources to conduct the review process, and charged it to develop recommendations on how the board and we should proceed in order to enhance and unlock realizable value for our stockholders. On July 30, 2007, the board announced that it had established the Special Committee to conduct such a comprehensive review and analysis of strategic alternatives potentially available to our company. The members of the Special Committee were Richard M. Seigel (Chairman), David K. Barth and William R. Fenoglio, each of whom was and is an independent director and, each being a former business executive, could devote substantial time and bring business insights to the process. No limits were imposed on the range of possible alternatives the Special Committee could consider, and the Special Committee was authorized to engage professional advisors as it considered necessary to assist in the review and evaluation of potential alternatives.

 

On August 20, 2007, following its consideration and interviews of several investment banking firms, the Special Committee selected and engaged Robert W. Baird & Co. Incorporated, or Baird, as independent financial advisor to the Special Committee. In connection with the engagement, and in instructing Baird on its initial work, the Special Committee confirmed with Baird that the broad scope of its charge was to investigate, review and evaluate potential strategic alternatives that might enhance and unlock value for our stockholders. The Special Committee also determined that, while it wanted to proceed as expeditiously as prudent, its overriding objective was to conduct a comprehensive review process in order to make one or more recommendations to our board of directors. The Special Committee also determined that the process should be conducted with maximum possible confidentiality, and that it did not intend to provide interim public updates during the course of the review process.

 

On September 11, 2007, Baird met with the Special Committee and discussed Baird’s preliminary review and assessment of potentially available strategic alternatives, which included the following: continuing as an independent company and investing in the organic growth of our business; continuing as an independent company and pursuing an enhanced share repurchase program; continuing as an independent company and pursuing growth through one or more strategic acquisitions; enhancing equity capital, through a follow-on public offering or one or more private offerings of equity (PIPE) transactions, in order to fund potential growth alternatives; continuing as an independent company and pursuing divestiture of one or more business lines in order to sharpen strategic focus on the most profitable business lines; engaging in variations and combinations of certain of the above alternatives; and exploring a sale of our company.

 

Upon considering and discussing preliminary materials and other information with Baird at the September 11, 2007 meeting, the Special Committee determined unanimously that, in order to conduct a comprehensive analysis of potential alternatives, it should authorize Baird to explore confidentially the level and nature of potential interests by third parties in an acquisition of our company. In addition to requiring confidentiality agreements with prospective purchasers, the Special Committee also wanted to ensure that any person who received material non-public information in the process would not use that information to trade in our stock. The Special Committee authorized Baird to establish an appropriate process to solicit such information and assess the quality of interests received, while emphasizing that its authorization of that process did not constitute any assessment of the desirability of a sale option relative to other options being considered.

 

On October 28, 2007, the Special Committee met (which was its fifth formal meeting), in order to consider and discuss a preliminary report from Baird on the indications of interest in possibly acquiring our company that Baird had received. Baird contacted 151 prospective buyers, 75 of whom signed a confidentiality and standstill agreement and received a confidential information package providing information about our company. From that group, 12 had submitted written preliminary indications of interest. At the conclusion of that meeting, the Special Committee authorized Baird to arrange meetings with 11 of the 12 prospective buyers to allow them to begin to conduct more focused due diligence reviews of our company and to consider making a firmer proposal with respect to an acquisition of our company. (The prospective buyer excluded from that process had indicated a substantially lower proposed price range and a substantially longer time frame than those proposed by the other 11 prospects.)

 

Consistent with our quarterly routine, on October 30, 2007, we reported our results of operations for the quarter ended September 30, 2007 and conducted an earnings conference call to discuss our results for that quarter, to provide a strategy update and to review other general business matters. Consistent with the Special Committee’s

earlier determination, we did not provide an interim report on the ongoing strategic alternatives review process. We later filed our quarterly report on Form l0-Q for that quarter with the SEC on November 9, 2007.

 

The meetings to which the 11 prospects were invited (10 of the 11 prospects accepted the invitation) consisted of a series of individual sessions with each prospect, at which detailed information about our company was presented by our senior management — including Charles A. Lingenfelter, our president and chief executive officer, and Jack P. Healey, our executive vice president and chief financial officer — together with representatives of Baird. The meetings were held between November 6 and November 15, 2007; following the last such meeting, each prospect was requested by Baird, if it remained interested in a possible acquisition of our company, to submit a proposed final bid by Friday, November 30, 2007 that included detailed information about proposed financing sources (and commitments therefor), proposed due diligence and a proposed timetable for completing a transaction, as well as proposed revisions to the form of merger agreement that had been prepared by the company’s legal counsel.

 

Five of the 10 prospects who participated in the above meetings indicated a continued interest in making a proposal for the acquisition of our company, and four of them submitted new written proposals. The fifth prospect confirmed verbally to Baird that it remained interested, but was, among other things, not able to meet the requested timetable. All four proposals reflected an all-cash purchase price, at prices from $9.31 to $11.56 per share, including a bid of $11.50 per share by Platinum Equity. The Special Committee met on December 4, 2007 to review and discuss these proposals and the overall results to date of the acquisition exploration phase of the strategic review process. Following its consideration of those results, the Special Committee authorized Baird to follow-up with each of the four prospects to solicit their best and highest bid offers and revised proposals by December 10, 2007.

 

Baird received three revised proposals on December 10, 2007, including an increased bid to $12.00 per share by Platinum Equity. The Special Committee met on December 11, 2007 to review and discuss the three revised proposals received, after which it authorized Baird to proceed with further negotiations to seek possible enhancements of the price and other terms of the bidders’ proposals.

 

On December 13, 2007, Baird received an increased bid offer of $12.50 per share from one of the three prospects (“Bidder A”) whose offer price had been $11.00 per share on both December 4 and December 10. On December 14, 2007, the Special Committee met to review the remaining bids, which included the $12.00 per share price offered by Platinum Equity and the new $12.50 per share price proposed by Bidder A. The Special Committee determined that it was not appropriate at that time to grant Platinum Equity an exclusivity period (which it had requested) and authorized Baird to follow-up with each of the three bidders to determine the strength of their commitment to their respective bids and their willingness to offer more favorable terms to acquire our company. Additionally, the Special Committee authorized Baird to enter into a letter of intent with Platinum Equity if it both requested a letter of intent (as it had done earlier in the process) and meaningfully increased its proposed price.

 

Baird received written proposals from each of the three bidders. Bidder A initially informed Baird that it remained committed to its proposed price of $12.50 per share, but that it was not able (or willing) to accelerate its proposed transaction timeline (which anticipated not being able to complete due diligence and execute a definitive agreement until April 2008, as compared to an anticipated signing of a definitive agreement in early January 2008 by Platinum Equity), and that it could not eliminate several factors that created significant risks with respect to its proposed financing of an acquisition of our company using funding from outside sources. Platinum Equity informed Baird that it remained committed to and desirous of completing an acquisition of our company (on an accelerated timeline and without an outside source financing contingency), but that it was not willing to increase its offer of $12.00 per share. The remaining bidder (“Bidder B”) informed Baird that it was not in a position to increase its offer, which was at $11.75 per share and also included an outside source financing contingency to fund the purchase price.

 

On December 17, 2007, the Special Committee met to review its instructions to Baird in light of the developments arising out of Baird’s follow-up communications with each of the bidders. The Special Committee determined that, in light of Platinum Equity’s offer price of $12.00, its apparent ability to complete a transaction in an expeditious fashion without outside financing, its depth of knowledge of our company derived from the significant amount of due diligence it had conducted, its ownership of Strategic Distribution, Inc. (a company also involved in the industrial MROP business), and its willingness to proceed without an exclusivity arrangement, Platinum Equity’s proposal was more favorable to our stockholders than the respective bids submitted by Bidder A and Bidder B. The Special Committee then authorized Baird, together with the company’s legal counsel, to work

with Platinum Equity to develop a final proposal, including a proposed executable merger agreement. However, the Special Committee also concluded that it would remain open to a follow-up proposal from Bidder A if it could commit to more substantial terms for funding the payment of its proposed purchase price and to a more accelerated timeline. The Special Committee was increasingly concerned about the heightened levels of uncertainties in the financial community and capital markets as a result of the increasingly negative lending environment and predictions of a general economic downturn that could adversely affect our industry and business prospects. As a result, the Special Committee was intensely focused on each bidder’s financial wherewithal to consummate its asserted interest in an acquisition of our company and the extent to which its interest had been or was being substantiated by detailed due diligence on our company and its industry.

 

Between December 17, 2007 and January 14, 2008, Platinum Equity and its representatives and advisors continued their financial and operational due diligence investigation of our company, including a series of meetings between January 8 and 11, 2008 with our management and representatives of Baird. During this period, the terms of the merger agreement, other than the merger consideration, were negotiated by legal counsel and financial advisors representing Platinum Equity and our company, respectively.

 

On January 14, 2008, the Special Committee met with Baird and company legal counsel to review and consider the status of the proposal by Platinum Equity and the financial analyses and report Baird had prepared on the basis of Platinum Equity’s proposal and its then price of $12.00 per share. At that meeting, the Special Committee received a report from our management and legal counsel concerning the terms of the merger agreement as then proposed. Baird delivered to the Special Committee its comprehensive written report on all of the strategic alternatives that Baird had considered and discussed with the Special Committee as potentially available to our company. Baird also reviewed its preliminary financial analyses with respect to the proposed merger and the substance of its proposed opinion with respect to the fairness, from a financial point of view, of the merger consideration that would be received by the holders of our common stock pursuant to a merger with Platinum Equity as then proposed. The members of the Special Committee determined that, with the above materials and information, they had sufficient information for the Special Committee to complete its review and develop its recommendations to our board of directors.

 

The Special Committee, which had then been considering strategic alternatives for over four months, and had met formally on eight occasions with Baird after its engagement of Baird as its financial advisor (and discussed various issues among themselves, and with representatives of Baird and legal counsel, informally on numerous other occasions), engaged in a then-anticipated final round of discussions with Baird and legal counsel to complete its deliberations. Thereafter, the Special Committee developed recommendations for delivery to our board of directors to approve the then-proposed merger agreement with Platinum Equity at a price of $12.00 per share, scheduled a meeting of our full board of directors for January 17, 2008 to consider those recommendations, and instructed Baird and legal counsel to deliver their respective materials to our other directors for them to begin consideration in preparation for the January 17 meeting. Baird and legal counsel sent those materials — which included Baird’s financial analyses and report on the strategic alternatives review progress, the proposed merger agreement and legal counsel’s analysis of its principal provisions, and legal counsel’s analysis of applicable fiduciary duties and legal standards for the directors in considering the Special Committee’s recommendations and related matters — for next-day delivery on January 15. The Special Committee gave immediate email notice to the other directors of the meeting and its purpose.

 

On the morning of January 15, 2008, Platinum Equity contacted Baird to inform it that Platinum Equity was reducing its proposed purchase price to $10.00 per share, citing risk in improving the MROP business, risk in the storeroom management business, including customer risk, and the overall decline in the industrial economy. Platinum Equity confirmed its reduced price, and its continued interest in completing an acquisition at that price, in a new written proposal delivered later that morning. Upon learning about that development, the Special Committee convened a meeting on the afternoon of January 16 with Baird and legal counsel to assess the situation and determine its next steps.

 

The Special Committee determined (i) to cancel the meeting of our board of directors that had been scheduled for January 17 to consider the recommendations that had been developed at the Special Committee’s January 14 meeting, (ii) to withdraw those recommendations as moot in light of the price reduction by Platinum Equity, and (iii) to resume the strategic review process, including by renewing discussions with the other bidders who continued

to be interested in an acquisition of our company. As is customary, none of the other bidders had been informed of the identity of (or the specific status of negotiations with) Platinum Equity. The Special Committee instructed Baird to contact each of the five remaining highest bidders, which included Bidder A and Bidder B; a bidder (“Bidder C”) that had not yet commenced any meaningful amount of due diligence, but that had indicated an interest above the $10.00 per share reduced price by Platinum Equity; another bidder (“Bidder D”) that had expressed verbally a significant level of interest in a potential acquisition, but whose time frame for conducting a detailed due diligence review and commencing specific negotiations had previously been considered too remote to meet the Special Committee’s timetable for completing its review and making recommendations to our board of directors; and Platinum Equity.

 

Over the ensuing three weeks, Baird contacted each of these five bidders, and we provided each with additional and updated information about our company and held additional meetings with them to facilitate follow-on due diligence analyses and a new round of bid proposals. Platinum Equity was not requested to make any further proposal during this period. By February 11, 2008, Baird had received new written proposals from each of Bidder B (at a price of $9.08 per share, significantly reduced from its earlier proposed price of $11.75 per share); Bidder C (at a price of $8.69 per share, significantly reduced from its earlier written proposed price range of $9.31 to $10.04 per share and its earlier verbal indication of no higher than $11.00 per share); and Bidder D (at a price range of $10.49 to $10.98 per share, with no price having been proposed since its initial preliminary indication of interest in October 2007 of $11.06 to $11.54 per share). Bidder A did not submit a new proposal. The time frame for anticipated completion of due diligence and readiness to execute a definitive agreement continued to be much longer for each of these bidders than the time frame Platinum Equity had proposed, and Bidder D’s proposal also reflected significant uncertainties with respect to its execution because it was conditioned upon the identification (as part of its detailed financial due diligence, which had not been commenced) of $30 million or more of sustainable SG&A savings and sales synergies to be realized from its acquisition of our company.

 

On February 12, 2008, the Special Committee met to review and consider these developments with Baird and legal counsel. In analyzing the significantly reduced purchase prices reflected in the new proposals, the Special Committee considered with Baird the possible implications of the deteriorating lending environment and general economic conditions, the general decline in the stock prices of our competitors, and the overall decline in certain broader market indices. The Special Committee determined that these factors were likely affecting the new reduced price levels being proposed by each of the bidders; that each had potential for further eroding effects on the prices that might be proposed to acquire our company; and that the current trading price level for our common stock was likely being favorably influenced by the ongoing strategic review process. The Special Committee determined to continue and accelerate its exploration of the option for a possible acquisition of our company, and it instructed Baird to continue negotiations with each of Bidders B, C and D, and to re-approach Platinum Equity to confirm its continued interest and to seek an increase in its price.

 

On February 15, 2008, following further discussions with Baird after the Special Committee’s February 12, 2008 meeting, Platinum Equity submitted a revised proposal at a price of $10.20 per share, and confirmed its preparedness to complete its final due diligence within days and to execute a definitive merger agreement in substantially the form that had been nearly completed on January 14, 2008. The Special Committee met on the morning of Saturday, February 16, 2008, to consider the revised proposal from Platinum Equity and to discuss with Baird its preliminary assessment of the potential fairness to our stockholders of the $10.20 per share proposed price. The Special Committee also considered again the pros and cons of the proposals from the other bidders, including from a standpoint of likely execution without changes in their respective price levels during the period over which those bidders would be conducting (and, in some cases, commencing) detailed due diligence and negotiating a definitive acquisition agreement, and without significant risks or uncertainties in financing the ultimate purchase price. The Special Committee instructed Baird to seek further price enhancement from Platinum Equity, in addition to specific confirmation of its timeline for executing definitive documents and its ability to fund the purchase price without outside financing.

 

During the afternoon of Saturday, February 16, 2008, Platinum Equity submitted a revised written proposal at $10.30 per share, along with the form of equity commitment letter from three of its sponsored investment funds with respect to funding the purchase price to our stockholders at $10.30 per share, and funding any termination fee obligation that those Platinum Equity affiliates might have, under the merger agreement.

In the wake of the above developments, and drawing upon the analyses and deliberations it had conducted as part of its January 14 meeting, the Special Committee concluded that it was prepared to receive and consider an updated version of Baird’s final analyses and report, to complete its work on the strategic alternatives review, and to develop an updated set of recommendations for our board. The Special Committee scheduled a meeting (its twelfth formal meeting) for February 19, 2008 with Baird, legal counsel and our senior management to consider Baird’s final report and complete the Special Committee’s strategic review process, and it requested that the regularly scheduled meeting of our full board of directors for February 20, 2008, be converted into a meeting to discuss the Special Committee’s recommendations.

 

At the February 19, 2008 meeting, the Special Committee received a report from our management and legal counsel concerning the terms and readiness of the merger agreement. Baird delivered to the Special Committee its comprehensive written report on all of the strategic alternatives that Baird had considered and discussed with the Special Committee as potentially available to our company. Baird also reviewed its financial analyses with respect to the proposed merger and the substance of its proposed opinion with respect to the fairness, from a financial point of view, of the $10.30 per share merger consideration that would be received by the holders of our common stock pursuant to a merger with a Platinum Equity affiliate if it were to be approved. The members of the Special Committee determined that, with the above materials and information, they had sufficient information for the Special Committee to complete its review and develop its recommendations to our board of directors. The Special Committee, which now had been considering strategic alternatives for over five months, and had held ten formal meetings with Baird (the other two formal meetings had been held before Baird was engaged) (and discussed various issues among themselves, and with representatives of Baird and legal counsel, informally on numerous occasions), engaged in a final round of discussions with Baird and legal counsel and completed its deliberations, leading to its recommendation to our board of directors that it approve the merger agreement and recommend its adoption by our stockholders.

 

In connection with planning for the subsequently canceled January 17, 2008 meeting of our board that had been called to consider the earlier Platinum Equity proposal, Baird and legal counsel had delivered to all of our other directors financial and legal analyses that had been prepared with respect to the strategic alternatives review process at that time. While those materials were not used in connection with a formal meeting or discussions with the other directors, they or their contents formed the basis for earlier informal updates by the Special Committee to our other directors on the progress of the strategic review process, the targeted timing for its completion, and the consideration by the Special Committee of a sale of our company as a likely recommendation. The Special Committee’s recommendations and supporting materials were delivered to all of the other members of our board of directors on the afternoon of February 19, 2008, and the directors, senior management and legal counsel convened informally to preview the materials and prepare for our board’s February 20, 2008 meeting with Baird.

 

Our board of directors met on February 20, 2008, at which meeting it considered and deliberated formally on the recommendations of the Special Committee, along with the written report by Baird that had been considered by the Special Committee in developing its recommendation and the proposed execution version of the merger agreement. The Special Committee reviewed its recommendation, Baird presented its report, and the members of our board of directors discussed the recommendation and related matters among themselves and with Baird and legal counsel. Baird also presented to our board of directors the final version of its written fairness opinion with respect to the merger consideration, following our board’s engagement of Baird as financial advisor to the board of directors for that purpose.

 

After these deliberations, our board of directors unanimously accepted the recommendation of the Special Committee to approve the merger agreement, determined and declared that the merger and the merger agreement are advisable and in the best interest of our stockholders, and recommended the adoption of the merger agreement by our stockholders. Pursuant to authority given by our board of directors, the merger agreement was finalized and executed by us, Athena and Merger Sub later that day, following which we issued a press release to announce its execution. On March 20, 2008, the parties executed an amendment to the merger agreement, to be effective from and as of February 20, 2008, in order to clarify certain information.

 

In determining that the merger is advisable and in the best interest of our stockholders, our board of directors considered the recommendation of (and consulted with) the Special Committee, and also discussed relevant matters

with members of our senior management, legal counsel and its financial advisor. The following describes material reasons, factors and information taken into account by the Special Committee and our board of directors in deciding to approve and adopt the merger agreement and the transactions contemplated thereby and to recommend that our stockholders adopt the merger agreement:

 

 

 

 

 

The Special Committee and our board of directors also considered a variety of risks and other potentially negative factors relating to the merger in its deliberations, including:

 

 

 

The foregoing discussion is not intended to be exhaustive; it only summarizes certain material factors considered by the Special Committee and our board of directors in connection with the merger. After considering these factors and consulting with legal counsel and its financial advisor, and discussing with the Special Committee its analysis and consideration of these factors over the course of its extensive strategic review process, our board of directors concluded that the positive factors relating to the merger and the merger agreement outweighed the negative factors. In view of the wide variety of factors it considered, our board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. Our board of directors unanimously approved the merger agreement and determined and declared that the merger and the merger agreement are advisable and in the best interest of our stockholders. Our board of directors recommends that our stockholders adopt the merger agreement based upon the totality of the information presented to and considered by it.

 

Our board of directors retained Robert W. Baird & Co. Incorporated, or Baird, as its financial advisor in connection with the merger and to render an opinion as to the fairness, from a financial point of view, of the $10.30 per share merger consideration to be received by the holders of our common stock.

 

On February 20, 2008, Baird delivered its opinion to our board of directors to the effect that, subject to the contents of such opinion, including the various assumptions and limitations set forth therein, as of such date, the consideration of $10.30 in cash per share of common stock (the “Consideration”) to be received by the holders of our common stock pursuant to the merger agreement was fair, from a financial point of view, to our holders of common stock.

 

Baird’s opinion was approved by a fairness committee, all of whose members were not involved in providing financial advisory services on behalf of Baird to us in connection with the merger.

 

The full text of Baird’s written opinion, dated February 20, 2008, which sets forth the assumptions made, general procedures followed, matters considered and limitations on the scope of review undertaken by Baird in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. Baird provided its opinion for the information and assistance of our board of directors in connection with consideration of the merger. The opinion is not directed to any other person and is directed only to the fairness, as of the date of the opinion and from a financial point of view, to the holders of our common stock of the Consideration to be received by them and does not constitute a recommendation to any stockholder as to how such stockholder should vote with respect to the merger. Baird expresses no opinion about the fairness of the amount or nature of the compensation to any of our officers, directors or employees, or class of such persons, relative to the Consideration to be received by our stockholders. The summary of Baird’s opinion set forth below is qualified in its entirety by reference to the full text of such opinion attached as Annex B to this proxy statement. You are urged to read the opinion carefully in its entirety.

In conducting its investigation and analyses and in arriving at its opinion herein, Baird reviewed such information and took into account such financial and economic factors, investment banking procedures and considerations as it deemed relevant under the circumstances. In that connection, Baird has, among other things:

 

 

Baird held discussions with members of our senior management concerning our historical and current financial condition and operating results, as well as our future prospects. As a part of its engagement, Baird was requested to and did solicit third party indications of interest in acquiring all or any part of our company and held discussions with certain of these parties prior to the date hereof. Baird also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that it deemed relevant for the preparation of its opinion.

 

In arriving at its opinion, Baird assumed and relied upon the accuracy and completeness of all of the financial and other information that was publicly available or provided by us, or on our behalf, to Baird. Baird did not independently verify any information supplied to it by us or Platinum Equity that formed a substantial basis for its opinion. Baird was not engaged to independently verify, and it did not assume any responsibility to verify, any such information, and Baird assumed that we were not aware of any information that we or our advisors prepared that might be material to Baird’s opinion that had not been provided to Baird. Baird assumed that:

 

 

 

Baird has relied as to all legal matters regarding the merger on the advice of our legal counsel. In conducting its review, Baird did not undertake nor obtain an independent evaluation or appraisal of any of our assets or liabilities (contingent or otherwise) nor did it make a physical inspection of the properties or facilities of our company. Baird did not consider any strategic, operating or cost benefits that might result from the merger or any expenses relating to the merger. In each case, Baird made the above assumptions with our consent.

 

Baird’s opinion necessarily is based upon economic, monetary and market conditions as they existed and could be evaluated on the date of such opinion, and its opinion does not predict or take into account any changes that may occur, or information that may become available, after the date of such opinion. Baird has no responsibility for updating, revising or reaffirming its opinion on circumstances or events occurring after the date of the opinion.

 

Baird’s opinion was prepared at the request and for the information of our board of directors, and may not be relied upon, used for any other purpose or disclosed to any other party without Baird’s prior written consent; provided, however that Baird’s opinion may be reproduced in full in this proxy statement . Baird’s opinion is limited to the fairness, from a financial point of view, of the Consideration to be received by our stockholders in the proposed merger, and Baird has expressed no opinion as to the fairness of the proposed merger to, or any consideration of, creditors or other constituencies or our underlying decision to engage in the merger. Accordingly, Baird’s opinion does not address the relative merits of: (i) the merger, the merger agreement or any other agreements or other matters provided for or contemplated by the merger agreement; (ii) any other transactions that may be or might have been available as an alternative to the merger; or (iii) the merger compared to any other potential alternative transactions or business strategies considered by our board of directors and, accordingly, Baird relied upon its discussions with the Special Committee and our senior management with respect to the availability and consequences of any alternatives to the merger. At our direction, Baird was not asked to, and Baird did not, offer any opinion as to the terms, other than the Consideration to the extent expressly specified herein, of the Draft Agreement or the form of the merger. Baird expressed no opinion as to the price at which our common stock will trade at any time in the future, whether before or after the closing of the transactions contemplated by the merger agreement. BAIRD’S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER.

 

Analysis

 

The following is a summary of the material financial analyses performed by Baird in connection with rendering its opinion, which is qualified in its entirety by reference to the full text of such opinion attached as Annex B to this proxy statement and to the other disclosures contained in this section. The following summary, however, does not purport to be a complete description of the financial analyses performed by Baird. The order of analyses described does not represent relative importance or weight given to the analyses performed by Baird. Some of the summaries of the financial analyses include information presented in a tabular format. These tables must be read together with the full text of each summary and alone are not a complete description of Baird’s financial analyses. Except as otherwise noted, the following quantitative information is based on market and financial data as it existed on or before February 20, 2008 and is not necessarily indicative of current market conditions.

 

Implied Valuation, Transaction Multiples and Transaction Premiums.  Based on the cash consideration of $10.30 net per share of our common stock (the “Per Share Equity Purchase Price”) Baird calculated the implied “equity purchase price” (defined as the Per Share Equity Purchase Price multiplied by our total number of diluted common shares outstanding, including gross shares issuable upon the exercise of stock options, less assumed option proceeds) to be $102.9 million. In addition, Baird calculated the implied “total purchase price” (defined as the equity purchase price plus the book value of our total debt and preferred stock, less cash, cash equivalents and marketable securities) to be $113.0 million. Baird then calculated the multiples of the total purchase price to our earnings before interest, taxes, depreciation and amortization (“EBITDA”) and earnings before interest and taxes (“EBIT”), for the last twelve months (“LTM”) ended December 31, 2007 and as projected for the year ending December 31, 2008, as provided by our senior management. Baird also calculated the multiples of the equity

purchase price to our LTM and projected December 31, 2008 net income as provided by our senior management. These transaction multiples are summarized in the table below.

 

IMPLIED MERGER TRANSACTION MULTIPLES

 

 

Baird reviewed the historical price and trading activity of our common stock and noted that the high, low and average closing prices for our common stock were $13.60, $8.40 and $10.88, respectively, over the last twelve months and $13.60, $6.58 and $9.50, respectively, over the last three years ending February 15, 2008. Baird also noted that our common stock price declined 18.6% over the last twelve months and increased 20.1% over the last three years ending February 15, 2008. Baird noted that our common stock price increased 2.6% between July 27, 2007 (the last trading date prior to our public announcement that our board of directors had formed the Special Committee to conduct the strategic alternatives review) and February 15, 2008.

 

Baird also calculated the premiums that the Per Share Equity Purchase Price represented over the closing market price of our common stock for various time periods ranging from 1-day to 180-days prior to February 15, 2008. These premiums, along with comparable acquisition premiums of 241 public target completed transactions with an enterprise value between $50 and $250 million between January 2003 and December 2007, are summarized in the table below.

 

SELECTED ACQUISITION ANALYSIS — TRANSACTION PREMIUMS

 

 

Selected Publicly Traded Company Analysis.  Baird reviewed certain publicly available financial information and stock market information for certain publicly traded companies that Baird deemed relevant. The group of selected publicly traded companies reviewed is listed below.

 

 

Baird chose these companies based on a review of publicly traded companies that possessed general business, operating and financial characteristics representative of companies in the industry in which we operate. Baird noted that none of the companies reviewed is identical to us and that, accordingly, the analysis of such companies necessarily involves complex considerations and judgments concerning differences in the business, operating and financial characteristics of each company and other factors that affect the public market values of such companies.

For each company, Baird calculated the “equity market value” (defined as the market price per share of each company’s common stock multiplied by the total number of diluted common shares outstanding of such company, including net shares issuable upon the exercise of stock options and warrants). In addition, Baird calculated the “enterprise value” (defined as the equity market value plus the book value of each company’s total debt, preferred stock and minority interests, less cash, cash equivalents and marketable securities). Baird calculated the multiples of each company’s enterprise value to its most recently disclosed LTM and projected calendar year 2008 EBITDA and EBIT. Baird also calculated multiples of each company’s equity value to its LTM and projected calendar year 2008 net income. Baird then compared the transaction multiples implied in the merger with the corresponding trading multiples for the selected companies. Stock market and historical financial information for the selected companies was based on publicly available information as of February 15, 2008, and projected financial information was based on publicly available research reports as of such date. A summary of the implied multiples is provided in the table below.

 

SELECTED COMPANY ANALYSIS

 

 

In addition, Baird calculated the implied per share equity values of our common stock based on the trading multiples of the selected public companies. The implied per share equity values, based on the multiples that Baird deemed relevant, are summarized in the table below.

 

SELECTED COMPANY ANALYSIS

 

 

Baird compared the implied per share equity values in the table above with the $10.30 per share implied in the merger in concluding that the Consideration was fair to our stockholders from a financial point of view.

Selected Acquisition Analysis.  Baird reviewed certain publicly available financial information concerning completed or pending acquisition transactions that Baird deemed relevant. The group of selected acquisition transactions is listed below.

 

 

Baird chose these acquisition transactions based on a review of completed and pending acquisition transactions involving target companies that possessed general business, operating and financial characteristics representative of companies in the industry in which we operate. Baird noted that none of the acquisition transactions or subject target companies reviewed is identical to the merger or our company, respectively, and that, accordingly, the analysis of such acquisition transactions necessarily involves complex considerations and judgments concerning differences in the business, operating and financial characteristics of each subject target company and each acquisition transaction and other factors that affect the values implied in such acquisition transactions.

 

For each transaction, Baird calculated the implied “equity purchase price” (defined as the purchase price per share of each target company’s common stock multiplied by the total number of diluted common shares outstanding of such company, including gross shares issuable upon the exercise of stock options and warrants, less assumed option and warrant proceeds, or alternatively defined as the value attributable to the equity of a target company). In addition, Baird calculated the implied “enterprise value” (defined as the equity purchase price plus the book value of each target company’s total debt, preferred stock and minority interests, less cash, cash equivalents and marketable securities). Baird calculated the multiples of each target company’s implied enterprise value to its most recently disclosed LTM EBITDA and LTM EBIT. Baird also calculated multiples of each target company’s implied equity purchase price to its LTM net income.

 

SELECTED ACQUISITION ANALYSIS

 

In addition, Baird calculated the implied per share equity values of our common stock based on the acquisition transaction multiples of the selected acquisition transactions. The implied per share equity values, based on the multiples that Baird deemed relevant, are summarized in the table below.

 

SELECTED ACQUISITION ANALYSIS

 

 

Baird compared the implied per share equity values in the above table with the $10.30 per share implied in the merger in concluding that the Consideration was fair to our stockholders from a financial point of view.

 

Discounted Cash Flow Analysis.  Baird performed a discounted cash flow analysis utilizing our projected unlevered free cash flows (defined as net income excluding after-tax net interest, plus depreciation and amortization, less capital expenditures and increases in net working capital, plus/minus changes in other operating and investing cash flows) from 2008 to 2012, as provided by our management. In such analysis, Baird calculated the present values of the unlevered free cash flows from 2008 to 2012 by discounting such amounts at rates ranging from 15% to 17%. Baird calculated the present values of the free cash flows beyond 2012 by assuming terminal values ranging from 6.0x to 8.0x year 2012 EBITDA and based on unlevered free cash flow growth rates ranging from 4% to 6% and discounting the resulting terminal values at rates ranging from 15% to 17%. The summation of the present values of the unlevered free cash flows and the present values of the terminal values produced equity values ranging from $7.09 to $13.72 per share with an average of $10.14 per share and a median of $10.13 per share. Baird compared these implied per share equity values with the $10.30 per share implied in the merger in concluding that the Consideration was fair to our stockholders from a financial point of view.

 

Valuation Summary.  A summary of the valuation statistics from the analyses presented above is provided in the table below.

 

SUMMARY EQUITY VALUATION PER SHARE

 

 

The foregoing summary does not purport to be a complete description of the analyses performed by Baird or its presentations to our board of directors. The preparation of financial analyses and a fairness opinion is a complex process and is not necessarily susceptible to partial analyses or summary description. Baird believes that its analyses (and the summary set forth above) must be considered as a whole and that selecting portions of such analyses and factors considered by Baird, without considering all of such analyses and factors, could create an incomplete view of the processes and judgments underlying the analyses performed and conclusions reached by Baird and of its opinion. Baird did not attempt to assign specific weights to particular analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Any estimates contained in Baird’s analyses are not necessarily indicative of actual values, which may be significantly more or less favorable than as set forth therein. Estimates of values of companies do not purport to be appraisals or necessarily to reflect the prices at which companies may actually be sold. Because such estimates are inherently subject to uncertainty, Baird does not assume responsibility for their accuracy. None of the public companies used in the comparable company analysis described above are identical to our company, and none of the precedent merger and acquisition transactions used in the precedent transactions analysis described above are identical to the merger. Such analyses involve complex considerations and judgments

concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to us and the transactions compared to the merger.

 

Other Matters

 

As part of its investment banking business, Baird is engaged in the evaluation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Pursuant to an engagement letter dated August 20, 2007 and extended on February 20, 2008, Baird will receive a transaction fee of approximately $1.7 million for its services, a significant portion of which is contingent upon the consummation of the merger. Pursuant to such engagement letter, we paid Baird a non-refundable fee of $400,000 for the delivery of its opinion; while non-refundable, regardless of whether the merger is consummated, that fee is creditable against the transaction fee described above that is contingent upon the consummation of the merger. In addition, we have agreed to reimburse Baird for certain expenses and to indemnify Baird against certain liabilities that may arise out of its engagement, including liabilities under the federal securities laws. Baird will not receive any other significant payment or compensation contingent upon the successful completion of the merger. Baird is a full service securities firm. As such, in the ordinary course of its business, Baird may from time to time trade our securities for its own account or the accounts of its customers and, accordingly, may at any time hold long or short positions or effect transactions in such securities.

 

If the merger agreement is adopted by our stockholders and the other conditions to the closing of the merger are either satisfied or properly waived, Merger Sub, a direct wholly-owned subsidiary of Athena created solely for the purpose of engaging in the transactions contemplated by the merger agreement, will be merged with and into us, and we will be the surviving corporation. When the merger is completed, we will cease to be a publicly-traded company and will instead be a wholly-owned subsidiary of Athena.

 

When the merger is completed:

 

 

At the effective time of the merger, our stockholders will have the right to receive the merger consideration but will cease to have ownership interests in us or rights as our stockholders. Therefore, our stockholders will not participate in our future earnings or growth and will not benefit from any appreciation in our value.

 

Our common stock is currently registered under the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act”, and is traded on the Nasdaq Global Market under the symbol “IDGR”. As a result of the merger, we will be a wholly-owned subsidiary of Athena, which means that Athena will then own all of our common stock. As a result, our common stock will cease to be traded on the Nasdaq Global Market, the registration of our common stock under the Exchange Act will be terminated and we will no longer be required to file periodic reports with the SEC. Of course, you will no longer own any of our common stock.

 

When the merger becomes effective, the directors and officers of Merger Sub will be the directors and officers, respectively, of the surviving corporation. Also at the effective time of the merger, the certificate of incorporation

and bylaws of Merger Sub will be the certificate of incorporation and bylaws of the surviving corporation until amended in accordance with applicable law.

 

If the merger agreement is not adopted by our stockholders, or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares. Instead, we will remain an independent public company, and our common stock will continue to be traded on the Nasdaq Global Market, our common stock will continue to be registered under the Exchange Act, and we will continue to be required to file periodic reports with the SEC. In addition, if the merger is not completed, we expect that management will operate our business in a manner similar to that in which it is being operated today, and that our stockholders will continue to be subject to the same risks and opportunities to which they are currently subject.

 

Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of common stock. If the merger is not completed, our board of directors will continue to evaluate and review our business operations, properties, dividend policy and capitalization, among other things, and will make such changes as are deemed appropriate. Our board of directors will also continue to consider strategic alternatives that may be or become available for our company. However, there can be no assurance that any other transaction acceptable to us will be offered or available or that our business prospects or results of operations will not be adversely impacted.

 

If the merger agreement is terminated under certain circumstances involving a competing proposal, we may be obligated to pay a termination fee of approximately $3.39 million to Athena. In addition, if the merger agreement is terminated in circumstances due to the failure of Athena to timely satisfy its material obligations under the merger agreement or a material breach of the merger agreement by Athena, Athena may be required to pay us a termination fee of approximately $3.39 million. For a description of the circumstances triggering payment of the termination fees, see “Proposal 1 — The Merger Agreement — Termination Fees” on page   .

 

In addition to their interests in the merger as stockholders, certain of our directors and executive officers have interests in the merger that differ from, or are in addition to, your interests as a stockholder. In considering the unanimous recommendation of our board of directors to vote “FOR” the adoption of the merger agreement, you should be aware of these interests. Our board of directors was aware of, and considered the interests of, our directors and executive officers in approving and adopting the merger agreement. Except as described below, such persons have, to our knowledge, no material interests in the merger that differ from your interests generally.

 

Stock Options

 

The merger agreement requires us to take all actions (including obtaining any required consents) necessary to provide that each option to purchase our common stock that is outstanding immediately prior to the effective time of the merger, whether or not then exercisable or vested, will become fully exercisable and vested. At the effective time of the merger, each such option will be deemed automatically exercised and converted into the right to receive a cash payment equal to the excess, if any, of $10.30 per share over the exercise price per share of the option, multiplied by the number of shares subject to the option, without interest and less any applicable withholding tax.

 

The following table sets forth (i) the number of options (if any) held by our directors and officers that would be accelerated for vesting as a result of the merger agreement and the amount that would be payable to them because of that acceleration, as well as (ii) the total amounts that would be payable to our directors and executive officers

(before applicable withholding tax) in settlement of all of their respective options, if the merger is completed, in all cases based on the number and exercise prices of options held by them on February 20, 2008:

 

 

Restricted Stock

 

The merger agreement requires us to take all actions necessary to provide that each share of unvested restricted stock that is outstanding immediately prior to the merger (except for 123,333 shares under our May 2007 incentive award to our chief executive officer) will become fully vested and (other than any such shares owned by stockholders properly demanding appraisal rights) will be converted into the right to receive a cash payment equal to $10.30 per share (the merger consideration), without interest and less applicable withholding taxes. The following table sets forth the number of shares of unvested restricted stock (if any) held on February 20, 2008 by our directors and executive officers that would be accelerated for vesting as a result of the merger agreement, and the amount (before applicable withholding tax) that would be payable to them because of that acceleration, in settlement of their respective restricted stock awards for those shares, if the merger is completed, except for shares that have otherwise vested automatically between February 20, 2008 and the record date:

 

Post Closing Payment for Continued Employment

 

One of our executive officers, along with certain non-management personnel, will be entitled to certain payments for remaining with our company if the merger (or another change in control transaction) is consummated.

 

Post-Closing Continuation of Compensation and Benefits

 

The merger agreement contains provisions that are applicable to our employees generally relating to the continuation by Athena of certain benefits arrangements for a certain period of time following consummation of the merger. Such provisions may benefit certain of our executive officers.

 

Directors’ and Officers’ Indemnification and Insurance

 

Athena and the surviving corporation are required to honor and maintain, for a period of six years after the completion of the merger, all rights to exculpation, indemnification and advancement of expenses of our current or former directors and officers, in respect of liabilities for acts or omissions occurring at or prior to the completion of the merger, no less favorable than those provided in our organizational documents or other agreements in effect on the date of the merger agreement. During such six-year period, Athena and the surviving corporation will be required to obtain the affected individuals’ consent in order to amend, appeal or otherwise modify any agreements or provisions if the result of such change adversely affects individuals’ rights under such agreements and or provisions.

 

In addition, for six years after completion of the merger, Athena is required to maintain in effect the directors’ and officers’ liability insurance and fiduciary insurance coverage with respect to claims arising from acts or omissions occurring on or before the completion of the merger on terms no less favorable than those in effect on the date of the merger agreement. However, Athena may (i) substitute the existing directors’ and officers’ liability insurance with directors’ and officers’ liability and fiduciary liability policies of another insurance company, provided that the substitute insurance carrier has the same or better credit ratings than the existing insurance carrier, and provided that the material terms of the substitute policies are no less favorable than the material terms of the existing policies; or (ii) request that we obtain extended reporting period coverage, which we must use reasonable best efforts to do prior to the effective time of the merger.

 

If the merger is completed, our common stock will be deregistered under the Exchange Act, we will no longer file periodic reports with the SEC, and our common stock will no longer be traded on the Nasdaq Global Market.

 

The following is a discussion of the material United States federal income tax consequences of the merger to U.S. holders whose shares of common stock are converted into the right to receive cash in the merger. The discussion is based upon the Internal Revenue Code, Treasury regulations, IRS rulings and judicial and administrative decisions in effect as of the date of this proxy statement, all of which are subject to change (possibly with retroactive effect) or to different interpretations. The following discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. This discussion applies only to stockholders who, on the date on which the merger is completed, hold shares of common stock as a capital asset.

 

The following discussion does not address taxpayers subject to special treatment under U.S. federal income tax laws, such as insurance companies, financial institutions, dealers in securities, tax-exempt organizations, mutual funds, real estate investment trusts, investors in pass-through entities, S corporations and taxpayers subject to the alternative minimum tax. In addition, the following discussion may not apply to stockholders who acquired their shares of common stock upon the exercise of employee stock options or otherwise as compensation for services or through a tax-qualified retirement plan or who hold their shares as part of a hedge, straddle, conversion transaction or other integrated transaction. If our common stock is held through a partnership, the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships that are holders of our common stock and partners in such partnerships are urged to consult their own tax advisors regarding the tax consequences to them of the merger.

 

The following discussion does not address potential foreign, state, local and other tax consequences of the merger. All stockholders are urged to consult their own tax advisors regarding the U.S. federal income tax

consequences, as well as the foreign, state and local tax consequences, of the disposition of their shares as a result of the merger.

 

For purposes of this summary, a “U.S. holder” is a holder of shares of our common stock who or that, for U.S. federal income tax purposes, is:

 

 

Except with respect to the backup withholding discussion below, this discussion does not discuss the tax consequences to any stockholder who or that, for U.S. federal income tax purposes, is not a U.S. holder.

 

For U.S. federal income tax purposes, the merger will be treated as a sale of our common stock for cash by each of our stockholders. Accordingly, in general, the U.S. federal income tax consequences to a stockholder receiving cash in the merger will be as follows:

 

 

Cash payments made pursuant to the merger will be reported to our stockholders and the Internal Revenue Service to the extent required by the Internal Revenue Code and applicable Treasury regulations. These amounts ordinarily will not be subject to withholding of U.S. federal income tax. However, backup withholding of the tax at applicable rates will apply to all cash payments to which a U.S. holder is entitled pursuant to the merger agreement if such holder (i) fails to supply the paying agent with the stockholder’s taxpayer identification number (Social Security number, in the case of individuals, or employer identification number, in the case of other stockholders), certify that such number is correct, and otherwise comply with the backup withholding rules, (ii) has received notice from the Internal Revenue Service of a failure to report all interest and dividends required to be shown on the stockholder’s U.S. federal income tax returns, or (iii) is subject to backup withholding in certain other cases. Accordingly, unless an exemption applies and is established in a manner satisfactory to the paying agent, each U.S. holder will be asked to complete and sign a Substitute Form W-9, which is to be included in the appropriate letter of transmittal for the shares of common stock, in order to provide the information and certification necessary to avoid backup withholding or to otherwise establish an exemption from backup withholding tax. Stockholders who are not U.S. holders should complete and sign a Form W-8BEN (or other applicable tax form) and return it to the paying agent in order to provide the information and certification necessary to avoid backup withholding tax or otherwise establish an exemption from backup withholding tax. Certain of our stockholders will be asked to provide additional tax information in the appropriate letter of transmittal for the shares of common stock.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided the required information is timely furnished to the Internal Revenue Service.

 

The foregoing discussion of material U.S. federal income tax consequences is included for general informational purposes only. We urge you to consult your own tax advisor to determine the particular tax

consequences to you (including the application and effect of any state, local or foreign income and other tax laws) of the receipt of cash in exchange for shares of common stock pursuant to the merger.

 

Under the merger agreement, we and Athena agreed to make all necessary applications or filings required to be made by us or Athena with respect to the HSR Act or other applicable laws and to comply as promptly as practicable with any request we or Athena may receive under the HSR Act or any other applicable law for additional information or material received by us or Athena from the applicable governmental entity in connection with such applications or filings. In addition, the parties to the merger agreement have agreed to coordinate and cooperate with one another with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party in connection with all meetings, actions and proceedings under or related to any such applications or filings.

 

The HSR Act and related rules provide that transactions such as the merger may not be completed until the parties submit a Notification and Report Form to the Federal Trade Commission (FTC) and the Department of Justice (DOJ) and certain waiting period requirements have been satisfied. We and Athena have filed the required Notification and Report Form.

 

If any administrative or judicial action or proceeding is instituted, or is threatened to be instituted, by any governmental entity challenging the transactions contemplated by the merger agreement as being in violation of any applicable law, each of the parties is required under the merger agreement to cooperate and use its reasonable best efforts to contest and resist such action or proceeding.

 

The merger agreement is the legal document that governs the merger. This section of the proxy statement describes the material provisions of the merger agreement, but may not contain all of the information about the merger agreement that is important to you. The merger agreement is included as Annex A to this proxy statement and is incorporated into this proxy statement by reference. We encourage you to read the merger agreement in its entirety. The merger agreement establishes and governs the legal relations between us and Athena with respect to the transactions described in this proxy statement. It is not intended to be a source of factual, business or operational information about us or Athena. The representations, warranties and covenants made by us and Athena are qualified and subject to important limitations agreed to by us and Athena in connection with negotiating the terms of the merger agreement. Furthermore, the representations and warranties may be subject to standards of materiality applicable to us and Athena that may be different from those which are applicable to you. These representations and warranties may or may not have been accurate as of any specified date and do not purport to be accurate as of the date of this proxy statement. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state affects at the time they were made or otherwise.

 

The Agreement and Plan of Merger among our company, Athena and Merger Sub was executed on February 20, 2008. On March 20, 2008, the parties executed a First Amendment to Agreement and Plan of Merger, to be effective from and as of February 20, 2008, in order to clarify certain information in the original agreement relating to (i) the number of shares of our common stock that were issued and outstanding on February 19, 2008 and (ii) the accelerated vesting in the merger of shares of restricted stock. The number of outstanding shares set forth in Section 3.03(a) of the merger agreement was corrected to 9,790,868 from 10,288,731, as the original number had been based on fully diluted shares and included outstanding stock options and excluded certain restricted stock. The provisions of the original agreement relating to the accelerated vesting of restricted stock in the merger were clarified to reflect the exclusion of shares of restricted stock for which accelerated vesting in a change in control transaction is not permitted by the terms of the award agreement for such shares. As a result of the latter clarifications, 123,333 shares of restricted stock under the May 2007 incentive award agreement to our chief executive officer with respect to an aggregate of 185,000 shares will not be accelerated for vesting in the merger, but will be canceled in connection with the merger.

 

Subject to the terms and conditions of the merger agreement and in accordance with the Delaware General Corporation Law, at the effective time of the merger, Merger Sub will merge with and into IDG. The separate corporate existence of Merger Sub will cease, and IDG will continue as the surviving corporation, but will then be a wholly-owned subsidiary of Athena.

 

The closing of the merger will occur as soon as practicable, but no later than the second business day, after the satisfaction or (to the extent permitted by law) waiver of all of the closing conditions provided in the merger agreement, or on such other date as IDG and Athena may agree in writing. On the closing date, a certificate of merger will be filed with the Secretary of State of the State of Delaware that will state whether the merger will become effective immediately upon acceptance of that filing, or at such later time as the parties may have agreed and specified in the certificate of merger. We refer to such time, in either case, as the “effective time of the merger”.

 

The directors and officers of Merger Sub immediately prior to the effective time of the merger will be the initial directors and officers, respectively, of the surviving corporation. The directors and officers will serve in accordance with the certificate of incorporation and bylaws of the surviving corporation until their respective successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal.

 

At the effective time of the merger:

 

 

At the effective time of the merger, each outstanding share of common stock, other than (1) shares owned by Athena or Merger Sub or any of their subsidiaries, (2) shares owned directly by us or any of our subsidiaries and (3) shares held by stockholders who properly demand appraisal rights in accordance with the Delaware General Corporation Law, will be converted into the right to receive $10.30 per share in cash, without interest. Shares owned by Athena, Merger Sub or us or any subsidiary thereof will be cancelled at the effective time of the merger without any payment. Our stockholders will receive the merger consideration after exchanging their stock certificates in accordance with the instructions contained in the letter of transmittal to be sent to our stockholders promptly after completion of the merger. The price of $10.30 per share was determined through negotiations between Athena and us.

 

Athena, Merger Sub, the surviving corporation and the paying agent will be entitled to deduct and withhold from the consideration otherwise payable to any holder of shares of common stock, stock options, or shares of restricted stock such amounts that it is required to deduct and withhold with respect to making such payment under the Internal Revenue Code, or any other applicable state, local or foreign tax law.

 

Prior to the effective time of the merger, we will have taken all necessary action such that, immediately prior to the effective time of the merger, (1) all outstanding options to purchase shares of common stock will, to the extent not then vested, accelerate and become fully vested and exercisable and (2) all unvested shares of our restricted stock will become fully vested and the restrictions and forfeiture provisions will lapse.

 

At the effective time of the merger, each outstanding option to purchase shares of common stock will be deemed exercised and automatically converted into the right to receive a cash payment equal to the excess, if any, of $10.30 per share over the exercise price per share of the option, multiplied by the number of shares subject to the option, without interest and less any applicable withholding tax.

 

All shares of restricted stock issued and outstanding immediately prior to the effective time of the merger (except for 123,333 shares under our May 2007 incentive award to our chief executive officer), other than any such shares owned by stockholders properly demanding appraisal rights, will be converted into the right to receive $10.30 per share in cash, without interest and less any applicable withholding tax.

 

Prior to the effective time of the merger, Athena will designate a bank or trust company to act as the paying agent under the merger agreement. At the effective time of the merger, Athena will deposit, or cause to be deposited, in trust with the paying agent cash in an amount equal to the aggregate consideration payable in the merger. Promptly after the effective time of the merger, the paying agent will mail to each holder of record of outstanding shares of common stock immediately prior to the effective time, a letter of transmittal and instructions for use in effecting the surrender of any certificates or instruments representing shares or the rights to shares of common stock in exchange for cash. The letter of transmittal will specify that delivery will be effected, and the risk of loss and title to such certificates or instruments will pass, only upon actual delivery of the certificates or instruments to the paying agent.

 

You should not return your certificates or other instruments with the enclosed proxy card. Certificates and instruments evidencing ownership in or rights to shares of common stock should not be surrendered before the effective time of the merger and should not be forwarded without a letter of transmittal. Upon surrender to the paying agent of evidence of ownership in or rights to shares of our common stock, together with a properly completed and executed letter of transmittal and any other required documents, you will be entitled to receive from

the paying agent $10.30 in cash, without interest and less any applicable withholding tax, for each share represented by the stock certificate, and the certificate or instrument surrendered will be cancelled. No interest will be paid or accrue on any merger consideration payable upon the surrender of such certificates or instruments.

 

The cash consideration for shares of common stock may be paid to a person other than the person in whose name the surrendered certificate or instrument is registered if the certificate or instrument is properly endorsed or otherwise in proper form for transfer. The person surrendering such certificate or instrument must pay all transfer and other applicable taxes or establish to the satisfaction of the surviving corporation that such taxes either have been paid or are not applicable.

 

The surviving corporation may demand any funds unclaimed by former stockholders (including interest and other income in respect of such funds) at any time beginning six months after the effective time of the merger. Any former holders of our common stock who have not complied with the above-described procedures may thereafter look only to the surviving corporation (subject to abandoned property, escheat or other similar laws) for payment of the merger consideration, without interest, to which they are entitled upon surrender of the certificates or instruments held by them.

 

If any share certificate for common stock has been lost, stolen or destroyed, then before the owner will be entitled to receive the merger consideration, the owner of such certificate must sign an affidavit claiming such certificate has been lost, stolen or destroyed and, if required by the surviving corporation, post a bond in an amount as Athena may direct as indemnity against any claim that may be made against the surviving corporation, Athena or the paying agent with respect to that certificate.

 

The procedures described above will be set forth in a letter of transmittal that will be mailed to you promptly following the effective time of the merger. You should read the letter of transmittal carefully and in its entirety.

 

Conditions to Each Party’s Obligation

 

Each party’s obligation to complete the merger is subject to the satisfaction or waiver (to the extent permitted by law) of the following conditions:

 

 

Additional Conditions to Our Obligations

 

Our obligation to complete the merger is subject to the satisfaction by Athena, or waiver by us, of the following conditions:

 

 

Additional Conditions to Athena’s and Merger Sub’s Obligations

 

The obligations of Athena and Merger Sub to complete the merger are subject to the satisfaction by us, or waiver by Athena, of the following conditions:

 

 

As a result of the conditions to the completion of the merger, even if the requisite stockholder approval is obtained, there is no assurance that the merger will be completed. In addition, until the earlier to occur of the effective time of the merger and the termination of the merger agreement, we are required to promptly notify Athena in writing of any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions to closing impossible or unlikely.

 

For purposes of the merger agreement, certain of our representations and certain of the conditions to complete the merger are qualified by a “material adverse effect” clause, which means, with respect to us, any change, circumstance, effect, event or occurrence (an “Effect”) that, individually or when taken together with all Effects: is or would be reasonably likely to be materially adverse to the assets, liabilities, business, financial condition or results of operations of IDG and our subsidiaries, taken as a whole.

 

However, no Effects resulting from any of the following will be deemed to be or constitute a “material adverse effect”, and no Effects resulting from the following will be taken into account when determining whether a “material adverse effect” with respect to us has occurred or is reasonably likely to exist:

 

 

The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time of the merger, whether before or after the Special Meeting, if any of the following events occur:

 

 

 

In addition, Athena may terminate the merger agreement if:

 

 

In addition, we may terminate the merger agreement if:

 

 

 

Generally, all fees and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated by the merger agreement will be paid by the party incurring such fees and expenses, whether or not the merger is completed.

 

IDG Termination Fee

 

We will be required to pay a termination fee of 3% of the aggregate merger consideration, or approximately $3.39 million, under the following circumstances:

 

 

Athena Termination Fee

 

Athena will be required to pay a termination fee of 3% of the aggregate merger consideration, or approximately $3.39 million, upon a termination by us under the following circumstances:

 

 

The merger agreement contains representations and warranties by each of the parties. These representations and warranties relate to the following subject matters with respect to each party:

 

 

We also make additional representations and warranties with respect to the following additional subject matters:

 

 

 

Athena and Merger Sub also made representations and warranties related to the following additional subject matters:

 

 

Conduct of Business Pending the Merger

 

Until the merger is completed or the merger agreement is terminated, we and our subsidiaries must conduct our business in all material respects in the ordinary course consistent with past practice and use reasonable best efforts to preserve intact our current business organizations and preserve our relationships with our customers, suppliers and other persons with whom we have a significant business relationship.

 

During the same period, we are required to take (or prevented from taking, unless consented to by Athena) the following actions (subject to certain limited, identified exceptions):

 

 

 

Access to Information

 

Until the merger is completed or the merger agreement is terminated, we must afford Athena and its representatives reasonable access, during normal business hours, to our books and records, personnel, offices and other facilities, and will furnish promptly to Athena all financial, operating and other data and information as Athena may reasonably request.

 

No Solicitation

 

We have agreed that we will not, and we will cause our subsidiaries, affiliates and representatives not to:

 

 

We have also agreed to immediately cease and terminate any solicitations, discussions or negotiations with any third party that were conducted by us or any of our subsidiaries or representatives with respect to an acquisition proposal prior to the execution of the merger agreement.

 

However, this covenant does not prohibit us from (i) furnishing information regarding our company and our subsidiaries to a third party making an unsolicited acquisition proposal (subject to the execution of a confidentiality agreement no less restrictive than that applicable to Athena) or (ii) participating in negotiations or discussions with such third party regarding such acquisition proposal if: our board of directors determines in good faith, after consultation with (a) its independent financial advisor, that such acquisition proposal is credible and is, or could reasonably be expected to lead to, a superior proposal (as defined below) and (b) its outside legal counsel, that the failure to take such action would be inconsistent with our board of directors’ fiduciary duties to our stockholders under applicable law.

 

We are required to promptly (and in any event within three business days) notify Athena of any acquisition proposal that we receive or of any bona fide inquiries, proposals or offers, or any request for information or request for discussions or negotiations that we receive relating to an acquisition proposal, including the identity of the offeror, the material terms of the inquiry, proposal or offer and any written materials that the offeror may have provided us. We are also required to promptly notify Athena of any material developments with regards to any such inquiries, proposals or offers.

 

If our board of directors determines in good faith (after consultation with its independent financial advisor and outside legal counsel and after considering in good faith any counteroffer or proposal made by Athena during the Notice Period, as defined below) that the failure to take action would reasonably be a breach of our board’s fiduciary

duties to our stockholders under applicable law, our board may withdraw (or modify or change in a manner adverse to Athena) its recommendation that our stockholders adopt the merger agreement. Our board of directors may not, however, in connection with or related to any acquisition proposal, withdraw (or withdraw, modify or change in a manner adverse to Athena) its recommendation to our stockholders to adopt the merger agreement unless:

 

 

If there are any material revisions to any applicable superior proposal, we will be required to deliver a new written notice to Athena and to comply with the requirements described above with respect to the new written notice.

 

We are not entitled to enter into any contract (other than an acceptable confidentiality agreement) with respect to a superior proposal unless the merger agreement has been or is concurrently terminated by its terms, and we have paid to Athena the termination fee of 3% of the aggregate merger consideration, or approximately $3.39 million.

 

As long as we comply with the restrictions described above, the merger agreement does not prohibit us from (i) taking and disclosing to our stockholders a position contemplated by Rule 14d-9 and Rule 14e-2(a) promulgated under the Exchange Act or (ii) making any required disclosure to our stockholders if, in each case, in the good faith judgment of our board of directors, after consultation with its independent financial advisor and outside legal counsel, it is required to disclose such information in order to not breach its fiduciary duties to our stockholders under applicable law.

 

Definition of “Acquisition Proposal” and “Superior Proposal”

 

Acquisition Proposal.  As used in the merger agreement and this proxy statement, “acquisition proposal” means any proposal or offer (including any proposal from or to our stockholders) by any third party other than Athena or any affiliate of Athena relating to:

 

(i) any direct or indirect acquisition or purchase, in a single transaction or series of transactions by such third party or group acting in concert, of:

 

 

(ii) any merger, consolidation, reorganization, business combination, recapitalization, share exchange, liquidation, dissolution or other similar transaction involving us or our subsidiaries which would result in a third party or group acting in concert acquiring assets, securities or businesses as described in the bullets immediately above.

 

Superior Proposal.  As used in the merger agreement and this proxy statement, “superior proposal” means any unsolicited bona fide written acquisition proposal (except, for purposes of this definition, the references to 20% in the definition of acquisition proposal are changed to 50%) that is on terms that our board of directors determines in its good faith judgment (after consultation with its independent financial advisor and outside legal counsel, and after taking into account all the terms and conditions of the acquisition proposal and the merger agreement, including the probability of the acquisition proposal being consummated) are more favorable to our stockholders

than the merger agreement (after taking into account any alterations to the merger agreement agreed to in writing by Athena in response to such acquisition proposal).

 

Further Action; Reasonable Best Efforts

 

Subject to the terms and conditions of the merger agreement, we, Athena and Merger Sub have agreed to use our reasonable best efforts to take or do, or cause to be taken or done, all appropriate actions and all things necessary, proper or advisable under applicable law to consummate the transactions contemplated by the merger agreement. Without limiting the foregoing, the parties have agreed to:

 

 

Directors’ and Officers’ Indemnification and Insurance

 

For a period of six years after the effective time of the merger, Athena and the surviving corporation are required to honor and fulfill our obligations (and the obligations of our subsidiaries) to the fullest extent permissible under applicable provisions of the Delaware General Corporation Law, under our organizational documents (and the organizational documents of our subsidiaries) or under any indemnification or similar agreement between us (or any of our subsidiaries) and the current and former directors, officers and other employees of our company or any of our subsidiaries arising out of or relating to actions or omissions in their capacity as directors, officers or employees, in each case as in effect on February 20, 2008, occurring at or prior to the effective time of the merger, including in connection with the approval of the merger agreement and the merger. In addition, for a period of six years after the effective time, the certificate of incorporation and bylaws of the surviving corporation will contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of directors, officers and employees of our company or any of our subsidiaries for periods prior to and including the effective time that are no less favorable than are currently set forth in our amended and restated certificate of incorporation and bylaws.

 

The merger agreement requires Athena to maintain and extend all existing directors’ and officers’ liability insurance (or substantially equivalent policies) for a period of not less than six years after the effective time of the merger with respect to matters arising from actions, omissions, facts or events that actually or allegedly occurred on or before the effective time. However, Athena may (i) substitute the existing directors’ and officers’ liability insurance with directors’ and officers’ liability and fiduciary liability policies of another insurance company, provided that the substitute insurance carrier has the same or better credit ratings than the existing insurance carrier, and provided that the material terms of the substitute policies are no less favorable than the material terms of the existing policies; or (ii) request that we obtain extended reporting period coverage, which we must use reasonable best efforts to do prior to the effective time.

 

Public Announcements

 

We and Athena have agreed to consult with the other party prior to issuing any public release or making any public statement with respect to the merger or the merger agreement, except for such releases or public statements that may be required by law or the rules and regulations of the Nasdaq Global Market. With respect to releases or public statements that are required by law or the rules and regulations of the Nasdaq Global Market, the issuing party shall use its reasonable best efforts to consult with the other party and to reasonably consider any input received from the other party prior to issuing such release or public statement.

Athena Financing

 

Athena has represented that the merger consideration will be funded from borrowing facilities or firm financing commitments at the effective time of the merger. In any event, Athena’s obligation to complete the merger and pay the merger consideration is not subject to any contingency.

 

We have agreed to provide, to cause our subsidiaries to provide, and to use our reasonable best efforts to cause our and our subsidiaries’ representatives to provide, such cooperation in connection with consummating Athena’s financing arrangements as may be reasonably requested by Athena and Merger Sub including:

 

 

Employee Benefit Matters

 

Athena has agreed to provide, or cause the surviving corporation to provide, during the six-month period following the consummation of the merger, each of our employees (i) employee benefits and incentive compensation opportunities that are not less favorable in the aggregate that those provided to our employees prior to the effective time of the merger and (ii) medical and life insurance benefits to retirees substantially similar to such coverage maintained by us immediately prior to the effective time of the merger. To the extent permitted by third-party benefit providers, Athena has agreed that our employees (and those of any of our subsidiaries) will receive credit, for purposes of eligibility to participate, vesting, benefit accrual and eligibility to receive benefits under any employee benefit plan, program or arrangement offered by Athena immediately after the effective time of the merger for service accrued or deemed accrued with us or any of our subsidiaries prior to the effective time of the merger, except that such crediting of service will not operate to duplicate any benefit or the funding of any such benefit.

 

The merger agreement may be amended at any time, before the effective time of the merger, by agreement of all of the parties to the extent permitted by law and under the rules and regulations of the Nasdaq Global Market.

 

Prior to the effective time of the merger, any party may:

 

 

Under the Delaware General Corporation Law, holders of our common stock who do not vote in favor of adopting the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery, which we refer to as the “Chancery Court”, if the merger is completed, but only if they comply with the procedures under the Delaware General Corporation Law explained below. The failure to follow exactly the procedures specified under Delaware law will result in the loss of appraisal rights.

 

In order to exercise appraisal rights, a holder must demand and perfect the rights in accordance with Section 262 of the Delaware General Corporation Law.

 

The following description is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed in order to perfect appraisal rights. This summary, however, is not a complete

statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the Delaware General Corporation Law, the full text of which appears in Annex C to this proxy statement.

 

Section 262 of the Delaware General Corporation Law requires that stockholders on the record date for the Special Meeting be notified not less than 20 days before the Special Meeting that appraisal rights will be available. A copy of Section 262 of the Delaware General Corporation Law must be included with the notice. This proxy statement constitutes our notice to the holders of shares of common stock of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262 of the Delaware General Corporation Law. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 of the Delaware General Corporation Law contained in Annex C to this proxy statement, since failure to timely and properly comply with the requirements of Section 262 of the Delaware General Corporation Law will result in the loss of your appraisal rights under Delaware law.

 

If you elect to demand appraisal of your shares, you must:

 

 

None of voting (in person or by proxy) against, abstaining from voting on, or failing to vote on the proposal to adopt the merger agreement will constitute a written demand for appraisal within the meaning of Section 262 of the Delaware General Corporate Law. The written demand for appraisal must be in addition to and separate from any proxy or vote. If the written demand for appraisal is made in accordance with the requirements of Delaware law, the failure to vote against the merger (i.e., abstaining) will not operate as a waiver of the stockholder’s appraisal rights.

 

Only a holder of record of shares of common stock is entitled to assert appraisal rights for the shares of common stock registered in that holder’s name. A demand for appraisal must be executed by or on behalf of the holder of record, fully and correctly, as his, her or its name appears on his, her or its certificate(s) or other instrument(s) evidencing an interest in shares of our common stock, and must state that such person intends thereby to demand appraisal of his, her or its shares of common stock in connection with the proposed merger. If the shares of common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand must be made in that capacity, and if the shares of common stock are owned of record by more than one person, as in a joint tenancy and tenancy in common, the demand must be executed by or on behalf of all joint owners. An authorized agent, including an agent for two or more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is acting as agent for such owner or owners. Stockholders who hold their shares of common stock in brokerage accounts or other nominee forms, and who wish to exercise appraisal rights, are urged to consult with their brokers or such other nominee to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

All demands for appraisal should be made in writing and addressed to the Secretary of IDG at 950 East Paces Ferry Road, Suite 1575, Atlanta, Georgia 30326, and must be received, prior to the vote on the adoption of the merger agreement. The demand must reasonably inform us of the identity of the holder and the intention of the holder to demand appraisal of his, her or its shares of common stock. If your shares of common stock are held through a broker, trustee or other nominee, and you wish to demand appraisal rights, you must act promptly to instruct the applicable broker, trustee or other nominee to follow the steps summarized in this section.

 

Within 10 days after the effective date of the merger, the surviving corporation in the merger must give written notice of the date the merger became effective to each holder who has properly filed a written demand for appraisal and has not voted in favor of the merger. Within 120 days after the effective date of the merger, either the surviving corporation in the merger or any holder who has complied with the requirements of Section 262 of the Delaware General Corporation Law and who is otherwise entitled to appraisal rights may file a petition in the Chancery Court demanding a determination of the fair value of the shares of common stock held by all holders entitled to appraisal. Neither IDG nor the other parties to the merger agreement have any intention or obligation to file such a petition. Accordingly, the failure of a holder to file a petition in the Chancery Court demanding a determination of the fair

value of the shares within 120 days after the effective date of the merger could nullify the holder’s previously written demand for appraisal. Within 120 days after the effective date of the merger, any holder of our common stock who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving corporation in the merger a statement setting forth the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed to each such holder within 10 days after a written request for the statement has been received by the surviving corporation in the merger.

 

If a petition for appraisal is duly filed by a holder and a copy of the petition is delivered to the surviving corporation in the merger, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Chancery Court with a duly verified list containing the names and addresses of all holders who have demanded an appraisal of their shares of common stock and with whom agreements as to the value of their shares of common stock have not been reached by the surviving corporation. After notice to holders of our common stock who have demanded appraisal of the time and place of the hearing of the petition, the Chancery Court is empowered to conduct a hearing at which the Chancery Court will determine those holders who have complied with Section 262 of the Delaware General Corporation Law and who have become entitled to appraisal rights. The Chancery Court may require the holders who have demanded an appraisal for their shares of common stock to submit their certificate(s) or other instrument(s) evidencing an interest in shares of our common stock to the Register in Chancery for notation of the pendency of the appraisal proceedings, and if any stockholder fails to comply with that direction, the Chancery Court may dismiss the proceedings as to that holder.

 

After determination of the holders entitled to appraisal of their shares of common stock, the Chancery Court will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any. When the fair value is determined, the Chancery Court will direct the payment of the value, with interest, if any, to the holders entitled to receive payment, upon surrender by such holders of the certificate(s) or other instrument(s) representing the applicable shares of our common stock.

 

In determining fair value and the fair rate of interest, if any, the Chancery Court is required to take into account all relevant factors. You should be aware that the fair value of your shares of common stock as determined under Section 262 of the Delaware General Corporation Law could be more, the same, or less than the amount that you are entitled to receive under the terms of the merger agreement.

 

In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company”. The Delaware Supreme Court has stated that, in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the effective date of the merger that throw any light on future prospects of the merged company. Section 262 of the Delaware General Corporation Law provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger”. In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value”, but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 of the Delaware General Corporation Law to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered”.

 

Costs of the appraisal proceeding may be imposed upon the parties participating in the appraisal proceeding by the Chancery Court as it deems equitable in the circumstances. Costs do not include attorneys’ fees or expert witness fees or expenses; however, upon the application of a holder, the Chancery Court may order all or a portion of the expenses incurred by any holder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal.

Any holder who has demanded appraisal rights will not, from and after the effective date of the merger, be entitled to vote shares of common stock subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than dividends or other distribution payable to our stockholders of record at a date prior to the effective date. However, if no petition for appraisal is filed within 120 days after the effective date of the merger, all holders’ rights to appraisal shall cease, and all holders will become entitled to receive the payment for his, her or its shares of common stock pursuant to the merger agreement. If the holder delivers a written withdrawal of his, her or its demand for appraisal and an acceptance of the merger within 60 days after the effective date of the merger, then the right of that holder to appraisal will cease and that holder will be entitled to receive the payment for his, her or its shares of common stock pursuant to the merger agreement. If attempted more than 60 days after the effective date of the merger, any withdrawal of a demand for appraisal may only be made with the written approval of the surviving corporation in the merger. Notwithstanding the foregoing, no appraisal proceeding in the Chancery Court will be dismissed without the approval of the Chancery Court, and such approval may be subject to conditions the Chancery Court deems just.

 

In view of the complexity of Section 262 of the Delaware General Corporation Law, holders of shares of common stock who may wish to pursue appraisal rights should promptly consult their legal advisors.

 

The following table sets forth the beneficial ownership of our common stock by each director, each executive officer and all directors and executive officers as a group, as of March 24, 2008, and by beneficial owners of more than 5% of our common stock as of the dates indicated in the footnotes. The address for each of the directors and executive officers is: c/o Industrial Distribution Group, Inc., 950 East Paces Ferry Road, Suite 1575, Atlanta, Georgia 30326.

 

 

 

 

If we fail to receive a sufficient number of votes to adopt the merger agreement, we may propose to adjourn or postpone the Special Meeting, if a quorum is present, for a period of not more than 120 days for the purpose of soliciting additional proxies to adopt the merger agreement. We currently do not intend to propose adjournment or postponement of the Special Meeting if there are sufficient votes to adopt the merger agreement. Adoption of the proposal to adjourn or postpone the Special Meeting for the purpose of soliciting additional proxies requires the affirmative vote of the holders of a majority of the shares of common stock entitled to vote and present at the Special Meeting.

Our board of directors unanimously recommends that you vote “FOR” the proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement.

 

Our board of directors currently knows of no other business that will be presented for consideration at the Special Meeting. Nevertheless, should any business other than that set forth in the Notice of the Special Meeting of Stockholders properly come before the meeting, the enclosed proxy card confers discretionary authority to vote with respect to such matters, including matters that the board of directors does not know (a reasonable time before the proxy solicitation) are to be presented at the meeting. If any of these matters are presented at the meeting, then the persons named as proxies in the enclosed proxy card will vote in accordance with their judgment.

 

If the merger is completed, we will no longer have public stockholders, and there will be no public participation in any future meetings of our stockholders. However, if the merger is not completed, our stockholders will continue to be entitled to attend and to participate in our stockholder meetings. We intend to hold an annual stockholders meeting in 2008 only if the merger is not completed, or if we are required to do so by law.

 

If we hold a 2008 annual meeting of stockholders in accordance with our traditional schedule, which we do not currently expect to do, any stockholder proposal intended to be presented at our 2008 annual meeting of stockholders pursuant to Rule 14a-8 of the Exchange Act should have been received by December 4, 2007 for consideration for inclusion in the proxy statement for the meeting.

 

You may contact our Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file with the SEC at its Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.

 

Our public filings are also available to the public from document retrieval services and at the Internet site maintained by the SEC at www.sec.gov.

 

If you have any questions about this proxy statement, the Special Meeting or the merger, or need assistance with the voting procedures, you should contact our proxy solicitor, MacKenzie Partners, Inc. toll-free at (800) 322-2885 (banks and brokers may call collect at (212) 929-5500).

 

You should only rely on information provided in this proxy statement. No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person. You should not assume that the information contained in this proxy statement is accurate as of any date other than the date of this proxy statement, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.

ANNEX A

 

 

AGREEMENT AND PLAN OF MERGER
among
PROJECT ATHENA HOLDING CORPORATION,
PROJECT ATHENA MERGER CORPORATION
and
INDUSTRIAL DISTRIBUTION GROUP, INC.
Dated as of February 20, 2008

 

AND
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
Dated March 20, 2008 and
Effective as of February 20, 2008

 

TABLE OF CONTENTS

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER, dated as of February 20, 2008 (this “Agreement”), is by and among Project Athena Holding Corporation, a Delaware corporation (“Parent”), Project Athena Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Co”), and Industrial Distribution Group, Inc., a Delaware corporation (the “Company”).

 

WHEREAS, the respective Boards of Directors of each of the Company, Parent and Merger Co deem it in the best interests of their respective companies and stockholders to consummate the merger (the “Merger”), on the terms and subject to the conditions set forth in this Agreement, of Merger Co with and into the Company, and each such Board of Directors has adopted this Agreement (and, in the case of the Board of Directors of the Company (the “Company Board”), recommended that this Agreement be approved by the Company’s stockholders); and

 

WHEREAS, in order to induce Parent and Merger Co to enter into this Agreement, the directors and certain of the executive officers of the Company have entered into and delivered to Parent and Merger Co, concurrently with the execution and delivery of this Agreement, support agreements.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Co and the Company hereby agree, subject to the conditions herein contained, as follows:

 

ARTICLE I — THE MERGER

 

Section 1.01.  The Merger.  Upon the terms and subject to the conditions set forth in Article VII, and in accordance with the Delaware General Corporation Law (the “DGCL”), at the Effective Time, Merger Co shall be merged with and into the Company, the separate corporate existence of Merger Co shall cease and the Company shall continue as the surviving corporation of the Merger (the “Surviving Corporation”).

 

Section 1.02.  Closing.  Unless this Agreement shall have been terminated in accordance with Section 8.01, and subject to the satisfaction or waiver of the conditions set forth in Article VII, the closing of the Merger (the “Closing”) will take place at 11:00 A.M., Eastern Time, on a date to be specified by the parties, which shall be no later than the second Business Day following the satisfaction or waiver of the conditions set forth in Article VII (other than those that by their terms are to be satisfied or waived at the Closing, but subject to satisfaction or waiver of those conditions), at the offices of Kilpatrick Stockton LLP, 1100 Peachtree Street, NE, Atlanta, Georgia 30309, unless another time, date and/or place is agreed to in writing by Parent and the Company (the date on which the Closing occurs, the “Closing Date”).

 

Section 1.03.  Effective Time.  Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the parties shall (a) file a certificate of merger in such form as is required by, and executed and acknowledged in accordance with, the relevant provisions of the DGCL, in substantially the form attached hereto as Exhibit A (the “Certificate of Merger”), and (b) make all other filings or recordings required under the DGCL to effect the Merger. The Merger shall become effective at such date and time as is specified in the Certificate of Merger. The date and time at which the Merger becomes effective is referred to in this Agreement as the “Effective Time”.

 

Section 1.04.  Effect of the Merger.  At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL and this Agreement.

 

Section 1.05.  Certificate of Incorporation; Bylaws.  

 

(a) Certificate of Incorporation.  At the Effective Time, the Certificate of Incorporation of Merger Co, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended in accordance with the provisions thereof and as provided by law.

 

(b) Bylaws.  At the Effective Time, the Bylaws of Merger Co, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by law, the Certificate of Incorporation of the Surviving Corporation and such Bylaws.

 

Section 1.06.  Directors and Officers.  At the Effective Time, (a) the directors of Merger Co shall be the directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation, and (b) the officers of Merger Co shall be the officers of the Surviving

Corporation, in each case until their respective successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal.

 

ARTICLE II — CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

 

Section 2.01.  Conversion of Securities.  At the Effective Time, by virtue of the Merger and without any action on the part of Merger Co, the Company or the holders of any of the following securities, the following shall occur:

 

(a) Conversion of Company Common Stock.  Each share of the common stock, par value $0.01 per share, of the Company (the “Company Common Stock”) (all issued and outstanding shares of Company Common Stock being hereinafter collectively referred to as the “Shares”) issued and outstanding immediately prior to the Effective Time (other than any Shares to be cancelled pursuant to Section 2.01(b) and any Dissenting Shares) shall be cancelled and shall be converted automatically into the right to receive $10.30 per share in cash, without interest (the “Per Share Merger Consideration”), payable in the manner provided in Section 2.04.  (The result of (i) the number of Shares entitled to payment pursuant to this Section 2.01(a) times (ii) the Per Share Merger Consideration is referred to herein from time to time as the “Merger Consideration”.)

 

(b) Cancellation of Treasury Stock and Parent-Owned Stock.  Each Share held in the treasury of the Company and each Share directly owned by Parent, Merger Co or any direct or indirect wholly-owned subsidiary of Parent, Merger Co or the Company immediately prior to the Effective Time shall automatically be cancelled without any conversion thereof, and no payment or distribution shall be made with respect thereto.

 

(c) Capital Stock of Merger Co.  Each share of common stock, par value $0.01 per share, of Merger Co issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation. Following the Effective Time, each certificate evidencing ownership of shares of Merger Co common stock shall evidence ownership of such shares of the Surviving Corporation.

 

(d) Adjustments.  If, between the date of this Agreement and the Effective Time, there is a reclassification, recapitalization, stock split, stock dividend, subdivision, combination or exchange of shares with respect to, or rights issued in respect of, the Shares, the Per Share Merger Consideration shall be adjusted accordingly, without duplication, to provide the holders of Shares the same economic effect as contemplated by this Agreement prior to such event.

 

Section 2.02.  Treatment of Options and Other Equity Awards.

 

(a) Options.  As of the Effective Time, each option then outstanding to purchase shares of Company Common Stock (each, a “Company Stock Option”) granted under any plan, arrangement or agreement, including without limitation those set forth in Schedule 3.03(a) (collectively, the “Company Stock Option Plans”), regardless of whether vested or exercisable, shall fully vest and be deemed to be exercised and cancelled. Each holder of a Company Stock Option with respect to which the exercise price therefor is less than the Per Share Merger Consideration (an “In-the-Money Option”) shall be entitled to receive, in consideration of the deemed exercise and cancellation of such In-the-Money Option, a payment of an amount of cash, without interest, equal to the product of (i) the total number of shares of Company Common Stock subject to such In-the-Money Option multiplied by (ii) the excess, if any, of the Per Share Merger Consideration over the exercise price per share of such In-the-Money Option, less applicable Taxes, if any, required to be withheld with respect to such payment. Any Company Stock Option that is not an In-the-Money Option shall not be entitled to any payment in respect thereof.