SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant: Yes.
Filed by a Party other than the Registrant: No.
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
FINISHMASTER, INC.
(Name Of Registrant As Specified In Its Charter)
FINISHMASTER, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(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): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing. N/A
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
FinishMaster, Inc.
54 Monument Circle, Suite 600
Indianapolis, Indiana 46204
(317) 237-3678
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
To Be Held May 9, 2002
To the Shareholders of FinishMaster, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of
FinishMaster, Inc., an Indiana corporation (the "Company"), will be held at the
Adam's Mark Hotel-Downtown, 120 West Market Street, Indianapolis, Indiana on
Thursday, May 9, 2002, at 9:30 a.m., local time, for the following purposes,
which are more completely set forth in the accompanying proxy statement.
1. Election of Directors. To elect nine (9) Directors for the ensuing
year.
2. Other Business. To transact such other business as may properly come
before the meeting.
In accordance with the Bylaws of the Company and a resolution of the Board
of Directors, the record date for the meeting has been fixed at March 22, 2002.
Only shareholders of record at the close of business on that date will be
entitled to vote at the meeting or any adjournment thereof.
We urge you to read the enclosed Proxy Statement carefully so that you may
be informed about the business to come before the meeting, or any adjournment
thereof. At your earliest convenience, please sign and return the accompanying
proxy in the postage-paid envelope furnished for that purpose.
By Order of the Board of Directors
/s/ Andre B. Lacy
Andre B. Lacy
Chairman of the Board and Chief Executive Officer
Indianapolis, Indiana
April 8, 2002
Your vote is important. It is important that the proxies be returned
promptly. Therefore, even if you plan to be present in person at the annual
meeting, please sign, date and complete the enclosed proxy and return it in the
enclosed envelope which requires no postage if mailed in the United States.
FinishMaster, Inc.
54 Monument Circle, Suite 600
Indianapolis, Indiana 46204
---------------
PROXY STATEMENT
---------------
This Proxy Statement is being furnished to the holders of common stock,
without par value (the "Common Stock"), of FinishMaster, Inc., an Indiana
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company to be voted at the Annual Meeting of
Shareholders to be held at 9:30 a.m., local time, on Thursday, May 9, 2002, at
Adam's Mark Hotel-Downtown, 120 West Market Street, Indianapolis, Indiana, and
at any adjournment of such meeting. This Proxy Statement is expected to be
mailed to shareholders on or about April 8, 2002.
The proxy solicited hereby, if properly signed and returned to the Company
and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted "FOR" each of the matters described below, and upon
the transaction of such other business as may properly come before the meeting,
in accordance with the best judgment of the persons appointed as proxies.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Company (Robert
R. Millard, 54 Monument Circle, Suite 600, Indianapolis, Indiana 46204) written
notice of the shareholder's revocation at any time before the commencement of
the meeting, (ii) submitting a duly executed proxy bearing a later date, or
(iii) appearing at the Annual Meeting and giving the Secretary notice of his or
her intention to vote in person. Proxies solicited hereby may be exercised only
at the Annual Meeting and any adjournment thereof and will not be used for any
other meeting.
The purpose of this Annual Meeting of Shareholders shall be to (i) elect
Directors and (ii) transact such other business as may properly come before the
meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Common Stock is the only voting stock of the Company. Holders of record
at the close of business on March 22, 2002, are entitled to one (1) vote for
each share of Common Stock held. As of March 1, 2002, there were 7,648,363
shares of the Company's Common Stock issued and outstanding, and the Company had
no other class of equity securities outstanding. Holders of Common Stock
entitled to vote at the meeting do not have cumulative voting rights in respect
of the election of Directors.
In an election of Directors, each Director is elected by a plurality of the
votes cast. Other actions are authorized if the number of votes cast in favor of
an action exceeds the number of votes cast opposing the action. Proxies received
which contain abstentions or broker non-votes as to any matter will be included
in the calculation of the presence of a quorum, but will not be counted as votes
cast for or against the action to be taken on the matter. Therefore, abstentions
or broker non-votes will have no effect in the election of Directors or in other
matters to be considered.
Security Ownership By Principal Holders
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 1, 2002, by each person
who is known to the Company to own 5% or more of its Common Stock:
Number of Shares of
Common Stock
Name and Address of Beneficial Owner Beneficially Owned Percentage of Class
------------------------------------ ------------------ -------------------
Lacy Distribution, Inc.(1) 5,587,516 (1) 73.1%
54 Monument Circle, Suite 800
Indianapolis, Indiana 46204
Dimensional Fund Advisors Inc. (2)(3) 507,400 (2) 6.6% (2)
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
---------------------------------------
(1) Lacy Distribution, Inc., an Indiana corporation ("Distribution"), is a
wholly-owned subsidiary of LDI, Ltd., an Indiana limited partnership
("LDI"). LDI has one general partner: LDI Management, Inc. ("LDIM").
Distribution, LDI, LDIM and Andre B. Lacy have jointly filed a Schedule 13D
to report beneficial ownership of the 5,587,516 shares held of record by
Distribution. Andre B. Lacy, individually, owns an additional 50,000 shares
of the Company's Common Stock and has 72,600 shares subject to options
exercisable within 60 days.
(2) This information is based on a Schedule 13G filed by the beneficial owner
with the Securities and Exchange Commission on January 30, 2002. It does
not reflect changes in those shareholdings that may have occurred since the
dates of such filing.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds." In its role as
investment advisor or manager, Dimensional possesses voting and/or
investment power over the securities of the issuer described above that are
owned by the Funds. All securities reported here are owned by the Funds.
Dimensional disclaims beneficial ownership of such securities.
Security Ownership by Directors and Executive Officers
The following table sets forth information as of March 1, 2002, with
respect to the number and percentage of shares of Common Stock beneficially
owned by (i) each Director, (ii) each executive officer, and (iii) all Directors
and executive officers of the Company as a group.
Amount and Nature
of Beneficial Ownership of
Common Stock as of March 1, 2002 (1)
---------------------------------------
Name of Director of Sole Voting & Shared Voting & Percentage
Beneficial Owner (1) Company Since Investment Power Investment Power of Class
----------------------- ------------- ---------------- ---------------- ----------
Directors:
Wes N. Dearbaugh 1999 47,000 (2) -- *
Margot L. Eccles 1996 1,000 5,587,516 (3) 73.1%
Peter L. Frechette 1996 17,092 (4) -- *
David W. Knall 1998 50,542 (4) -- *
Andre B. Lacy 1996 122,600 (5) 5,587,516 (3) 74.7%
Michael L. Smith 1997 20,592 (4) -- *
David N. Shane 2002 -- -- *
Walter S. Wiseman 1996 12,092 (4) -- *
Thomas U. Young 1996 72,000 (6) -- *
Other Executive Officers:
Thomas E. Case
Senior Vice President -- 15,000 (7) -- *
J.A. Lacy
Senior Vice President -- 17,000 (7) -- *
Robert R. Millard
Senior Vice President,
Secretary, Treasurer &
Chief Financial Officer -- 16,000 (7) -- *
Charles VanSlaars
Senior Vice President -- 17,000 (8) -- *
All directors and executive
officers as a group -- 407,918 (9) 5,587,516 (3) 78.4%
----------------------------------
* Beneficial ownership does not exceed one percent (1%).
(1) Based upon information furnished by the respective directors and executive
officers. Under applicable regulations, shares are deemed to be
beneficially owned by a person if he directly or indirectly has or shares
the power to vote or dispose of the shares and if he has the right to
acquire such power with respect to shares within 60 days. Accordingly,
shares subject to options are included if exercisable within 60 days.
Includes shares beneficially owned by members of the immediate families of
the directors or executive officers residing in their homes.
(2) Includes 45,000 shares subject to option.
(3) Includes all 5,587,516 shares of Common Stock held directly by
Distribution. Mr. Lacy, the Chairman and CEO of the Company, is the
Chairman and Chief Executive Officer of Distribution, as well as the sole
shareholder, Chairman, President and Chief Executive Officer of LDIM, which
is the managing general partner of LDI, the parent entity of Distribution.
Ms. Eccles serves as a Director and as a Vice President of LDIM and as a
Director and Vice President of Distribution. Due to their positions with
LDIM and Distribution, Mr. Lacy and Ms. Eccles may be deemed to have voting
and dispositive power with respect to these shares, and therefore to own
such shares beneficially under applicable regulations.
(4) Includes 10,090 shares subject to option.
(5) Includes 72,600 shares subject to option.
(6) Includes 72,000 shares subject to option.
(7) Includes 15,000 shares subject to option.
(8) Includes 17,000 shares subject to option.
(9) Includes 291,960 shares subject to option.
Director Nominees
The following information is furnished concerning the Directors and
Director nominees, all of whom have been nominated by the Board of Directors.
Mr. Lacy (age 62) was elected Chairman of the Board of Directors and Chief
Executive Officer of the Company in July 1996. Mr. Lacy is Chief Executive
Officer and Chairman of the Board of Directors of LDIM, the corporate managing
general partner of LDI. Mr. Lacy serves as Chief Executive Officer and Chairman
of the Board of Directors of Distribution. Except for his positions with the
Company, Mr. Lacy has served in these capacities for more than the previous five
years. Mr. Lacy also serves as a director of Herff Jones, Inc., The National
Bank of Indianapolis, and Patterson Dental Company. Mr. Lacy is the brother of
Margot L. Eccles and the father of J.A. Lacy.
Mr. Young (age 69) serves as Vice Chairman of the Board of Directors of the
Company. From July 1996 until May 1999, Mr. Young served as President and Chief
Operating Officer of the Company. From 1989 until May 1996, Mr. Young served as
the Worldwide Director of the Refinish Business for E.I. duPont de Nemours and
Company, Wilmington, Delaware.
Ms. Eccles (age 66) has served as a Director of the Company since July
1996. She is also a Director, Vice President and Secretary of LDIM and
Distribution. Ms. Eccles is the sister of Andre B. Lacy and the aunt of J. A.
Lacy.
Mr. Frechette (age 64) has served as a Director of the Company since August
1996. He has also served as Chairman of the Board, President, and Chief
Executive Officer of Patterson Dental Company, a distributor of dental supplies
and equipment based in St. Paul, Minnesota, for more than the past five years.
Mr. Smith (age 53) has served as a Director of the Company since October
1997. Mr. Smith was named Executive Vice President and Chief Financial Officer
of Anthem, Inc., a Blue Cross Blue Shield licensee and provider of health care
services, effective in April 1999, having served as a Senior Vice President of
such organization since March 1998. Mr. Smith served as Chief Operating Officer
and Chief Financial Officer of American Health Network, Inc., a physician
practice management company and wholly owned subsidiary of Anthem, Inc., from
April 1996 to March 1998. Between January 1996 and March 1996, Mr. Smith served
as President of Somerset Financial Services, an Indianapolis-based provider of
financial services and a division of Somerset Group, Inc. Mr. Smith served as
Chairman of the Board, President and Chief Executive Officer of Mayflower Group,
Inc., an Indianapolis-based holding company with operations in the moving and
storage and student transportation industries, between June 1990 and March 1995.
Mr. Smith also serves as a Director of First Indiana Corporation and First
Internet Bank of Indiana.
Mr. Wiseman (age 56) has served as a Director of the Company since July
1996. Effective February 28, 1997, Mr. Wiseman retired as a Vice President of
LDIM and as President of Major Video Concepts, Inc. ("MVC"), a wholesale
distributor of videocassettes based in Indianapolis, Indiana, and a wholly owned
subsidiary of Distribution, having held such positions for more than the
previous five years.
Mr. Knall (age 57) has served as a Director of the Company since October
1998. Mr. Knall is a Senior Managing Director of McDonald Investments Inc., a
regional investment banking, brokerage, and investment advisory company. He has
held that position since 1983. Mr. Knall first joined McDonald Investments, Inc.
in 1969, and he became the manager of that firm's Indianapolis office in 1976.
Mr. Knall is a member of the Indianapolis Society of Securities Analysts. He
serves as a Director of Englehart, Regenstrief Institute and the Indianapolis
Public Library Foundation. He is also a trustee of the Indianapolis Museum of
Art, Wabash College and the Christian Theological Seminary.
Mr. Dearbaugh (age 50) was named President, Chief Operating Officer and a
Director of the Company in May 1999. Prior to joining the Company, Mr. Dearbaugh
was president of ATC Distribution Group, a division of ATC Corp., a distributor
of transmission parts, since 1996. Prior to 1996, Mr. Dearbaugh was a principal
with Cummins Southwest Inc., an independent distributor of Cummins diesel
engines and parts.
Mr. Shane (age 54) was named a Director and Vice Chairman of the Board of
Directors of the Company on January 3, 2002. Mr. Shane was named President and
Chief Operating Officer of LDI on January 2, 2002. Mr. Shane served as Executive
Vice President of LDI from April 1998 until January 2002. From August 1997 until
April 1998, Mr. Shane served as Vice President and General Counsel for LDI.
Except for Andre B. Lacy, J.A. Lacy and Ms. Eccles, no Director or nominee
for Director is related to any other Director or nominee for Director or
executive officer of the Company by blood, marriage, or adoption, and there are
no arrangements or understandings between any nominee and any other person
pursuant to which such nominee was selected.
The directors will be elected upon receipt of a plurality of votes cast at
the Annual Meeting.
PROPOSAL I - ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of Directors may be changed
from time to time, as determined by the Board of Directors or shareholders of
the Company. The Board of Directors currently consists of nine members. Unless
otherwise directed, each proxy executed and returned by a shareholder will be
voted for the election of the nominees to the Board of Directors listed below
under the caption "Director Nominees," to hold office until the next Annual
Meeting or until their successors are elected. In the event any nominee should
be unable or unwilling to stand for election at the time of the Annual Meeting,
the proxy holders will nominate and vote for a replacement nominee recommended
by the Board of Directors. Proxies will be voted only to the extent of the
number of nominees named. At this time, the Board of Directors knows of no
reason why any nominee may not be able to serve as a Director if elected.
Directors are elected to serve until the next Annual Meeting or until their
successors are elected and qualified.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The management of the Company is under the direction of the Board of
Directors (the "Board"). During the year ended December 31, 2001, the Board met
four times in addition to taking certain actions by unanimous written consent.
During such period, no incumbent Director of the Company attended fewer than 75%
of the aggregate of the total number of Board meetings and the total number of
meetings held by the committees of the Board of Directors on which he or she
served.
The Board has established an Audit Committee, a Compensation Committee, an
Executive Committee and an Independent Directors Committee. For the year ended
December 31, 2001, Michael L. Smith (Chairman), Mr. Frechette, Mr. Knall and Mr.
Wiseman were appointed to the Audit Committee. The Audit Committee met twice in
the year ended December 31, 2001. The Audit Committee recommends the annual
appointment of the Company's auditors and reviews the scope of audit and
non-audit assignments, related fees, the accounting principles used by the
Company in financial reporting, internal financial auditing procedures and the
adequacies of the Company's internal control procedures.
The Compensation Committee consisted of Mr. Wiseman (Chairman), Mr. Knall
and Mr. Smith. Mr. Frechette resigned from the Compensation Committee effective
March 20, 2001. The Compensation Committee determines executive officer salaries
and bonuses and administers the Company's stock option plan (acting as the Stock
Option Committee) in addition to the Company's other benefit plans. The
Compensation Committee met once during the year ended December 31, 2001.
The Executive Committee has all authority of the Board of Directors during
intervals between meetings of the Board subject to such limitations as may be
imposed by law, by subsequent resolution of the Board or by the By-Laws. The
members of the Executive Committee for the fiscal year ended December 31, 2001,
were Mr. Lacy (Chairman), Mr. Young, Mr. Dearbaugh and Mr. Shane (effective
January 3, 2002).
The Independent Directors Committee considers issues in which LDI or its
affiliates have a real or apparent conflict of interest with the Company. The
Independent Directors Committee for the year ended December 31, 2001, consisted
of Mr. Frechette (Chairman), Mr. Wiseman, Mr. Smith and Mr. Knall.
The Board does not have a standing nominating committee.
DIRECTOR COMPENSATION
Each non-employee Director is given an annual retainer of $19,000 in stock
options pursuant to the FinishMaster, Inc. Stock Option Plan, priced as of the
first trading day after the Annual Meeting of Shareholders each year. Each
non-employee Director also receives $1,250 in Common Stock pursuant to the
FinishMaster, Inc. Stock Option Plan, priced and issued as of the first trading
day after each quarterly meeting of the Board of Directors. In addition, the
non-employee Directors receive $1,000 in cash for each quarterly meeting
attended, $750 in cash for each committee meeting attended and $250 for each
meeting attended by telephone. All travel expenses for attendance at meetings
are reimbursed.
Directors of the Company who are employees of FinishMaster, Distribution,
LDI, LDIM or their affiliates do not receive compensation for their services as
Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's Directors and executive officers and beneficial
owners of more than 10% of the Company's equity securities to file with the
Securities and Exchange Commission ("SEC") certain reports regarding the
ownership of the Company's securities or any changes in such ownership.
Officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms that
they file.
There are specific due dates for these reports, and the Company is required
to disclose in this Proxy Statement any failure to file by those dates during
the last year. To the Company's knowledge, based solely on its review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, all Section 16(a) filing requirements applicable
to the Company's officers, directors and greater than 10% beneficial owners were
complied with during the year ended December 31, 2001, except that David Knall
reported the purchase of 1,900 shares in the open market made on June 25, 2001,
on a Form 5 at year-end rather than on a Form 4 in July as required, and Tom
Young filed an amended Form 5 at year-end reporting his disposition of 1,300
shares in prior years.
Remuneration of Executive Officers
The following table summarizes, for the Company's last three completed
years ended December 31, 2001, the compensation of the persons who served as
Chief Executive Officer of the Company during the year ended December 31, 2001,
and each of the four other most highly compensated executive officers of the
Company who were serving as such at the end of such period and whose salary and
bonus compensation exceeded $100,000 for services rendered in all capacities to
the Company and its subsidiaries during the most recent year (collectively, the
"Named Executive Officers"). See "Certain Relationships and Related
Transactions."
Summary Compensation Table
Long-Term
Compensation
Securities
Fiscal Annual Compensation Underlying All Other
Name and Principal Position Year Salary Bonus Options (1) Compensation
--------------------------- ------ ------------ ------------ ------------- ------------
Andre B. Lacy 2001 $112,500 (2) $ -- -- $ --
Chief Executive Officer 2000 -- (3) -- 15,000 --
1999 -- (3) -- -- --
Wes N. Dearbaugh 2001 $262,453 $68,483 -- $ --
President 2000 254,551 62,240 -- 30,961 (4)
1999 29,808 (5) -- 45,000 20,002 (4)
Thomas U. Young 2001 $178,469 $75,000 -- $ --
Vice Chairman 2000 180,820 84,983 -- --
1999 314,879 97,466 -- --
Robert R. Millard 2001 $180,303 $45,868 -- $ --
Senior Vice President, 2000 174,852 42,958 -- --
Secretary, Treasurer & 1999 171,864 75,000 -- --
Chief Financial Officer
J.A. Lacy 2001 $170,547 $33,857 -- $ --
Senior Vice President 2000 127,782 31,354 -- --
1999 111,569 6,906 15,000 31,424 (4)
-------------------------------------
(1) Represents the number of shares for which options were granted during the
applicable fiscal year.
(2) Represents sums paid by the Company to Distribution for Mr. Lacy's salary
for April 2001 through December 2001.
(3) In 1999 and 2000, Mr. Lacy served as Chairman and Chief Executive Officer
of the Company with no compensation other than the grant of stock options
as determined by the Compensation Committee.
(4) Represents relocation expenses.
(5) Mr. Dearbaugh joined the Company in June of 1999.
None of the Named Executive Officers were granted options to purchase
shares during the year ended December 31, 2001.
The following table sets forth certain information regarding the total
number of stock options held by each of the Named Executive Officers, and the
aggregate value of such stock options, as of December 31, 2001. None of such
stock options had been exercised as of such date.
Aggregated Option Exercises in the Year Ended December 31, 2001,
and Year-End Option Values
Number of Securities Value of In-the-Money
Underlying Unexercised Unexercised Options
Options at the Year Ended at the Year ended
Shares December 31, 2001 December 31, 2001 ($)(1)
Acquired on Value ------------------------------ --------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------------ ----------- ------------ ----------- ------------- ----------- -------------
Andre B. Lacy -- -- 72,600 14,400 $ 45,930 $ -0-
Wesley N. Dearbaugh -- -- 45,000 -0- $204,885 $ -0-
Thomas U. Young -- -- 72,000 -0- $306,000 $ -0-
Robert R. Millard -- -- 15,000 -0- $69,375 $ -0-
J.A. Lacy -- -- 15,000 -0- $65,100 $ -0-
-------------------------------------
(1) The closing price for the shares on December 31, 2001, was $10.25.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Lacy, the Company's Chief Executive Officer, is a member of the
Compensation Committee of Patterson Dental Company. Mr. Frechette is the Chief
Executive Officer of Patterson Dental Company, and served on the Company's
Compensation Committee until March 2001.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Compensation Committee is responsible for developing and making
recommendations to the Board with respect to the Company's executive
compensation policies. In addition, the Compensation Committee, pursuant to
authority delegated by the Board, determines on an annual basis the compensation
to be paid to the executive officers of the Company.
The objectives of the Company's executive compensation program are to:
o Support the achievement of desired Company performance.
o Provide compensation that will attract and retain superior talent and
reward performance.
o Align the executive officers' interests with the success of the
Company by placing a portion of pay at risk, with payout dependent
upon corporate performance.
The executive compensation program provides an overall level of
compensation opportunity that is competitive with companies of comparable size
and complexity. The Compensation Committee will use its discretion to set
executive compensation at a level where, in its judgment, external or internal
circumstances warrant it.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of base
salary, annual cash incentive compensation, long-term incentive compensation in
the form of stock options, and various benefits, including medical and deferred
compensation plans, generally available to employees of the Company.
Base Salary
Base salary levels for the Company's executive officers are competitively
set relative to other comparable companies. In determining salaries, the
Committee also takes into account individual experience and performance.
Annual Incentive Compensation
The Company's annual incentive program for executive officers and key
managers provide direct financial incentives in the form of an annual cash bonus
based on the Company's ability to meet or exceed a select group of financial
targets which include consolidated earnings before interest, taxes,
depreciation, and amortization (EBITDA), net working capital turns, and
corporate and departmental expenses as a percent of net sales compared to the
annual operating plan. Specific individual performance is also taken into
account in determining bonuses.
Stock Option Program
The stock option program is the Company's long-term incentive plan for
executive officers and key employees. The objectives of the program are to align
executive and shareholder long-term interests by creating a strong and direct
link between executive pay and shareholder return, and to enable executives to
develop and maintain a significant, long-term ownership position in the
Company's Common Stock.
The Stock Option Plan provides for the grant of both incentive stock
options intended to qualify for preferential tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended, and non-qualified stock options
that do not qualify for such treatment. The Stock Option Plan authorizes a
committee of directors to award stock options to executives and key employees.
The Compensation Committee functions as the Stock Option Plan committee. Stock
options are granted at an option price no less than the fair market value of the
Company's Common Stock on the date of grant, have ten-year terms and can have
exercise restrictions established by the Compensation Committee. A total of
750,000 shares of Common Stock have been reserved for issuance under the Stock
Option Plan.
Deferred Compensation
The Company's employees participate in the FinishMaster, Inc. 401(k)
Employees Savings Plan. The 401(k) plan is a "cash or deferred" plan under which
employees may elect to contribute a certain portion of their annual compensation
which they would otherwise be eligible to receive in cash. Prior to January 1,
2002, the Company made a matching contribution on the first 6% of employee
contributions on a tiered formula based on years of eligibility (first year -
10%, second year - 15%, third year - 20%, fourth year and beyond - 25%).
Effective on January 1, 2002, the Company has agreed to make a matching
contribution on the first 6% of employee contributions on a tiered formula based
on years of eligibility (first year - 20%, second year - 30%, third year - 40%,
fourth year and beyond - 50%). The Company may also make a discretionary
profit-sharing contribution in the proportion the participant's compensation
bears to all eligible plan compensation. Contributions must be made from current
or retained earnings of the Company and are contributed in cash. All full- time
employees of the Company or its subsidiary who have completed 90 days of service
are eligible to participate in the plan. Participants are immediately 100%
vested in all participant contributions and vest 25% per year over five years
with respect to the company match and discretionary profit-sharing
contributions. The plan does not contain an established termination date, and it
is not anticipated that it will be terminated at any time in the foreseeable
future.
Instead of participating in the 401(k) plan, the Company's executive
officers may elect to participate in the FinishMaster, Inc. Deferred
Compensation Plan. Like the 401(k) Plan, the Deferred Compensation Plan allows
executive officers to defer a portion of their annual compensation. However,
under the Deferred Compensation Plan, executive officers may defer amounts in
excess of the amounts permitted to be deferred under the 401(k) Plan. The
vesting schedule, as well as the Company's obligations to make matching
contributions and its option to make discretionary contributions is the same as
under the 401(k) Plan.
Special Perquisites
The executive officers receive supplemental life insurance (in an amount
equal to their annual salaries) and supplemental medical reimbursement up to
certain limits ranging from $750 to $2,500 depending on the employee's position
and the number of dependents. In addition, executive officers are reimbursed for
their costs for an annual physical and receive up to a maximum of five weeks
paid vacation. The amount of perquisites, as determined in accordance with the
rules of the Securities and Exchange Commission relating to executive
compensation, did not exceed 10% of salary for the year ended December 31, 2001.
Benefits
The Company provides medical, dental, life insurance and flexible spending
benefits to the executive officers that are generally available to Company
employees.
Chief Executive Officer
Andre B. Lacy served as the Company's Chief Executive Officer for the year
ended December 31, 2001, having first been named to such position in July 1996.
From 1996 until the year ended December 31, 2000, Mr. Lacy served as the
Company's chief executive without any monetary compensation. For the year ended
December 31, 2001, the Compensation Committee determined that Mr. Lacy should be
paid a salary for his services. His compensation of $112,500 for the period from
April 2001 through December 2001, was set by the Compensation Committee to
compensate him for his valuable leadership of the Company, in particular his
vision in planning and implementing marketplace strategies for the Company. Mr.
Lacy's salary was paid by Distribution, with the Company reimbursing such
expenses to Distribution.
The Compensation Committee of the Company as of the year ended December 31,
2001:
David W. Knall
Michael L. Smith
Walter S. Wiseman, Chairman
Comparative Stock Performance
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the period beginning January 1, 1997, and ending
December 31, 2001, with the cumulative total return on the CRSP Total Return
Index for the NASDAQ Stock Market (U.S. Companies) (1) and the NASDAQ Index of
Non-Financial Companies (2) over the same period, assuming the investment of
$100 in the Company's Common Stock, the NASDAQ U.S. Index and the NASDAQ
Non-Financial Index on January 1, 1997, and reinvestment of all dividends.
Comparison of Cumulative Total Return
of Company, Peer Group and Broad Market
[GRAPH OMITTED]
Nasdaq - US Nasdaq - Non Fin FMST
--------------------------- --------------------------- ----------------------------
Cumulative Cumulative Closing Cumulative
Index Return Index Return Price Return
--------- -------------- --------- -------------- ----------- --------------
Dec-01 651.349 153.121 636.869 150.042 10.250 141.379
Sep-01 501.056 117.789 476.584 112.280 8.000 110.345
Jun-01 722.208 169.778 714.578 168.350 7.500 103.448
Mar-01 612.764 144.050 605.483 142.647 7.250 100.000
Dec-00 820.891 192.977 833.332 196.327 5.625 77.586
Sep-00 1,225.917 288.191 1,280.957 301.784 7.000 96.552
Jun-00 1,332.222 313.182 1,402.448 330.407 6.063 83.628
Mar-00 1,532.154 360.182 1,622.537 382.258 8.000 110.345
Dec-99 1,364.766 320.832 1,429.633 336.811 7.938 109.490
Sep-99 923.356 217.065 940.165 221.496 6.500 89.655
Jun-99 900.928 211.792 906.249 213.506 6.063 83.628
Mar-99 823.774 193.655 829.615 195.451 6.125 84.483
Dec-98 734.553 172.680 729.336 171.826 7.000 96.552
Sep-98 565.279 132.887 551.638 129.962 5.813 80.179
Jun-98 626.517 147.283 612.186 144.227 10.500 144.828
Mar-98 609.754 143.342 593.756 139.885 9.375 129.310
Dec-97 520.995 122.477 496.857 117.056 11.750 162.069
Sep-97 556.504 130.824 549.459 129.449 7.500 103.448
Jun-97 476.001 111.899 469.140 110.526 8.750 120.690
Mar-97 402.283 94.570 395.813 93.251 8.125 112.069
Dec-96 425.383 100.000 424.461 100.000 7.250 100.000
---------------------------------
(1) The CRSP Total Return Index for the NASDAQ Stock Market (U.S. Companies) is
composed of all domestic common shares traded on the NASDAQ National Market
and the NASDAQ Small-Cap Market.
(2) NASDAQ index of non-financial companies.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition of Thompson PBE, Inc., the Company
entered into a subordinated note agreement with LDI dated November 19, 1997,
pursuant to which LDI loaned the Company $30,000,000 on an unsecured basis. The
obligation bore interest at a rate of 9%, with interest payable quarterly and
with principal due on May 19, 2004. In December 1999, LDI sold $10,150,000 of
the subordinated note to two unaffiliated trusts. In March 2001, the Company
entered into a new senior secured credit facility with a syndicate of banks.
Concurrent with the funding of the senior secured credit facility, the Company
repaid its obligations to LDI and entered into a new $19,850,000 senior
subordinated note with LDI. The senior subordinated note is subordinated to the
bank credit facility, will mature in March 2007, and will bear interest at 12%,
payable quarterly. The Independent Directors Committee has approved the terms of
the senior subordinated credit facility, and the Company believes the terms are
at least as favorable as those that could be obtained in an arms-length
negotiation with an unaffiliated third party.
The Company leases its administrative headquarters in Indianapolis, Indiana
indirectly from LDI. In the year ended December 31, 2001, the Company made
lease, repair and maintenance payments of $313,368 to the company hired by LDI
to manage the property. The Independent Directors Committee has reviewed the
terms of the lease, completed an analysis of comparable market rates and has
determined that such lease terms are fair to the Company. The Board of Directors
has also considered the terms of the lease and believes that the terms of the
lease are at least as favorable as those that could be obtained by arms-length
negotiations with an unaffiliated third party.
The Company reimburses LDI for the cost of insurance and certain other
expenses. Those expenses amounted to $695,908 for the year ended December 31,
2001. The Company believes the price paid for those reimbursements is fair to
the Company.
Audit Committee Report, Charter, Independence
Report of the Audit Committee
The Audit Committee has reviewed and discussed the Company's audited
financial statements with management. The Audit Committee has discussed with
PricewaterhouseCoopers, the Company's independent auditors, the matters required
to be discussed by Statement on Auditing Standards 61, which includes, among
other items, matters related to the conduct of the audit of the Company's
financial statements.
The Audit Committee has received written disclosures and the letter from
the auditors required by Independence Standards Board Standard No. 1, which
relates to the auditors' independence from the Company and its related entities,
and has discussed with the auditors the auditors' independence from the Company.
The Audit Committee has considered whether the provision of services by the
auditors, other than audit services and review of Forms 10-Q, is compatible with
maintaining the auditors' independence.
Based on the review and discussions of the Company's audited financial
statements with management and the independent auditors, the Audit Committee
recommended to the Board of Directors that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.
This report respectfully submitted by the Audit Committee of the Company's
Board of Directors:
Peter L. Frechette
David W. Knall
Walter S. Wiseman
Michael L. Smith, Chairman
Audit Committee Charter
The Board of Directors has adopted a written charter for the Audit
Committee, a copy of which was attached to the proxy statement for the annual
meeting of shareholders held in May 2001.
Audit Committee Independence
The Board of Directors has determined that Mr. Knall, Mr. Wiseman, and Mr.
Smith all meet the requirements for independence set forth in the Listing
Standards of the National Association of Securities Dealers. Peter Frechette is
also a member of the Audit Committee. The Board of Directors has determined that
Mr. Frechette does not meet the requirements for independence because Mr. Lacy,
the Company's Chief Executive Officer, is a member of the Compensation Committee
of Patterson Dental Company, of which Mr. Frechette is President and Chief
Executive Officer. Despite Mr. Frechette's failure to meet the definition of
independence, the Board of Directors believes that his expertise in financial
matters made his appointment to the Audit Committee required by the best
interest of the Company and its shareholders.
ACCOUNTANTS
PricewaterhouseCoopers LLP has served as auditors for the Company for the
year ended December 31, 2001. A representative of PricewaterhouseCoopers LLP is
expected to be present at the Annual Meeting with the opportunity to make a
statement if the representative so desires. Such representative will also be
available to respond to any appropriate questions shareholders may have. The
Board of Directors of the Company has not yet completed the process of selecting
an independent public accounting firm to audit its books, records and accounts
for the fiscal year ending December 31, 2002.
Auditor Fees
The aggregate fees billed for professional services rendered for the audit
of the Company's annual financial statements and the reviews of the financial
statements included in the Company's quarterly reports on Form 10-Q for the
fiscal year ended December 31, 2001, were $222,600.
Financial Information Systems Design and Implementation Fees
The aggregate fees billed for professional services described in paragraph
(c)(4)(ii) of Rule 2-01 of Regulation S-X (financial information systems design
and implementation) rendered by the auditors during the fiscal year ended
December 31, 2001, were $0.
All Other Fees
The aggregate fees billed for services rendered by the auditors, other than
fees disclosed above, during the fiscal year ended December 31, 2001, were
$80,469.
VOTE REQUIRED TO APPROVE MATTERS
A quorum for the meeting requires the presence in person or by proxy of
holders of a majority of the outstanding shares of the Common Stock of the
Company. The inspector(s) of election appointed for the meeting will tabulate
votes cast by proxy or in person at the Annual Meeting.
The election of each Director requires a plurality of the votes cast. Votes
withheld will be deemed not to have been cast. Other actions are authorized if
the number of votes cast in favor of an action exceeds the number of votes cast
opposing the action.
Abstentions, "broker non-votes" (i.e., where brokers or nominees indicate
that such persons have not received instructions from the beneficial owner or
other person entitled to vote shares as to a matter with respect to which the
brokers or nominees do not have discretionary power to vote) and votes withheld
will be included in the calculation of the presence of a quorum, but will not be
counted as votes cast for or against the action to be taken on the matter.
Therefore, abstentions or broker non-votes will have no effect in the election
of Directors or in any other matters to be considered.
SHAREHOLDER PROPOSALS
Under Rule 14a-8 of the Securities Exchange Act of 1934, shareholders of
the Company may present proper proposals for inclusion in the Company's proxy
statement and for consideration at the next annual meeting of shareholders by
submitting their proposals to the Company in a timely manner. In order to be
included for the next annual meeting, shareholder proposals must be received at
the Company's principal office, 54 Monument Circle, Suite 600, Indianapolis,
Indiana 46204, Attention: Secretary, no later than 120 days in advance of April
8, 2003, and must otherwise comply with the requirements of Rule 14a-8.
In addition, if a shareholder intends to present a proposal at the next
annual meeting of shareholders without including the proposal in the proxy
materials for that meeting, and if the proposal is not received by the Company
by February 20, 2003, then the proxies designated by the Board of Directors for
that meeting may vote in their discretion on any proposal those shares for which
they have been appointed proxies without mention of such matter in the Company's
proxy statement or on the proxy card for that meeting.
OTHER MATTERS
Management is not aware of any business to come before the Annual Meeting
other than those matters described in the Proxy Statement. However, if any other
matters should properly come before the Annual Meeting, it is intended that the
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy material
to the beneficial owners of the Common Stock. In addition to solicitation by
mail, Directors, officers, and employees of the Company may solicit proxies
personally or by telephone without additional compensation.
Each Shareholder is urged to complete, date and sign the proxy and return
it promptly in the enclosed return envelope.
Insofar as any of the information in this Proxy Statement may rest
peculiarly within the knowledge of persons other than the Company, the Company
relies upon information furnished by others for the accuracy and completeness
thereof.
By Order of the Board of Directors
/s/ Andre B. Lacy
Andre B. Lacy
Chairman of the Board and Chief Executive Officer
Indianapolis, Indiana
REVOCABLE PROXY
FINISHMASTER, INC.
Annual Meeting of Shareholders
May 9, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Andre B. Lacy, with full powers of
substitution, to act as the attorney and proxy for the undersigned to vote all
shares of capital stock of FinishMaster, Inc. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
at the Adam's Mark Hotel - Downtown, 120 West Market Street, Indianapolis,
Indiana, on Thursday, May 9, 2002, at 9:30 A.M., local time, and at any and all
adjournments thereof, as follows on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
[X] Please mark votes
as in this example
The Board of Directors recommends a vote "FOR" the listed proposition.
1. The election as directors of all nominees listed below for a one year term
expiring at the next annual meeting, except as marked to the contrary.
Nominees: (01) Andre B. Lacy, (02) Thomas U. Young, (03) Wesley N.
Dearbaugh, (04) Margot L. Eccles, (05) Walter S. Wiseman, (06) Peter L.
Frechette, (07) Michael L. Smith and (08) David W. Knall and (9) David N.
Shane
FOR ALL [ ] [ ] WITHHELD
NOMINEES FROM ALL
NOMINEES
[ ]
----------------------------------------
For all nominees except as noted above
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
This Proxy may be revoked at any time prior to the voting thereof.
The undersigned acknowledges receipt from the Company, prior to the execution of
the proxy, a notice of the annual meeting, a proxy statement, an Annual Report
on Form 10-K, and an Investment Brief to Shareholders.
Please sign as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
Signature:__________________________ Date:___________
Signature:__________________________ Date:___________