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
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(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by
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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:
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(4) Date Filed:
FinishMaster, Inc.
54 Monument Circle, Suite 800
Indianapolis, Indiana 46204
(317) 237-3678
Notice of Annual Meeting of Shareholders
To Be Held April 24, 2003
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, April 24, 2003, 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 seven (7) 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 17, 2003.
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
March 24, 2003
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 800
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, April 24, 2003,
at the 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 March 24, 2003.
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 800, 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 17, 2003, are entitled to one (1) vote for
each share of Common Stock held. As of March 1, 2003, there were 7,784,121
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.
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, 2003, by each person
who is known to the Company to own 5% or more of its Common Stock:
Number of Shares of
Name and Address of Common Stock
Beneficial Owner Beneficially Owned Percentage of Class
---------------- ------------------ -------------------
Lacy Distribution, Inc.(1) 5,587,516 (1) 71.8%
54 Monument Circle, Suite 800
Indianapolis, Indiana 46204
Dimensional Fund Advisors Inc. (2)(3) 491,200 (2) 6.3%(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 50,200 shares
of the Company's Common Stock and has 87,000 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 February 11, 2003. 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, 2003, 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, 2003 (1)
----------------------------------------
Name of Director of Sole Voting & Shared Voting & Percentage
Beneficial Owner (1) Company Since Investment Power Investment Power of Class
-------------------- ------------- ---------------- ---------------- --------
Directors:
Margot L. Eccles 1996 1,000 5,587,516(2) 71.8%
Peter L. Frechette 1996 19,283(3) --- *
David W. Knall 1998 52,733(3) --- *
Andre B. Lacy 1996 137,200(4) 5,587,516(2) 72.7%
J.A. Lacy 2002 37,000(5) --- *
Michael L. Smith 1997 22,783(3) --- *
David N. Shane 2002 --- ---
Walter S. Wiseman 1996 14,283(3) --- *
Thomas U. Young 1996 56,000(6) --- *
Other Executive Officers:
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 --- 373,282(9) 5,587,516(2) 72.2%
----------------
* 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 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.
(3) Includes 11,677 shares subject to option.
(4) Includes 87,000 shares subject to option and 200 shares beneficially owned
by his spouse.
(5) Includes 37,000 shares subject to option.
(6) Includes 56,000 shares subject to option.
(7) Includes 15,000 shares subject to option. (8) Includes 17,000 shares
subject to option. (9) Includes 258,708 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. Andre Lacy (age 63) 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. 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 father of J.A. Lacy and brother of Margot
Eccles.
Mr. Young (age 70) 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.
Mr. Frechette (age 65) 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 54) 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 57) 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 58) 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 joined McDonald Investments, Inc. in
1969.
Mr. J.A. Lacy (age 38) was named a Director and served as President and
Chief Operating Officer of the Company since July 2002. From January 2001 to
July 2002, he served as Senior Vice President of Operations for the Company, and
from January 1999 to January 2001, as Senior Vice President of Planning and
Marketing. Mr. Lacy is the son of Mr. Andre Lacy and nephew of Margot Eccles.
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.
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. Ms.
Eccles and Mr. Shane have determined not to stand for reelection as directors of
the Company. With the expiration of their terms, the Board will consist of a
majority of independent directors. 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 above 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.
The directors will be elected upon receipt of a plurality of votes cast at
the Annual Meeting.
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, 2002, 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, 2002, 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, 2002. 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. 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, 2002.
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, 2002,
included Mr. Andre Lacy (Chairman), Mr. Young, Mr. J.A. Lacy, and Mr. Shane. In
addition, Mr. Dearbaugh served on the Executive Committee until July, 2002, and
was thereafter replaced by Mr. J.A. Lacy.
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, 2002 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, 2002, except that Andre B. Lacy
filed a Form 5 reporting the acquisition by his spouse in open-market
transactions of 100 shares in 2001 and 100 shares in 2002, which were
inadvertently not reported in the years of acquisition.
Remuneration of Executive Officers
The following table summarizes, for the Company's last three completed
years ended December 31, 2002, the compensation of the persons who served as
Chief Executive Officer of the Company during the year ended December 31, 2002,
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
Annual Compensation Compensation
---------------------------------------------- Securities All
Fiscal Other Annual Underlying Other
Name and Principal Position Year Salary Bonus Compensation Options (1) Compensation
---------------------------------------------------------------------------------------------------------------------------------
2002 $150,000 (2) $ 62,949 (2) --- --- $
Andre B. Lacy 2001 112,500 (3) --- --- --- ---
Chief Executive Officer 2000 --- (4) --- --- 15,000 ---
---
---------------------------------------------------------------------------------------------------------------------------------
2002 $180,336 $ 75,680 $ --- --- $ ---
Thomas U. Young 2001 178,469 75,000 --- --- ---
Vice Chairman 2000 $180,820 84,983 --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
2002 $192,000 (2) $ --- $55,200 (6) --- $ ---
David Shane 2001 --- --- --- --- ---
Vice Chairman (5) 2000 --- --- --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
2002 $200,000 $ 56,630 $ --- 45,000 $ ---
J. A. Lacy 2001 170,547 33,857 --- --- ---
President (7) 2000 127,782 31,354 --- --- ---
---------------------------------------------------------------------------------------------------------------------------------
Robert R. Millard 2002 $182,000 $ 84,316 $ --- --- $ ---
Senior Vice President, Secretary, 2001 180,303 45,868 --- --- ---
Treasurer & Chief Financial 2000 174,852 42,958 --- --- ---
Officer
---------------------------------------------------------------------------------------------------------------------------------
2002 $265,200 $111,294 $ --- --- $ ---
Wes N. Dearbaugh 2001 262,453 68,483 --- --- ---
Former President (8) 2000 254,551 62,240 --- --- 30,961(9)
---------------------------------------------------------------------------------------------------------------------------------
(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 services rendered.
(3) Represents sums paid by the Company to Distribution for Mr. Lacy's services
rendered for April 2001 through December 2001.
(4) In 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.
(5) Mr. Shane was named a Director of the Company and Vice Chairman of the
Board of Directors on January 3, 2002.
(6) Represents sums paid by the Company to Distribution for reimbursement for
fringe benefits.
(7) Mr. Lacy became President of the Company in July 2002. Prior to July 2002,
Mr. Lacy was a Senior Vice President.
(8) Mr. Dearbaugh resigned as President of the Company in July 2002.
(9) Represents relocation expenses.
The following table sets forth certain information regarding the individual
grants of stock options made during the year ended December 31, 2002.
Option Grants in the Year Ended December 31, 2002
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
for Option Term
------------------ ------------- ------------- ----------- ------------- ------------ ------------
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price per Expiration
Name Granted: Year share Date 5% 10%
------------------ ------------- ------------- ----------- ------------- ------------ ------------
J.A. Lacy 45,000 86.0% $11.709 8/7/2012 $331,380 $839,746
------------------ ------------- ------------- ----------- ------------- ------------ ------------
The following table sets forth certain information regarding the total
number of stock options held by each of the Named Executive Officers, and the
aggregate value of such stock options, as of December 31, 2002. None of such
stock options had been exercised as of such date.
Aggregated Option Exercises in the Year Ended December 31, 2002 and
Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at the Year Ended at the Year Ended
December 31, 2002 December 31, 2002 ($)(1)
Acquired on Value ----------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Andre B. Lacy -- -- 87,000 -0- $107,730 $ -0-
Wes N. Dearbaugh 7,800 48,463 37,200 -0- $221,452 $ -0-
Thomas U. Young 16,000 125,600 56,000 -0- $316,400 $ -0-
Robert R. Millard -- -- 15,000 -0- $ 90,375 $ -0-
J.A. Lacy 15,000 109,631 37,000 8,000 $ (2) $ -0-
David Shane --- --- -0- -0- -0- -0-
(1) The closing price for the shares on December 31, 2002, was $11.65.
(2) Since the fair market value of the shares subject to option was not greater
than the exercise price of the options at December 31, 2002, such options
were not "in-the-money."
---------------------------------------------------------------------------------------------------------------------
Number of securities
remaining available for
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options warrants and (excluding securities
Plan Category warrants and rights (a) rights (b) reflected in column (a))
---------------------------------------------------------------------------------------------------------------------
Equity compensation plans 477,136 $8.60 272,864
approved by security holders
---------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders --- --- ---
-------- ------ --------
---------------------------------------------------------------------------------------------------------------------
Total 477,136 $8.60 272,864
======= ===== =======
---------------------------------------------------------------------------------------------------------------------
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, dental, life
insurance, 401(k), and deferred compensation plans, generally available to
employees of the Company based upon eligibility criteria.
Base Salary
In determining salaries, the Company uses total cash compensation as the
primary competitive benchmark for executives, but also takes into consideration
competitive base salaries based on data from the distribution industry and from
other businesses and industries.
Annual Incentive Compensation
The Company's annual incentive program for executive officers and key
managers provides 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.
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. Effective on 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 --
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 years two through five 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, employees identified as Highly
Compensated Employees in the 401(k) plan are eligible to participate in the
FinishMaster, Inc. Deferred Compensation Plan. Like the 401(k) Plan, the
Deferred Compensation Plan allows eligible participants to defer a portion of
their annual compensation. However, under the Deferred Compensation Plan,
eligible participants 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 an additional week of paid time
off up to a maximum of five weeks. 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, 2002.
Benefits
The Company provides medical, dental, life insurance, short-term
disability, long-term disability, and flexible spending account 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, 2002, 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. Thereafter, the
Compensation Committee determined that Mr. Lacy should be paid a salary for his
services, so he received compensation of $112,500 for the period from April 2001
through December 2001 and compensation of $150,000 for the year ending December
31, 2002. This compensation 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. The Company
pays Distribution for Mr. Lacy's services.
The Compensation Committee of the Company as of the year ended December 31,
2002:
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, 1998, and ending
December 31, 2002, 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, 1998, 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 Return Cumulative Return Cumulative Return
Dec-02 86.327 83.848 99.149
Sep-02 75.674 72.270 87.745
Jun-02 94.321 91.788 109.191
Mar-02 118.330 119.477 95.319
Dec-01 124.886 128.190 87.234
Sep-01 96.077 95.943 68.085
Jun-01 138.458 143.828 63.830
Mar-01 117.482 121.881 61.702
Dec-00 157.417 167.754 47.872
Sep-00 235.087 257.881 59.574
Jun-00 255.451 282.335 51.600
Mar-00 293.743 326.669 68.085
Dec-99 261.484 287.809 67.557
Sep-99 177.013 189.168 55.319
Jun-99 172.766 182.352 51.600
Mar-99 158.091 166.940 52.128
Dec-98 140.990 146.749 59.574
Sep-98 108.499 111.009 49.472
Jun-98 120.253 123.223 89.362
Mar-98 117.037 119.504 79.787
Dec-97 100.000 100.000 100.000
(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 trusts affiliated with LDI. 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 the two trusts, and entered into a new
$19,850,000 senior subordinated note with LDI. The senior subordinated note is
subordinated to the bank credit facility, matures in March 2007, and bears
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, 2002, the Company made
lease, repair and maintenance payments of $257,370 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 reimbursed LDI for the cost of insurance in the amount of
$2,661,094 for the year ended December 31, 2002. For the same period, the
Company also reimbursed LDI for management fees in the amount of $607,464 and
for certain other expenses in the amount of $74,324. The Company believes the
prices paid for these reimbursements are 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, 2002.
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 previously
determined that Mr. Frechette did not meet the requirements for independence
because Mr. Lacy, the Company's Chief Executive Officer, was a member of the
Compensation Committee of Patterson Dental Company, of which Mr. Frechette is
President and Chief Executive Officer. However, Mr. Lacy resigned from the
Compensation Committee of Patterson Dental Company within the year ended
December 31, 2002, so the Board of Directors has determined that Mr. Frechette
meets the definition of independence going forward. During the period in which
Mr. Frechette did not meet the definition of independence, the Board of
Directors determined that Mr. Frechette's service on the Audit Committee was in
the best interests of the Company and its shareholders due to his expertise in
financial matters.
Accountants
PricewaterhouseCoopers LLP has served as auditors for the Company for the
year ended December 31, 2002. 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, 2003.
Audit 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, 2002, were $237,750.
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, 2002, 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, 2002, were
$11,945, primarily in connection with tax consulting and the preparation of the
2001 tax return.
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, Attention: Secretary, 54 Monument Circle, Suite
800, Indianapolis, Indiana, 46204, no later than 120 days in advance of March
24, 2004, 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 5, 2004, 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.
REVOCABLE PROXY
FINISHMASTER, INC.
Annual Meeting of Shareholders
April 24, 2003
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, April 24, 2003, at 9:30 A.M., local time, and at any and
all adjournments thereof, as follows on the reverse side.
THE 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 THE PROXY IN THEIR BEST JUDGMENT, AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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) J. A. Lacy
04) Walter S. Wiseman
05) Peter L. Frechette
06) Michael L. Smith
07) David W. Knall
For all Nominees [____]
Withheld from all Nominees [____]
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.
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Signature: Date:
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Signature: Date: