SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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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
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined): N/A
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FinishMaster, Inc.
54 Monument Circle, Suite 600
Indianapolis, Indiana 46204
(317) 237-3678
Notice of Annual Meeting of Shareholders
To Be Held May 10, 2001
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 10, 2001, 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 eight (8) 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 28, 2001.
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 6, 2001
Your vote is important.
It is important that the proxies be returned promptly. Therefore, whether or not
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 10, 2001, 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 6, 2001.
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 28, 2001, are entitled to one (1) vote for
each share of Common Stock held. As of March 1, 2001, there were 7,540,804
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, 2001, 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 % of Class
---------------- ------------------ ----------
Lacy Distribution, Inc.(1) 5,587,516 (1) 74.1%
54 Monument Circle, Suite 800
Indianapolis, Indiana 46204
Dimensional Fund Advisors Inc. (2)(3) 507,400 (2) 6.7%
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"), its
managing general partner, of which Andre B. Lacy is the sole shareholder.
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 58,200 shares subject to options
exercisable within 60 days.
(2) This information is based on Schedules 13D or 13G filed by the beneficial
owner with the Securities and Exchange Commission. It does not reflect
changes in those shareholdings which may have occurred since the dates of
those filings.
(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 commingled group trusts and separate accounts. (These investment
companies, trusts and accounts are the "Funds.") In its role as investment
advisor and investment manager, Dimensional possesses both voting and
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,
and Dimensional disclaims beneficial ownership of such securities.
Security Ownership by Directors and Executive Officers
The following table sets forth information as of March 1, 2001, 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, 2001 (1)
------------------------------------------
Name of Director of Sole Voting & Shared Voting & Percentage
Beneficial Owner (1) Company Since Investment Power Investment Power of Class
-------------------- ------------- ---------------- -------------------- --------
Directors:
Wesley N. Dearbaugh 1999 32,000 (2) -- *
Margot L. Eccles 1996 1,000 5,587,516 (3) 74.1%
Peter L. Frechette 1996 13,843 (4) -- *
David W. Knall 1998 44,293 (4) -- *
Andre B. Lacy 1996 108,200 (5) 5,587,516 (3) 74.9%
Michael L. Smith 1997 17,343 (4) -- *
Walter S. Wiseman 1996 8,843 (4) -- *
Thomas U. Young 1996 73,300 (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) -- *
Roger A. Sorokin
Senior Vice President --- 44,000 (8) -- *
Charles R. Stephenson,
Senior Vice President (9) --- 21,000 (10) -- *
Charles VanSlaars
Senior Vice President --- 17,000 (7) -- *
All directors and executive
officers as a group --- 428,822 5,587,516 (2) 76.6%
--------------
* 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 only 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 30,000 shares subject to option.
(3) Includes all 5,587,516 shares of Common Stock held directly by
Distribution. Mr. Lacy is the sole shareholder and the Chairman,
President and Chief Executive Officer of LDIM, the general partner of
LDI, parent entity of Distribution, and he is the Chairman and Chief
Executive Officer 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 7,606 shares subject to option.
(5) Includes 58,200 shares subject to option.
(6) Includes 72,000 shares subject to option.
(7) Includes 15,000 shares subject to option.
(8) Includes 44,000 shares subject to option.
(9) Mr. Stephenson resigned from the Company effective January 31, 2001.
(10) Includes 21,000 shares subject to option.
Director Nominees
The following information is furnished concerning the Director nominees,
all of whom have been nominated by the Board of Directors.
Mr. Lacy (age 61) was elected Chairman of the Board of Directors and Chief
Executive Officer of the Company in July, 1996. Mr. Lacy is President, Chief
Executive Officer and Chairman of the Board of Directors of LDIM, the corporate
managing general partner of LDI. Mr. Lacy, individually, also serves as a
general partner of LDI. Mr. Lacy serves as President, 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 IPALCO Enterprises,
Inc., 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 68) 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 65) 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 63) 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 52) 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.
Mr. Wiseman (age 55) 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 56) 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 49) 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.
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 eight 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, 2000, the Board met
four times in addition to taking a number of 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, 2000, 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, 2000. 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.
Frechette, 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, 2000.
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 are Mr. Lacy (Chairman), Mr. Young and Mr.
Dearbaugh. The Executive Committee met four times during the year ended December
31, 2000.
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, 2000 consisted
of Mr. Frechette (Chairman), Mr. Wiseman, Mr. Smith and Mr. Knall. The committee
did not meet during the year ended December 31, 2000.
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 in prior years.
Remuneration of Executive Officers
The following table summarizes, for the Company's last three completed
years ended December 31, 2000, the compensation of the persons who served as
Chief Executive Officer of the Company during the year ended December 31, 2000,
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
Annual Compensation Long-Term
Compensation
Securities All
Fiscal Underlying Other
Name and Principal Position Year Salary Bonus Options (1) Compensation
-----------------------------------------------------------------------------------------------------------------
Andre B. Lacy 2000 $ --- (2) $ --- 15,000 ---
Chief Executive Officer 1999 --- (2) --- --- ---
1998 --- (2) --- 72,000 ---
Thomas U. Young 2000 $180,820 $84,983 --- ---
Vice Chairman 1999 314,879 97,466 --- ---
1998 323,000 (3) --- 72,000 73,000(3)
Wesley N. Dearbaugh 2000 $254,551 $62,240 --- 30,961(4)
President & Chief 1999 129,808 (5) --- 45,000 20,002(6)
Operating Officer 1998 --- --- --- ---
Robert R. Millard 2000 $174,852 $42,958 --- ---
Senior Vice President, 1999 171,864 75,000 --- ---
Secretary, Treasurer & 1998 39,231 (7) --- 15,000 ---
Chief Financial Officer
Thomas E. Case 2000 $136,973 $42,503 --- ---
Senior Vice President 1999 135,000 6,750 --- ---
1998 135,000 --- 15,000 ---
--------------------
(1) Represents the number of shares for which options were granted during the
applicable fiscal year.
(2) Mr. Lacy serves as Chairman and Chief Executive Officer of the Company with
no compensation other than the grant of stock options as determined by the
Compensation Committee. See "Compensation Report on Executive
Compensation."
(3) Represents sums paid by the Company to LDI AutoPaints, Inc. ("AutoPaints")
for services provided to the Company by Mr. Young through June 30, 1998 at
which time AutoPaints was merged with and into the Company. Represents sums
paid by the Company to Distribution for services provided to the Company by
Mr. Young after June 30, 1998. During 1998, the sum of salary and other
annual compensation was invoiced periodically to the Company by AutoPaints
and Distribution based on Mr. Young's 1998 salary and other employee fringe
benefits.
(4) Represents sums paid by the Company for the sale of Mr. Dearbaugh's home
relating to his relocation to Indiana.
(5) Mr. Dearbaugh joined the Company in June of 1999.
(6) Represents relocation expenses.
(7) Mr. Millard joined the Company in October of 1998.
The following table sets forth information related to options granted
during the year ended December 31, 2000 to each of the Named Executive Officers
to whom options have been granted.
Stock Options Granted in Year Ended December 31, 2000
Individual Grants
--------------------------------------------------------
% of Total Potential Realizable Value
Options at Assumed Annual Rates
Securities Granted to of Stock Price Appreciation
Underlying Employees in Exercise or For Option Term
Options Year Base Price Expiration --------------------------------
Name Granted (#) 2000 ($/Sh) Date 5%($)(1) 10%($)(1)
-------------- ----------- ------------ ----------- ---------- ---------- -----------
Andre B. Lacy 15,000 18.8% $7.188 3/31/10 $67,830.00 $171,780.00
-------------------
(1) These gains are based upon assumed rates of annual compound stock
appreciation of 5% and 10% from the date the options were granted over
the full option term. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on option exercises are
dependent upon the future performance of the shares and overall stock
market conditions. There can be no assurance that the amounts reflected
on this table will be achieved.
The following table sets forth certain information regarding the total
number of stock options held by each of the Named Executive Officers, and the
aggregate value of such stock options, as of December 31, 2000. None of such
stock options had been exercised as of such date.
Aggregated Option Exercises in the Year Ended December 31, 2000
and Year-End Option Values
Number of Securities
Underlying Unexercised Value of In-the-Money
Options at the Year Unexercised Options
Ended at the Year ended
Shares December 31, 2000 December 31, 2000 ($)
Acquired on Value --------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Andre B. Lacy --- --- 58,200 28,800 $ (1) $ (1)
Thomas U. Young --- --- 72,000 -0- $ (1) $ (1)
Wesley N. Dearbaugh --- --- 30,000 15,000 $ (1) $ (1)
Robert R. Millard --- --- 15,000 -0- $ (1) $ (1)
Thomas E. Case --- --- 15,000 -0- $ (1) $ (1)
----------------
(1) Since the fair market value of the shares subject to option was not greater
than the exercise price of the options at December 31, 2000, such options
were not "in the money."
(2) The closing price for the shares on December 29, 2000 (the last trading day
before the end of the year) was $5.625.
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, who is a
Director and was a member of the Company's Compensation Committee, is the Chief
Executive Officer of Patterson Dental Company. Mr. Frechette resigned from the
Company's Compensation Committee effective March 20, 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 provides direct financial incentives in the form of an annual cash
bonus to executives based on the Company's ability to meet or exceed a target
return on investment. 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. 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 - 10%, second year
- 15%, third year - 20%, fourth year and beyond - 25%). For employees who were
participating in the 401(k) plan on December 31, 1998, the Company will make a
matching contribution of the employees' contributions of up to 6% of their
annual compensation. 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
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 are the same as
under the 401(k) Plan.
Special Prerequisites
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 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, 2000.
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 year
ended December 31, 2000, having first been named to such position in July, 1996.
Mr. Lacy did not receive any monetary compensation from the Company for the year
ended December 31, 2000 for his services as a Director and the Chief Executive
Officer of the Company. Mr. Lacy was granted options to purchase 15,000 shares
of Common Stock to compensate him for his valuable leadership of the Company, in
particular his vision in planning and implementing marketplace strategies for
the Company.
The Compensation Committee of the Company as of the year ended December 31,
2000:
Peter L. Frechette
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, 1996 and ending
December 31, 2000, 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, 1996, and reinvestment of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
[graph omitted]
12/95 3/96 6/96 9/96 12/96 3/97 6/97 9/97 12/97 3/98 6/98
----- ---- ---- ---- ----- ---- ---- ---- ----- ---- ----
Nasdaq - U.S. 100.000 104.683 113.208 117.256 123.036 116.356 137.679 160.961 150.693 176.360 181.227
Nasdaq - Non Financial 100.000 105.035 114.281 117.175 121.476 113.279 134.267 157.254 142.197 169.917 175.200
FinishMaster, Inc. 100.000 88.462 84.615 71.154 55.769 62.500 67.308 57.692 90.385 72.115 80.769
9/98 12/98 3/99 6/99 9/99 12/99 3/00 6/00 9/00 12/00
---- ----- ---- ---- ---- ----- ---- ---- ---- -----
Nasdaq - U.S. 163.533 212.509 238.327 260.712 267.204 394.942 443.301 385.428 354.697 237.676
Nasdaq - Non Financial 157.879 208.727 237.427 259.418 269.098 408.734 464.198 400.515 365.870 238.523
FinishMaster, Inc. 44.715 53.846 47.115 46.638 50.000 61.062 61.538 46.638 53.846 43.269
(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 million on an unsecured basis. The
obligation bears interest at a rate of 9%, with interest payable quarterly and
with principal due on May 19, 2004. In December, 1999, LDI sold $10.15 million
of the Subordinated Note to two unaffiliated trusts. On or about March 29, 2001,
the Company expects to enter into a new senior secured credit facility with a
syndicate of banks. Concurrent with the funding of the senior secured credit
facility, the Company will repay its obligations to LDI and enter into a new
$19,850,000 senior subordinated note with LDI. The new senior subordinated note
will be subordinated to the bank credit facility, will mature in March 2007, and
will bear interest at a rate of 12%, payable quarterly. The Company expects to
pay an origination fee to LDI of approximately $198,500 for the senior
subordinated note. Prior to entering into the senior subordinated note, the
Independent Directors Committee will have approved the terms of the senior
subordinated note and the fees payable with respect to the senior subordinated
note.
The Company leases its administrative headquarters in Indianapolis, Indiana
from LDI. In the year ended December 31, 2000, the Company made lease and repair
and maintenance payments to LDI for this space of $202,000. 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 $183,000 for the year ended December 31,
2000. 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 discussion with 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, 2000.
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 is attached as Exhibit A.
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 determined that Mr.
Frechette did not meet the requirements for independence at the time of his
appointment to the Audit Committee, 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 makes 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, 2000. 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, 2001.
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, 2000 were $266,800.
Financial Information Systems Design and Implementation Fees
There were no fees billed for professional services rendered by the
auditors relating to financial information systems design and implementation
during the fiscal year ended December 31, 2000.
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, 2000 were
$45,697.
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. Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspector(s) of election appointed for the 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 exceed 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
6, 2002, 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, 2002, then the proxies designated by the Board of Directors for
that meeting may vote in their discretion on any proposal any 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
Exhibit A
FinishMaster, Inc.
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting
process and systems of internal controls regarding finance,
accounting, and legal compliance.
o Monitor the independence and performance of the Company's
independent auditors.
o Provide an avenue of communication among the independent
auditors, management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to
the independent auditors as well as anyone in the organization. The Audit
Committee has the ability to retain, at the Company's expense, special
legal, accounting, or other consultants or experts it deems necessary in
the performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the Nasdaq Stock
Market. The Audit Committee shall be comprised of three or more directors
as determined by the Board, each of whom shall be independent non-executive
directors, free from any relationship that would interfere with the
exercise of his or her independent judgment. All members of the Committee
shall have a basic understanding of finance and accounting and be able to
read and understand fundamental financial statements, and at least one
member of the Committee shall have accounting or related financial
management expertise.
Audit Committee members shall be appointed by the Board. If an Audit
Committee Chair is not designated or present, the members of the Committee
may designate a Chair by majority vote of the Committee membership.
The Committee shall meet at least two times annually, or more frequently as
circumstances dictate. The Audit Committee Chair shall prepare and/or
approve an agenda in advance of each meeting. The Committee should meet
privately in executive session at least annually with management, the
independent auditors, and as a committee to discuss any matters that the
Committee or each of these groups believe should be discussed. In addition,
the Committee, or at least its Chair, should communicate with management
and the independent auditors quarterly to review the Company's financial
statements and significant findings based upon the auditors limited review
procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least
annually. Submit the charter to the Board of Directors for
approval and have the document published at least every three
years in accordance with SEC regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. This review should include discussion with
management and independent auditors of significant issues
regarding accounting principles, practices, and judgments.
3. In consultation with management and the independent auditors,
consider the integrity of the Company's financial reporting
processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control,
and report such exposures. Review significant findings prepared by
the independent auditors together with management's responses.
4. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of
earnings and/or the Company's quarterly financial statements prior
to filing or distribution. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with SAS
61. The Chair of the Committee may represent the entire Audit
Committee for purposes of this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall
review the independence and performance of the auditors and
annually recommend to the Board of Directors the appointment of
the independent auditors or approve any discharge of auditors when
circumstances warrant.
6. Approve the fees and other significant compensation to be paid to
the independent auditors.
7. On an annual basis, the Committee should review and discuss with
the independent auditors in accordance with Independence Standards
Board Statement No. 1, all significant relationships they have
with the Company that could impair the auditors' independence.
8. Review the independent auditors audit plan - discuss scope,
staffing, locations, reliance upon management, and general audit
approach.
9. Prior to releasing the year-end earnings, discuss the results of
the audit with the independent auditors. Discuss certain matters
required to be communicated to audit committees in accordance with
SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied
in its financial reporting.
Legal Compliance
11. On at least an annual basis, review any legal matters that could
have a significant impact on the organization's financial
statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or
governmental agencies.
Other Audit Committee Responsibilities
12. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included
in the Company's annual proxy statement.
13. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the
Board deems necessary or appropriate.
14. Maintain minutes of meetings and periodically report to the Board
of Directors on significant results of the foregoing activities.
REVOCABLE PROXY
FINISHMASTER, INC.
Annual Meeting of Shareholders
May 10, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoint 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 10, 2001 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
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 an 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, of a notice of the annual meeting, a proxy statement, an annual
Report on Form 10-K, and an investment Brief of Shareholders.
Please sign as your name appears on this care. 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:___________