<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(C) or Rule 14a-12
</TABLE>
LESCO, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Not
Applicable
(2) Aggregate number of securities to which transaction applies: Not
Applicable
(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): Not
Applicable
(4) Proposed maximum aggregate value of transaction: Not Applicable
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: Not Applicable
(2) Form, Schedule or Registration Statement No.: Not Applicable
(3) Filing Party: Not Applicable
(4) Date Filed: Not Applicable
================================================================================
<PAGE> 2
LESCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1998
April 9, 1998
TO THE SHAREHOLDERS OF LESCO, INC.:
The annual meeting of the shareholders of LESCO, Inc., an Ohio corporation
(the "Company"), will be held at the Aurora Inn, 30 East Garfield Road, at the
intersection of Routes 306 and 82 in Aurora, Ohio, on Wednesday, May 13, 1998,
at 10:00 a.m., local time, for the following purposes:
1. To elect directors, each to hold office for a one-year term and
until his successor is elected and qualified.
2. To consider a proposal to amend and restate the 1992 Stock
Incentive Plan to reflect changes made to Section 16 of the
Securities and Exchange Act of 1934, as amended, and to certain
provisions of the Internal Revenue Code of 1986, as amended.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on April 3, 1998, will be
entitled to notice of and to vote at the meeting. Shareholders are urged to
complete, date and sign the enclosed proxy and return it in the enclosed
envelope.
By Order of the Board of Directors,
PATRICIA W. PRIBISKO, Secretary
<PAGE> 3
LESCO, INC.
20005 LAKE ROAD
ROCKY RIVER, OHIO 44116
PROXY STATEMENT
April 9, 1998
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies to be used at the annual meeting of shareholders (the "Annual Meeting")
of LESCO, Inc., an Ohio corporation (the "Company"), to be held at the Aurora
Inn, 30 East Garfield Road, at the intersection of Routes 306 and 82 in Aurora,
Ohio, on Wednesday, May 13, 1998, at 10:00 a.m., local time, and at any
adjournment thereof. This proxy statement and the accompanying notice and proxy,
together with the Company's Annual Report to Shareholders for the year ended
December 31, 1997, are first being sent to shareholders on or about April 9,
1998.
The solicitation of proxies is made by and on behalf of the Board of
Directors of the Company (the "Board of Directors" or "Board"). The cost of the
solicitation of proxies will be borne by the Company. The Company may also
reimburse banks, brokerage firms and other custodians, nominees and fiduciaries
for expenses incurred by them in sending proxy materials to the beneficial
owners of the Company's Common Shares, without par value (the "Common Shares").
If the enclosed proxy is properly executed and returned, the Common Shares
represented thereby will be voted in accordance with any directions properly
specified therein. If no directions are indicated, the Common Shares will be
voted to elect the directors set forth under "Election of Directors" below.
Under Ohio law, broker non-votes and abstaining votes will not be voted in favor
of or against any nominee. A shareholder's presence alone at the Annual Meeting
will not operate to revoke that shareholder's proxy. The proxy is revocable by a
shareholder at any time insofar as it has not been exercised by giving notice to
the Company in writing or in open meeting.
The close of business on April 3, 1998, has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting. At that time, the Company's voting securities
outstanding consisted of 8,299,543 Common Shares, each of which is entitled to
one vote at the Annual Meeting. The presence, in person or by proxy, of persons
entitled to vote a majority of the Common Shares outstanding will constitute a
quorum for the conduct of all business to be considered at the Annual Meeting.
<PAGE> 4
ELECTION OF DIRECTORS
The Code of Regulations of the Company (the "Company Code") fixes the
number of directors at nine but authorizes the Board of Directors to increase or
decrease the number of directors by not more than two. The Company Code also
authorizes the Board of Directors to fill any vacancy by the affirmative vote of
a majority of the directors then in office. In 1994, the Board of Directors
increased the number of directors to eleven. In 1998, the Board of Directors
decreased the number of directors to nine. Each director elected serves until
the next annual meeting and until his successor is elected and qualified.
The Board of Directors of the Company, through the Nominating Committee,
has nominated the nine persons listed below for election as directors. If any
nominee declines or is unable to serve (which the Board of Directors has no
reason to expect), the persons named in the accompanying Proxy intend to vote
for the balance of those nominees named, and, if they deem it advisable, for a
substitute nominee.
The following table sets forth information with respect to each nominee:
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AGE POSITION SINCE
---- --- -------- ------------
<S> <C> <C> <C>
William A. Foley................ 50 Chairman of the Board of 1993
Directors, President and Chief
Executive Officer
Robert F. Burkhardt............. 61 Consultant and Director 1963
Paul H. Carleton................ 50 Director 1984
David H. Clark.................. 69 Director 1985
Drexel Bunch.................... 53 Director 1995
J. Martin Erbaugh............... 49 Director 1995
Michael J. FitzGibbon........... 32 Director 1996
Lee C. Howley................... 50 Director 1996
Ronald Best..................... 62 Director 1997
</TABLE>
William B. Nicol served on the Board of Directors from 1984 until his
resignation on September 30, 1995. Following his resignation from the Board, Mr.
Nicol became Director Emeritus and attends Board meetings but does not vote.
Stanley M. Fisher and F. Leon Herron, Jr. are retiring from the Board and
will not stand for re-election as directors at the Annual Meeting.
During 1997, the Board of Directors of the Company met on six occasions. No
director attended less than 75% of the meetings of the Board of Directors and
committees of which he was a member held during 1997.
The Company has a Finance Committee that reviews, with the Company's
independent auditors, the audit plans, the results of the audit engagement and
the adequacy of the Company's internal accounting controls. The Finance
Committee, which consisted of Paul H. Carleton, Chairman, Ronald Best, Stanley
M. Fisher and Michael J. FitzGibbon, met three times during 1997.
The Company has a Compensation and Governance Committee which is
responsible for determining executive compensation and administering the
Company's compensation plans. The Compensation and Governance Committee, which
consisted of J. Martin Erbaugh, Chairman, Drexel Bunch, Stanley M. Fisher and
Lee C. Howley (with a Granting Subcommittee consisting of the same directors,
with the exception of Stanley M. Fisher), met three times during 1997.
The Nominating Committee consists of William A. Foley, Chairman, Robert F.
Burkhardt and David H. Clark. The Nominating Committee nominates candidates for
election to the Board of Directors and will consider suggestions forwarded by
shareholders to the Secretary of the Company concerning qualified candidates for
election as directors. The Nominating Committee met one time during 1997.
Ohio law provides that if notice in writing is given by any shareholder to
the President or a Vice-President or the Secretary of the Company not less than
forty-eight hours before the time fixed for holding the Annual
2
<PAGE> 5
Meeting that states that the shareholder desires that the voting for the
election of directors be cumulative, and an announcement of the giving of such
notice is made upon the convening of the meeting by the Chairman or Secretary or
by or on behalf of the shareholder giving such notice, then each shareholder
will have cumulative voting rights in the election of directors. If cumulative
voting is invoked: (i) each shareholder will be entitled to cast an aggregate
number of votes in the election of directors determined by multiplying the
number of persons to be elected by the number of shares the shareholder holds as
of the Record Date and to distribute such votes among nominees in any fashion
the shareholder sees fit; and (ii) unless express contrary instructions are
given therein, a proxy in the enclosed form will include discretionary authority
to cumulate votes and distribute them among persons nominated by the Board of
Directors in such fashion as the proxies believe will maximize the number of
such nominees elected. If cumulative voting is not invoked, each shareholder
will be entitled to cast for each of nine nominees up to that number of votes
that equals the number of shares held by him as of the Record Date. The nine
nominees receiving the greatest number of votes will be elected. Submission of a
proxy withholding authority from a nominee or a broker non-vote has the effect
of failing to vote for such nominee but does not otherwise act as a vote
"against" such nominee.
BUSINESS EXPERIENCE OF DIRECTORS AND NOMINEES
William A. Foley joined the Company in July 1993 as President, Chief
Executive Officer and a director. He was elected Chairman of the Board of
Directors in October 1994, following the death of James I. FitzGibbon. Mr. Foley
was President and Chief Executive Officer of Imperial Wallcoverings, Inc., a
wallpaper producer and a subsidiary of Collins & Aikman, Inc., from October 1990
until February 1993. From January 1988 to October 1990, Mr. Foley was Vice
President and General Manager of The Scotts Company Consumer Business Group, a
producer and marketer of turf care products. Mr. Foley was Vice President and
General Manager of Rubbermaid Specialty Products Division, a producer of rubber
and plastic products, from 1984 to 1988, and was Vice President -- Sales and
Marketing for Anchor Hocking Corporation, a producer of glass products, from
1970 to 1984. Mr. Foley is also a director of Alltrista Corporation, a consumer
and industrial products manufacturing company, and Libbey, Inc., a producer of
glass products.
Robert F. Burkhardt has served as a consultant to the Company since July
1994 and as a director since 1963. He is a co-founder of the Company and served
as Vice Chairman from January 1987 to June 1994. Mr. Burkhardt served as
President of the Company from May 1984 to January 1987, and as Vice President
from 1963 to May 1984.
Paul H. Carleton has been a director of the Company since May 1984. Since
August 1996, Mr. Carleton has been Executive Managing Director of, and a
principal in, Carleton, McCreary, Holmes & Co., a division of Key Capital
Markets, Inc., an investment banking firm located in Cleveland, Ohio,
specializing in mergers, acquisitions and public and private financings. In
August 1996, Carleton, McCreary, Holmes & Co. was purchased by Key Corp. Prior
to the purchase, from January 1993 to August 1996, Mr. Carleton was Managing
Director of, and a principal in, Carleton, McCreary, Holmes & Co. From July 1989
through December 1992, Mr. Carleton was President of, and a principal in, The
Carleton Group, an investment banking firm located in Cleveland, Ohio. Prior
thereto, Mr. Carleton was a Managing Director of McDonald & Company Securities,
Inc., a Cleveland investment banking firm. Mr. Carleton is a trustee of
University Hospitals of Cleveland (Ohio), a major teaching hospital, and
Bluecoats, Inc., an organization devoted to the welfare of families of Cuyahoga
County (Ohio) safety forces employees who lost their lives in the line of duty.
David H. Clark has been a director of the Company since December 1985. Mr.
Clark was President of McLouth Steel Products Corp. from 1986 to 1988 and is now
retired. From 1984 to 1985, Mr. Clark was a Vice President of LTV Steel Company,
Inc., and President of its Bar Division. He had also been Executive Vice
President -- Steel Group for Republic Steel Corporation prior to the merger of
Republic and LTV in 1984.
Drexel Bunch has been a director since March 1995. Mr. Bunch has been
employed by Nordson Corporation, a producer and marketer of industrial equipment
along with software and application technologies, since 1983, where he has been
Vice President, Manufacturing, since 1985. Prior to that, Mr. Bunch held the
positions of Vice President of Quality and Productivity and Director of Quality
Assurance. Prior to joining Nordson Corporation, Mr. Bunch was employed for more
than 16 years by the Ford Motor Company. He is a
3
<PAGE> 6
trustee and treasurer of the Westlake (Ohio) Education Foundation and a trustee
of the Nordson Corporation Foundation and the Lorain County (Ohio) Chamber of
Commerce.
J. Martin Erbaugh has been a director since March 1995. Mr. Erbaugh is an
attorney who has had 17 years of management experience in the lawn care industry
as President of Lawnmark, a lawn care company. Currently, he is President of
J.M. Erbaugh Co., a private investment firm, President of Coer Inc., a real
estate development firm, and President of Homepure LLC, a bottled water company.
He is a director of Morgan Fun Shares, Inc., a closed-end investment company,
Vice Chairman and a director of Morgan Bank, NA, a national bank. He is Founder,
a past President and director of The Professional Lawn Care Association of
America. He is a trustee of the Burton D. Morgan Foundation.
Michael J. FitzGibbon has been a director since March 1996. Mr. Fitzgibbon
is President of Windward Course LLC, a management and consulting firm for
nonprofit organizations, and Director of Graduate Programs for the Mandel Center
for Non-Profit Organizations at Case Western Reserve University. Mr. FitzGibbon
is also a Ph.D. candidate in the Social Policy History Program at Case Western
Reserve University. Mr. FitzGibbon serves as a trustee of the Diabetes
Association of Greater Cleveland (Ohio), the Westside YMCA and the Great Lakes
Historical Society.
Lee C. Howley has been a director since March 1996. Mr. Howley has been a
principal in the construction, financing and operation of health care-related
real estate and in telecommunications systems. He has served in leadership
capacities for a number of civic organizations. From 1994 to 1995, Mr. Howley
represented the United States at the United Nations as the Country's Public
Delegate, at the request of President Clinton. Since 1981, Mr. Howley has served
as President of Howley & Company, a real estate development and management
company. He was founder and a general partner of North Coast Cable, Ltd., a
cable television company servicing Cleveland, Ohio, from 1981 to 1994. Mr.
Howley is a director of the following publicly traded companies: Boykin Lodging
Company, a hotel and restaurant management company, International Total
Services, Inc., a contract service company, and Captec Net Lease Realty, Inc., a
real estate investment trust company.
Ronald Best has been a director since May 1997. Since 1995, Mr. Best has
been President and Managing Partner, First Marquis International, an equity
investor and workout consulting firm located in Toronto, Canada; Executive Vice
President, Hall International Group Inc., a project management firm specializing
in real estate development in China, located in Mississauga, Canada; and
Chairman and Chief Executive Officer, Eccobox Industries, a beverage processing
company located in Richmond Hill, Canada. From 1992 to 1994, Mr. Best was
President and Chief Executive Officer of Totes Incorporated, a rainwear
manufacturing and distribution company, located in Cincinnati, Ohio. From 1980
to 1991, Mr. Best held several executive positions with Rubbermaid, Inc., a
rubber and plastics products manufacturing and distribution company, located in
Wooster, Ohio, completing his career at Rubbermaid as Senior Vice President,
International and Business Development. Prior to joining Rubbermaid, Mr. Best
held several executive positions with G.E. Canada in its Consumer, Industrial
and Power Generation Divisions, closing out his career there as Vice President
Finance and Strategic Planning (C.A.M.C.O.) and a director of G.E. Credit
Canada. He is a director of Milltronics, Inc., a process control company;
Moneysworth & Best, a shoe care and repair company; and Battery Technology,
Inc., a licensor of rechargeable consumer batteries.
4
<PAGE> 7
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to the Chief Executive
Officer and each of the Company's other five most highly compensated officers
(the "Named Executive Officers") during or with respect to the fiscal years
ended December 1997, 1996 and 1995 for services in all capacities to the
Company.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION ----------------------------
------------------ RESTRICTED ALL OTHER
FISCAL SALARY BONUS STOCK OPTIONS COMPENSATION(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) AWARDS($)(1) (# OF SHARES) ($)
--------------------------- ------ -------- ------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William A. Foley 1997 300,014 117,561 39,159 -- 5,556
Chairman of the Board, President 1996 300,014 84,450 90,002 18,000 10,231
and Chief Executive Officer 1995 275,000 -- -- 4,000 7,924
John M. Freise(3) 1997 190,000 75,604 -- -- 7,521
Vice President, Sales 1996 190,000 17,605 55,573 18,000 8,398
1995 67,315 -- -- 10,000 973
Ware H. Grove(4) 1997 185,000 58,009 19,307 -- 12,893
Vice President and Chief 1996 106,731 37,015 73,975 33,000 3,207
Financial Officer
C. Thomas Smith 1997 143,923 40,830 13,590 -- 3,235
Vice President, Operations 1996 132,954 15,096 41,876 18,000 6,628
1995 127,200 -- -- 4,000 5,453
Kenneth S. Sekley(5) 1997 11,538 66,000 18,758 16,000 1,182
Vice President, Marketing
Michael A. Sotak(6) 1997 102,900 -- -- -- 2,261
Vice President, Marketing 1996 155,120 8,320 8,320 18,000 5,152
1995 146,440 -- -- 4,000 8,563
</TABLE>
- ---------------
(1) In 1997 Mr. Sekley was granted an award of 915 Restricted Shares, which on
the date of grant had a market value of $18,758. These Restricted Shares are
subject to forfeiture if Company performance goals are not met for fiscal
years 1996, 1997 and 1998. In 1996 Messrs. Foley, Freise, Grove and Smith
were granted an award of 6,207; 2,620; 2,551 and 1,848 Restricted Shares,
respectively, which on the date of grant had a market value of $90,002;
$37,990; $36,990 and $26,796, respectively. These Restricted Shares are
subject to forfeiture if Company performance goals are not met for fiscal
years 1996, 1997 and 1998. Dividends on the Restricted Shares are payable in
additional Restricted Shares also subject to forfeiture. In addition, in
1998, Messrs. Foley, Grove and Smith received 1,726; 851; and 599 Common
Shares, respectively, which on the date of grant had a market value of
$39,159; $19,307; and $13,590, respectively, representing a portion of their
bonus payable for 1997; and, in 1997, Messrs. Freise, Grove, Smith and Sotak
received 1,082; 2,276; 928 and 512 Common Shares, respectively, which on the
date of grant had a market value of $17,583; $36,985; $15,080 and $8,320,
respectively, representing a portion of their bonus payable for 1996. These
Common Shares are not forfeitable, but restricted from transfer until
February 27, 1999 (except for Mr. Foley, whose Common Shares are restricted
from transfer until August 27, 1998) for those Common Shares granted as a
bonus payable for 1997 and until March 10, 1998 for those Common Shares
granted as a bonus payable for 1996 (except to satisfy tax withholding
obligations). Dividends on these Common Shares are paid in cash.
(2) Reflects (i) the Company's contributions to the LESCO, Inc. Stock Investment
and Salary Savings Plan and Trust and (ii) reimbursement for medical
expenses pursuant to an insurance program, except for Kenneth S. Sekley, for
whom the figure reflects a relocation allowance.
(3) Mr. Freise was first employed by the Company effective September 11, 1995,
and the salary for fiscal year 1995 reflects the period September 11 through
December 31. Mr. Freise left the Company December 12, 1997, and the salary
for fiscal year 1997 includes salary continuation benefits pursuant to a
written agreement between Mr. Freise and the Company.
(4) Mr. Grove joined the Company as an executive officer June 3, 1996, and the
salary for fiscal year 1996 reflects the period June 3 through December 31.
(5) Mr. Sekley joined the Company as an executive officer December 9, 1997 and
the salary for fiscal year 1997 reflects the period December 9 through
December 31.
(6) Mr. Sotak left the Company January 9, 1997, and the salary for fiscal year
1997 includes salary continuation benefits pursuant to a written agreement
between Mr. Sotak and the Company.
5
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options granted during the year
ended December 31, 1997, to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
- --------------------------------------------------------------------------------------- -----------------------------
% OF TOTAL OPTIONS EXERCISE
OPTIONS GRANTED TO EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($)
---- ------- -------------------- -------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
William A. Foley............... 0
John M. Freise................. 0
Ware H. Grove.................. 0
C. Thomas Smith................ 0
Michael A. Sotak............... 0
Kenneth S. Sekley(2)........... 10,000 10.9 20.50 12/09/07 0 128,900 326,700
6,000 6.5 14.50 12/09/07 36,000 113,400 232,000
</TABLE>
- ---------------
(1) Amounts have been calculated using the exercise price per share at assumed
compound annual rates of stock appreciation from the date of grant to the
date of expiration of 0%, 5% and 10% respectively.
(2) The options were granted on December 9, 1997. Of the total, 10,000 options
vested and became fully exercisable on December 31, 1997, and 6,000 options
will vest and become fully exercisable on December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
The following table sets forth information for each Named Executive Officer
with regard to the aggregate stock options exercised during the year ended
December 31, 1997, and the stock options held as of December 31, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William A. Foley......... 3,371 23,406 230,589 66,000 2,427,650 690,750
John M. Freise........... 0 0 22,000 6,000 145,250 38,250
Ware H. Grove............ 0 0 27,000 6,000 158,625 35,250
Kenneth S. Sekley........ 0 0 10,000 6,000 3,750 38,250
C. Thomas Smith.......... 0 0 18,000 6,000 108,250 38,250
Michael A. Sotak......... 25,000 83,500 0 0 0 0
</TABLE>
- ---------------
(1) Market value of underlying securities at December 31, 1997, of $20.875 minus
the exercise price.
COMPENSATION OF DIRECTORS
In 1997, the Company paid all directors who are not employees a retainer of
$12,000 per year, $750 per Board meeting attended, and $1000 for the chairman of
a committee and $750 for each member for each committee meeting attended, and
the Director Emeritus was paid a retainer of $6,000 per year and $375 per Board
meeting attended. Effective January 1, 1998, the annual retainer is $16,000, the
compensation for Board meeting attendance is $1,000 and the compensation for
committee meeting attendance (other than on the same day as a Board meeting) is
$1,250 for the chairman of a committee and $1,000 for each member. The
compensation for Directors Emeritus is an annual retainer of $8,000 and $500 for
Board meeting attendance.
Non-employee directors are permitted to defer all or a portion of their
fees pursuant to the Company's Directors' Deferred Compensation Plan. The plan
is unfunded and participants' contributions are converted to units, the value of
which fluctuates according to the market value of the Common Shares. Pursuant to
the Directors' Stock Option Plan, each non-employee director (other than William
B. Nicol who is a Director Emeritus and Karl E. Ware, who retired from the Board
of Directors effective May 14, 1997) received, for his service in 1997, an
option to purchase 1,000 Common Shares for $23 per Common Share, the fair market
value of a Common Share on February 24, 1998, the date the option was granted.
These options first become exercisable on December 31, 1998 and expire on
February 24, 2008.
6
<PAGE> 9
REPORT OF THE COMPENSATION AND GOVERNANCE COMMITTEE
The Compensation and Governance Committee of the Board of Directors (the
"Compensation Committee") was responsible for determining compensation paid to
the Company's executive officers during 1997. The Compensation Committee's
members are J. Martin Erbaugh (Chairman), Drexel Bunch, Stanley M. Fisher and
Lee C. Howley. This report describes the Compensation Committee's executive
compensation philosophy and the policies and actions of the Compensation
Committee with respect to fiscal year 1997 in considering compensation of the
executive officers of the Company, including the Named Executive Officers.
The basic philosophy of the Compensation Committee is to provide
compensation to the executive officers in a manner that (1) relates total
compensation appropriately to corporate performance and the individual
performance of each executive officer, (2) motivates the executive officers to
achieve increased shareholder value, and (3) aligns the interests of the
executive officers with the long-term interests of the Company's shareholders.
The Compensation Committee also intends to provide compensation to the
executive officers at a level consistent with compensation available to
executives with similar responsibilities at companies of similar size in order
to continue to attract and retain key executives. The Compensation Committee has
set base salaries at levels slightly below the levels at those companies and has
set overall compensation (base salary plus short-term and long-term incentives)
at levels slightly above the levels at those companies.
The Compensation Committee has reviewed the Company's compensation plans in
connection with Section 162(m) of the Internal Revenue Code, as amended.
Generally, the Compensation Committee intends to design LESCO's executive
compensation programs to comply with these rules. The $1 million limitation did
not impact the deductibility of any compensation paid to LESCO's executive
officers in 1997. The amendments to the 1992 Stock Incentive Plan which the
Board adopted on December 18, 1997, and for which shareholder approval is
requested, are intended to ensure that grants under that plan will be
"performance-based" as defined in the regulations, and that compensation from
those grants will be deductible.
For fiscal year 1997, the Compensation Committee reviewed the performance
of management in connection with the considerations discussed below.
BASE SALARY. Base salaries are set in accordance with the Compensation
Committee members' collective experience and perception of the compensation paid
to executives with similar responsibilities in companies of similar size. In
this context, the Compensation Committee reviews management compensation
reports, uses, from time to time, outside compensation consultants and considers
publicly available information concerning the companies comprising the peer
group identified on page 9 (the "Peer Group") and other competitors of, and
other companies of similar size to, the Company that are not included in the
Peer Group. Adjustments are made for individual performance, levels of
experience and the level of responsibility undertaken.
MANAGEMENT INCENTIVE PLAN. The Compensation Committee established an Executive
Incentive Plan (the "Incentive Plan") in fiscal 1997, comprised of short-term
and long-term incentive components, to enable the Company to reward achievement
of the objectives outlined in the Company's strategic plan.
Short-term Incentives. The financial criteria used to measure achievement of
the objectives in the strategic plan were earnings per share growth and sales
growth. In addition, each of the executive officers had individual performance
measures as determined by the Chairman. Earnings growth and sales growth fell
within the performance range approved by the Committee at the beginning of the
1997 plan year, and the appropriate incentive payout in cash or a combination of
cash and Common Shares was made to executive officers.
Long-term Incentives. The Company has an equity-based award plan that provides
for awards of share options, restricted shares, share appreciation rights,
limited share appreciation rights and performance units. This plan is designed
to create long-term incentives that align the interests of the Company's
shareholders and its management. The plan is available to midlevel and senior
Company officers and executives who are responsible for the Company's long-term
growth.
In 1996, each Named Executive Officer was granted options to purchase
18,000 Common Shares; these options vest in 33-1/3% annual increments. In the
past, the Compensation Committee has annually made a grant
7
<PAGE> 10
of options to executive officers. The 1996 grant of 18,000 options is intended
to cover a three-year period. Other than a grant of 16,000 options to Kenneth S.
Sekley on December 9, 1997 (the date of his employment with the Company), no
additional option grants were made in 1997, and the committee does not currently
anticipate additional option grants in 1998. The Compensation Committee believes
that option grants should continue to provide eligible employees a proprietary
and vested interest in the growth and performance of the Company, and it does
not specifically consider the number of options held by an employee in making an
award.
The Incentive Plan also provides for the award of Restricted Shares to
executive officers. The shares, which were awarded to executive officers in 1996
(except for Kenneth S. Sekley, who was awarded Common Shares in 1997), are
subject to forfeiture if growth objectives for 1996, 1997 and 1998, as measured
by cumulative compounded earnings per share, are not met.
CHIEF EXECUTIVE OFFICER COMPENSATION. The Company's compensation philosophy for
its Chief Executive Officer is based on the principles of corporate and
individual performance set forth above. The Company has an employment agreement
with William A. Foley, its Chairman of the Board, President and Chief Executive
Officer (the "Employment Agreement"), which was entered into in July 1993.
During 1997, the Company entered into a Retention Agreement with Mr. Foley, as
well as other executive officers, designed to assure that the Company will have
the continued dedication of the executive, notwithstanding the threat of a
change of control of the Company, by providing the executive with compensation
and benefits arrangements upon a change of control which ensure that the
compensation and benefits are competitive with those of similar corporations.
Base Salary. Mr. Foley's base salary for fiscal year 1997 was $300,000 and has
been adjusted for fiscal year 1998 to $345,000, which was targeted as described
in the third paragraph of this report. Mr. Foley's annual base salary may be
increased in accordance with performance standards established by the
Compensation Committee and approved by the Board of Directors from time to time.
Short-term Incentives. Mr. Foley received an incentive payout of $156,720 in
1998 for attainment of objectives in 1997. Mr. Foley received his targeted level
of the discretionary portion of the incentive award based on the Committee's
review of Mr. Foley's accomplishments during 1997 and the Company's progress
with respect to certain strategic initiatives. Mr. Foley received a portion of
his payout in Common Shares (1,726 Common Shares, with a market value of
$39,159), which are restricted from trade for a period of six months, and a
portion in cash ($117,561).
Long-term Incentives. Mr. Foley was granted options to purchase up to 300,000
Common Shares in July 1993 pursuant to the Employment Agreement. These options
vest at the rate of 20% per year over a five-year period beginning on June 30,
1994. The per share exercise prices of $9.33 per share for the first 60,000
Common Shares and $10.00 per share for the remaining 240,000 Common Shares were
set below the then-current market price of $15.167 (adjusted for a 3-for-2 stock
split) in lieu of additional cash compensation and to provide Mr. Foley an
enhanced proprietary and vested interest in the future growth and performance of
the Company. During 1996, Mr. Foley was granted options to purchase 18,000
Common Shares under the Company's equity-based award plan; these options vest in
33-1/3% annual increments. As stated above, this grant is intended to cover a
three-year period in lieu of annual grants. Mr. Foley was awarded 6,207
restricted performance shares in 1996, which are subject to forfeiture if growth
objectives for 1996, 1997 and 1998 are not met.
In 1996, the Compensation Committee formalized a performance appraisal
process for the Chief Executive Officer. The Committee continued this process in
1997 and plans to continue this process in 1998 and to make appropriate
recommendations to the Board with respect to Chief Executive Officer
compensation.
The Compensation Committee
J. Martin Erbaugh, Chairman
Drexel Bunch
Stanley M. Fisher
Lee C. Howley
8
<PAGE> 11
PERFORMANCE COMPARISON
The following graph illustrates the return that would have been realized
(assuming reinvestment of dividends) by an investor who invested $100 on
December 31, 1992 in each of (i) the Company's Common Shares, (ii) the NASDAQ
Industrial Index, and (iii) a fund investing proportionately, based on
respective market capitalization, in the common stocks of the group of companies
which the Company has identified as its peer group solely for this purpose.
<TABLE>
<CAPTION>
Measurement Period PEER
(Fiscal Year Covered) LESCO NASDAQ GROUP
<S> <C> <C> <C>
1992 100 100 100
1993 141.92 107.15 121.27
1994 114.60 103.73 108.85
1995 136.37 133.07 122.20
1996 151.71 153.07 126.25
1997 193.34 168.43 166.43
</TABLE>
The Company is engaged in the manufacture and marketing of an extensive
line of golf course and lawn care products. These products include fertilizers,
turf protection products, grass seed, turf care equipment, replacement parts and
golf course accessories. In reviewing published industry and line of business
indexes, the Company has not identified an index which portrays the Company's
line of business. The Company competes with national suppliers that market
strictly fertilizers, turf protection products or equipment directly to the end
users. The Company also competes with numerous privately held regional and local
suppliers which offer a more diverse line of turf care products than do the
national suppliers. LESCO believes it is the only national, publicly held
company that supplies a full range of products to the turf industry and sells
directly to the end user.
Therefore, for purposes of preparing the above graph, LESCO has selected a
peer group of publicly held companies as follows:
- Toro Company -- Manufactures lawn maintenance equipment.
- General Host -- Operates a chain of specialty retail stores devoted to
the sale of lawn and garden products, craft and Christmas merchandise.
- Ringer Corp. -- Develops and sells environmentally compatible lawn,
garden and turf products.
- The Scotts Company -- Manufactures and markets consumer do-it-yourself
lawn care and professional golf course turf care products. (Scotts
commenced trading on NASDAQ in 1992 and is included in the peer group
index only after December 31, 1992.)
The above list represents publicly held companies that manufacture or
market turf care-related products. The Company intends to add to this peer group
list as additional publicly held companies are identified.
9
<PAGE> 12
PROPOSED AMENDMENT TO THE 1992 STOCK INCENTIVE PLAN
PROPOSED AMENDMENT TO THE PLAN
The Board of Directors has adopted and proposed for shareholder approval
the amendment and restatement of the 1992 Stock Incentive Plan (the "Amended
1992 Plan") to reflect the changes that have been made to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and to certain
provisions of the Internal Revenue Code (the "Code").
DESCRIPTION OF THE PLAN
Purpose. The purpose of the Amended 1992 Plan is to encourage selected employees
of the Company and its subsidiaries and directors to acquire a proprietary and
vested interest in the growth and performance of the Company, and thus generate
an increased incentive to contribute to the Company's future success and
prosperity. The Board of Directors believes that this will enhance the value of
the Company for the benefit of shareholders and enhance its ability to attract
and retain individuals of exceptional talent.
The Amended 1992 Plan permits the granting of (1) options to purchase
Common Shares ("Options") which are either Non-Statutory Stock Options not
intended to qualify for special tax treatment under the Code ("Non-Statutory
Stock Options") or Options which are intended to qualify as Incentive Stock
Options under the Code ("Incentive Stock Options"); (2) rights to receive a
payment in cash or in Common Shares, or in any combination thereof, equal to the
excess of the fair market value of a stated number of Common Shares at the
exercise date over a fixed price for those Common Shares ("SARs"), either in
conjunction with Options or separately; (3) awards ("Restricted Stock Awards")
of Common Shares that are subject to restrictions on transfer ("Restricted
Stock"); (4) grants of unrestricted Common Shares ("Stock Awards"); and (5)
awards of units that increase or decrease based on the value of Common Shares
and that increase by the amount of dividends that are paid with respect to
Common Shares ("Performance Units"). All employees of the Company and its
subsidiaries and all members of the Board of Directors are eligible to be
participants in the Amended 1992 Plan.
Administration. The Amended 1992 Plan will be administered by a committee of the
Board of Directors (the "Committee") consisting of not less than two Board
members, who are "Non-Employee Directors" (within the meaning of the rules
promulgated under Section 16(b) of the Exchange Act) and "Outside Directors"
(within the meaning of Section 162(m) of the Code). The Committee will have full
authority to select the individuals to whom awards will be granted, to determine
the type and amount of award(s) to be granted to each participant, to determine
the terms and conditions of awards granted, to establish rules and regulations
for the administration of the Amended 1992 Plan, and to determine the terms and
conditions of agreements which will be entered into with participants conforming
to the provisions of the Amended 1992 Plan. Option agreements will set forth the
number of Common Shares that are subject to the option, the type of option
granted, the option price per Common Share to be paid upon exercise (the "Option
Price"), the manner in which the option is to be exercised, the option period,
and such other terms as may be approved by the Committee.
Shares Subject to the Amended 1992 Plan. The total shares available under the
Amended 1992 Plan for the grant of Options is limited to 1,000,000 shares. The
number of Common Shares which remain available for grant pursuant to the Amended
1992 Plan and Common Shares subject to outstanding awards will be appropriately
and proportionately adjusted to reflect changes in the Company's capitalization,
including stock splits, stock dividends, mergers, reorganizations,
consolidations, and recapitalizations. The total number of shares subject to any
awards granted to a participant during any five-year period cannot exceed
500,000.
Options. For Options granted to employees under the Amended 1992 Plan, the
Option Price will be 100% of the fair market value of Common Shares on the date
of grant. The Option Price under an Incentive Stock Option will be determined by
the Committee at the time of grant and will be not less than 110% of the fair
market value of the Common Shares at the date of grant in the case of a
participant who, at the date of grant, owns shares possessing more than 10% of
the total combined voting power of all classes of stock of the Company. Payment
of the Option Price upon exercise of an option may be made in cash, Common
Shares, or a combination, as set forth
10
<PAGE> 13
in the option agreement. The purchase price per share under outstanding Options
will also be appropriately adjusted to reflect capitalization changes or other
changes in corporate structure affecting the Common Shares.
The term of each Option will be fixed by the Committee, except that
Incentive Stock Options will not be exercisable after ten years from the grant
date, or five years in the case of a participant who at the date of grant owns
shares possessing more than 10% of the voting power of the Company. The grant
and terms of Incentive Stock Options will be limited to the extent required by
the Code. The Committee will determine the time or times at which, and the
conditions under which, each Option may be exercised. The Committee may provide
that Options may be exercisable only in installments and the Committee may waive
such installment exercise provisions.
If the Option Price of any Option granted to a participant under the
Amended 1992 Plan is paid in whole or in part by surrendering Common Shares
already owned by the optionee, there will automatically be granted, on the date
when the original Option is exercised, a "reload" or "replacement" Option
("Reload Option") for the number of Common Shares surrendered. The term of a
Reload Option is equal to the remaining term of the original Option and it is
exercisable six months following the grant date. The Company, however, will only
grant a Reload Option if the fair market value of the Common Shares on the date
of exercise is equal to or greater than 120% of the Option Price of the Option
exercised.
All outstanding Options will become exercisable with respect to 100% of the
subject shares upon the occurrence of a Change in Control. Options granted under
the Amended 1992 Plan are not assignable or transferrable other than by
inheritance.
Stock Appreciation Rights. SARs may be granted pursuant to the Amended 1992 Plan
separately or in tandem ("Tandem SARs") with other awards. SARs related to
Options may be granted when the Option is granted and, with respect to
Non-Statutory Options, also may be granted at any time before exercise or
expiration of the Option. Tandem SARs will terminate upon the termination or
exercise of the related Option subject to such provisions as the Committee may
specify at grant if an SAR is granted with respect to less than the full number
of shares covered by the related Option. Upon exercise of an SAR, the holder
will receive payment from the Company in an amount equal to the excess of the
then fair market value of the Common Shares covered by the SAR over the Option
or grant price of the SAR. The Committee may impose such conditions or
restrictions on the exercise of any SAR as it deems appropriate from time to
time. SARs granted under the Amended 1992 Plan are not assignable or
transferrable other than by inheritance.
Tandem SARs will be exercisable only at such time or times and to the
extent that the Options to which they relate are exercisable, and SARs granted
separately will be exercisable as the Committee may determine.
The Committee may also grant "Limited" SARs that become exercisable only in
the event of a Change in Control, subject to such terms and conditions as the
Committee may specify at grant. Such Limited SARs shall be settled solely in
cash. The Committee may also provide that, in the event of a Change in Control,
the amount to be paid upon the exercise of an SAR or Limited SAR shall be based
on the Change in Control price, subject to such terms and conditions as the
Committee may specify at grant.
Restricted Stock Awards. Restricted Stock Awards may be granted pursuant to the
Amended 1992 Plan either separately or in conjunction with other awards. Common
Shares covered by Restricted Stock Awards may not be sold, pledged, assigned, or
otherwise transferred or encumbered by the recipient, except by will or by the
laws of descent and distribution, until termination of the restrictions
applicable to the award, which will be established by the Committee and need not
be the same for each award. However, during the restriction period, recipients
will have full voting rights and will be entitled to dividends relating to such
Common Shares payable, at the discretion of the Committee, in cash or additional
Common Shares.
Stock dividends issued with respect to restricted stock shall be treated as
additional shares of restricted stock that are subject to the same restrictions
and other terms and conditions that apply to the restricted stock with respect
to which such dividends are issued. If an employee ceases to be employed before
the end of the restriction period, all Common Shares subject to restriction will
be forfeited to the Company, except that in the event of
11
<PAGE> 14
retirement, permanent disability, death, or in cases of special circumstances,
the Committee is permitted to waive or accelerate all or part of any remaining
restrictions.
Stock Awards. Awards of Common Shares may be granted under the Amended 1992 Plan
either separately or in conjunction with other awards. The Committee will have
complete authority as to the employees to whom Stock Awards will be granted, the
number of Common Shares to be awarded, and all terms and conditions of each
award.
Performance Units. Performance Units may be granted under the Amended 1992 Plan
either separately or in conjunction with other awards. The Committee has
complete authority to select the employees to whom Performance Units shall be
awarded, and all the terms and conditions of each award.
Each Performance Unit will be deemed to be equivalent to one Common Share.
The value of each Performance Unit at the time of its grant is zero. The value
of each Performance Unit shall, at the end of each fiscal year of the Company,
be increased or decreased (but in no event below zero) by an amount equal to the
increase or decrease in the fair market value of one Common Share of the
Company, plus amounts equal to dividends payable in cash or property paid from
time to time on each issued and outstanding share of Common Stock.
ACCOUNTING TREATMENT
Under present accounting rules for Non-Statutory Options and Incentive
Stock Options, to the extent the fair market value of the shares subject to such
Options is equal to the Option Price at the date of grant of the Option, no
charge to earnings for compensation expense is necessary. Further, if the fair
market value of the shares subject to those Options increases subsequent to the
date of grant, the appreciation is not recorded as a charge to earnings.
SARs and Performance Units are treated differently from Options under
present accounting rules. During the period an SAR or Performance Unit is
outstanding and is expected to be exercised, there will be a charge to earnings
for compensation expense in an amount by which the fair market value of the
shares covered by the grant exceeds the fair market value of those shares on the
date of grant.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the general federal income tax
consequences of transactions under the Amended 1992 Plan based on federal income
tax laws in effect as of the date of this description. This summary is not
intended to be exhaustive and does not describe foreign, state or local tax
consequences.
Incentive Stock Options. No taxable income is realized by the optionee upon the
grant or exercise of an Incentive Stock Option. If shares are issued to an
optionee pursuant to the exercise of an Incentive Stock Option, and if no
disqualifying disposition of such shares is made by such optionee within two
years after the date of grant or within one year after the transfer of such
shares to such optionee, then (a) upon the sale of such shares, a long-term
capital gain or loss will be realized in an amount equal to the difference
between the option price and the amount realized by the optionee and (b) no
deduction will be allowed to the optionee's employer for federal income tax
purposes.
If shares acquired upon the exercise of an Incentive Stock Option are
disposed of prior to the expiration of either holding period described above,
generally (i) the optionee realizes ordinary income in the year of disposition
in an amount equal to the excess (if any) of the fair market value of the shares
on the date of exercise (or, if less, the amount realized on the disposition of
the shares) over the option price paid for such shares and (ii) the optionee's
employer will be entitled to deduct any such amount realized if the optionee's
employer satisfies applicable federal withholding and reporting requirements.
Any further gain (or loss) realized (i.e., the difference between the amount
realized and the fair market value of the shares on the date of exercise, in the
case of a gain, or the option price, in the case of a loss) by the participant
will be taxed as short-term, mid-term or long-term capital gain (or loss), as
the case may be, and will not result in any deduction for the employer.
12
<PAGE> 15
For the purposes of computing an optionee's alternative minimum tax, the
excess of the fair market value of the shares on the date of exercise over the
option price is an item of tax preference (unless there is a disposition of the
shares acquired upon exercise of an Incentive Stock Option in the taxable year
of exercise) which may, under certain circumstances, result in an alternative
minimum tax liability to the optionee.
With respect to the exercise of an Incentive Stock Option and the payment
of the option price by the delivery of shares, to the extent that the number of
shares received does not exceed the number of shares surrendered, no taxable
income will be realized by the optionee at that time; the tax basis of the
shares received will be the same as the tax basis of the shares surrendered and
the holding period (except for purposes of the one-year period referred to
above) of the optionee in shares received will include his holding period in the
shares surrendered. To the extent that the number of shares received exceeds the
number of shares surrendered, no taxable income will be realized by the optionee
at that time, such excess shares will be considered incentive stock option stock
with a zero basis, and the holding period of the optionee in such shares will
begin on the date such shares are transferred to the optionee. If the shares
surrendered were acquired as the result of the exercise of an Incentive Stock
Option and the surrender takes place within two years from the date of grant of
such Incentive Stock Option or one year after the date of transfer of such
shares to the optionee, the surrender will result in the realization of ordinary
income by the optionee at that time in the amount of the excess, if any, of the
fair market value on the date of exercise of the shares surrendered over the
option price of such shares. If any of the shares received are transferred
within the two-year or one-year holding period by the optionee, the optionee
will be treated as having first disposed of the shares with a zero basis.
Non-Statutory Stock Options. With respect to Non-Statutory Stock Options with an
exercise price equal to the fair market value of the shares on the date of
grant, generally, (a) no income is realized by the optionee at the time the
option is granted, (b) upon exercise of the option, the optionee realizes
ordinary income in an amount equal to the excess, if any, of the fair market
value of the shares on the date of exercise over the option price paid for the
shares, and the optionee's employer is entitled to a tax deduction in the amount
of ordinary income realized (provided that applicable withholding and reporting
requirements are satisfied), and (c) upon disposition of the shares received
upon the exercise of the option, the optionee receives either a short-term,
mid-term or long-term capital gain (or loss), depending upon the length of time
that the optionee has held the shares, in an amount equal to the difference
between the amount realized and the fair market value of the shares on the date
of exercise, and no corresponding deduction is available to the employer.
With respect to the exercise of a Non-Statutory Stock Option and the
payment of the option price by the delivery of shares, to the extent that the
number of shares received does not exceed the number of shares surrendered, no
taxable income will be realized by the optionee at that time, the tax basis of
the shares received will be the same as the tax basis of the shares surrendered,
and the holding period of the optionee in the shares received will include his
holding period in the shares surrendered. To the extent that the number of
shares received exceeds the number of shares surrendered, ordinary income will
be realized by the optionee at the time in the amount of the fair market value
of such excess shares, the tax basis of such excess shares will be such fair
market value, and the holding period of the optionee in such shares will begin
on the date such shares are transferred to the optionee.
Stock Appreciation Rights. No income will be realized by an optionee in
connection with the grant of an SAR. When the SAR is exercised, the optionee
will generally be required to recognize as ordinary income in the year of
exercise an amount equal to the sum of the amount of cash and the fair market
value of any shares received. The optionee's employer will be entitled to a
deduction at the time in an amount equal to the amount included in such
optionee's ordinary income by reason of the exercise. If the optionee receives
shares upon the exercise of an SAR, the post-exercise appreciation (or
depreciation) will be treated as a capital gain or loss in the same manner as
discussed above under "Non-Statutory Stock Options."
Restricted Stock Awards. A recipient of a Restricted Stock Award generally will
recognize ordinary income in an amount equal to the excess of the fair market
value of the Restricted Stock at the time such shares are transferable or not
subject to a substantial risk of forfeiture over the consideration, if any, paid
for the stock. However, within thirty days of the date of grant, a recipient may
elect under Section 83(b) of the Code to recognize taxable
13
<PAGE> 16
ordinary income on the date of grant equal to the excess of the fair market
value of the shares of Restricted Stock on such date (determined without regard
to any restrictions other than restrictions which will never lapse) over the
consideration paid for such Restricted Stock. With respect to the sale of shares
after they have become transferable or no longer subject to a substantial risk
of forfeiture, unless the recipient makes an election under Section 83(b), the
holding period to determine whether the recipient has long-term, mid-term or
short-term capital gain or loss generally begins when the shares are
transferable or no longer subject to a substantial risk of forfeiture, and the
tax basis for such shares generally will be equal to the fair market value of
the shares on such date (determined without regard to the restrictions). If the
recipient makes an election under Section 83(b) of the Code, the holding period
will begin on the date the shares are received and the tax basis will be equal
to the fair market value of the shares on such date. The recipient's employer
generally will be entitled to a deduction equal to the amount that is taxable as
ordinary income to the recipient, provided applicable withholding and reporting
requirements are satisfied.
Capital Gains. Under current law, long-term capital gains of individuals are
subject to a maximum rate of 20% (or 10% for individuals in the 15% ordinary
income tax bracket). Mid-term capital gains of individuals are subject to the
same tax rates as those applicable to ordinary income, subject to a maximum rate
of 28%. Short-term capital gains of individuals are subject to the same tax
rates as those applicable to ordinary income. Capital losses must be offset
against any capital gains, and only the lesser of the excess of such capital
losses over such capital gains or $3,000 ($1,500 in the case of a married
individual filing a separate return) is deductible against other income.
Long-term capital gain or loss treatment is applicable if the holding
period is more than eighteen months. Mid-term capital gain or loss treatment is
applicable if the holding period is more than one year but not more than
eighteen months. Short-term capital gain or loss treatment is applicable if the
holding period is one year or less.
Dividends and Dividend Equivalents. Dividends paid on Restricted Stock generally
will be treated as compensation that is taxable as ordinary income to the
participant and will be deductible by the participant's employer. If, however,
the participant makes a timely Section 83(b) election, the dividends will be
taxable as dividends rather than as compensation income to the participant and
will not be deductible by the participant's employer.
SECTION 162(m) DEDUCTION LIMIT
The Plan is being submitted to and approved by the Company's shareholders
pursuant to the requirements of Section 162(m) of the Code. Section 162(m)
limits to $1 million per year the deduction allowed for Federal income tax
purposes for compensation paid to a "covered employee" of a public company
("Deduction Limit"). Under Section 162(m), the term "covered employee" includes
the chief executive officer and the four other most highly compensated executive
officers of the employer. The Deduction Limit applies to compensation which does
not qualify for any of the limited number of exceptions provided for in Section
162(m).
Under Section 162(m), the Deduction Limit does not apply to compensation
paid under a plan that meets certain requirements for "performance-based
compensation." To qualify for this exception, the following requirements must be
met: (a) the compensation must be payable on account of the attainment of one or
more pre-established objective performance goals; (b) the performance goals must
be established by a compensation committee of the board of directors that is
comprised solely of two or more "outside directors"; (c) the material terms of
the compensation and performance goals must be disclosed to and approved by
shareholders before payment; and (d) the compensation committee must certify in
writing that the performance goals have been satisfied prior to payment.
Stock options and stock appreciation rights with an exercise or base price
equal to the fair market value of the employer's stock on the date of grant
generally are treated as "performance-based compensation" which is exempt from
the Deduction Limit of Section 162(m), since the amount earned, if any, results
solely from an increase in the employer's stock price. While the requirements of
pre-established performance goals and compensation committee certification of
performance results do not apply to such stock options and stock appreciation
rights, the awards must be made by a board committee comprised solely of
"outside directors." Further, to qualify for the exemption, the material terms
of the plan must be disclosed to and approved by
14
<PAGE> 17
shareholders and the plan must specify the maximum number of shares that may be
awarded to any employee under the plan within a specified period.
It is the Company's present intent to structure its incentive compensation
programs to satisfy the requirements for the "performance-based compensation"
exception to the Deduction Limit and, thus, to preserve the full deductibility
of all compensation paid thereunder, to the extent practicable. As a
consequence, the Amended 1992 Plan is submitted to the Company's shareholders
for approval in accordance with the requirements for the "performance-based
compensation" exception to the Deduction Limit. If such approval is obtained,
compensation attributable to Stock Options and SARs awarded under the Amended
1992 Plan with an exercise or base price equal to the fair market value of the
Common Shares on the date of grant will not be subject to the Deduction Limit.
Approval of the Amended 1992 Plan requires the affirmative vote of the
holders of a majority of the Common Shares represented at the meeting. If
approved by the shareholders, the Amended 1992 Plan will continue in effect
until terminated by the Board of Directors.
The Board of Directors recommends a vote FOR this proposal.
15
<PAGE> 18
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Shares as of March 30, 1998 (unless
otherwise indicated) by each of the directors (including nominees to be elected
as Directors), each of the Named Executive Officers, the directors and executive
officers as a group, and each person known to the Company to be the beneficial
owner of five percent or more of the outstanding Common Shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
------------------------------
BENEFICIAL NUMBER PERCENT
---------- ------------- -----------
<S> <C> <C>
Ronald Best............................................. 0 *
Drexel Bunch............................................ 500 *
Robert F. Burkhardt(2)(3)(4)............................ 540,189 6.5
Paul H. Carleton........................................ 300 *
David H. Clark.......................................... 10,750 *
J. Martin Erbaugh(5).................................... 24,184 *
Stanley M. Fisher(6).................................... 20,350 *
Michael J. FitzGibbon(7)................................ 21,087 *
William A. Foley(2)(3)(8)............................... 266,801 3.1
John M. Freise(2)(3).................................... 27,986 *
Ware H. Grove(2)(3)..................................... 33,978 *
F. Leon Herron, Jr.(9).................................. 2,700 *
Lee C. Howley(10)....................................... 12,500 *
William B. Nicol........................................ 600 *
Kenneth S. Sekley(3).................................... 10,915 *
C. Thomas Smith(3)...................................... 20,399 *
Michael A. Sotak........................................ 512 *
Karl E. Ware(11)........................................ 14,700 *
All directors, nominees and executive officers
as a group (18 persons)............................... 1,008,451 12.2
Naomi C. FitzGibbon(12)................................. 831,807 10.0
1285 Gulfshore Blvd., North 6-D
Naples, Florida 34102
Kalmar Investments Inc.(13)............................. 424,525 5.1
3701 Kennett Pike
Greenville, Delaware 19807
</TABLE>
- ---------------
* Less than one percent
(1) The persons named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them, subject to the
information contained in the footnotes below.
(2) Includes shares held by the LESCO, Inc. Stock Investment and Salary Savings
Plan and Trust which are beneficially owned by the named persons as
follows: Mr. Burkhardt, 152,659 shares; Mr. Foley, 2,268 shares; Mr.
Freise, 1,284 shares; and Mr. Grove, 557 shares. Persons who beneficially
own shares held by the LESCO, Inc. Stock Investment and Salary Savings Plan
and Trust have sole voting power with respect to such shares.
(3) The following hold exercisable options to purchase the shares as indicated:
Mr. Burkhardt, 58,900 shares; Mr. Foley, 213,621 shares; Mr. Freise, 22,000
shares; Mr. Grove, 27,000 shares; Mr. Sekley, 10,000 shares; and Mr. Smith,
17,505 shares.
(4) Includes 68,885 shares owned by Mr. Burkhardt's wife; 13,700 shares owned
by the Robert and Virginia Burkhardt Charitable Foundation; 118,100 shares
owned by the Burkhardt Family Limited Partnership
16
<PAGE> 19
(Mr. Burkhardt disclaims beneficial ownership with respect to 113,376 of
these shares); and 6,140 shares owned by Mr. Burkhardt's wife as custodian
for minor grandchildren.
(5) Includes 1,800 shares owned by Mr. Erbaugh's wife and 4,684 shares owned by
his minor children.
(6) Includes 19,750 shares in a Rollover Individual Retirement Account, 400
shares held by Stanley M. Fisher, Trustee, and 200 shares owned by Mr.
Fisher's wife on the date of their marriage, August 29, 1997.
(7) Excludes 102,195 shares owned by Lakeshore Partners, of which Mr.
FitzGibbon has a 32% limited partnership interest and Naomi C. FitzGibbon,
Mr. FitzGibbon's mother, is the sole shareholder of J & N Corporation, the
General Partner.
(8) Includes 1,840 shares owned by Mr. Foley's minor children.
(9) Includes 200 shares owned by Mr. Herron's wife.
(10) All shares owned by the Howley Family Partnership.
(11) Includes 8,700 shares owned jointly by Mr. Ware and his wife, and 6,000
shares owned by his daughter.
(12) Includes 102,195 shares owned by Lakeshore Partners, of which Mrs.
FitzGibbon is the sole shareholder of J & N Corporation, the General
Partner (Mrs. FitzGibbon disclaims beneficial ownership with respect to
98,107 of these shares); 139,961 shares owned by the Naomi C. FitzGibbon
Charitable Remainder Unitrust, of which Mrs. FitzGibbon is sole trustee;
9,680 shares held by the FitzGibbon Family Foundation (of which Mrs.
FitzGibbon disclaims beneficial ownership), of which Mrs. FitzGibbon is
sole trustee; and 13,050 shares owned by the James I. FitzGibbon Trust, of
which Stanley M. Fisher is Trustee.
(13) Based on information set forth on a Schedule 13G dated January 20, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on the Company's review of Forms 3, 4 and 5 filed by or on
behalf of the Company's directors, executive officers and principal shareholders
and certain written representations from those persons, which have been
submitted to the Company with respect to the 1997 fiscal year, pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended, it appears
that one report for Mr. Fisher covering one transaction of 200 shares owned by
his wife at the time of their marriage was inadvertently filed late.
CERTAIN TRANSACTIONS
Arter & Hadden, a law firm with which Stanley M. Fisher is Of Counsel,
performed legal services for the Company during 1997. Mr. Fisher was a director
of the Company during 1997.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as the independent auditors for the
Company for the fiscal year ended December 31, 1997, and the Company has
selected Ernst & Young LLP to so serve for the year ending December 31, 1998. A
representative of Ernst & Young LLP is expected to be present at the annual
meeting of shareholders. This representative will be afforded an opportunity to
make a statement at the meeting, if he so desires, and will be available to
respond to appropriate questions.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered for inclusion in the Proxy
Statement for next year's annual meeting of shareholders must be received by the
Company at 20005 Lake Road, Rocky River, Ohio 44116, on or before December 8,
1998.
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<PAGE> 20
OTHER MATTERS
The management of the Company does not know of any matters which may
properly be presented at the meeting other than as specifically set forth in the
Notice of Annual Meeting. If any other matter comes before the meeting or any
adjournment thereof, the persons named in the accompanying form of Proxy and
acting thereunder will vote in accordance with their best judgment with respect
to such matter.
LESCO, INC.
Patricia W. Pribisko, Secretary
DATED: April 9, 1998
18
<PAGE> 21
(RECYCLED PAPER LOGO)
<PAGE> 22
DETACH CARD
- --------------------------------------------------------------------------------
LESCO, INC. PROXY SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR ANNUAL MEETING MAY 13, 1998
The undersigned appoints William A. Foley, Ware H. Grove and Patricia W.
Pribisko as Proxies, each with full power to appoint his or her substitute, and
hereby authorizes them to represent and to vote as designated below, all the
Shares of LESCO, Inc. held of record by the undersigned on April 3, 1998, at the
Annual Meeting of shareholders to be held on May 13, 1998, or any adjournment
thereof.
1. ELECTION OF DIRECTORS.
<TABLE>
<C> <S> <C> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
[ ] (except as marked to the contrary below) [ ] to vote for all nominees listed below
</TABLE>
William A. Foley, Robert F. Burkhardt, Paul H. Carleton, David H. Clark,
Drexel Bunch, J. Martin Erbaugh, Michael J. FitzGibbon, Lee C. Howley and Ronald
Best
(Instructions: To withhold authority for any individual nominee(s), write the
name of such nominee(s) in the space provided below.)
- --------------------------------------------------------------------------------
2. Proposal to amend and restate the 1992 Stock Incentive Plan. [ ] FOR [
] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued and to be signed on reverse side)
<PAGE> 23
DETACH CARD
- --------------------------------------------------------------------------------
(Continued from other side)
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR the nominees listed in item 1 above and FOR items 2 and 3 above. If voting
for directors is cumulative, the Proxies may cumulate or distribute votes in
such fashion as they believe will maximize the number of persons elected from
among nominees for whom authority is granted.
Please sign exactly as name appears below. When shares are held as joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
Dated _______________, 1998
----------------------------
Signature
----------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
