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:
[ ] 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
WATSCO, INC.
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(Name of Registrant as Specified In Its Charter)
WATSCO, INC.
----------------------------------------------------------------------
(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) and 0-11.
Title of each class of securities to which transaction applies:
...............................................................................
Aggregate number of securities to which transaction applies:
...............................................................................
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):
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Proposed maximum aggregate value of transaction:
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Total fee paid:
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Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing. 1) Amount Previously Paid:
...............................................................................
Form, Schedule or Registration Statement No.:
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<PAGE>
WATSCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 3, 1998
----------------
To the Shareholders of Watsco, Inc.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders (the
"Annual Meeting") of Watsco, Inc., a Florida corporation (the "Company"), will
be held at 9:00 A.M., Eastern Daylight Time, on June 3, 1998, in the Regency
Room of the Pierre Hotel, 2 East 61st Street, New York, New York 10021, for the
following purposes:
(1) To elect one member to the Company's Board of Directors to hold
office until the 1999 Annual Meeting of Shareholders and to elect three
members to the Company's Board of Directors to hold office until the 2001
Annual Meeting of Shareholders or until their successors are duly elected
and qualified, one of whom will be elected by the holders of Common Stock
and three of whom will be elected by the holders of Class B Common Stock;
(2) To consider and act upon a proposal to ratify an amendment to the
Company's Amended and Restated 1996 Qualified Employee Stock Purchase Plan;
(3) To ratify the reappointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the year ended December 31,
1998; and
(4) To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponements thereof.
The Board of Directors has fixed the close of business on April 3, 1998 as
the record date for determining those shareholders entitled to notice of, and
to vote at, the Annual Meeting and any adjournments or postponements thereof.
Whether or not you expect to be present, please sign, date and return the
enclosed proxy card in the enclosed pre-addressed envelope as promptly as
possible. No postage is required if mailed in the United States.
By Order of the Board of Directors
BARRY S. LOGAN, Secretary
Coconut Grove, Florida
April 24, 1998
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND
THE MEETING IN PERSON. THOSE SHAREHOLDERS WHO ARE UNABLE TO ATTEND ARE
RESPECTFULLY URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE. SHAREHOLDERS WHO EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE
MEETING, REVOKE THEIR PROXY, AND VOTE THEIR SHARES IN PERSON.
<PAGE>
1998 ANNUAL MEETING OF SHAREHOLDERS
OF
WATSCO, INC.
----------------------
PROXY STATEMENT
----------------------
DATE, TIME AND PLACE OF ANNUAL MEETING
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Watsco, Inc., a Florida corporation (the "Company"),
of proxies from the holders of the Company's Common Stock, par value $.50 per
share (the "Common Stock"), and the Company's Class B Common Stock, par value
$.50 per share (the "Class B Common Stock"), for use at the 1998 Annual Meeting
of Shareholders (the "Annual Meeting") of the Company to be held at 9:00 A.M.,
Eastern Daylight Time, June 3, 1998, in the Regency Room of the Pierre Hotel, 2
East 61st Street, New York, New York, 10021, and at any adjournments or
postponements thereof, pursuant to the enclosed Notice of Annual Meeting. This
Proxy Statement and the enclosed form of proxy are first being sent to holders
of Common Stock and Class B Common Stock on or about April 24, 1998.
Shareholders should review the information provided herein in conjunction with
the Company's 1997 Annual Report to Shareholders (the "1997 Annual Report")
which accompanies this Proxy Statement. The complete mailing address, including
zip code, of the Company's principal executive office is 2665 South Bayshore
Drive, Suite 901, Coconut Grove, Florida 33133.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any shareholder giving the proxy so desire. Shareholders have an
unconditional right to revoke their proxy at any time prior to the exercise
thereof, either in person at the Annual Meeting or by filing with the Company's
Secretary at the Company's headquarters a written revocation or duly executed
proxy bearing a later date; however, no such revocation will be effective until
written notice of the revocation is received by the Company at or prior to the
Annual Meeting.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders and the enclosed proxy is to be borne
by the Company. In addition to the use of mail, employees of the Company may
solicit proxies personally and by telephone and telegraph. They will receive no
compensation therefore in addition to their regular salaries. The Company may
request banks, brokers and other custodians, nominees and fiduciaries to
forward copies of the proxy material to their principals and to request
authority for the execution of proxies. The Company may reimburse such persons
for their expenses in so doing.
<PAGE>
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's shareholders will consider and vote
upon the following matters:
(1) To elect one member to the Company's Board of Directors to hold
office until the 1999 Annual Meeting of Shareholders and to elect three
members to the Company's Board of Directors to hold office until the 2001
Annual Meeting of Shareholders or until their successors are duly elected
and qualified, one of whom will be elected by the holders of Common Stock
and three of whom will be elected by the holders of Class B Common Stock;
(2) To consider and act upon a proposal to ratify an amendment to the
Company's Amended and Restated 1996 Qualified Employee Stock Purchase Plan;
(3) To ratify the reappointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the year ended December 31,
1998; and
(4) To transact such other business as may properly come before the
Annual Meeting and any adjournments or postponements thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth above)
will be voted (a) for the election of the respective nominees for director
named below to be elected by the holders of Common Stock and by the holders of
Class B Common Stock (see "Outstanding Voting Securities and Voting Rights"),
and (b) in favor of all other proposals described in the Notice of Annual
Meeting or as may properly come before the Annual Meeting. In the event a
shareholder specifies a different choice by means of the enclosed proxy, such
shares will be voted in accordance with the specification so made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on April 3, 1998, as
the record date (the "Record Date") for determining shareholders of the Company
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
there were 15,438,163 shares of Common Stock and 2,163,153 shares of Class B
Common Stock issued and outstanding, all of which are entitled to be voted at
the Annual Meeting. Holders of Common Stock are entitled to one vote per share
on each matter that is submitted to shareholders for approval and vote as a
separate class to elect 25 percent of the directors of the Company (rounded up
to the next whole number), which presently equates to three directors. Holders
of Class B Common Stock are entitled to ten votes per share on each matter that
is submitted to shareholders for approval and vote as a separate class to elect
75 percent of the directors (rounded down to the next whole number), which
presently equates to six directors. See "Election of Directors."
The attendance, in person or by proxy, of the holders of Common Stock and
Class B Common Stock representing a majority of the combined voting power of
the outstanding shares of such stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum. For purposes of electing
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<PAGE>
directors at the Annual Meeting, the nominees receiving the greatest number of
votes of Common Stock and Class B Common Stock, voting as separate classes
shall be elected as directors.
The affirmative vote of a majority of votes of Common Stock and Class B
Common Stock present, in person or by proxy at the Annual Meeting and voting
together as a single class, is required for the approval of (i) the proposal to
ratify an amendment to the Company's Amended and Restated 1996 Qualified
Employee Stock Purchase Plan (the "Stock Purchase Plan"); (ii) the proposal to
ratify the reappointment of Arthur Andersen LLP as the Company's independent
certified public accountants for the year ended December 31, 1998; and (iii)
any other matter that may be submitted to a vote of the Company's shareholders.
As of the Record Date, the directors and executive officers of the Company
and certain entities affiliated with such persons beneficially owned (i) Common
Stock representing 7.2% of the outstanding shares of Common Stock, (ii) Class B
Common Stock representing 79.8% of the outstanding shares of Class B Common
Stock and (iii) 53.4% of the aggregated combined votes of Common Stock and
Class B Common Stock entitled to be cast at the Annual Meeting. Such persons
and entities have informed the Company that they intend to vote all of their
shares of Common Stock and Class B Common Stock in favor of all proposals set
forth in the Proxy Statement.
Prior to the Annual Meeting, the Company will select one or more
inspectors of election for the meeting. Such inspector(s) shall determine the
number of shares of Common Stock and Class B Common Stock represented at the
meeting, the existence of a quorum and the validity and effect of proxies, and
shall receive, count and tabulate ballots and votes and determine the results
thereof. Abstentions will be considered as shares present and entitled to vote
at the Annual Meeting and will be counted as votes cast at the Annual Meeting,
but will not be counted as votes cast for or against any given matter. If less
than a majority of the combined voting power of the outstanding shares of
Common Stock and Class B Common Stock are represented at the Annual Meeting, a
majority of the shares so represented may adjourn the Annual Meeting from time
to time without further notice.
A broker or nominee holding shares registered in its name, or in the name
of its nominee, which are beneficially owned by another person and for which it
has not received instructions as to voting from the beneficial owner, may have
discretion to vote the beneficial owner's shares with respect to the election
of directors and other matters addressed at the Annual Meeting. Any such
shares, which are not represented at the Annual Meeting either in person or by
proxy, will not be considered to have cast votes on any matters addressed at
the Annual Meeting.
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<PAGE>
BENEFICIAL SECURITY OWNERSHIP
The following table sets forth as of the Record Date, information with
respect to the beneficial ownership of the Company's Common Stock and Class B
Common Stock by (i) each shareholder known by the Company to beneficially own
more than 5% of any class of the Company's voting securities, (ii) each
director of the Company who owns any such shares, (iii) each executive officer
named in the Summary Compensation Table in "Executive Compensation" and (iv)
all directors and executive officers as a group. The table also sets forth, in
its final column, the combined voting power of the voting securities on all
matters presented to the shareholders for their approval except for the
election of directors and for such separate class votes as are required by
Florida law.
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMBINED STOCK
BENEFICIALLY BENEFICIALLY COMBINED
OWNED(2) OWNED(2) PERCENT
NAME AND ADDRESS ------------------------ ----------------------- OF VOTING
OF BENEFICIAL OWNERS(1) SHARES PERCENT SHARES PERCENT SECURITIES(2)
- ----------------------- ------------ --------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
Alna Capital Associates(3) ..................... 160,185 1.0% 1,016,201 47.0% 27.8%
Albert H. Nahmad(4) ............................ 470,972 3.0 2,042,211 73.8 48.2
Palisade Capital Management, L.L.C.(5) ......... 1,272,700 8.2 -- -- 3.4
Rheem Manufacturing Company(6) ................. 1,446,541 9.4 -- -- 3.9
T. Rowe Price and Associates, Inc.(7) .......... 1,824,400 11.8 -- -- 4.9
The Kaufmann Fund, Inc.(8) ..................... 874,700 5.7 -- -- 2.4
Cesar L. Alvarez(9) ............................ 3,375 * -- -- *
David B. Fleeman(10) ........................... 197,544 1.3 37,917 1.8 1.6
Paul F. Manley(11) ............................. 23,749 * 837 * *
Bob L. Moss(12) ................................ 41,178 * -- -- *
Roberto Motta(13) .............................. 154,910 1.0 93,149 4.3 2.9
Ronald P. Newman(14) ........................... 5,260 * 8,189 * *
Robert J. Novello .............................. -- -- -- -- --
Alan H. Potamkin(15) ........................... 142,275 * 32,175 1.5 1.3
Barry S. Logan(16) ............................. 57,406 * -- -- *
Manuel J. Perez de la Mesa(17) ................. 45,811 * -- -- *
All directors and executive officers
as a group (11 persons)(18) .................. 1,142,480 7.2% 2,214,478 79.8% 53.4%
</TABLE>
- ----------------
* Less than 1%.
(1) Unless otherwise indicated below, (a) the address of each of the
beneficial owners identified is 2665 South Bayshore Drive, Suite 901,
Coconut Grove, Florida 33133 and (b) each person or group has sole voting
and investment power with respect to all such shares.
(2) Although each named person and all directors and executive officers as a
group are deemed to be the beneficial owners of securities that may be
acquired within 60 days through the exercise of exchange or conversion
rights, and the Class B Common Stock is immediately convertible into
Common Stock on a one-for-one basis, the number of shares set forth
opposite each shareholder's name does not include shares of Common Stock
issuable upon conversion of the Company's Class B Common Stock.
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<PAGE>
(3) Alna Capital Associates ("Alna Capital") is a New York limited partnership
of which Mr. Nahmad owns a 43% interest and is the sole general partner
and David B. Fleeman is a limited partner. The address of Alna Capital is
505 Park Avenue, 16th Floor, New York, New York 10022.
(4) Includes shares indicated as beneficially owned by Alna Capital. See
footnote (3) above. The number of shares of Common Stock indicated also
includes (i) 10,451 shares directly owned; (ii) 13,074 shares owned
pursuant to the Watsco, Inc. Amended and Restated Profit Sharing
Retirement Plan & Trust (the "Profit Sharing Plan"); (iii) 6,950 shares
owned by Mr. Nahmad's children; and (iv) 280,312 shares issuable upon
exercise of presently exercisable options granted pursuant to the 1991
Plan. The number of shares of Class B Common Stock indicated also includes
(i) 322,282 shares directly owned; (ii) 100,000 shares owned pursuant to a
Restricted Stock Agreement; and (iii) 603,728 shares issuable upon
exercise of presently exercisable options granted pursuant to the 1991
Plan.
(5) The address of Palisade Capital Management, L.L.C. is One Bridge Plaza,
Suite 695, Fort Lee, NJ 07024.
(6) The address of Rheem Manufacturing Company is 405 Lexington Avenue, 22nd
Floor, New York, New York 10174.
(7) The address of T. Rowe Price and Associates, Inc. is 100 East Pratt
Street, Baltimore, Maryland 21202.
(8) The address of The Kaufmann Fund, Inc. is 140 East 45th Street, 43rd
Floor, New York, New York 10017.
(9) The number of shares of Common Stock indicates shares issuable upon
exercise of presently exercisable options granted pursuant to the 1991
Plan.
(10) Excludes shares beneficially owned by Alna Capital. See footnote (3)
above. The number of shares of Common Stock indicated includes (i) 17,292
shares directly owned; (ii) 135,701 shares owned by Fleeman Builders, a
Florida partnership of which Mr. Fleeman is a General Partner; (iii)
29,529 shares issuable upon exercise of presently exercisable options
granted pursuant to the 1991 Plan; and (iv) 15,022 shares owned by 3JG
Trust of which Mr. Fleeman is a trustee. The number of shares of Class B
Common Stock indicated includes (i) 8,860 shares directly owned and (ii)
29,057 shares owned by Fleeman Builders.
(11) The number of shares of Common Stock indicated includes (i) 832 shares
directly owned and (ii) 22,917 shares issuable upon exercise of presently
exercisable options granted pursuant to the 1991 Plan. The number of
shares of Class B Common Stock indicates shares directly owned.
(12) The number of shares of Common Stock indicated includes (i) 18,343 shares
directly owned; (ii) 5,116 shares owned by Mr. Moss's spouse; and (iii)
17,719 shares issuable upon exercise of presently exercisable options
granted pursuant to the 1991 Plan.
(13) The number of shares of Common Stock indicated includes (i) 10,000 shares
directly owned and (ii) 144,910 shares owned by Republic Trading, Inc.
("Republic Trading") of which Mr. Motta is a principal. The number of
shares of Class B Common Stock indicated includes (i) 4,227 shares
directly owned and (ii) 88,922 shares owned by Republic Trading.
(14) The number of shares of Common Stock indicated includes (i) 1,495 shares
directly owned; (ii) 1,212 shares owned pursuant to the Stock Purchase
Plan; and (iii) 2,553 shares owned by Mr. Newman's spouse. The number of
shares of Class B Common Stock indicated represents shares issuable upon
exercise of presently exercisable options granted pursuant to the 1991
Plan.
5
<PAGE>
(15) The number of shares of Common Stock indicated includes (i) 46,950 shares
directly owned; (ii) 75,200 shares owned by two trusts of which Mr.
Potamkin is a trustee; (iii) 10,000 shares owned by Mr. Potamkin's spouse
and (iv) 10,125 shares issuable upon exercise of presently exercisable
options granted pursuant to the 1991 Plan. The number of shares of Class B
Common Stock indicates shares directly owned.
(16) The number of shares of Common Stock indicated includes (i) 300 shares
directly owned; (ii) 22,500 shares owned pursuant to Restricted Stock
Agreements; (iii) 1,914 shares owned pursuant to the Stock Purchase Plan;
(iv) 442 shares owned pursuant to the Profit Sharing Plan; and (v) 22,500
and 9,750 shares issuable upon exercise of presently exercisable options
granted pursuant to the 1983 Executive Stock Option Plan and 1991 Plan,
respectively.
(17) The number of shares of Common Stock indicated includes (i) 22,500 shares
owned pursuant to Restricted Stock Agreements; (ii) 2,070 shares owned
pursuant to the Stock Purchase Plan; (iii) 241 shares owned pursuant to
the Profit Sharing Plan and (iv) 21,000 shares of presently exercisable
options granted pursuant to the 1991 Plan.
(18) Includes shares beneficially owned by directors and executive officers, as
described in footnotes (4), (9), (10), (11), (12), (13), (14), (15), (16)
and (17).
I.
ELECTION OF DIRECTORS
NOMINEES
The Company's Amended and Restated Articles of Incorporation and Bylaws
provide that the Board of Directors shall consist of not less than three nor
more than nine members, and shall be divided, as nearly as possible, into three
equal divisions to serve in staggered terms of office of three years. Upon
election at the Annual Meeting, Mr. Newman will serve for a term expiring at
the 1999 Annual Meeting of Shareholders and Messrs. Fleeman, Moss and Novello
will serve for a term expiring at the 2001 Annual Meeting of Shareholders or
until their successors have been duly elected and qualified.
One director is to be elected at the Annual Meeting by the holders of
Common Stock voting separately as a class. Mr. Novello has been nominated as
the director to be elected by the holders of Common Stock and proxies will be
voted for Mr. Novello absent contrary instructions. Mr. Novello was appointed
as a Director of the Company in 1998.
Three directors are to be elected at the Annual Meeting by the holders of
Class B Common Stock voting separately as a class. Mr. Fleeman, who has served
as a director of the Company since 1977, Mr. Moss, who has served as a director
of the Company since 1992, and Mr. Newman, who has served as a director of the
Company since 1997, have been nominated as the directors to be elected by the
holders of Class B Common Stock. Proxies will be voted for Messrs. Fleeman,
Moss and Newman absent contrary instructions.
The Board of Directors has no reason to believe that any nominee will
refuse to act or be unable to accept election; however, in the event that a
nominee for a directorship is unable to accept election or if any other
unforeseen contingencies should arise, it is intended that proxies will be
voted for the remaining nominees, if any, and for such other person as may be
designated by the Board of Directors, unless it is directed by a proxy to do
otherwise.
6
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------- ----- --------------------------------------
<S> <C> <C>
Albert H. Nahmad 57 Chairman of the Board and President
Barry S. Logan 35 Chief Financial Officer and Secretary
Manuel J. Perez de la Mesa 41 Vice President, Operations
Cesar L. Alvarez 50 Director
David B. Fleeman 84 Director
Paul F. Manley 61 Director
Bob L. Moss 50 Director
Roberto Motta 84 Director
Ronald P. Newman 51 Director
Robert J. Novello 60 Director
Alan H. Potamkin 49 Director
</TABLE>
ALBERT H. NAHMAD has served as Chairman of the Board and President of the
Company since December 1973. Mr. Nahmad is the general partner of Alna Capital
Associates, a New York limited partnership, which is the principal voting
shareholder of the Company. Mr. Nahmad also serves as a member of the Board of
Directors of the Panama Canal Commission, a United States federal agency.
Additionally, Mr. Nahmad is a Director of American Bankers Insurance Group,
Inc. and Pediatrix Medical Group, Inc., both of which are publicly held
companies.
BARRY S. LOGAN has served as Chief Financial Officer and Secretary of the
Company since 1997 and as Treasurer since 1996. From 1992 to 1996, Mr. Logan
served as the Controller of the Company. Prior to joining the Company, Mr.
Logan, was associated with the accounting firm of Arthur Andersen LLP from 1985
to 1992.
MANUEL J. PEREZ DE LA MESA has served as Vice President, Operations of the
Company since 1996 after having served as Vice President, Finance and
Operations of Gemaire Distributors, Inc., one of the Company's primary
operating subsidiaries, from 1994 to 1996. Prior to joining the Company, Mr.
Perez served as Vice President, Planning & Development of Fresh Del Monte
Produce N.V. and in other management capacities from 1987 to 1994. Prior to
1987, Mr. Perez served in various management capacities for RJR Nabisco, Inc.
and International Business Machines Corporation from 1977 to 1987.
CESAR L. ALVAREZ has been a director of the Company since 1997. Since
1973, Mr. Alvarez has been a lawyer with the law firm of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., where he has served as chairman of its
corporate, securities and banking department and currently serves as the firm's
Chief Executive Officer and Managing Shareholder. Mr. Alvarez also serves as a
director of Pediatrix Medical Group, Inc., Atlantis Plastics, Inc., FDP Corp.
and Texpack, N.V.
7
<PAGE>
DAVID B. FLEEMAN has been a director of the Company since 1977. Since
1956, Mr. Fleeman has served as the Managing Partner of Fleeman Builders, a
Florida general partnership engaged primarily in real estate development.
PAUL F. MANLEY has been a director of the Company since 1984. Mr. Manley
served as Executive Director of the law firm of Holland & Knight from 1987 to
1991. From 1982 to 1987, Mr. Manley served as Vice President of Planning at
Sensormatic Electronics Corporation, a publicly held manufacturer of electronic
article surveillance systems. Prior to 1982, Mr. Manley served as the Managing
Partner of the Miami office of Arthur Young & Company.
BOB L. MOSS has been a director of the Company since 1992. Since 1986, Mr.
Moss has served as Chairman of the Board and President of Centex-Rooney
Enterprises, Inc., the largest general contractor in the real estate industry
in the Southeastern United States, Caribbean and Bahamas.
ROBERTO MOTTA has been a director of the Company since 1975. Mr. Motta has
been engaged as a private investor in various business activities for more than
five years.
RONALD P. NEWMAN has been a director of the Company since 1997. From 1982
to 1997, Mr. Newman served as the Company's Chief Financial Officer and
Secretary and, until 1996, as Treasurer.
ROBERT J. NOVELLO has been a director of the Company since 1998. Since
1987, Mr. Novello served as Chairman of the Board of Copeland Corporation and,
until 1998, also served as Copeland Corporation's Chief Executive Officer.
Copeland, a subsidiary of Emerson Electric Co., is the world leader in the
design and manufacture of compressors for air conditioning and commercial
refrigeration systems. In addition, since 1988, Mr. Novello has served as
Executive Vice President of Emerson, with group responsibility for Emerson's
heating, ventilating and air conditioning components products. Mr. Novello also
serves on the Board of Directors of the Air Conditioning and Refrigeration
Institute, a trade assocation for the climate control industry, and as a
director of Butler Manufacturing Company.
ALAN H. POTAMKIN has been a director of the Company since 1994. Since
1970, Mr. Potamkin has served as President of Potamkin Companies, one of the
nation's largest retail automobile dealers. In addition, Mr. Potamkin is an
owner of various media properties and an owner of Office Depot, Inc.,
franchises in Eastern Europe.
The Company's Amended and Restated Articles of Incorporation provide for
the Board of Directors to have up to nine members, to be divided as nearly as
possible in three equal divisions to serve in staggered terms of three years.
Each division consists of one director to be elected by the holders of Common
Stock and two directors to be elected by the holders of Class B Common Stock.
The number of members comprising the Board of Directors presently is nine,
three of whom are Common Stock directors and six of whom are Class B Common
Stock directors. Messrs. Newman (Common Stock), Fleeman (Class B), Moss (Class
B) and Novello (Class B) serve until the 1998 Annual Meeting of Shareholders;
Messrs. Manley (Common Stock) and Nahmad (Class B) serve until the 1999 Annual
Meeting of Shareholders; and Messrs. Potamkin (Common Stock), Alvarez (Class B)
and Motta (Class B) serve until the 2000 Annual Meeting of Shareholders. See
"Election of Directors".
There are no arrangements or understandings with respect to the selection
of officers or directors. The Company pays each director who is not an employee
a $1,000 fee for each meeting of the Board of Directors attended and reimburses
directors for their expenses in connection with their activities as directors
of the Company.
8
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (SEC), the New York Stock Exchange and the American Stock
Exchange. Officers, directors and greater than ten percent shareholders are
required by the SEC regulations to furnish the Company with copies of all Forms
3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors and greater
than ten percent beneficial owners complied with all filing requirements
applicable to them with respect to transactions during 1997, except that one
report was filed late by Mr. Motta in connection with the purchase of Common
Stock.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1997, the Company's Board of
Directors took certain actions by unanimous written consent and held seven
meetings. During 1997, other than Messrs. Moss, Motta and Potamkin, no
incumbent director attended fewer than 75 percent of the aggregate of (i) the
number of meetings of the Board of Directors held during the period he served
on the Board, and (ii) the number of meetings of committees of the Board of
Directors held during the period he served on such committees.
The Board of Directors has established four standing committees: (1) the
Audit Committee, (2) the Compensation Committee, (3) the Stock Option Committee
and (4) the Nominating Committee.
Messrs. Manley and Newman are members of the Audit Committee, which held
two meetings during 1997. Mr. Newman succeeded Mr. Potamkin, who served on the
Audit Committee during 1997. The duties and responsibilities of the Audit
Committee include (a) recommending to the full Board of Directors the
appointment of the Company's independent auditors and any termination of
engagement, (b) reviewing the plan and scope of audits, (c) reviewing the
Company's significant accounting policies and internal controls and (d) having
general responsibility for all related auditing matters.
Messrs. Manley and Fleeman are members of the Compensation Committee,
which held two meetings during 1997. The Compensation Committee reviews and
determines the compensation of the Company's officers and administers the
Company's employee stock purchase plan.
Messrs. Moss and Alvarez are members of the Stock Option Committee. The
Stock Option Committee administers the Company's stock option plans and has the
power and authority to (a) determine the persons to be awarded options and the
terms thereof pursuant to the terms of the plans and (b) construe and interpret
the Company's stock option plans.
Messrs. Nahmad and Moss are members of the Nominating Committee. The
Nominating Committee is responsible for (a) establishing procedures for the
selection and retention of members of the Board of Directors, (b) evaluating
Board nominees and members and (c) recommending nominees.
9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid to the
Company's Chief Executive Officer and each of the Company's other executive
officers whose total annual salary and bonus for the 1997 fiscal year was
$100,000 or more.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------- ---------------------------------------
NUMBER
RESTRICTED OF
FISCAL OTHER ANNUAL STOCK STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS COMPENSATION(3)
- --------------------------- ------- ----------- ------------------- ----------------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Albert H. Nahmad 1997 $542,733 $ 1,300,000(4) -- $2,550,000 200,000 $2,250
President and Chief 1996 524,679 1,350,000 -- -- 150,000 2,250
Executive Officer 1995 379,633 550,000 -- -- -- 2,250
Barry S. Logan 1997 $ 96,021 $ 65,000 -- $ 545,625 10,000 $2,250
Vice President, Finance 1996 85,755 22,000 -- -- 15,000 1,733
and Secretary 1995 80,944 28,000 -- -- -- 1,500
Manuel J. Perez 1997 $ 93,657 $ 65,000 -- $ 545,625 10,000 $2,250
de la Mesa 1996 91,631 65,103 -- -- 15,000 2,250
Vice President, 1995 88,788 60,500 -- -- -- 736
Operations
Ronald P. Newman(5) 1997 $ 92,575 $ 150,000 -- $ 430,938 16,875 $ --
1996 149,921 100,000 -- -- 22,500 2,250
1995 145,607 62,500 -- -- -- 2,250
</TABLE>
- ----------------
(1) The officers listed in this table receive certain personal benefits;
however, such additional benefits do not exceed the lesser of $50,000 or
10% of such officer's salary and bonus for any of the years reported.
(2) Mr. Nahmad was awarded 100,000 shares of Class B Common Stock and Messrs.
Logan and Perez were each awarded 22,500 shares of Common Stock.
Significant restriction periods apply to these awards of restricted stock.
With regard to the grants made in 1997 to Messrs. Nahmad, Logan and Perez,
such restrictions, absent the individuals' death or disability or a change
in control of the Company, lapse in 17 years, 27 years and 21 years,
respectively. Mr. Newman's award of 17,500 shares of Common Stock was
forfeited upon his resignation of employment. Individuals are entitled to
receive dividends on restricted stock awards. At December 3, 1997, the
aggregate value of all shares of restricted stock held by Messrs. Nahmad,
Logan and Perez was $2,450,000, $555,469 and $555,469, respectively.
(3) These amounts represent the Company's contribution to the Profit Sharing
Plan. The Profit Sharing Plan is qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended.
(4) In 1997, includes incentive compensation of $850,000 for performance in
1997 and a payment of an additional bonus of $450,000 (for perfomance in
years prior to 1996). These payments were made
10
<PAGE>
pursuant to an Incentive Plan approved by shareholders in 1996. Incentive
compensation is based on certain criteria related to the Company's
performance including increases in earnings per share and stock price
appreciation and is paid annually during the year following the attainment
and certification of the performance criteria.
(5) Mr. Newman retired from employment and resigned his position as Vice
President, Finance and Secretary effective August 1, 1997.
OPTION GRANTS IN FISCAL YEAR 1997
The following table sets forth certain information concerning grants of
stock options made during 1997 to the Named Executive Officers. All options
were granted at exercise prices equal to fair market value.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF STOCK PRICE APPRECIATION
NUMBER OF TOTAL OPTIONS FOR OPTION TERM(2)
OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION ---------------------------
NAME GRANTED(1) EMPLOYEES IN 1997 PER SHARE DATE 5% 10%
- ---- ------------ ------------------- ---------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Albert H. Nahmad 200,000 35.0% $ 22.75 3/21/07 $2,861,471 $7,251,528
Barry S. Logan 10,000 1.8% 24.375 4/03/07 153,293 388,475
Manuel J. Perez de la Mesa 10,000 1.8% 24.375 4/03/07 153,293 388,475
Ronald P. Newman 16,875 3.0% 30.125 8/01/07 319,704 810,194
</TABLE>
- ----------------
(1) Class B Common Stock as to Mr. Nahmad and Common Stock as to Messrs. Logan,
Perez and Newman. Mr. Newman's option grant represents a formula grant
made upon his becoming a Director of the Company.
(2) The dollar amounts set forth in these columns are the result of
calculations at the five percent and ten percent rates set forth by the
Commission and, therefore, are not intended to forecast possible future
appreciation, if any, of the market price of the common stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning stock
options exercised in 1997 and unexercised stock options held by the Company's
executive officers as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END
ACQUIRED VALUE ----------------------------------- ----------------------------
NAME ON EXERCISE(1) REALIZED EXERCISABLE(2) UNEXERCISABLE(3) EXERCISABLE UNEXERCISABLE
- ---- ---------------- ---------- ---------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Albert H. Nahmad -- $ -- 884,040 183,334 $14,869,694 $862,501
Barry S. Logan -- -- 32,250 26,250 576,054 139,974
Manuel J. Perez de la Mesa -- -- 21,000 26,500 346,853 243,979
Ronald P. Newman 40,000 810,756 18,189 16,875 241,004 --
</TABLE>
11
<PAGE>
- ----------------
(1) Represents options as to 2,670 shares of Common Stock and 37,330 shares of
Class B Common Stock for Mr. Newman.
(2) Represents options as to 280,312 shares of Common Stock and 603,728 shares
of Class B Common Stock for Mr. Nahmad, Common Stock for Messrs. Logan and
Perez and Class B Common Stock for Mr. Newman.
(3) Represents options as to Class B Common Stock for Mr. Nahmad and Common
Stock for Messrs. Logan, Perez and Newman.
EMPLOYMENT AGREEMENT
In March 1996, the Company renewed an employment agreement with Mr. Nahmad
which expires January 31, 1999 and each January 31 automatically extends one
year from its then expiration date unless the Compensation Committee shall have
notified Mr. Nahmad to the contrary in writing prior to that date. Under the
terms of the employment agreement, Mr. Nahmad shall be employed as President
and Chairman of the Board of the Company at an annual salary of not less than
$480,000 and will be entitled to additional compensation pursuant to an
Incentive Plan.
REVERSE SPLIT DOLLAR AGREEMENT
Messrs. Nahmad, Logan and Perez participate in reverse split dollar
insurance programs which provide the Company limited interests in the insurance
policies, including death benefits aggregating approximately $6.8 million plus
any prepaid and unearned premiums. Under the insurance program, Messrs. Nahmad,
Logan and Perez retain all incidents of ownership in excess of the Company's
limited interests.
KEY EXECUTIVE DEFERRED COMPENSATION AGREEMENT
The Company entered into a Key Executive Deferred Compensation Agreement
(the "Deferred Compensation Agreement") on January 31, 1983, with Mr. Nahmad
that provides benefits to Mr. Nahmad or his family upon disability, death or
retirement or upon change in control of the Company. The minimum monthly
benefit payable under the plan is based on Mr. Nahmad's length of service to
age 65 and is the lesser of one-twelfth (1/12) of 10% of (i) $727,000 plus
certain amounts accrued for each year of service or (ii) his maximum annual
salary prior to the event triggering payment of benefits. The estimated minimum
annual benefits payable to Mr. Nahmad upon retirement at age 65 and the service
to the Company that will have been completed by him are $72,700 and 33 years,
respectively.
COMMITTEES' REPORT TO SHAREHOLDERS
The Company's executive compensation programs are based on three
components: base salary, annual incentives and long-term compensation; each
intended as an important piece of the overall compensation philosophy.
Base salary is used to attract and retain the Company's key executives and
is calculated using comparisons with the Company's industry competitors and/or
companies of similar market value. Salaries are reviewed by the Compensation
Committee on an annual basis.
12
<PAGE>
Annual incentives are a significant component of executive compensation,
reflecting the Company's belief that management's contribution to long-term
shareholder returns (via increasing stock prices and dividends) comes from
maximizing earnings and the potential of the Company. The Company's Chief
Executive Officer has an annual incentive opportunity based upon the incease in
the earnings per share and stock price or, in earlier years, the pre-tax
earnings of the Company. By its extensive reliance on this incentive
compensation system, which has been employed by the Company for the Chief
Executive Officer for more than seven years, the Company links a substantial
portion of the Chief Executive Officer's annual pay directly to profits. As a
result of this approach, the Company's Chief Executive Officer's total
compensation is likely to vary from year to year more significantly than the
pay of executives of many of the Company's competitors. This philosophy is
essential to an entrepreneurial business such as the Company's business.
Certain other executive officers and employees have their pay levels set
primarily in relation to comparisons to similar executives of competitors, with
additional annual incentives based on the attainment of specific objectives
supporting the overall goals of the Company.
In 1997, the Company's pre-tax earnings from continuing operations
increased to $29.8 million, up 66% from $18.0 million in 1996. The 1997 results
include the operations of 12 businesses acquired during 1997 from the date of
their acquisitions, which positioned the Company in additional states and
substantially increased its market presence in its traditional markets. The
execution of this strategy, with a combination of strong internal growth and
acquisitions, has resulted in an earnings per share growth rate in excess of
30% for the period from 1991 to 1997 and has positioned the Company as the
largest distributor of residential central air conditioning, heating and
refrigeration equipment and related parts and supplies in the United States.
These successful efforts of the Company's management team were led by the
Company's President and Chief Executive Officer, Albert H. Nahmad. As discussed
in more detail below, Mr. Nahmad and other key executives of the Company
received a significant portion of their total compensation through incentive
and other forms of long-term compensation.
In order to promote an increase in net worth of the Company, maximize the
return to shareholders and effectively motivate senior management, the
executive compensation philosophy of the Company has been to link compensation
with Company performance. Therefore, Mr. Nahmad received 71% of his 1997 cash
compensation from incentives. The Committee believes that this represents
evidence of the strong and explicit link between executive compensation and the
creation of long-term shareholder value.
In terms of long-term compensation, management incentives generally are
provided to the Company's executives through annual grants of stock options and
awards of restricted stock to retain and motivate executives to improve the
Company's stock value. Stock options have been granted at an exercise price
equal to the closing price of the Company's Common Stock or Class B Common
Stock as reported by the New York Stock Exchange and the American Stock
Exchange, respectively, on the day prior to the date of grant. Accordingly,
grants of stock options will produce value only if there are increases in the
underlying stock price. In 1997, Mr. Nahmad received options to acquire 200,000
shares of the Company's Class B Common Stock at an exercise price equal to the
then market value of $22.75 per share. The Company provides no defined benefit
pension plan or supplemental executive retirement plan but does provide a
401(k) plan for all of its employees employed for at least one year.
13
<PAGE>
The Company provides certain executives awards of restricted stock that
are designed to focus such executives on the long-term performance of the
Company for the duration of their careers. Grants of restricted stock are
subject to forfeiture until certain specified dates, death, disability or a
change in control. These features result in the Company's ability to retain,
throughout their entire careers, those individuals who are key to the creation
of shareholder value. During 1997, there were four employees who were granted
restricted stock. During 1997, Mr. Nahmad was granted 100,000 shares of
restricted Class B Common Stock.
Decisions with regard to compensation of the Company's executives are made
by the two-member Compensation Committee, which has meetings at least once a
year and is called upon to meet more often when the need arises. Decisions with
regard to awards of restricted stock and stock options for all employees of the
Company are made by the two-member Stock Option Committee, which is called upon
to meet when the need arises. Each member of the Committees is a non-employee
director. The executive compensation practices of the Company are constantly
re-evaluated to ensure their relevance, their support of the strategic goals of
the Company and their contribution to the creation of long-term shareholder
value.
The above Committees' Report to Shareholders of the Compensation and Stock
Option Committees and the Company's Common Stock Price Performance Graph which
follows shall not be deemed to be incorporated by reference by any general
statement incorporating this Proxy Statement by reference into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except
to the extent that the Company specifically incorporates this information by
reference.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") generally disallows a public company's deduction for compensation to
any one employee in excess of $1 million per year unless the compensation is
pursuant to a plan approved by the public company's shareholders. In March
1996, the Compensation Committee renewed and amended the employment agreement
between the Company and Mr. Nahmad. The terms of the employment agreement
include a provision for an Incentive Plan for Mr. Nahmad, which was approved by
the shareholders of the Company at the 1996 Annual Meeting. Such Incentive Plan
is intended to comply with the provisions of Section 162(m).
COMPENSATION AND STOCK OPTION COMMITTEES
COMPENSATION COMMITTEE:
Paul F. Manley, Chairman
David B. Fleeman
STOCK OPTION COMMITTEE:
Bob L. Moss, Chairman
Cesar L. Alvarez
April 24, 1998
14
<PAGE>
WATSCO, INC. COMMON STOCK PRICE PERFORMANCE
The following graph compares the cumulative total shareholder return of
Watsco, Inc. Common Stock and Class B Common Stock, based on their market
prices and assuming reimbursement of dividends, with (i) the S & P Small-Cap
600 Index, (ii) the AMEX Market Index and (iii) a Peer Group Index.
The Peer Group Index is comprised of the following publicly traded
companies: Hughes Supply, Inc., Noland Company and ACR Group, Inc. Two
companies appearing in last year's Peer Group Index, SPX Corp. and
International Comfort Products, Inc., are not included in the current Peer
Group Index as these companies' operations primarily consist of manufacturing
while the Company's manufacturing operations are no longer significant to its
overall operations. The Company believes that this information demonstrates
that the compensation earned by its executive officers compares consistently
with increased shareholder value.
<TABLE>
<CAPTION>
1/1/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Watsco, Inc. Common Stock 100 107 140 230 561 482
Watsco, Inc. Class B Common Stock 100 107 141 226 540 476
Peer Group Index 100 122 132 173 263 317
S&P Small-Cap 600 100 119 113 147 178 224
AMEX Market Index 100 120 109 137 146 177
</TABLE>
15
<PAGE>
The line graph assumes that $100 was invested on January 1, 1993 in the
Company's Common Stock and Class B Common Stock, the S&P Small-Cap 600 Index,
the AMEX Market Index and the Peer Group Index.
The closing price of the Company's Common Stock and Class B Common Stock
was $24.6875 and $24.50, respectively, at December 31, 1997. As of the Record
Date, the closing price of the Company's Common Stock and Class B Common Stock
was $25.125 and $28.00 per share, respectively. The stock price performance of
Watsco, Inc. Common Stock and Class B Common Stock depicted in the graph above
represents past performance only and is not necessarily indicative of future
performance.
CERTAIN TRANSACTIONS
Mr. Cesar L. Alvarez, a director, is the Chief Executive Officer and
Managing Shareholder of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., which serves as the Company's principal outside counsel and receives
customary fees for legal services. The Company currently anticipates that such
arrangement will continue.
In May 1997, Mr. Potamkin and the Company each purchased a 50% equity
interest in A2 Jet Leasing LLC ("A2 Jet Leasing"), a company which performs
aircraft leasing services to Mr. Potamkin and his affiliates, the Company and
unaffiliated third parties. During 1997, A2 Jet Leasing had total billings to
Mr. Potamkin and his affiliates and the Company of $272,350 and $213,900,
respectively, for services rendered.
II.
PROPOSAL TO RATIFY AN AMENDMENT TO THE COMPANY'S AMENDED
AND RESTATED 1996 QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
In July 1996, the Board of Directors adopted, and in June 1997 the
Company's Shareholders ratified, the 1996 Qualified Employee Stock Purchase
Plan (the "Stock Purchase Plan"). The Compensation Committee of the Board of
Directors has adopted, and is submitting to the Shareholders for approval, an
amendment to the Amended and Restated 1996 Qualified Employee Stock Purchase
Plan. The Stock Purchase Plan has been restated and amended to increase the
amount of shares of Common Stock of the Company reserved for issuance from
200,000 to 400,000 shares.
A general description of the basic features of the Stock Purchase Plan is
presented below, but such description is qualified in its entirety by the full
text of the Stock Purchase Plan, which is available from the Company upon
request.
GENERAL TERMS AND CONDITIONS
The purpose of the Stock Purchase Plan is to encourage stock ownership in
the Company by employees of the Company and those subsidiaries of the Company
designated by the Compensation Committee as eligible to participate, thereby
enhancing employee interest in the continued success and progress of the
Company.
16
<PAGE>
The Stock Purchase Plan permits employees to purchase stock of the Company
at a favorable price and possibly with favorable tax consequences to the
participants. All employees (including officers, other than Mr. Nahmad) of the
Company or of those subsidiaries designated by the Compensation Committee who
are regularly scheduled to work at least 20 hours per week and more than five
months per year are eligible to participate in any of the purchase periods of
the Stock Purchase Plan after completing 90 days of continuous employment.
However, any participant who would own (as determined under the Code),
immediately after the grant of an option, stock possessing 5% or more of the
total combined voting power or value of all classes of the stock of the Company
will not be granted an option under the Stock Purchase Plan. As of the Record
Date, the Company had approximately 2,400 eligible participants.
The Stock Purchase Plan is administered by the Compensation Committee
which is appointed by the Board of Directors and consists of persons who are
Non-Employee Directors under Rule 16b-3 under the Exchange Act. The Stock
Purchase Plan gives broad powers to the Compensation Committee to administer
and interpret the Stock Purchase Plan.
Purchase periods begin on January 1, April 1, July 1 and October 1 of each
year. No later than 15 days before the commencement date of each purchase
period, each participant must elect to have compensation withheld during the
purchase period of a specific dollar amount of not less than $10 per payroll
period for employees that are paid weekly, $20 for employees that are paid
either bi-weekly or semi-monthly or a minimum $100 lump sum purchase. The
percentage or amount designated may not be increased or decreased during a
purchase period, but a participant can discontinue payroll deductions for the
remainder of a purchase period and withdraw his or her funds entirely. As of
the first day of the purchase period, a participant is granted an option to
purchase that number of shares determined by dividing the total amount to be
withheld by the purchase price described below. Based on the amount of salary
withheld and lump sum payments made at the end of the purchase period, shares
will be purchased for the account of each participant within five business days
of the termination date of such purchase period (the "Purchase Date"). In no
event, however, may a participant receive an option for shares, which would
cause the participant to own 5% or more of the total combined voting power of
all classes of common stock of the Company. The purchase price to be paid by
the participants will be the lower of the amount determined under Paragraphs A
and B below:
A. 85% of the closing sales price of the Company's Common Stock as
reported on the New York Stock Exchange as of the commencement date of the
purchase period; or
B. 85% of the closing sales price of the Company's Common Stock as
reported on the New York Stock Exchange as of the Purchase Date.
As required by tax law, no participant may receive an option under the
Stock Purchase Plan for shares that have a fair market value in excess of
$25,000 in one calendar year. No interest is paid by the Company on funds
withheld, and such funds are used by the Company for general operating
purposes. In general, the shares of Common Stock purchased by a participant may
not be sold, transferred or disposed of by the participant other than by will
or laws of descent and distribution or to immediate family members or trusts
established for their benefit, for a period of 12 months after the purchase
date for such shares.
The Compensation Committee may, from time to time, revise or amend the
Stock Purchase Plan as the Compensation Committee may deem proper and in the
best interest of the Company or as may be
17
<PAGE>
necessary to comply with Section 423 of the Code; provided, that no such
revision or amendment may, without prior approval of the Company's
shareholders, (i) increase the total number of shares for which options may be
granted under the Stock Purchase Plan except as provided in the case of stock
splits, consolidations, stock dividends or similar events, or (ii) to the
extent otherwise required to comply with Rule 16b-3 of the Exchange Act or
under Section 423 of the Code or other applicable law.
Under the Stock Purchase Plan, 400,000 shares of the Company's Common
Stock are reserved for issuance during the duration of the Stock Purchase Plan.
The Board of Directors shall equitably adjust the number of shares
remaining reserved for issuance, the number of shares of stock subject to
outstanding options and the price per share of stock subject to an option in
the event of certain increases or decreases in the number of outstanding shares
of Common Stock of the Company effected as a result of stock splits or
consolidations, stock dividends or other transactions in which the Company
receives no consideration.
FEDERAL INCOME TAX EFFECTS
Shares purchased under the Stock Purchase Plan are intended to qualify for
favorable tax treatment to the employees under Sections 421 and 423 of the
Code. Employee contributions are made on an after-tax basis. A capital gain or
capital loss on Common Stock purchased under the Stock Purchase Plan would not
be realized until the participant would sell the shares of Common Stock. If a
participant disposes of shares two years or more after the date of the
beginning of the purchase period when the shares were acquired, and more than
one year after the shares are purchased, the participant would recognize as
ordinary income the lesser of: (i) the excess of the fair market value of the
shares on the date of sale over the price paid or (ii) 15% of the fair market
value of the shares at the beginning of the purchase period(s). Additionally,
the participant would recognize a long-term capital gain or loss (within the
meaning of the Code) equal to the difference between the amount realized from
the sale of the shares and the basis (the basis would be the purchase price
plus any amount taxed as ordinary compensation income). If a participant
disposes of shares within two years of the date of the beginning of the
purchase period when the shares were acquired, or within one year after the
shares are purchased, the participant would recognize ordinary compensation
income equal to the excess of the fair market value of the shares on the
purchase date(s) over the price paid for the shares. Additionally, the
participant would recognize a capital gain or loss (within the meaning of the
Code) equal to the difference between the amount realized from the sale of the
shares and the basis (the basis would be the purchase price plus the amount
taxed as ordinary compensation income). If the participant held the shares for
more than one year, the capital gain or loss would be a long-term gain or loss.
The Company would not receive an income tax deduction upon either the grant or
exercise of the option by the participant, but generally would receive a
deduction equal to the ordinary compensation income required to be recognized
by the participant as a result of the disposition if the shares are disposed of
by the participant within two years of the beginning of the purchase period
when the shares were acquired or within one year after the shares are
purchased.
IMPORTANCE OF CONSULTING A TAX ADVISER. The information set forth above is
a summary only and does not purport to be complete. In addition, the
information is based upon current federal income tax rules and therefore is
subject to change when those rules change. Moreover, because the tax
consequences to any participant may depend on his or her particular situation,
each participant should
18
<PAGE>
consult his or her tax adviser as to the Federal, state, local and other tax
consequences of the acquisition or disposition of Common Stock under the Stock
Purchase Plan.
SHARES PURCHASED UNDER THE STOCK PURCHASE PLAN
The following table sets forth certain information, as of December 31,
1997 regarding shares purchased under the Stock Purchase Plan by the persons
and groups indicated:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE AGGREGATE
NUMBER OF PURCHASE PRICE DOLLAR VALUES AT
NAME OF INDIVIDUAL OR GROUP POSITION SHARES PURCHASED PAID TO COMPANY PURCHASE DATES(1)
- --------------------------- -------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Albert H. Nahmad Chairman of the Board -- -- --
and President(2)
Barry S. Logan Vice President, Finance 709 $ 15,000 $ 17,647
Manuel J. Perez de la Mesa Vice President, Operations 817 17,390 21,309
All current Executive
Officers (2 persons) 1,526 32,390 38,956
All current directors
who are not Executive
Officers(2) -- -- --
All employees, other than
Executive Officers
(536 persons) 51,732 1,110,803 1,351,263
</TABLE>
- ----------------
(1) Aggregate Dollar Values at Purchase Dates represents the aggregate market
value of the shares acquired on the Purchase Dates in 1997, less the
aggregate purchase price paid for such shares under the Stock Purchase
Plan. Purchase Dates during 1997 occurred on March 31, June 30, September
30 and December 31.
(2) Not eligible to participate.
The Compensation Committee believes that shares granted under the Stock
Purchase Plan have been and will be awarded to all employees presently meeting
the existing eligibility requirements, except no one plan participant may be
granted an aggregate number of shares with a fair market value exceeding
$25,000 in one calendar year, as determined at the beginning of each purchase
period as defined under the Stock Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO
RATIFY AN AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED 1996 QUALIFIED
EMPLOYEE STOCK PURCHASE PLAN.
19
<PAGE>
III.
RATIFICATION OF THE REAPPOINTMENT OF THE COMPANY'S PRINCIPAL
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, independent certified public accountants,
has been the Company's auditor since 1985 and has advised the Company that the
firm does not have any direct financial interest or indirect financial interest
in the Company or any of its subsidiaries.
The Board of Directors, on the recommendation of the Company's Audit
Committee, has selected Arthur Andersen LLP as the Company's principal
independent certified public accountants for the year ending December 31, 1998.
One or more representatives of Arthur Andersen LLP are expected to be present
at the Annual Meeting, will have the opportunity to make a statement if they
desire to do so, and are expected to be available to respond to appropriate
questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE
"FOR" RATIFICATION OF THE REAPPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
PRINCIPAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDED DECEMBER
31, 1998.
OTHER BUSINESS
The Board of Directors knows of no other business to be brought before the
Annual Meeting. If, however, any other business should properly come before the
Annual Meeting, the persons named in the accompanying proxy will vote proxies
as in their discretion they may deem appropriate, unless they are directed by a
proxy to do otherwise.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the Securities and Exchange
Commission, a shareholder intending to present a proposal to be presented at
the 1999 Annual Meeting to Shareholders must deliver a proposal in writing to
the Company's principal executive offices on or before December 25, 1998.
By Order of the Board of Directors
BARRY S. LOGAN, Secretary
Coconut Grove, Florida
April 24, 1998
20
<PAGE>
WATSCO, INC.
PROXY FOR COMMON STOCK
1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ALBERT H. NAHMAD, BARRY S. LOGAN and each
of them, the true and lawful attorneys, agents for and in the name of the
undersigned, with full power of substitution for and in the name of the
undersigned, to vote all shares the undersigned is entitled to vote at the 1998
Annual Meeting of Shareholders of WATSCO, INC. to be held on Wednesday, June 3,
1998, at 9:00 A.M., Eastern Daylight Time, in the Regency Room of the Pierre
Hotel, 2 East 61st Street, New York, New York 10021, and at any and all
adjournments thereof, on the following matters:
(1) FOR [ ] WITHHOLD VOTE [ ] the election of Robert J. Novello as a
Common Stock Director to serve until the
Annual Meeting of Shareholders in 2001 or
until his successor is duly elected and
qualified;
(2) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the proposal to ratify an amendment
to the Company's Amended and
Restated 1996 Qualified Employee
Stock Purchase Plan;
(3) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the reappointment of Arthur
Andersen LLP as the Company's
independent certified public
accountants for the year ending
December 31, 1998; and
(4) In their discretion, on any other matters which may properly come before
the Annual Meeting or any adjournment or postponements thereof.
(SEE REVERSE SIDE)
<PAGE>
(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" ITEMS 1, 2 AND 3.
The undersigned hereby acknowledges receipt of (i) the Company's 1997
Annual Report to Shareholders, (ii) the Proxy Statement and (iii) the Notice of
Annual Meeting dated April 24, 1998.
Date: , 1998
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Please sign exactly as your
name appears hereon. If stock
is registered in more than
one name, each holder should
sign. When signing as an
attorney, administrator,
executor, guardian or
trustee, please add your
title as such. If executed by
a corporation or partnership,
the proxy should be signed in
full corporate or partnership
name by a duly authorized
officer or partner as
applicable.
<PAGE>
WATSCO, INC.
PROXY FOR CLASS B COMMON STOCK
1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ALBERT H. NAHMAD, BARRY S. LOGAN and each
of them, the true and lawful attorneys, agents for and in the name of the
undersigned, with full power of substitution for and in the name of the
undersigned, to vote all shares the undersigned is entitled to vote at the 1998
Annual Meeting of Shareholders of WATSCO, INC. to be held on Wednesday, June 3,
1998, at 9:00 A.M., Eastern Daylight Time, in the Regency Room of the Pierre
Hotel, 2 East 61st Street, New York, New York 10021, and at any and all
adjournments thereof, on the following matters:
(1) FOR [ ] WITHHOLD VOTE [ ] the election of Ronald P. Newman as a Class
B Director to serve until the Annual Meeting
of Shareholders in 1999 and David B. Fleeman
and Bob Moss as Class B Directors to serve
until the Annual Meeting of Shareholders in
2001 or until their successors are duly
elected and qualified, except vote withheld
from the following nominee _______________
(if any);
(2) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the proposal to ratify an
amendment to the Company's Amended
and Restated 1996 Qualified
Employee Stock Purchase Plan;
(3) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the reappointment of Arthur
Andersen LLP as the Company's
independent certified public
accountants for the year ending
December 31, 1998; and
(4) In their discretion, on any other matters which may properly come before
the Annual Meeting or any adjournment or postponements thereof.
(SEE REVERSE SIDE)
<PAGE>
(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" ITEMS 1, 2 AND 3.
The undersigned hereby acknowledges receipt of (i) the Company's 1997
Annual Report to Shareholders, (ii) the Proxy Statement and (iii) the Notice of
Annual Meeting dated April 24, 1998.
Date: , 1998
------------------
------------------------------
------------------------------
Please sign exactly as your
name appears hereon. If stock
is registered in more than
one name, each holder should
sign. When signing as an
attorney, administrator,
executor, guardian or
trustee, please add your
title as such. If executed by
a corporation or partnership,
the proxy should be signed in
full corporate or partnership
name by a duly authorized
officer or partner as
applicable.
