<PAGE>
SCHEDULE 14A
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:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to s. 240.14a-11(c) or s. 240.14a-12
Watts Industries, Inc.
(Name of Registrant as Specified In Its Charter)
Thomas J. White, Esq.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
_________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________
(1)Set forth the amount on which the filing fee is calculated and
state how it was determined.
[ ] 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 number, or the
Form or Schedule and the date of its filing.
1) Amount Previously Paid:_____________________________________
2) Form, Schedule or Registration Statement No.:_______________
3) Filing Party:_______________________________________________
4) Date Filed:_________________________________________________
<PAGE>
<PAGE>
[WATTS LOGO]
WATTS INDUSTRIES, INC.
SEPTEMBER 14, 1994
PRELIMINARY COPIES
Dear Stockholder:
We cordially invite you to attend our 1994 Annual Meeting, which will be held
on Tuesday, October 18, 1994 at 10:00 a.m., in the Phillips Room of The
Andover Inn at Phillips Academy, Chapel Avenue, Andover, Massachusetts 01810.
The purposes of the Annual Meeting are (i) to elect Directors as set forth in
Proposal 1, (ii) to ratify the selection of independent auditors for the
current fiscal year as set forth in Proposal 2, and (iii) to approve an
amendment to the Restated Certificate of Incorporation to increase the number
of authorized shares of the Company's Class A Common Stock from 40,000,000
shares to 80,000,000 shares and to increase the number of authorized shares
of the Company's Class B Common Stock from 13,000,000 shares to 25,000,000
shares as set forth in Proposal 3. The Board of Directors recommends that you
vote in favor of these proposals and urges you to read the proxy statement
which describes these proposals and presents other important information.
Your support of our efforts is important to the other Directors and to me
regardless of the number of shares you own. Accordingly, we urge you to
complete, sign and return your proxy promptly in the envelope provided for
your convenience.
Following the completion of the scheduled business, we will report on the
Company's operations and plans and answer questions from the floor. We hope
that you will be able to join us on October 18th.
Sincerely,
[Timothy P. Horne Signature]
Timothy P. Horne
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
<PAGE>
WATTS INDUSTRIES, INC.
815 CHESTNUT STREET
NORTH ANDOVER, MA 01845
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 18, 1994
To the Stockholders of
Watts Industries, Inc.
Notice is hereby given that the Annual Meeting of Stockholders of Watts
Industries, Inc. will be held in the Phillips Room of The Andover Inn at
Phillips Academy, Chapel Avenue, Andover, Massachusetts 01810, on Tuesday,
October 18, 1994, at 10:00 a.m., for the following purposes:
1. To elect to the Board of Directors of Watts Industries, Inc. eight
Directors to hold office until the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified;
2. To ratify the selection of Ernst & Young as the independent auditors of
the Company for the current fiscal year;
3. To approve an amendment to the Company's Restated Certificate of
Incorporation restating Article Fourth thereof to increase the number of
authorized shares of the Company's capital stock by increasing the number of
authorized shares of Class A Common Stock to 80,000,000 and the number of
authorized shares of Class B Common Stock to 25,000,000; and.
4. To consider and act upon any matters incidental to the foregoing or any
other matters which may properly come before the meeting or any
adjournment(s) or postponement(s) thereof.
Only stockholders of record at the close of business on September 2, 1994
will be entitled to notice of and to vote at the meeting or any
adjournment(s) or postponement(s) thereof.
By Order of the Board of Directors
[Kenneth J. McAvoy]
Kenneth J. McAvoy
Secretary
North Andover, Massachusetts
September 14, 1994
IMPORTANT
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING OF
STOCKHOLDERS. ACCORDINGLY, YOU ARE URGED TO PLEASE COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID
ENVELOPE. IF YOU SO CHOOSE, YOU MAY VOTE YOUR SHARES IN PERSON AT THE ANNUAL
MEETING.
<PAGE>
<PAGE>
WATTS INDUSTRIES, INC.
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 18, 1994
PROXY STATEMENT
PRELIMINARY COPIES
INFORMATION CONCERNING
SOLICITATION AND VOTING
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Watts Industries, Inc. (the "Company")
for use at the Company's 1994 Annual Meeting of Stockholders to be held on
Tuesday, October 18, 1994 and at any adjournment(s) or postponement(s)
thereof. Shares represented by duly executed proxies will be voted for the
election of the nominees named herein for Director, for the ratification of
the selection of Ernst & Young as the independent auditors of the Company for
the current fiscal year, and for approval of an amendment to the Company's
Restated Certificate of Incorporation to increase the number of authorized
shares of the Company's capital stock by increasing the number of authorized
shares of Class A Common Stock to 80,000,000 and the number of authorized
shares of Class B Common Stock to 25,000,000, unless authority is withheld or
different instructions are given.
Proxies may be revoked by a written revocation received by the Secretary of
the Company at the address of the Company set forth below or in open meeting
at any time prior to the voting thereof. Submission of a later dated proxy
will revoke any earlier dated proxy. Unless previously revoked, proxies
delivered will be voted at the meeting. Where a choice or instruction is
specified by the stockholder thereon, the proxy will be voted in accordance
with such specification. Where a choice or instruction is not specified by
the stockholder, the proxy will be voted as recommended by the Directors.
Shares held for customers of brokers which are not voted on a proposal
because of a lack of instructions from such brokers' customers are not
considered entitled to vote on that proposal, but if represented by proxy
will be treated as present at the meeting. Because directors are elected by a
plurality of the votes cast, withholding authority to vote for a nominee has
the same effect as a vote against such nominee.
Stockholders of record at the close of business on September 2, 1994 are
entitled to receive notice of and to vote at the meeting. Each share of Class
A Common Stock of the Company outstanding on the record date is entitled to
one vote and each share of Class B Common Stock of the Company outstanding on
the record date is entitled to ten votes. As of the close of business on
September 2, 1994, there were outstanding and entitled to vote
shares of Class A Common Stock and shares of Class B Common Stock.
This proxy statement and the enclosed proxy are being mailed together by the
Company on or about September 14, 1994 to stockholders of record as of
September 2, 1994. The Company's Annual Report for the fiscal year ended June
30, 1994 was mailed to such stockholders of the Company with this proxy
statement.
The principal executive offices of the Company are located at 815 Chestnut
Street, North Andover, Massachusetts 01845.
The expenses of preparing, printing and assembling the materials used in the
solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, the Company will pay $2,500 plus
expenses to Corporate Investor Communications, Inc. to solicit proxies and
the Company may also use the services of some of its officers and employees
(who will receive no compensation therefor in addition to their regular
salaries) to solicit proxies personally and by mail, telephone and telegraph.
Brokerage houses, nominees, fiduciaries and other custodians will be
requested to forward solicitation materials to the beneficial owners of
shares held of record by them and will be reimbursed for their reasonable
expenses.
At the date hereof the management of the Company has no knowledge of any
business other than the matters set forth in the Notice of Annual Meeting of
Stockholders and described above that will be presented for consideration at
the meeting. If any other business should come before such meeting, the
persons appointed by the enclosed form of proxy will have discretionary
authority to vote all such proxies as they shall decide. Each of the persons
appointed by the enclosed form of proxy present and acting at the meeting, in
person or by substitute, shall have and may exercise all of the powers and
authority of the proxies.
<PAGE>
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company has fixed the number of Directors at
eight and nominated the individuals named below for election as Directors. If
elected, the nominees will serve until the next Annual Meeting of
Stockholders and until their successors shall have been duly elected and
qualified. Proxies will be voted for the nominees named below unless
otherwise specified in the proxy. All of the nominees are presently members
of the Board of Directors. Management does not contemplate that any of the
nominees will be unable to serve, but in that event, proxies solicited hereby
will be voted either for the election of another person or persons to be
designated by the Board of Directors or to fix the number of Directors at a
lesser number and elect the nominees able to serve. Holders of voting rights
sufficient to elect each of the nominees named below have indicated an
intention to vote in favor of such nominees.
INFORMATION AS TO NOMINEES FOR DIRECTOR
Set forth below is the name and age of each nominee for director, who are the
current directors of the Company, his or her principal occupation for the
past five years, the year each became a director of the Company and the names
of certain other companies in which he or she serves as a director. The
information is as of August 16, 1994.
<TABLE>
<CAPTION>
Present Principal Employment and Director
Name Age Prior Business Experience (1) Since (1)
<S> <C> <C> <C>
Timothy P. Horne 56 Chairman of the Board since 1986 and Chief 1962
Executive Officer since 1978; President since
1994. Mr. Horne joined the Company in 1959.
David A. Bloss, Sr. 44 Executive Vice President since July, 1993. 1994
Prior to July, 1993, Mr. Bloss was associated
for five years with the Norton Company, a
manufacturer of abrasives and cutting tools,
serving as President of its Superabrasives
Division from 1991 to 1993.
Frederic B. Horne 44 Corporate Vice President since 1987; Vice 1980
President and General Manager from 1978 to
1987. Mr. Horne joined the Company in 1973.
Kenneth J. McAvoy 54 Chief Financial Officer and Treasurer since 1994
1986; Vice President of Finance since 1984;
Executive Vice President of European Operations
since 1994; Secretary since 1985. Mr. McAvoy
joined the Company in 1981.
Noah T. Herndon 62 Partner of Brown Brothers Harriman & Co., 1981
private bankers, since 1974. Mr. Herndon is a
director of Agency Rent-A-Car, Inc.
Wendy E. Lane 44 Chairman of Lane Holdings, Inc., an investment 1994
banking firm, since 1992. Prior to forming Lane
Holdings, Ms. Lane was a Principal and Managing
Director of Donaldson, Lufkin & Jenrette, an
investment banking firm, serving in these and
other positions from 1980 to 1992.
Gordon W. Moran 56 President and Chief Executive Officer of 1990
Hollingsworth & Vose Company, a paper
manufacturer, since 1983. Mr. Moran is a
director of Associated Industries of
Massachusetts, the American Paper Institute and
the South Norfolk County Association for
Retarded Citizens, Inc.
Daniel J. Murphy, III 52 Chairman of Northmark Bank, a commercial bank, 1986
since August 1987. Prior to forming Northmark
Bank in 1987, Mr. Murphy was a Managing
Director of Knightsbridge Partners,
Incorporated, a venture capital firm, from
January to August 1987 and President and a
director of Arltru Bancorporation, a bank
holding company, and its wholly-owned
subsidiary, Arlington Trust Company, from 1980
to 1986. Mr. Murphy is a director of Bay State
Gas Company.
</TABLE>
(1) All positions with the Company indicated for periods prior to January 1,
1986 were held with Watts Regulator Co. The Company became the parent company
of Watts Regulator Co. and its various subsidiaries pursuant to a
reorganization effective as of January 1, 1986.
Timothy P. Horne and Frederic B. Horne are brothers.
<PAGE>
<PAGE>
FEES TO CERTAIN DIRECTORS
Each non-employee Director receives a fee of $15,000 per year and $500 per
Board of Directors or committee meeting attended, effective January 1, 1994,
and also receives reimbursement for out-of-pocket expenses incurred in
connection with attending such meetings. Prior to January 1, 1994, the fee
was $12,000 per year. In addition, each non-employee Director is eligible to
receive grants of stock options under the Company's 1991 Non-Employee
Directors' Nonqualified Stock Option Plan. Directors of the Company who are
employees of the Company receive no compensation for their services as
Directors.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors held seven meetings during the fiscal year
ended June 30, 1994. Each of the Directors of the Company attended at least
three-quarters of the meetings of the Board and of the committees on which
such Director served. The Company's Board of Directors has a standing Audit
Committee and a standing Stock Option and Compensation Committee. The Audit
Committee held three meetings, and the Stock Option and Compensation
Committee held one meeting, during the fiscal year ended June 30, 1994. The
Audit Committee reviews audit performance, recommends appropriate action on
the basis of audit results and receives and reviews the auditors' "management
letters" and management's responses thereto. The Stock Option and
Compensation Committee is responsible for administering the Company's 1986
Incentive Stock Option Plan and its 1989 Nonqualified Stock Option Plan
pursuant to authority delegated to it by the Board of Directors and for
approving the compensation arrangements of the principal executive officers
of the Company. Messrs. Herndon, Murphy and Moran comprised both the Audit
Committee and the Stock Option and Compensation Committee during the fiscal
year ended June 30, 1994. As of August 9, 1994, Messrs. Herndon and Moran and
Ms. Lane comprise the Audit Committee and Messrs. Murphy and Herndon and Ms.
Lane comprise the Stock Option and Compensation Committee.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth as of August 16, 1994 (except as otherwise
indicated) certain information concerning shares of Class A Common Stock and
Class B Common Stock held by (i) all beneficial owners of 5% or more of
either class of the Company's common stock, (ii) each Director or person
nominated for election as a Director of the Company and (iii) the
Chairman/President/Chief Executive Officer, the four other most highly
compensated executive officers listed in the Summary Compensation Table, one
individual who would have been one of such four most highly compensated
executive officers but who was not serving as an executive officer at fiscal
year ended June 30, 1994 and, as a group, all officers and Directors or
persons nominated for election as Directors of the Company.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Total Percent (1)
Name of Beneficial Owner (2) Owned(3)(16) Equity Voting
<S> <C> <C> <C>
Timothy P. Horne (4) 10,682,494(5)(6) 36.2% 79.7%
Frederic B. Horne (4) 10,980,750(6)(7) 37.2 82.3
George B. Horne (4) (8) 2,200,000(6)(8)(9) 7.5 16.6
Daniel W. Horne (4)(10) 1,335,840(6)(9)(10) 4.5 10.1
Deborah Horne (4)(11) 1,335,840(6)(9)(11) 4.5 10.1
Peter W. Horne (4)(12) 1,335,840(6)(9)(12) 4.5 10.1
Nicholas Company, Inc. 2,561,800(13)(14) 8.7 1.9
Nicholas Fund, Inc. 1,857,000(13)(14) 6.3 1.4
First Pacific Advisors, Inc. 1,143,800(13)(15) 3.9 *
Noah T. Herndon 8,000(13)(17) * *
Wendy E. Lane 1,000(13) * *
Daniel J. Murphy, III 7,000(13)(17) * *
Gordon W. Moran 7,000(13)(17) * *
David A. Bloss, Sr. 4,000(13)(20) * *
Kenneth J. McAvoy 36,000(13)(18) * *
Robert T. McLaurin 27,550(19)(22) * *
Martin W. Pickett 100(13) * *
Charles W. Grigg 9,190(13) * *
All officers and Directors as a
group (14 persons) 11,554,288(21)(22) 39.2 85.2
</TABLE>
* Less than 1%.
<PAGE>
<PAGE>
(1) The percentages have been determined as of August 16, 1994 in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). At that date, a total of 29,485,992 shares were outstanding,
of which 11,472,470 were shares of Class B Common Stock entitled to ten votes
per share and 18,013,522 were shares of Class A Common Stock entitled to one
vote per share. Each share of Class B Common Stock is convertible into one
share of Class A Common Stock.
(2) The address of Nicholas Company, Inc. and Nicholas Fund, Inc. is 700
North Water Street, Milwaukee, Wisconsin 53202. The address of First Pacific
Advisors, Inc. is 11400 West Olympic Boulevard, Los Angeles, California
90064. The address of each other stockholder in the table is c/o Watts
Industries, Inc., 815 Chestnut Street, North Andover, Massachusetts 01845,
except for Martin W. Pickett whose address is Cla-Val Company, 1701
Placentia, Costa Mesa, CA 92726 and Charles W. Grigg whose address is 87
Spruce Hill Road, Weston, Massachusetts 02193.
(3) "Beneficial ownership" means the sole or shared power to vote, or to
direct the voting of, a security, or the sole or shared investment power with
respect to a security (i.e., the power to dispose of, or to direct the
disposition of, a security). A person is deemed, as of any date, to have
"beneficial ownership" of any security that such person has the right to
acquire within 60 days after such date.
(4) Timothy P. Horne, Frederic B. Horne, George B. Horne, Daniel W. Horne,
Deborah Horne and Peter W. Horne, together with Judith Rae Horne (as trustee
and custodian for her minor daughter) may be deemed a "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Shares of Class B Common Stock of the Company held by each member of the
Horne family named in the above table and any voting trust certificates in
respect thereof are subject to a right of first refusal in favor of the other
Horne family members named in the table. The Company has granted registration
rights with respect to the shares of Class B Common Stock beneficially owned
by such Horne family members.
(5) Includes (i) 2,936,068 shares, of which 84,848 shares are Class A Common
Stock, beneficially owned by Timothy P. Horne (for purposes of this footnote,
"Mr. Horne"), (ii) 1,355,166 shares owned by Frederic B. Horne, Mr. Horne's
brother, (iii) 1,335,840 shares held for the benefit of Daniel W. Horne, Mr.
Horne's brother, under a revocable trust for which Mr. Horne serves as sole
trustee, (iv) 1,335,840 shares held for the benefit of Deborah Horne, Mr.
Horne's sister, under a trust for which Mr. Horne serves as sole trustee,
which trust is revocable with the consent of the trustee, (v) 1,335,840
shares held for the benefit of Peter W. Horne, Mr. Horne's brother, under a
revocable trust for which Frederic B. Horne serves as sole trustee, (vi)
2,200,000 shares held for the benefit of George B. Horne, Mr. Horne's father,
under a revocable trust for which Mr. Horne serves as co-trustee, and (vii)
26,000 shares issuable upon the exercise of stock options. Also includes
157,740 shares held by Judith Rae Horne, Mr. Horne's wife, as trustee or
custodian for Mr. Horne's minor daughter, of which Mr. Horne disclaims
beneficial ownership. A total of 2,851,220 of the shares of Class B Common
Stock noted in clause (i), the shares noted in clause (ii) through (v), and
2,000,000 of the shares noted in clause (vi), of this footnote (10,213,906
shares in the aggregate) are held in a voting trust for which Mr. Horne
serves as co-trustee. See footnote 6. All shares beneficially owned or which
may be deemed beneficially owned by Mr. Horne are Class B Common Stock except
84,848 of the 2,936,068 shares noted in clause (i) and all of the shares
noted in clause (vii) of this footnote.
(6) All shares of Class B Common Stock beneficially owned by Timothy P.
Horne, all shares of Class B Common Stock beneficially owned by trusts for
the benefit of Daniel W. Horne, Deborah Horne and Peter W. Horne, 1,355,166
shares of Class B Common Stock beneficially owned by Frederic B. Horne and
2,000,000 shares beneficially owned by a trust for the benefit of George B.
Horne (10,213,906 shares in the aggregate) are subject to the terms of the
Horne Family Voting Trust Agreement--1991 (the "Voting Trust"). Under the
terms of the Voting Trust, the two trustees (currently Timothy P. Horne and
Frederic B. Horne) have sole power to vote all shares subject to the Voting
Trust. However, as long as Timothy P. Horne and Frederic B. Horne are serving
as trustees of the Voting Trust, Timothy P. Horne generally has the right to
vote all shares subject to such trust in the event that the trustees do not
concur with respect to any proposed action, including any exercise of the
trustee's right to authorize the withdrawal of shares from the Voting Trust
(the "Determination Power"). The sole exception to the Determination Power is
that the concurrence of Timothy P. Horne and Frederic B. Horne is required
for the voting of shares in connection with any vote involving the election
or removal of directors of the Company. Under the terms of the Voting Trust,
Timothy P. Horne, the Chairman of the Board of Directors, President and Chief
Executive Officer of the Company, Frederic B. Horne, a Corporate Vice
President and a Director of the Company, and George B. Horne, the father of
Timothy P. Horne
<PAGE>
<PAGE>
and Frederic B. Horne, may designate up to two successor trustees to succeed
Timothy P. Horne and Frederic B. Horne, one to be designated as the primary
designee and the other as the secondary designee. If either Timothy P. Horne
or Frederic B. Horne ceases for any reason to serve as a trustee, first the
primary designee and then the secondary designee (if any) would become a
co-trustee with the remaining Horne brother. Under such circumstances the
remaining Horne brother would generally have the Determination Power except
that (i) the concurrence of the remaining Horne brother and the co-trustee
would be required in connection with any vote involving the election or
removal of directors of the Company, (ii) the designated successor would vote
those shares owned by the departed Horne brother and (iii) the designated
successor would have sole authority with respect to withdrawals of shares
beneficially owned by the departed Horne brother. If both Timothy P. Horne
and Frederic B. Horne cease to serve as trustees, first the primary designee
and then the secondary designee would remain as the sole trustee for the term
of the Voting Trust. If designated successors become trustees but do not
survive whichever of Timothy P. Horne or Frederic B. Horne is still serving
as trustee, that trustee would remain as the sole trustee absent an amendment
to the Voting Trust. If each of Timothy P. Horne and Frederic B. Horne and
the two designated successors cease to serve as trustees for any reason, the
holders of a majority of the voting trust certificates then outstanding have
the right to designate successor trustees as necessary under the terms of the
Voting Trust. Pursuant to the power of designation described above, Timothy
P. Horne, Frederic B. Horne and George B. Horne have designated Noah T.
Herndon, a Director of the Company, as the primary designee and John
LeClaire, Esq., a partner in the law firm of Goodwin, Procter & Hoar, as the
secondary designee, should either Timothy P. Horne or Frederic B. Horne cease
to serve as a trustee under the Voting Trust. Timothy P. Horne, Frederic B.
Horne and George B. Horne can collectively agree to revoke the designation of
any successor before he begins to serve or to appoint a new designated
successor. If one or more of such Horne family members are unable to take
such action, this power rests in the survivor or survivors of them.
The Voting Trust expires on October 31, 2001, subject to extension on or
after October 31, 1999 by stockholders (including the trustee of any trust
stockholder, whether or nor such trust is then in existence) who deposited
shares of Class B Common Stock in the Voting Trust and are then living or, in
the case of shares in the Voting Trust the original depositor of which (or
the trustee of the original depositor of which) is not then living, the
holders of voting trust certificates representing such shares. The Voting
Trust may be amended by vote of the holders of a majority of the voting trust
certificates then outstanding and, while one or more of Timothy P. Horne,
Frederic B. Horne and their successor designated as described in the
preceding paragraph is serving as trustee, the trustees. In certain cases
(i.e., changes to the extension, termination and amendment provisions), the
original depositors must also approve amendments. Shares may not be removed
from the trust during its term without the consent of the trustees.
Timothy P. Horne beneficially owns 27.9% of the total beneficial interest in
the Voting Trust (the "Beneficial Interest") individually, 13.1% of the
Beneficial Interest as trustee of a revocable trust, 13.1% of the Beneficial
Interest as trustee of a trust revocable with the consent of the trustee and
19.6% of the Beneficial Interest as co-trustee of a revocable trust
(representing an aggregate of 73.7% of the Beneficial Interest). Frederic B.
Horne beneficially owns 13.3% of the Beneficial Interest individually and
13.1% of the Beneficial Interest as trustee of a revocable trust
(representing an aggregate of 26.4% of the Beneficial Interest). George B.
Horne holds 19.6% of the Beneficial Interest as co-trustee of a revocable
trust. Voting trust certificates are subject to any restrictions on transfer
applicable to the stock which they represent.
(7) Includes (i) 2,102,010 shares, of which 46,844 are shares of Class A
Common Stock, beneficially owned by Frederic B. Horne (for purposes of this
footnote, "Mr. Horne"), (ii) 2,851,220 shares beneficially owned by Timothy
P. Horne, (iii) 1,335,840 shares beneficially owned by a revocable trust for
the benefit of Daniel W. Horne for which Timothy P. Horne serves as sole
trustee, (iv) 1,335,840 shares beneficially owned by a trust for the benefit
of Deborah Horne, for which Timothy P. Horne serves as sole trustee, which
trust is revocable with the consent of the trustee, (v) 1,335,840 shares
beneficially owned by a revocable trust for the benefit of Peter W. Horne for
which Mr. Horne serves as sole trustee, (vi) 2,000,000 shares beneficially
owned by a revocable trust for the benefit of George B. Horne, for which
George B. Horne and Timothy P. Horne serve as co-trustees and (vii) 20,000
shares issuable upon the exercise of stock options. A total of 1,355,166 of
the 2,102,010 shares of Class B Common Stock noted in clause (i) and all of
the shares noted in clauses (ii) through (vi) above (10,213,906 shares in the
aggregate) are held in the voting trust described in footnote 6 above. All
shares beneficially owned or which may be deemed beneficially owned by Mr.
Horne are Class B Common Stock except 46,844 of the 2,102,010 shares noted in
clause (i) and all of the shares noted in clause (vii) of this footnote.
<PAGE>
<PAGE>
(8) Includes 2,200,000 shares held in a revocable trust for which Timothy P.
Horne and George B. Horne serve as co-trustees. A total of 2,000,000 of such
shares are subject to the voting trust described in footnote 6 above.
(9) All shares are Class B Common Stock.
(10) Shares are held in a revocable trust for which Timothy P. Horne serves
as sole trustee, and are subject to the voting trust described in footnote 6.
(11) Shares are held in a trust for which Timothy P. Horne serves as sole
trustee, which trust is revocable with the consent of the trustee, and are
subject to the voting trust described in footnote 6.
(12) Shares are held in a revocable trust for which Frederic B. Horne serves
as sole trustee, and are subject to the voting trust described in footnote 6.
(13) All shares are shares of Class A Common Stock or options to purchase
Class A Common Stock exercisable presently or within 60 days of August 16,
1994.
(14) The information is based on a Schedule 13G dated February 8, 1994 filed
with the Securities and Exchange Commission by Nicholas Company, Inc.,
Nicholas Fund, Inc. and Albert O. Nicholas reporting their holdings of shares
of Class A Common Stock as of December 31, 1993. Nicholas Company, Inc. has
stated in the Schedule 13G that it is an investment adviser registered under
the Investment Advisers Act of 1940 and possesses sole dispositive power over
2,561,800 shares indicated as owned by it. Nicholas Fund, Inc. has stated in
the Schedule 13G that it is an investment company registered under the
Investment Company Act of 1940 and possesses sole voting power for 1,857,000
of the shares owned by Nicholas Company, Inc. Albert O. Nicholas has stated
in the Schedule 13G that he is an individual and disclaims direct beneficial
ownership of all securities reported as beneficially owned by Nicholas
Company, Inc. and Nicholas Fund, Inc. Mr. Nicholas is the President, a
Director and the majority stockholder of Nicholas Company, Inc. and President
and Director of Nicholas Fund, Inc.
(15) The information is based on a Schedule 13G dated February 9, 1994 filed
with the Securities and Exchange Commission by First Pacific Advisors, Inc.
reporting its holdings of shares of Class A Common Stock as of December 31,
1993. First Pacific Advisors, Inc. has stated in the Schedule 13G that it is
an investment adviser registered under the Investment Advisers Act of 1940
and that it possesses shared voting power over 983,400 shares and shared
dispositive power over 1,143,800 shares.
(16) All share amounts were doubled as a result of a two-for-one stock split
of the Company's Common Stock effected by means of a stock dividend payable
on March 15, 1994.
(17) Includes 6,000 shares of Class A Common Stock issuable upon the exercise
of stock options under the 1991 Non-Employee Directors' Nonqualified Stock
Option Plan.
(18) Represents 36,000 shares of Class A Common Stock issuable upon the
exercise of stock options.
(19) Includes (i) 23,200 shares of Class A Common Stock issuable upon the
exercise of stock options presently or within 60 days of August 16, 1994 and
(ii) 4,350 shares of Class B Common Stock of the Company.
(20) Represents 4,000 shares of Class A Common Stock issuable upon the
exercise of stock options.
(21) Includes (i) 11,275,996 shares of Class B Common Stock, (ii) 136,692
shares of Class A Common Stock, and (iii) 141,600 shares of Class A Common
Stock issuable upon the exercise of stock options.
(22) Shares of Class B Common Stock of the Company held by members of
management other than Horne family members are subject to a right of first
refusal in favor of the Company.
<PAGE>
<PAGE>
COMPENSATION ARRANGEMENTS
Summary Compensation Table
The following table contains information with respect to the compensation for
the past three fiscal years of the Company's Chairman/President/Chief
Executive Officer, the four other most highly compensated executive officers
(the "named executive officers") and one individual who would have been one
of such four most highly compensated executive officers but who was not
serving in such capacity at fiscal year ended June 30, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER
ANNUAL LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2)(3) (#)(4)(11) ($)(5) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C>
Timothy P. Horne 1994 596,838 84,503 -- 40,000 (7) -- --
Chairman of the Board, 1993 570,000 0 -- 20,000 (7) -- --
President and Chief 1992 550,000 75,000 -- 25,000 (7) -- --
Executive Officer
David A. Bloss, Sr. (13) 1994 201,674 104,170 -- 20,000 (7) -- --
Executive Vice President 1993 -- -- -- -- -- --
1992 -- -- -- -- -- --
Kenneth J. McAvoy 1994 158,340 91,760 -- 30,000 (7) -- --
Vice President of 1993 148,834 37,650 -- 15,000 (7) -- --
Finance, CFO, 1992 140,836 78,650 -- 15,000 (7) -- --
Executive V.P. of
European Operations,
Treasurer and
Secretary
Robert T. McLaurin 1994 143,590 75,908 -- -- -- --
Corporate Vice President 1993 135,416 31,395 -- -- -- --
of Asian Operations 1992 128,330 65,000 -- -- -- --
Martin W. Pickett (8) 1994 127,840 52,653 -- 16,000(10)(12) -- --
Corporate Vice President 1993 110,834 28,782 -- 5,000(10)(12) -- --
1992 99,164 32,000 -- 5,000(10)(12) -- --
Charles W. Grigg (9) 1994 181,254 0 -- 50,000(10) -- --
President and Chief 1993 270,838 106,425 106,303 (7) -- --
Operating Officer 1992 245,008 197,500 (6) 30,000(10) -- --
-- (7)
25,000(10)
(7)
</TABLE>
(1) Amounts awarded under the Executive Incentive Bonus Plan for the
respective fiscal years.
(2) In accordance with the revised rules on executive compensation disclosure
adopted by the Securities and Exchange Commission, as informally interpreted
by the Commission's Staff, amounts of Other Annual Compensation and All Other
Compensation are excluded for the Company's 1992 fiscal year.
(3) No amounts for executive perquisites and other personal benefits,
securities or property are shown because the aggregate dollar amount per
executive is the lesser of either $50,000 or 10% of annual salary and bonus.
(4) Awarded under the 1986 Incentive Stock Option Plan (the "Incentive Plan")
and the 1989 Nonqualified Stock Option Plan (the "Nonqualified Plan").
(5) The Company does not offer a long term incentive compensation plan to the
named executive officers.
(6) Includes an interest free loan granted to Mr. Grigg by the Company in the
amount of $102,900 that was utilized for the payment of income taxes due upon
the exercise of a total of 10,000 options previously granted under the
Nonqualified Plan. Mr. Grigg repaid the loan to the Company in the 1994
fiscal year.
<PAGE>
<PAGE>
(7) Amount awarded under the Nonqualified Plan.
(8) Mr. Pickett resigned as Corporate Vice President on July 15, 1994.
(9) Mr. Grigg resigned as President, Chief Operating Officer and Director on
January 18, 1994.
(10) All stock options granted, whether exercisable or not, generally lapse
upon the termination of employment.
(11) All option amounts for fiscal 1994 were doubled as a result of a
two-for-one stock split of the Company's Common Stock effected by means of a
stock dividend payable on March 15, 1994.
(12) Amount Awarded under the Incentive Plan.
(13) Mr. Bloss joined the Company in July, 1993.
Stock Option Grants
The following table shows information concerning options to purchase the
Company's Class A Common Stock granted in fiscal 1994 to the named executive
officers.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants (8) for Option Term (3)
% of Total
Options
Granted to Exercise Market Price
Options Employees or Base on Date of
Granted in Fiscal Price Grant Expiration
Name (#)(1)(2) Year ($/Sh) ($/Sh) Date 0%($) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Timothy P.
Horne 40,000 (4) 10.43 17.10 (6) 21.25 9-1-2003 166,000 700,560 1,520,680
David A.
Bloss, Sr. 20,000 (4) 5.21 15.725 (6) 17.125 7-19-2003 28,000 243,396 573,856
Kenneth J.
McAvoy 30,000 (4) 7.82 17.10 (6) 21.25 9-1-2003 124,500 525,420 1,140,510
Robert T.
McLaurin -- -- -- -- -- -- -- --
Martin W.
Pickett (9) 16,000 (5) 4.17 18.00 (7) 18.00 9-1-2003 0 0 0
Charles W.
Grigg (9) 50,000 (4) 13.03 17.10 (6) 21.25 9-1-2003 0 0 0
</TABLE>
(1) All options were granted on September 1, 1993, except for the options
granted to Messrs. Bloss and Pickett which were granted on July 19, 1993 and
August 10, 1993, respectively.
(2) Options vest over five years at the rate of 20% per year on successive
anniversaries of the respective dates on which the options were granted and
generally terminate upon the earlier of the termination of employment,
subject to certain exceptions, or ten years from the date of grant. Under the
terms of the 1986 Incentive Stock Option Plan, the options granted to
optionees who hold more than 10% of the combined voting power of all classes
of stock of the Company have a maximum duration of five years from the date
of grant.
(3) Based upon the market price on the date of grant and an annual
appreciation at the rate stated on such market price through the expiration
date of such options. The dollar amounts in these columns are the result of
calculations of 0% and at the 5% and 10% rates set by the SEC and therefore
are not intended to forecast possible future appreciation, if any, of the
Company's stock price. The Company did not use an alternative formula for a
grant date valuation, as the Company is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown or
volatile factors.
(4) Awarded under the Company's 1989 Nonqualifed Stock Option Plan (the
"Nonqualified Plan").
(5) Awarded under the Company's 1986 Incentive Stock Option Plan (the
"Incentive Plan").
(6) Under the terms of the Nonqualified Plan, the exercise price of options
cannot be less than 50% of fair market value.
(7) Under the terms of the Incentive Plan, the exercise price of options
cannot be less than 110% of fair market value for optionees who hold more
than 10% of the combined voting power of all classes of stock of the Company
and 100% of fair market value for all other optionees.
(8) All share amounts have been doubled and option exercise prices and market
prices of the underlying security on the date of grant have been halved as a
result of a two-for-one stock split of the Company's Common Stock effected by
means of a stock dividend payable on March 15, 1994.
<PAGE>
<PAGE>
(9) All stock options granted to an individual generally lapse upon the
termination of employment. Mr. Pickett resigned as Corporate Vice President
on July 15, 1994. Mr. Grigg resigned as President, Chief Operating Officer
and Director on January 18, 1994. Therefore, there is no potential realizable
value to report for either of these individuals.
Aggregated Option Exercises and Option Values
The following table shows information concerning the exercise of stock
options during fiscal year 1994 by each of the named executive officers and
the fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options
End(#) (2) (5) at Fiscal Year End($) (3)
Shares
Acquired Value
on Realized($)
Name Exercise(#) (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Timothy P. Horne 42,424(4) 669,057.50(4) -- 137,788 -- 1,115,302.50
David A. Bloss,
Sr. -- -- -- 20,000 -- 150,500
Kenneth J.
McAvoy 7,800(4) 199,875(4) 18,000 90,000 116,460 696,810
Robert T.
McLaurin -- -- 20,000 8,000 138,400 61,600
Martin W.
Pickett (6) 1,000(4) 27,250(4) 5,900 34,000 5,137.50 133,500
Charles W. Grigg
(6) 30,093(4) 519,313.50(4) -- -- -- --
</TABLE>
(1) Represents the difference between the market price on the date of
exercise and the exercise price of the options.
(2) Options vest over five years at the rate of 20% per year on successive
anniversaries of the respective dates on which the options were granted and
shall generally terminate upon the earlier of the termination of employment,
subject to certain exceptions, or ten years from the date of grant.
(3) Represents the difference between the market price on the last day of the
fiscal year and the exercise price of the options.
(4) Share amounts and dollar values are shown as of the dates of exercise
which occurred prior to the date of the two-for-one stock split referred to
in Note (5) below.
(5) All option amounts were doubled and option exercise prices were halved as
a result of a two-for-one stock split of the Company's Common Stock effected
by means of a stock dividend payable on March 15, 1994.
(6) All stock options granted to an individual generally lapse upon the
termination of employment. Mr. Grigg resigned on January 18, 1994 as
President, Chief Operating Officer and Director. Therefore, Mr. Grigg
possessed no options at fiscal year end.
1991 Non-Employee Directors' Nonqualified Stock Option Plan. Stock options
granted under the 1991 Non- Employee Directors' Nonqualified Stock Option
Plan (the "Directors' Plan") are granted automatically and without any
further action on the part of the Board of Directors as of November 1 in each
year commencing in 1991 (with respect to each year, the "Grant Date"). The
Directors' Plan provides that options to purchase 2,000 shares of Class A
Common Stock (or such lesser amount as shall enable each non-employee
Director then in office to receive an equal grant in the event that there are
not sufficient shares of Class A Common Stock for each such non-employee
Director to receive a grant of 2,000 shares) shall be granted to each
non-employee Director duly elected and serving as such on each Grant Date.
The purchase price of shares which may be purchased under the Directors' Plan
is $22.75, which is equal to the closing sale price of the Class A Common
Stock on the over-the-counter market on October 18, 1991 (as adjusted for the
March, 1994 two-for-one split of the Company's Common Stock), as reported by
the National Market System of NASDAQ.
Options granted under the Directors' Plan are exercisable when granted, but
no option is exercisable after the earlier of (a) the date ten years after
the Grant Date or (b) the date on which the Director to whom such options
were granted ceases for any reason to serve as a Director of the Company;
provided, however, that in the event of termination as a result of disability
or death, the Director or his personal representative may exercise any
outstanding options not theretofore exercised during the 90-day period
following such disability or death.
<PAGE>
<PAGE>
The Directors' Plan is administered by the Board of Directors or an
authorized committee thereof in accordance with Rule 16b-3 under the Exchange
Act. The Board of Directors or an authorized committee thereof determines the
form of options granted under the Directors' Plan and makes other
determinations and interpretations concerning the Directors' Plan and options
granted thereunder.
During fiscal 1994, Messrs. Herndon, Moran and Murphy, being all the
non-employee Directors of the Company on the Grant Date, were each granted
options to purchase 2,000 shares of Class A Common Stock (as adjusted for the
March, 1994 stock split) under the Directors' Plan.
Pension Plan
Watts Regulator Co., a subsidiary of the Company, maintains a qualified
non-contributory defined benefit pension plan (the "Pension Plan") for
eligible salaried employees of the Company and its subsidiaries, including
the named executive officers specified in the "Summary Compensation Table"
above and it maintains a nonqualified non-contributory defined benefit
supplemental plan (the "Supplemental Plan") generally for certain highly
compensated employees. The eligibility requirements of the Pension Plan are
attainment of age 21 and one year of service of 1,000 or more hours. The
assets of the Pension Plan are maintained in a trust fund at State Street
Bank and Trust Company. The Pension Plan is administered by the Pension Plan
Committee, which is appointed by the Board of Directors of Watts Regulator
Co. Annual contributions to the Pension Plan are computed by an actuarial
firm based on normal pension costs and a portion of past service costs. The
Pension Plan provides for monthly benefits to, or on behalf of, each covered
employee at age 65 and has provisions for early retirement after ten years of
service and attainment of age 55 and surviving spouse benefits after five
years of service. Covered employees who terminate employment prior to
retirement with at least five years of service are vested in their accrued
retirement benefit. The Pension Plan is subject to the Employee Retirement
Income Security Act of 1974, as amended.
The annual normal retirement benefit for employees under the Pension Plan is
1.67% of Final Average Compensation (as defined in the Pension Plan)
multiplied by years of service (maximum 25 years), reduced by the Maximum
Offset Allowance (as defined in the Pension Plan). For the 1994 Pension Plan
year, Annual Compensation in excess of $150,000 per year is disregarded under
the Pension Plan for all purposes. However, benefits accrued prior to the
1994 plan year may be based on compensation in excess of $150,000.
Compensation recognized under the Pension Plan includes base salary and
annual bonus.
The Supplemental Plan provides additional monthly benefits to individuals who
were projected to receive reduced benefits as a result of changes made to the
Pension Plan to comply with the Tax Reform Act of 1986 or who will be
affected by IRS limits on Pension Plan Compensation.
The annual normal retirement benefit payable from the Supplemental Plan is
equal to the difference between (1) the pre-Tax Reform Act promise of 45% of
Final Average Compensation less 50% of the participant's Social Security
Benefit, the result prorated for years of service less than 25 and (2) the
Pension Plan formula above with Annual Compensation in excess of $175,000
disregarded. For eligible employees who were not plan participants of the
Pension Plan as of January 1, 1989, the benefit under the Supplemental Plan
is based on the Pension Plan formula set forth above, with Annual
Compensation in excess of $242,283 disregarded. For the 1994 Plan Year,
Annual Compensation in excess of $302,863 is disregarded for all purposes
under the Supplemental Plan. Compensation recognized under the
Supplemental Plan is W-2 pay.
The following table illustrates total annual normal retirement benefits
(payable from both the Pension Plan and from the Supplemental Plan and
assuming attainment of age 65 during 1994) for various levels of Final
Average Compensation and years of benefit service, prior to application of
the Social Security offset, which is an integral part of the benefits payable
under the Supplemental Plan.
<TABLE>
<CAPTION>
Estimated Total Annual Retirement Benefit
(Pension Plan plus Supplemental Plan)
Based on Years of Service (1)
Final Average Compensation for
Five Highest Consecutive Years 25 Years
in Last 10 Years: 10 Years 15 Years 20 Years or more
<S> <C> <C> <C> <C>
$100,000 $18,000 $27,000 $ 36,000 $ 45,000
150,000 27,000 40,500 54,000 67,500
200,000 31,825 47,738 63,650 79,563
250,000 40,825 61,238 81,650 102,063
300,000 49,825 74,738 99,650 124,563
350,000 50,340 75,511 100,681 125,851
</TABLE>
(1) The annual Pension Plan benefit is computed on the basis of a straight
life annuity.
<PAGE>
<PAGE>
Messrs. Timothy P. Horne, Bloss, McAvoy, McLaurin, Pickett and Grigg have 35,
1, 13, 16, 5 and 10 years, respectively, of benefit service under the Pension
Plan. Eligible employees are currently limited to a maximum annual benefit
under the Pension Plan of $118,800 (subject to cost of living adjustments)
under Internal Revenue Code requirements regardless of their years of service
or Final Average Compensation. Accordingly, under current salary levels and
law, Mr. Timothy P. Horne's annual benefit would be limited to such amount.
Employment, Termination, Supplemental and Deferred Compensation Agreements
On May 1, 1993, the Company entered into an Employment Agreement with Mr.
Horne providing for annual base salary of at least $570,000 plus other
benefits and bonuses generally available to senior executives of the Company.
The Employment Agreement provides for the employment of Mr. Horne as Chairman
of the Board and Chief Executive Officer of the Company for a period of not
less than four years and is terminable by Mr. Horne on thirty days notice.
The Employment Agreement supersedes all prior employment agreements between
the Company and Mr. Horne. Under the Employment Agreement, if Mr. Horne
shall, without his consent, cease to be, or cease to have the
responsibilities and duties of, Chairman of the Board of Directors of the
Company and Chief Executive Officer other than for a willful illegal act
relating to the performance of his duties, or if he shall be assigned duties
inconsistent with those previously performed by him, he shall be entitled to
terminate his employment upon notice and, if so terminated, he shall be
entitled to receive a severance payment equal to the greater of (i) the
compensation which would have been payable under the Employment Agreement at
the base salary in effect on the termination date for the balance of the
original term thereof or (ii) two years' compensation at that rate.
Under a Supplemental Compensation Agreement, effective as of May 1, 1993,
Timothy P. Horne is entitled to receive annual payments during his lifetime
following his retirement or other termination of employment with the Company
equal to the greater of (a) one-half of the average of his base salary for
the three years immediately preceding such retirement or termination or (b)
$350,000. During this period Mr. Horne will be available as a consultant to
the Company for 300 to 500 hours per year.
Mr. Horne is also entitled under a Deferred Compensation Agreement to
retirement benefits aggregating $233,333 payable over a period of 28
consecutive months commencing upon the earliest of his retirement, attainment
of the age of 65 or other termination of employment. The Deferred
Compensation Agreement represents compensation which Mr. Horne deferred prior
to the Company's past three fiscal years. The Company has fully expensed its
obligations under this Deferred Compensation Agreement.
Stock Option and Compensation Committee Report
The Stock Option and Compensation Committee is currently composed of Messrs.
Murphy and Herndon and Ms. Lane. Mr. Murphy is the Chairman of the Committee.
The three members of the Stock Option and Compensation Committee are
non-employee directors and are ineligible to participate in any of the
compensation plans which are administered by the Committee.
In accordance with the rules adopted by the Securities and Exchange
Commission, the Stock Option and Compensation Committee will report on the
compensation and benefits provided in fiscal 1994 to Timothy P. Horne, David
A. Bloss, Sr., Kenneth J. McAvoy, Robert T. McLaurin, Martin W. Pickett and
Charles W. Grigg.
Compensation Philosophy
The Company's executive compensation program is designed to promote corporate
performance and thereby enhance stockholder returns. The Committee believes
that executives should have a greater portion of their compensation tied
directly to performance, both of the business and of individual objectives
established by management. To this end, overall compensation strategies and
specific compensation plans have been developed to tie a significant portion
of executive compensation to the success in meeting specified performance
goals. The overall objectives of this strategy are to attract and retain the
best possible executive talent, to motivate executives to achieve goals
inherent in the Company's business strategy, to link executive and
stockholder interests and to provide compensation packages that recognize
individual contributions as well promote achievement of business goals.
The key elements of the Company's executive compensation program consists of
three components, each of which is intended to serve the overall compensation
philosophy: base salary, an annual bonus and stock options granted under
either the 1986 Incentive Stock Option Plan or the 1989 Nonqualified Stock
Option Plan. These programs, as well as the basis for Mr. Timothy P. Horne's
compensation in fiscal 1994, are discussed below.
<PAGE>
<PAGE>
Base Salary
Base salaries for executive officers are initially determined by evaluating
the responsibilities of the position held and the experience of the
individual, coupled with a review of the base salaries for comparable
positions at other companies.
Executive's base salaries are reviewed on an annual basis following the close
of the fiscal year and completion of the audit of the Company's financial
results by the independent auditors. Adjustments are determined by evaluating
the performance of the Company and each executive officer. The performance of
executive officers with functional or administrative responsibilities is
considered by reviewing the quality and efficiency of administrative and
functional processes. In the case of executive officers with responsibility
for one or more business units within the Company, the business results of
those units are also considered. The Committee also considers, where
appropriate, certain non-financial performance measures, such as increase in
market share, market expansion, corporate development and acquisitions,
achievement of manufacturing efficiencies, improvements in product quality
and/or relations with customers, suppliers or employees. Adjustments in base
salary are also made when and as appropriate to reflect changes in job
responsibilities.
The Committee believes that the Company's most direct competitors for
executive talent are not necessarily all of the companies that would be
included in the peer group established to compare shareholder returns. Thus,
the compensation packages which may be considered during the Company's
compensation review process are not the same group as the peer group index in
the Comparison of Five Year Cumulative Total Return graph included in this
proxy statement.
The base salary received by Mr. Timothy P. Horne in fiscal 1994 was $596,838,
an increase of 4.5% from $570,000 in the prior fiscal year. Under the terms
of an Employment Agreement with the Company, Mr. Horne's base salary was
established in 1993 at $570,000, subject to a guaranteed annual adjustment
equal to the increase in the Consumer Price Index for all Urban Consumers,
with such other additional increase, if any, as the Committee deems
appropriate in its discretion. The CPI increased by approximately 3.0% from
June 1992 to June 1993, the twelve month period immediately prior to the
Committee's adjustment in Mr. Horne's base salary for fiscal 1994.
The key performance measure the Committee used in determining Mr. Horne's
compensation for fiscal 1994 was its assessment of his ability and dedication
to enhance the long-term value of the Company through continuation of the
leadership and vision he has provided during his tenure as Chairman,
President and CEO. Under his leadership, the sales of the Company have
experienced a compounded annual growth rate of approximately 17%.
Annual Bonus
The Company's executive officers are eligible for an annual cash bonus.
Individual and corporate performance objectives are established at or near
the beginning of each fiscal year by the Chairman/President/Chief Executive
Officer in consultation with the Executive Vice President and the Chief
Financial Officer. These objectives are then reviewed by the Committee. Once
established, eligible executives are assigned threshold, target and maximum
bonus levels. Each participant in the plan is assigned a percentage, based
upon the participant's position in the Company, of base salary as a target
upon which the bonus is calculated.
The Committee believes that a significant portion of executive compensation
should be tied to an annual bonus potential based on performance of specified
objectives. During fiscal 1994, the Company's net income increased by 15%.
This represents a significant reversal from the 5% decline in net income
experienced during fiscal 1993. As a result, the annual bonus payments for
fiscal 1994 were more than the prior year with respect to all of the named
executive officers.
Under the Employment Agreement, Mr. Timothy P. Horne is eligible for an
annual bonus in an amount to be determined by the Committee based upon such
factors as the Committee deems appropriate. Mr. Horne received a bonus of
$84,503 for fiscal 1994. The Committee believes that Mr. Horne's continued
leadership and focus on the long-term growth of the Company were significant
factors in contributing to the 15% increase in net income for fiscal 1994.
Stock Options
Under the Company's 1986 Incentive Stock Option Plan and 1989 Nonqualified
Stock Option Plan, both of which were approved by the stockholders, stock
options may be granted to the Company's executive officers. The
<PAGE>
<PAGE>
Committee sets guidelines for the size of stock option awards based on
similar factors as used to determine base salaries and annual bonuses,
including corporate performance and individual performance against
objectives. Stock options are the principal vehicle for the payment of
long-term compensation. This component of compensation is intended to
motivate executives to improve stock market performance.
Stock options are designed to align the interests of the executives with
those of the stockholders as the full benefit of the compensation package
will not be realized unless stock appreciation occurs over a number of years.
Stock options under the Incentive Plan are typically granted annually and
vest 20% per year over five years beginning with the first anniversary of the
grant date. Under the Incentive Plan, the exercise price equals the market
price of the Common Stock on the date of the grant with an exception for
executives who own more than 10% of the combined voting power of the Company;
for those employees the exercise price is equal to 110% of the market price
on the date of the grant. Stock options under the Nonqualified Plan have an
exercise price which may be no less than 50% of the market price on the date
of the grant. The duration of options under either plan is generally 10
years, with the exception of grants under the Incentive Plan to owners of
more than 10% of the combined voting power of the Company, in which case such
grants terminate after 5 years.
Options are normally granted in the fall following the close of the fiscal
year in order to provide the Committee with an opportunity to review the
fiscal year performance, both of individual and business goals.
On September 1, 1993, Mr. Timothy P. Horne received options under the
Nonqualified Plan to purchase 20,000 shares with an exercise price of $34.20,
which represents 80% of the fair market value of $42.50 on the grant date
(share amounts and dollar values are shown as of the date of grant which is
prior to the March, 1994 stock split). This is the same number of options
which were granted to Mr. Horne for the fiscal year ended June 30, 1992. Mr.
Horne holds a significant equity interest in the Company.
Conclusion
Through the programs described above, a very significant portion of the
Company's executive compensation is linked to individual and corporate
performance and stock appreciation. The Stock Option and Compensation
Committee intends to continue the policy of linking executive compensation to
corporate performance and enhancement of stockholder returns.
Stock Option and Compensation Committee
Daniel J. Murphy, III (Chairman)
Noah T. Herndon
Wendy E. Lane
<PAGE>
<PAGE>
Performance Graph
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Class A Common Stock, based on the market price of
the Common Stock, with the cumulative return of companies on the Standard &
Poor's 500 Stock Index and a peer group of companies engaged in the valve and
pump industries, for a period of five fiscal years commencing June 30, 1989
and ended June 30, 1994. The performance indicator of peer group companies
consists of Keystone International, Inc., Bw Ip, Inc., Zurn Industries, Inc.,
Goulds Pumps, Inc. and Duriron, Inc. The graph assumes that the value of the
investment in the Company's Class A Common Stock and each index was $100 at
June 30, 1989 and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG WATTS INDUSTRIES, INC., THE S&P 500 INDEX AND A PEER GROUP
[TABULAR REPRESENTATION OF LINE GRAPH]
<TABLE>
<CAPTION>
Cumulative Total Return
6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94
<S> <C> <C> <C> <C> <C> <C>
Watts Industries, Inc. 100 129 157 157 121 152
Peer Group 100 130 136 143 151 118
S&P 500 100 116 125 142 161 163
</TABLE>
Certain Transactions
George B. Horne, the father of Timothy P. Horne and Frederic B. Horne,
receives monthly payments of $7,959 ($95,505 annually) from the Watts
Regulator Co. Retirement Plan for Salaried Employees.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
During fiscal year 1994, Charles W. Grigg, a former director and executive
officer of the Company, failed to file with the Securities and Exchange
Commission ("SEC") on a timely basis reports on Form 4 for the months of
December 1993 and January 1994 relating to a total of 5 transactions.
In making these disclosures, the Company has relied solely upon written
representations of its Directors and executive officers and copies of the
reports that they have filed with the SEC.
<PAGE>
<PAGE>
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
Although Delaware law does not require that the selection by the Directors of
the Company's independent auditors be approved each year by the stockholders,
the Directors believe it is appropriate to submit the selection of
independent auditors to the stockholders for their approval and to abide by
the result of the stockholders' vote. Upon the recommendation of the Audit
Committee of the Board, the Directors have recommended that the stockholders
ratify the selection of Ernst & Young as the Company's independent auditors
for fiscal 1995.
The Company expects that a representative of Ernst & Young will be present at
the meeting and will be given the opportunity to make a statement if he or
she wishes to do so. This representative is also expected to be available to
respond to questions from stockholders.
Holders of voting rights sufficient to ratify the selection of Ernst & Young
as independent auditors have indicated an intention to vote in favor of this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
PROPOSAL 3
AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
AUTHORIZING ADDITIONAL SHARES OF CLASS A AND CLASS B COMMON STOCK
The presently authorized capital stock of the Company consists of 40,000,000
shares of Class A Common Stock, par value $.10 per share, 13,000,000 shares
of Class B Common Stock, par value $.10 per share, and 5,000,000 shares of
Preferred Stock, par value $.10 per share. On August 16, 1994, there were
issued and outstanding 18,013,522 shares of Class A Common Stock, 11,472,470
shares of Class B Common Stock and no shares of Preferred Stock. An aggregate
of 14,684,416 additional shares of Class A Common Stock were reserved for
issuance under the 1986 Plan, the 1989 Plan, the 1991 Non-Employee Directors'
Nonqualified Stock Option Plan, and conversion of shares of Class B Common
Stock into shares of Class A Common Stock pursuant to the terms of the
Restated Certificate of Incorporation. Accordingly, on that date there were
7,302,062 and 1,527,530 unissued and unreserved shares of Class A Common
Stock and Class B Common Stock, respectively.
The Board of Directors recommends that the first paragraph of Article FOURTH
of the Company's Restated Certificate of Incorporation be amended and
restated to increase the aggregate number of authorized shares of capital
stock of the Company, of the Company's Class A Common Stock, and of the
Company's Class B Common Stock from 58,000,000 shares, 40,000,000 shares, and
13,000,000 shares to 110,000,000 shares, 80,000,000 shares, and 25,000,000
shares, respectively. The proposed amendment would not affect the number of
authorized shares of Preferred Stock, the number of issued and outstanding
shares of Class A Common Stock or Class B Common Stock or the relative
rights, powers or preferences of any class of the Company's capital stock.
There are no preemptive rights with respect to the Company's Class A Common
Stock, Class B Common Stock or Preferred Stock. The Board of Directors has
adopted a resolution approving the proposed amendment, declaring the proposed
amendment advisable and recommending that it be approved by the Company's
stockholders at the 1994 Annual Meeting.
The Board of Directors believes that the authorization of an additional
40,000,000 shares of Class A Common Stock and 12,000,000 shares of Class B
Common Stock will benefit the Company and its stockholders by providing
additional flexibility for the Board in connection with a variety of
corporate matters. The newly authorized shares, together with the shares that
are presently authorized but unissued would be available for such general
corporate purposes as the Board of Directors may determine, including,
without limitation, public offerings, private placements, acquisitions, stock
options and other benefit arrangements and stock dividends or splits. The
Board of Directors will consider such uses from time to time as circumstances
warrant and has no current plans to issue shares of Class A Common Stock or
Class B Common Stock.
No shares of Class B Common Stock may be issued without the affirmative vote
of the holders of a majority of the outstanding shares of the Company's Class
A Common Stock and Class B Common Stock, voting as separate classes, except
where a stock dividend has been declared by the Board of Directors on all of
the outstanding capital stock of the Company, in which case additional shares
of Class B Common Stock will be issued as dividends to holders of the Class B
Common Stock. The newly authorized shares of Class A Common Stock generally
would
<PAGE>
<PAGE>
be issuable in the discretion of the Board of Directors without stockholder
approval, except as required by applicable laws, rules or regulations. In
this regard, the rules of the National Association of Securities Dealers,
Inc. for issuers whose securities are quoted on its National Market System,
including the Company, would generally require stockholder approval of
certain stock issuances including, among others, issuances in connection with
the acquisition of the stock or assets of another entity that result in an
increase of 20% or more of the outstanding shares of Class A Common Stock.
Any issuance of Class A Common Stock (other than stock dividends and stock
splits) would reduce the percentage of equity ownership and voting power of
all existing stockholders.
Vote Required. Amending the Company's Restated Certificate of Incorporation
in the manner described above requires the affirmative vote of the holders of
a majority of the outstanding shares of the Company's Class A Common Stock
and Class B Common Stock, voting as separate classes. The holders of the
Company's Class A Common Stock and Class B Common Stock are entitled to one
vote and ten votes for each share held, respectively. Holders of shares of
Class B Common Stock sufficient to approve the proposed amendment on behalf
of such class have indicated an intention to vote for the proposed amendment.
Assuming receipt of stockholder approval for the proposed amendment, the
Company will file a Certificate of Amendment effecting the proposed amendment
with the Secretary of State of Delaware. It is anticipated that the
Certificate of Amendment will be filed on and become effective at the close
of business on October 18, 1994. Upon filing of the Certificate of Amendment,
all stockholders will be bound by the amendments, whether or not they have
voted in favor of it.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
OTHER MATTERS
The Board of Directors is not aware of any other matters which may come
before the meeting. If any other matters shall properly come before the
meeting, it is the intention of the persons named in the enclosed proxy to
vote the proxy in accordance with their judgment on any such matters.
STOCKHOLDER PROPOSALS
In order for any stockholder proposal to be included in the proxy statement
for the Company's 1995 Annual Meeting of Stockholders, such proposal must be
received at the principal executive offices of the Company, 815 Chestnut
Street, North Andover, MA 01845, not later than May 17, 1995 and must satisfy
certain rules of the Securities and Exchange Commission.
Nominations and proposals of stockholders may also be submitted to the
Company for consideration at the 1995 Annual Meeting if certain conditions
set forth in the Company's By-laws are satisfied, but will not be included in
the proxy materials unless the conditions set forth in the preceding
paragraph are satisfied. Such nominations (or other stockholder proposals)
must be delivered to or mailed and received by the Company not less than 75
days nor more than 120 days prior to the anniversary date of the 1994 Annual
Meeting. If the date of the 1995 Annual Meeting is subsequently moved to a
date more than seven days (in the case of Director nominations) or ten days
(in the case of other stockholders proposals) prior to the anniversary date
of the 1994 Annual Meeting, the Company will publicly disclose such change
and nominations or other proposals to be considered at the 1995 Annual
Meeting must be received by the Company not later than the 20th day after
such disclosure (or, if disclosed more than 75 days prior to such anniversary
date, the later of 20 days following such disclosure or 75 days before the
date of the 1995 Annual Meeting, as rescheduled). To submit a nomination or
other proposal, a stockholder should send the nominee's name or proposal and
appropriate supporting information required by the Company's By-Laws to the
Secretary of the Company at the address set forth above.
<PAGE>
<PAGE>
PROXY
Preliminary Copies
WATTS INDUSTRIES, INC.
815 Chestnut Street, North Andover, MA 01845
Proxy for Class A Common Stock
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Timothy P. Horne and
Kenneth J. McAvoy, and each of them acting solely,
proxies, with power of substitution and with all powers
the undersigned would possess if personally present, to
represent and vote, as designated below, all of the shares
of Class A Common Stock of Watts Industries, Inc. which
the undersigned is entitled to vote at the Annual Meeting
of Stockholders of Watts Industries, Inc. to be held in
the Phillips Room of The Andover Inn at Phillips Academy,
Chapel Avenue, Andover, Massachusetts, on Tuesday, October
18, 1994 at 10:00 a.m. (Boston time), and at any
adjournment(s) or postponement(s) thereof, upon the
matters set forth on the reverse side hereof and described
in the Notice of Annual Meeting of Stockholders and
accompanying Proxy Statement and upon such matters as may
properly be brought before such meeting and any
adjournment(s) or postponement(s) thereof.
The undersigned hereby revokes any proxy previously given in connection with
such meeting and acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement for the aforesaid meeting and the 1994 Annual Report to
Stockholders.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
<PAGE>
<PAGE>
[X] Please mark
votes as in
this example
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no instruction is indicated with respect
to Items 1, 2 and 3 below, the undersigned's votes will be cast in favor of
such matters. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
1. To elect eight Directors to hold office until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified:
Nominees: Timothy P. Horne, David A. Bloss, Sr., Frederic B. Horne, Kenneth
J. McAvoy, Noah T. Herndon, Wendy E. Lane, Gordon W. Moran and Daniel J.
Murphy, III.
FOR [ ] WITHHELD [ ]
[ ] For all nominees except as noted above
2. To ratify the selection of Ernst & Young as the independent auditors of
the Company for the current fiscal year:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Class A Common
Stock from 40 million shares to 80 million shares and increasing the number
of authorized shares of Class B Common Stock from 13 million shares to 25
million shares, with a corresponding increase in the capital stock, as
described in the Proxy Statement:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Sign exactly as name appears on this Proxy. If the shares are registered in
the names of two or more persons, each should sign. Executors,
administrators, trustees, partners, custodians, guardians, attorneys and
corporate officers should add their full titles as such.
Signature: Date
Signature: Date
<PAGE>
<PAGE>
PROXY
Preliminary Copies
WATTS INDUSTRIES, INC.
815 Chestnut Street, North Andover, MA 01845
Proxy for Class B Common Stock
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Timothy P. Horne and
Kenneth J. McAvoy, and each of them acting solely,
proxies, with power of substitution and with all powers
the undersigned would possess if personally present, to
represent and vote, as designated below, all of the shares
of Class B Common Stock of Watts Industries, Inc. which
the undersigned is entitled to vote at the Annual Meeting
of Stockholders of Watts Industries, Inc. to be held in
the Phillips Room of The Andover Inn at Phillips Academy,
Chapel Avenue, Andover, Massachusetts, on Tuesday, October
18, 1994 at 10:00 a.m. (Boston time), and at any
adjournment(s) or postponement(s) thereof, upon the
matters set forth on the reverse side hereof and described
in the Notice of Annual Meeting of Stockholders and
accompanying Proxy Statement and upon such matters as may
properly be brought before such meeting and any
adjournment(s) or postponement(s) thereof.
The undersigned hereby revokes any proxy previously given in connection with
such meeting and acknowledges receipt of the Notice of Annual Meeting and
Proxy Statement for the aforesaid meeting and the 1994 Annual Report to
Stockholders.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
<PAGE>
<PAGE>
[X] Please mark
votes as in
this example
This proxy when properly executed will be voted in the manner directed herein
by the undersigned stockholder. If no instruction is indicated with respect
to Items 1, 2 and 3 below, the undersigned's votes will be cast in favor of
such matters. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
1. To elect eight Directors to hold office until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified:
Nominees: Timothy P. Horne, David A. Bloss, Sr., Frederic B. Horne, Kenneth
J. McAvoy, Noah T. Herndon, Wendy E. Lane, Gordon W. Moran and Daniel J.
Murphy, III.
FOR [ ] WITHHELD [ ]
For all nominees except as noted above
2. To ratify the selection of Ernst & Young as the independent auditors of
the Company for the current fiscal year:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Class A Common
Stock from 40 million shares to 80 million shares and increasing the number
of authorized shares of Class B Common Stock from 13 million shares to 25
million shares, with a corresponding increase in the capital stock, as
described in the Proxy Statement:
FOR [ ] AGAINST [ ] ABSTAIN [ ]
If the shares are registered in the names of two or more persons, each should
sign. Executors, administrators, trustees, partners, custodians, guardians,
attorneys and corporate officers should add their full titles as such.
Signature: Date
Signature: Date
