WATTS INDUSTRIES, INC.
SEPTEMBER 16, 1997
Dear Stockholder:
We cordially invite you to attend our 1997 Annual Meeting, which will be
held on Tuesday, October 21, 1997 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, and (ii) to ratify the selection of independent auditors for the
current fiscal year as set forth in Proposal 2. 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 21st.
Sincerely,
/S/ TIMOTHY P. HORNE
TIMOTHY P. HORNE
Chairman of the Board
and Chief Executive Officer
<PAGE>
WATTS INDUSTRIES, INC.
815 Chestnut Street
North Andover, MA 01845
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To Be Held on
October 21, 1997
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 21, 1997, at 10:00 a.m., for the following purposes:
1. To elect to the Board of Directors of Watts Industries, Inc. seven
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 KPMG Peat Marwick LLP as the independent
auditors of the Company for the current fiscal year; and
3. 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, 1997
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
/S/ KENNETH J. McAVOY
KENNETH J. McAVOY
Secretary
North Andover, Massachusetts
September 16, 1997
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>
WATTS INDUSTRIES, INC.
ANNUAL MEETING OF STOCKHOLDERS
October 21, 1997
PROXY STATEMENT
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 1997 Annual Meeting of Stockholders to be held on Tuesday,
October 21, 1997 at 10:00 a.m., in the Phillips Room of The Andover Inn at
Phillips Academy, Chapel Avenue, Andover, Massachusetts 01810 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, and for the ratification of the selection of KPMG Peat Marwick LLP as
the independent auditors of the Company for the current fiscal year, 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, 1997 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, 1997, there were outstanding and entitled to vote 15,876,460 shares of Class
A Common Stock and 11,159,127 shares of Class B Common Stock.
This proxy statement and the enclosed proxy are being mailed together by the
Company on or about September 16, 1997 to stockholders of record as of September
2, 1997. The Company's Annual Report for the fiscal year ended June 30, 1997 is
also being 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 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>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company has fixed the number of Directors at
seven and nominated the individuals named below for election as Directors,
excluding Frederic B. Horne who has declined to stand for re-election. 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 DIRECTORS AND NOMINEES FOR DIRECTOR
Set forth below is the name and age of each director and nominee for
director, each of whom is a current director 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 September 5, 1997.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL EMPLOYMENT AND DIRECTOR
NAME AGE PRIOR BUSINESS EXPERIENCE (1) SINCE (1)
---- --- -------------------------------- ---------
<S> <C> <C>
Timothy P. Horne........59 Chairman of the Board since 1986 and Chief Executive Officer since 1962 (2)
1978; President from 1994 to April 1997. Mr. Horne joined the
Company in 1959.
David A. Bloss, Sr......47 President and Chief Operating Officer since April 1997 and 1994 (2)
Executive Vice President from July 1993 to April 1997.
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.......47 Corporate Vice President since 1987; Vice President and General 1980
Manager from 1978 to 1987. Mr. Horne joined the Company in 1973.
Kenneth J. McAvoy.......57 Chief Financial Officer and Treasurer since 1986; Vice President 1994 (2)
of Finance from 1984 to 1994; Executive Vice President of European
Operations from 1994 to 1996; Secretary since 1985. Mr. McAvoy
joined the Company in 1981.
Noah T. Herndon.........65 Partner of Brown Brothers Harriman & Co., private bankers, since 1981 (2)
1974. Mr. Herndon is a director of Fieldcrest Cannon, Inc. ,
National Auto Credit, Inc. and Zoll Medical Corporation.
Wendy E. Lane..........46 Chairman of Lane Holdings, Inc., an investment banking firm, 1994 (2)
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.........59 President and Chief Executive Officer of Hollingsworth & Vose 1990 (2)
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..55 Chairman of Northmark Bank, a commercial bank, since August 1986 (2)
1987. Prior to forming Northmark Bank in 1987, Mr. Murphy
was a Managing Director of Knightsbridge Partners, Inc., 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.
<FN>
(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.
(2) Nominee for director.
</FN>
</TABLE>
<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 and also receives reimbursement
for out-of-pocket expenses incurred in connection with attending such meetings.
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 six meetings during the fiscal year
ended June 30, 1997. 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
two meetings, and the Stock Option and Compensation Committee held one meeting,
during the fiscal year ended June 30, 1997. 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 1996 Stock Option Plan, its 1989 Nonqualified
Stock Option Plan, its 1986 Incentive Stock Option Plan (such plan has expired,
but there remain outstanding previously granted options) and its Management
Stock Purchase 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. During the fiscal year ended June 30, 1997,
Messrs. Herndon and Moran and Ms. Lane comprised the Audit Committee and Messrs.
Murphy and Herndon and Ms. Lane comprised the Stock Option and Compensation
Committee.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth as of August 26, 1997 (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 Chief Executive Officer, the
four other most highly compensated executive officers listed in the Summary
Compensation Table and, as a group, all executive officers, Directors and
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) EQUITY VOTING
<S> <C> <C> <C>
Timothy P. Horne(4)..........................9,317,516(5)(6)(7) 34.3% 71.4%
Frederic B. Horne............................3,324,163(7)(8) 12.3 24.7
George B. Horne(4)(9)........................2,124,600(6)(9)(10 7.9 16.7
Daniel W. Horne(4)(11).......................1,335,840(6)(10)(11) 4.9 10.5
Deborah Horne(4)(12).........................1,335,840(6)(10)(12) 4.9 10.5
Peter W. Horne(4)(13)........................1,335,840(7)(13) 4.9 9.8
Noah T. Herndon.................................15,000(14)(15) * *
Wendy E. Lane...................................12,000(14)(16) * *
Daniel J. Murphy, III...........................15,900(14)(15) * *
Gordon W. Moran.................................13,000(14)(15) * *
David A. Bloss, Sr..............................69,000(14)(17) * *
Kenneth J. McAvoy...............................49,000(14)(18) * *
William C. McCartney............................38,200(14)(19) * *
All executive officers and Directors
as a group (12 persons)...................11,682,890(20)(21) 42.5 86.5
- -------------
* Less than 1%.
<PAGE>
<FN>
(1)The percentages have been determined as of August 26, 1997 in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). At that date, a total of 27,035,587 shares were
outstanding, of which 11,159,127 were shares of Class B Common Stock
entitled to ten votes per share and 15,876,460 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 each stockholder in the table is c/o Watts Industries, Inc.,
815 Chestnut Street, North Andover, Massachusetts 01845.
(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, George B. Horne, Daniel W. Horne, Deborah Horne and Peter
W. Horne, together with Tara Horne and 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 Exchange Act.
Shares of Class B Common Stock of the Company beneficially owned 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 (other than
George B. Horne) and other Horne family members and trusts for their benefit
not 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) 2,751,220 shares of Class B Common Stock and 67,742 shares of
Class A Common Stock, beneficially owned by Timothy P. Horne (for purposes
of this footnote, "Mr. Horne"), (ii) 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, (iii) 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, (iv) 1,235,840 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, (v) 2,124,600 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, (vi) 50,000 shares owned by Tara V. Horne, Mr. Horne's
daughter, (vii) 207,740 shares held by Judith Rae Horne, Mr. Horne's wife,
as trustee or custodian for Mr. Horne's minor daughter, (viii) 30,200 shares
held for the benefit of Tara V. Horne, under an irrevocable trust for which
Mr. Horne serves as co-trustee, (ix) 22,600 shares held for the benefit of
Mr. Horne's minor daughter, under an irrevocable trust for which Mr. Horne
serves as co-trustee and (x) 155,894 shares issuable upon the exercise of
stock options exercisable currently or within 60 days of August 26, 1997.
The shares noted in clause (iv) are held in a voting trust for which Mr.
Horne serves as co-trustee. See footnote 7. A total of 2,751,220 of the
shares of Class B Common Stock noted in clause (i), the shares noted in
clauses (ii) and (iii), 2,104,600 of the shares noted in clause (v), and the
shares noted in clauses (vi) through (ix) of this footnote (7,838,040 shares
in the aggregate) are held in a voting trust for which Mr. Horne serves as
trustee. See footnote 6. All shares beneficially owned or which may be
deemed beneficially owned by Mr. Horne are Class B Common Stock except
67,742 of the shares noted in clause (i) and all of the shares noted in
clause (x) of this footnote.
(6) All shares of Class B Common Stock held by Timothy P. Horne, individually,
all shares of Class B Common Stock held by trusts for the benefit of Daniel
W. Horne, Deborah Horne, Tara V. Horne and Timothy P. Horne's minor
daughter, 2,104,600 shares held by a trust for the benefit of George B.
Horne, and 50,000 shares of Class B Common Stock held by Tara V. Horne
(7,838,040 shares in the aggregate) are subject to the terms of The George
B. Horne Voting Trust Agreement-1997 (the "1997 Voting Trust"). Under the
terms of the 1997 Voting Trust, the trustee (currently Timothy P. Horne) has
sole power to vote all shares subject to the 1997 Voting Trust. Timothy P.
Horne, for so long as he is serving as trustee of the 1997 Voting Trust, has
the power to determine in his sole discretion whether or not proposed
actions to be taken by the trustee of the 1997 Voting Trust shall be taken,
including the trustee's right to authorize the withdrawal of shares from the
1997 Voting Trust (for purposes of this
<PAGE>
footnote, the "Determination Power"). In the event that Timothy P. Horne
ceases to serve as trustee of the 1997 Voting Trust, no trustee thereunder
shall have the Determination Power except in accordance with a duly adopted
amendment to the 1997 Voting Trust. Under the terms of the 1997 Voting Trust,
in the event Timothy P. Horne ceases to serve as trustee of the 1997 Voting
Trust, then Noah T. Herndon, a director of the Company, John R. LeClaire,
whose professional corporation is a partner in the law firm of Goodwin,
Procter & Hoar LLP, and Walter J. Flowers, a partner in the law firm of
Flowers and Lichtman (each, a "Successor Trustee" and collectively, the
"Successor Trustees"), shall thereupon become co-trustees of the 1997 Voting
Trust. At any time, Timothy P. Horne, if then living and not subject to
incapacity, may designate up to two additional persons, one to be designated
as the primary designee (the "Primary Designee") and the other as the
secondary designee ("Secondary Designee"), to serve in the stead of any
Successor Trustee who shall be unable or unwilling to serve as a trustee of
the 1997 Voting Trust. Such designations are revocable by Timothy P. Horne at
any time prior to the time at which such designees become a trustee. If any
of the Successor Trustees is unable or unwilling or shall otherwise fail to
serve as a trustee of the 1997 Voting Trust, or after becoming a co-trustee
shall cease to serve as such for any reason, then a third person shall become
a co-trustee with the remaining two trustees, in accordance with the
following line of succession: first, any individual designated as the Primary
Designee, next, any individual designated as the Secondary Designee, and
then, an individual appointed by the holders of a majority in interest of the
voting trust certificates then outstanding. In the event that the Successor
Trustees shall not concur on matters not specifically contemplated by the
terms of the 1997 Voting Trust, the vote of a majority of the Successor
Trustees shall be determ- inative. No trustee or Successor Trustee shall
possess the Determination Power unless it is specifically conferred upon such
trustee pursuant to the provisions of the 1997 Voting Trust.
The 1997 Voting Trust expires on August 26, 2021, subject to extension on or
after August 26, 2019 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 1997 Voting Trust and are then living
or, in the case of shares in the 1997 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 1997
Voting Trust may be amended by vote of the holders of a majority of the
voting trust certificates then outstanding and by the number of trustees
authorized to take action at the relevant time or, if the trustees (if more
than one) do not concur with respect to any proposed amendment at any time
when any trustee holds the Determination Power, then by the trustee having
the Determination Power. In certain cases (i.e., changes to the extension,
termination and amendment provisions), each individual depositor must also
approve amendments. Shares may not be removed from the 1997 Voting Trust
during its term without the consent of the trustees. Voting trust
certificates are subject to any restrictions on transfer applicable to the
stock which they represent.
Timothy P. Horne holds 35.1% of the total beneficial interest in the 1997
Voting Trust (the "Beneficial Interest") individually, 17.04% of the
Beneficial Interest as trustee of a revocable trust, 17.04% of the
Beneficial Interest as trustee of a trust revocable with the consent of the
trustee, 26.9% of the Beneficial Interest as co-trustee of a revocable trust
and 0.7% of the Beneficial Interest as co-trustee of two irrevocable trusts
(representing an aggregate of 96.78% of the Beneficial Interest). George B.
Horne holds 27.53% of the Beneficial Interest as co-trustee of a revocable
trust and two irrevocable trusts. Tara V. Horne, individually and as
beneficiary of an irrevocable trust holds 1% of the Beneficial Interest, and
Judith Rae Horne, as trustee or custodian for Timothy P. Horne's minor
daughter, holds 2.65% of the Beneficial Interest.
(7) Includes 1,235,840 shares of Class B Common Stock beneficially owned by
Frederic B. Horne, as trustee of a revocable trust for the benefit of Peter
W. Horne, which are subject to the terms of the Horne Family Voting Trust
Agreement-1991 (the "1991 Voting Trust"). Under the terms of the 1991 Voting
Trust, the two trustees (currently Timothy P. Horne and Frederic B. Horne)
have sole power to vote all shares subject to the 1991 Voting Trust.
However, as long as Timothy P. Horne and Frederic B. Horne are serving as
trustees of the 1991 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 1991
Voting Trust (for purposes of this footnote, the "Determination Power"). The
sole exception to the Determination Power is that the concurrence of Timothy
P. Horne and Frederic B. Horne is required
<PAGE>
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 1991 Voting
Trust, Timothy P. Horne, the Chairman of the Board of Directors 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 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 trustees for the term of the 1991 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 1991 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 1991 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 R. LeClaire,
whose professional corporation is a partner in the law firm of Goodwin,
Procter & Hoar LLP, as the secondary designee, should either Timothy P. Horne
or Frederic B. Horne cease to serve as a trustee under the 1991 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 1991 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 1991 Voting Trust, are then
living and continue to hold voting trust certificates under the 1991 Voting
Trust or, in the case of shares in the 1991 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 1991 Voting Trust may be amended or terminated 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. Shares may not be removed from the trust during its term
without the consent of the trustees.
Frederic B. Horne, as sole trustee of a revocable trust for the benefit of
Peter W. Horne beneficially owns 100% of the total beneficial interest in
the 1991 Voting Trust.
(8) Includes (i) 1,865,323 shares of Class B Common Stock and 154,000 shares of
Class A Common Stock, beneficially owned by Frederic B. Horne (for purposes
of this footnote, "Mr. Horne"), (ii) 1,235,840 shares beneficially owned by
a revocable trust for the benefit of Peter W. Horne for which Mr. Horne
serves as sole trustee, (iii) 22,600 shares held for the benefit of Mr.
Horne's minor daughter, under an irrevocable trust for which Mr. Horne
serves as co-trustee, (iv) 11,000 shares beneficially owned by Mr. Horne's
minor daughter for which Mr. Horne is custodian and (v) 35,400 shares
issuable upon the exercise of stock options exercisable currently or within
60 days of August 26, 1997. The shares noted in clause (ii) above are held
in the 1991 Voting Trust. See footnote 7. All shares beneficially owned or
which may be deemed beneficially owned by Mr. Horne are Class B Common Stock
except 154,000 of the shares noted in clause (i) and all of the shares noted
in clause (v) of this footnote.
(9) Consists of 2,124,600 shares held in a revocable trust for which Timothy P.
Horne and George B. Horne serve as co-trustees. A total of 2,104,600 of such
shares are subject to the 1997 Voting Trust. See footnote 6 .
<PAGE>
(10) All shares are Class B Common Stock.
(11)Shares are held in a revocable trust for which Timothy P. Horne serves as
sole trustee, and are subject to the 1997 Voting Trust. See footnote 6.
(12)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 1997 Voting Trust. See footnote 6.
(13)All shares are Class B Common Stock except for 100,000 shares of Class A
Common Stock. The shares of Class B Common Stock are held in a revocable
trust for which Frederic B. Horne serves as sole trustee, and are subject to
the 1991 Voting Trust. See footnote 7.
(14)All shares are shares of Class A Common Stock or options to purchase Class
A Common Stock which are exercisable currently or within 60 days of August
26, 1997.
(15)Includes 12,000 shares of Class A Common Stock issuable upon the exercise
of stock options under the 1991 Non-Employee Directors' Nonqualified Stock
Option Plan.
(16)Includes (i) 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, (ii) 2,000 shares of Class A Common Stock
held by Ms. Lane as trustee or custodian for her minor children and (iii)
4,000 shares of Class A Common Stock.
(17)Includes (i) 60,000 shares of Class A Common Stock issuable upon the
exercise of stock options which are exercisable currently or within 60 days
of August 26, 1997, (ii) 1,000 shares of Class A Common Stock held by Mr.
Bloss' spouse and (iii) 8,000 shares of Class A Common Stock.
(18)Represents 49,000 shares of Class A Common Stock issuable upon the exercise
of stock options which are exercisable currently or within 60 days of August
26, 1997.
(19)Represents 38,200 shares of Class A Common Stock issuable upon the exercise
of stock options which are exercisable currently or within 60 days of August
26, 1997.
(20)Includes (i) 10,997,153 shares of Class B Common Stock, (ii) 245,743 shares
of Class A Common Stock, and (iii) 439,994 shares of Class A Common Stock
issuable upon the exercise of stock options which are exercisable currently
or within 60 days of August 26, 1997.
(21)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.
</FN>
</TABLE>
<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 Chief Executive Officer and the
four other most highly compensated executive officers (the "named executive
officers") serving in such capacity at June 30, 1997.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
RESTRICTED STOCK
NAME AND FISCAL SALARY BONUS UNITS OPTIONS
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2)(3) (#)(4)
- ------------------ ------ ------ ------ --------- -------
Timothy P. Horne
Chairman of the Board 1997 656,666 0 281,586(6) 45,000(10)
and Chief 1996 640,000 0(5) 42,669(6) 40,000(10)
Executive Officer........1995 619,166 83,948 -- 40,000(10)
David A. Bloss, Sr.
President 1997 276,667 134,400 179,198(7) 45,000(10)
and Chief 1996 256,670 0 106,781(7) 35,000(10)
Operating Officer........1995 236,668 132,000 -- 35,000(10)
Kenneth J. McAvoy
Chief Financial Officer, 1997 188,333 79,040 105,382(8) 35,000(10)
Treasurer and 1996 178,334 0 63,355(8) 30,000(10)
Secretary................1995 168,338 93,500 -- 30,000(10)
Frederic B. Horne 1997 129,167 91,520 -- 12,500(10)
Corporate Vice 1996 124,170 30,250 -- 10,500(10)
President ...............1995 119,168 60,000 -- 10,500(11)
William C. McCartney
Vice President 1997 128,333 41,600 55,444(9) 12,500(12)
of Finance 1996 118,334 13,200 17,603(9) 10,500(11)
and Controller...........1995 108,338 49,500 -- 10,500(11)
- ------------
(1) Amounts awarded under the Executive Incentive Bonus Plan for the 1995 fiscal
year and under the Executive Incentive Bonus Plan, as amended, for the 1997
and 1996 fiscal years.
(2) Represents the dollar value (net of any consideration paid by the named
executive officer) of Restricted Stock Units (RSUs) received under the
Management Stock Purchase Plan (the "Management Plan") determined by
multiplying the number of RSUs received by the closing market prices of the
Company's Class A Common Stock of $25.375 and $16.375 on the RSU grant dates
of August 4, 1997 and August 5, 1996, respectively.
(3) Each of the named executive officers made an election under the Management
Plan in December 1995 and December 1996 to receive RSUs (i) in lieu of a
specified percentage or dollar amount of his actual annual incentive bonus
or (ii) for a specified dollar amount, up to 100% of his targeted maximum
bonus, for fiscal years ended June 30, 1996 and June 30, 1997, respectively.
With respect to fiscal years 1997 and 1996, RSUs were awarded as of August
4, 1997 and August 5, 1996, respectively, (the dates actual annual incentive
bonuses were determined) by dividing the named executive officer's election
amount by the RSU Cost. The RSU Cost was $19.03125 and $12.28 per RSU for
fiscal years 1997 and 1996, respectively, which was 75% of $25.375 and
$16.375, the closing market prices of the Company's Class A Common Stock on
August 4, 1997 and August 5, 1996, respectively ("1997 RSU Cost" and "1996
RSU Cost"). Each RSU is 100% vested three years after the date of grant, and
at the end of a deferral period, if one had been specified by the named
executive officer under the Management Plan, the Company will issue one
share of Class A Common Stock for each vested RSU. Cash dividends,
equivalent to those paid on the Company's Common Stock, will be credited to
the named executive officer's account for each nonvested RSU and will be
paid in cash to such person when such RSUs become vested. Such dividends
will also be paid in cash to individuals for each vested RSU held during any
deferral period.
<PAGE>
(4) Awarded under the 1986 Incentive Stock Option Plan (the "1986 Plan"), the
1989 Nonqualified Stock Option Plan (the "1989 Plan"), or the 1996 Stock
Option Plan (the "1996 Plan").
(5) Mr. Horne elected not to receive his annual incentive bonus for fiscal 1996.
(6) For fiscal year 1997, Mr. T. Horne received 11,097 RSUs in lieu of receiving
all of his annual incentive bonus which was $211,200. This number of RSUs
was determined by dividing $211,200 by the 1997 RSU Cost. For fiscal year
1996, Mr. Horne's election under the Management Plan was to receive RSUs
equal to $128,000, which was his targeted maximum bonus. Since Mr. T. Horne
elected to forego his annual incentive bonus, he was required under the
Management Plan to purchase RSUs for $128,000 from personal funds. Mr. T.
Horne purchased 10,423 RSUs which was determined by dividing $128,000 by the
1996 RSU Cost. Mr. T. Horne held 10,423 RSUs at June 30, 1997 with a net
value of $122,152 as determined in accordance with Note (2) above, except
based on a closing market price of the Company's Class A Common Stock of $24
on June 30, 1997.
(7) For fiscal year 1997, Mr. Bloss received 7,062 RSUs in lieu of receiving 50%
of his total annual incentive bonus of $268,800, or $134,400. This number of
RSUs was determined by dividing $134,400 by the 1997 RSU Cost. For fiscal
year 1996, Mr. Bloss received 6,521 RSUs in lieu of receiving all of his
annual incentive bonus which was $80,080. The number of RSUs was determined
by dividing $80,080 by the 1996 RSU Cost. Mr. Bloss held 6,521 RSUs at June
30, 1997 with a value of $156,504 as determined in accordance with Note (2)
above, except based on a closing market price of the Company's Class A
Common Stock of $24 on June 30, 1997.
(8) For fiscal year 1997, Mr. McAvoy received 4,153 RSUs in lieu of receiving
50% of his total annual incentive bonus of $158,080, or $79,040. This number
of RSUs was determined by dividing $79,040 by the 1997 RSU Cost. For fiscal
year 1996, Mr. McAvoy received 3,869 RSUs in lieu of receiving all of his
annual incentive bonus which was $47,520. The number of RSUs was determined
by dividing $47,520 by the 1996 RSU Cost. Mr. McAvoy held 3,869 RSUs at June
30, 1997 with a value of $92,856 as determined in accordance with Note (2)
above, except based on a closing market price of the Company's Class A
Common Stock of $24 on June 30, 1997.
(9) For fiscal year 1997, Mr. McCartney received 2,185 RSUs in lieu of receiving
50% of his total annual incentive bonus of $83,200, or $41,600. This number
of RSUs was determined by dividing $41,600 by the 1997 RSU Cost. For fiscal
year 1996, Mr. McCartney received 1,075 RSUs in lieu of receiving 50% of his
total annual incentive bonus of $26,400, or $13,200. The number of RSUs was
determined by dividing $13,200 by the 1996 RSU Cost. Mr. McCartney held
1,075 RSUs at June 30, 1997 with a value of $25,800 as determined in
accordance with Note (2) above, except based on a closing market price of
the Company's Class A Common Stock of $24 on June 30, 1997.
(10) Amount awarded under the 1989 Plan.
(11) Amount awarded under the 1986 Plan.
(12) Amount awarded under the 1996 Plan.
STOCK OPTION GRANTS
The following table shows information concerning options to purchase the
Company's Class A Common Stock granted in fiscal 1997 to the named executive
officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE MARKET PRICE
OPTIONS EMPLOYEES OR BASE ON DATE OF
GRANTED IN FISCAL PRICE GRANT EXPIRATION
NAME (#)(1)(2) YEAR ($/Sh) ($/Sh) DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C>
Timothy P. Horne......45,000(4) 12.16 16.375(6) 16.375 8-5-2006 463,410 1,174,365
David A. Bloss, Sr....45,000(4) 12.16 16.375(6) 16.375 8-5-2006 463,410 1,174,365
Kenneth J. McAvoy.....35,000(4) 9.46 16.375(6) 16.375 8-5-2006 360,430 913,395
Frederic B. Horne.....12,500(4) 3.38 16.375(6) 16.375 8-5-2006 128,725 326,212
William C. McCartney..12,500(5) 3.38 16.375(7) 16.375 8-5-2006 128,725 326,212
<PAGE>
<FN>
(1) All options were granted as of August 5, 1996.
(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 1996 Stock Option Plan, the incentive stock 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
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 1989 Plan.
(5) Awarded under the 1996 Plan.
(6) Under the terms of the 1989 Plan, the exercise price of options cannot be
less than 50% of fair market value.
(7) Under the terms of the 1996 Plan, the exercise price of incentive stock
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.
</FN>
</TABLE>
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table shows information concerning the exercise of stock
options during fiscal year 1997 by each of the named executive officers and the
fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END(#)(2) AT FISCAL YEAR END($)(3)
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy P. Horne -- -- 114,894 125,000 735,827 538,805
David A. Bloss, Sr -- -- 33,000 102,000 107,175 432,075
Kenneth J. McAvoy 42,000 379,080 18,000 95,000 6,750 413,635
Frederic B. Horne 4,822 53,042 22,300 36,800 14,752 127,442
William C. McCartney 15,200 119,600 25,900 36,000 35,362 145,037
- -------
<FN>
(1) Represents the difference between the market price on the date of exercise
and the exercise price of the options before income taxes.
(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 before income taxes.
</FN>
</TABLE>
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 Directors' Plan was amended on August 6,
1996 to change the purchase price of shares which may be purchased under the
Directors' Plan from $22.75 to $16.375, effective for option grants made on or
after November 1, 1996.
<PAGE>
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/her personal representative may exercise any outstanding
options not theretofore exercised during the 90-day period following such
disability or death.
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 1997, Messrs. Herndon, Moran and Murphy, and Ms. Lane, 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 under the
Directors' Plan.
PENSION PLAN
The Company maintains a qualified noncontributory 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 noncontributory
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 the Company.
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 1997 Pension Plan year, Annual
Compensation in excess of $160,000 per year is disregarded under the Pension
Plan ($150,000 for years prior to 1997) 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 formula 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 $186,667
disregarded ($175,000 for years prior to 1997). 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 $261,560 disregarded. For the 1997
Plan Year, Annual Compensation in excess of $326,950 is disregarded for all
purposes under the Supplemental Plan. Compensation recognized under the
Supplemental Plan is W-2 pay, including amounts deferred under the Management
Stock Purchase Plan and pursuant to Sections 401 and 125 of the Internal Revenue
Code, but excluding income realized upon the exercise of stock options.
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 1997) 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.
<PAGE>
ESTIMATED TOTAL ANNUAL RETIREMENT BENEFIT
(PENSION PLAN PLUS SUPPLEMENTAL PLAN)
FINAL AVERAGE COMPENSATION FOR BASED ON YEARS OF SERVICE(1)
FIVE HIGHEST CONSECUTIVE YEARS 25 YEARS
IN LAST 10 YEARS: 10 YEARS 15 YEARS 20 YEARS OR MORE
- ------------------------------ -------- -------- -------- --------
$100,000..........................$18,000 $27,000 $36,000 $45,000
150,000............................27,000 40,500 54,000 67,500
200,000............................31,769 47,654 63,539 79,423
250,000............................40,769 61,154 81,539 101,923
300,000............................49,769 74,654 99,539 124,423
350,000............................51,628 77,442 103,256 129,070
- ------------
(l) The annual Pension Plan benefit is computed on the basis of a straight life
annuity.
Messrs. Timothy P. Horne, Bloss, McAvoy, Frederic B. Horne and McCartney
have 38, 4, 16, 24 and 12 years, respectively, of benefit service under the
Pension Plan. Eligible employees are currently limited to a maximum annual
benefit under the Pension Plan of $120,000 (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 September 1, 1996 the Company and Timothy P. Horne entered into a new
Employment Agreement (the "1996 Employment Agreement") that terminated and
superseded the Employment Agreement dated May 1, 1993 and any other prior
employment agreements between the Company and Mr. Horne. The 1996 Employment
Agreement provides for annual base salary of at least $660,000 plus other
benefits and bonuses generally available to senior executives of the Company.
The 1996 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
three years until August 31, 1999 and thereafter for consecutive one year period
automatic renewals unless otherwise terminated. The 1996 Employment Agreement is
terminable by Mr. Horne on thirty days notice. Under the 1996 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 1996 Employment Agreement at the base
salary in effect on the termination date through the third anniversary thereof
or (ii) two years' compensation at that rate.
On September 1, 1996 the Company and Timothy P. Horne entered into a new
Supplemental Compensation Agreement (the "1996 Supplemental Compensation
Agreement") that terminated and superseded the Supplemental Compensation
Agreement dated May 1, 1993. Under the 1996 Supplemental Compensation Agreement,
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)
$400,000. During this period Mr. Horne will be available as a consultant to the
Company for 300 to 500 hours per year.
Timothy P. 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.
<PAGE>
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 1997 to Timothy P. Horne, David A.
Bloss, Sr., Kenneth J. McAvoy, Frederic B. Horne, and William C. McCartney.
Compensation Philosophy
The Company's executive compensation program is designed to promote
corporate performance by aligning the interests of the Company's executives with
those of the stockholders thereby enhancing stockholder returns. The Committee
believes that executives should have a greater portion of their compensation
tied directly and primarily to performance of the business and secondarily to
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 amended Executive Incentive Bonus Plan and the
Management Stock Purchase Plan instituted in fiscal 1996 are intended to
strengthen the executive compensation/corporate performance relationship. 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 as
promote achievement of overall business goals.
The key elements of the Company's executive compensation program consist of
three components, each of which is intended to serve the overall compensation
philosophy: base salary, an annual bonus or Restricted Stock Units under the
Management Stock Purchase Plan in lieu of annual bonus, and stock options
granted under either the 1996 Stock Option Plan (the "1996 Plan") or the 1989
Nonqualified Stock Option Plan (the "1989 Plan"). These programs, as well as the
basis for Mr. Timothy P. Horne's compensation in fiscal 1997, are discussed
below.
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 compensation for comparable positions at other
companies.
Executives' 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 nonfinancial 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 same-industry 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 1997 was
$656,666, an increase of 2.6% from $640,000 in the prior fiscal year. Under the
terms of the 1996 Employment Agreement with the Company, Mr. Horne's base salary
was established in 1996 at $660,000, 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 2.7% from June 1995 to June
1996, the twelve month period immediately prior to the Committee's adjustment in
Mr. Horne's base salary for fiscal 1997. Mr. Horne's base salary for fiscal 1997
was determined by the Committee using the same criteria described above for all
executives' base salaries, and as provided by the 1996 Employment Agreement.
Annual Bonus
Under the Executive Incentive Bonus Plan, as amended, (the "Bonus Plan"),
the Company's executive officers and other key employees are eligible for an
annual cash bonus. Corporate performance objectives are established at or near
the beginning of each fiscal year by the Chairman of the Board and Chief
Execu-
<PAGE>
tive Officer, the President and the Chief Financial Officer in consultation
with the Committee. Each selected participant is generally assigned three goals,
consisting of a sales growth objective, an economic value added ("EVA")
percentage and an inventory turns objective. Once the goals are established
eligible executives are assigned a maximum potential bonus percentage of base
salary as a target upon which the bonus is calculated. Each of the three goals
described above carries a percentage weight of 331/3% of the maximum potential
bonus percentage. The Committee believes that a significant portion of executive
compensation should be tied to an annual bonus potential based closely on the
performance of the Company. The Committee believes that the Bonus Plan
accomplishes that objective.
Under the Bonus Plan, Mr. Timothy P. Horne is eligible for an annual bonus
in an amount to be determined by the Committee based upon the three goals
discussed above. With respect to fiscal 1997, the restructuring efforts
initiated by the Company in fiscal 1996 contributed significantly to the
Company's success in achieving 100% or more of each of the goals established
under the Bonus Plan. The Company had record sales and net income for fiscal
1997. The EVA objective and the inventory turnover objective were also exceeded
for fiscal 1997. The complete achievement of these three objectives resulted in
higher annual incentive bonuses for Mr. Horne and most of the executive
officers. Mr. Horne was awarded a bonus of $211,200 for fiscal 1997.
Management Stock Purchase Plan
The Management Stock Purchase Plan (the "MSPP") was amended on August 5,
1997 by the Board of Directors to increase the purchase discount on restricted
stock units ("RSUs") from 25% off of the fair market value of the Company's
Class A Common Stock on the date of grant of such RSUs to 33%. This discount
increase is intended to increase the incentive for the Company's executives to
purchase and hold more of the Company's Stock thereby more closely aligning
their interests with the interests of the stockholders. This amendment is
effective for RSU awards made on or after July 1, 1998. Under the MSPP,
participants may elect to receive restricted stock units ("RSUs") in lieu of all
or a portion of their pre-tax annual incentive bonus and, in some circumstances,
make after-tax contributions in exchange for RSUs. Executive participants are
required to make an election no later than December 31 of the fiscal year for
which such annual incentive bonus amounts will be determined. Each RSU
represents the right to receive one share of the Company's Class A Common Stock
("Stock") after a three year vesting period and a participant may elect to defer
receipt of Stock for an additional period of time after the vesting period. The
MSPP permits a participant to defer income and the taxes due thereon until the
RSUs are converted to Stock. As discussed, RSUs are granted at a discount of 33%
from the fair market value of the Stock on the date of grant which is the date
that annual incentive bonuses are paid or would otherwise be paid. This discount
is comparable to that offered by other industrial companies. The Committee
intends to decrease the number of stock options granted under the Company's
stock option plans in future fiscal years in order to further motivate
executives participation in the MSPP.
Mr. Horne's fiscal 1997 election under the MSPP was to receive RSUs in lieu
of $211,200, which was his targeted maximum bonus under the Bonus Plan. Mr.
Horne received 11,097 RSUs which was the number determined by dividing $211,200
by $19.03125 (75% of the fair market value of the Stock on August 4, 1997).
Stock Options
Under the Company's 1996 Plan and 1989 Plan, both of which were approved by
the stockholders, stock options may be granted to the Company's executive
officers. The Committee will continue to set 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 over the long-term, 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 1996 Plan are typically granted
annually and vest 20% per year over five years beginning with the first
anniversary of the grant date. Under the 1996 Plan, the exercise price for
incentive stock option grants equals the market price of the Class A 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 1989 Plan have an exercise price which may be no less
than 50% of the market price on the date of the grant and generally vest 20% per
year over five years beginning with the first anniversary of the grant date. The
duration of options under either plan is generally 10 years, with the exception
of incentive stock option grants under the 1996 Plan to owners of more than 10%
of the combined voting power of the Company, in which case such grants terminate
after 5 years. Nonqualified options
<PAGE>
will not be granted under the 1996 Plan
until the earlier to occur of the expiration of the 1989 Plan in 1999 or the
exhaustion of shares reserved for issuance under the 1989 Plan. Under the 1996
Plan, such nonqualified options have terms regarding duration, vesting and price
identical to the terms of the 1989 Plan.
Options are normally granted in August at the Committee's meeting in order
to provide the Committee with an opportunity to review the fiscal year
performance, both of business and individual goals.
On August 5, 1996, Mr. Timothy P. Horne received options under the 1989 Plan
to purchase 45,000 shares with an exercise price of $16.375, which represents
100% of the fair market value of the Class A Common Stock on the grant date. Mr.
Horne received 40,000 options for the fiscal year ended June 30, 1995. Mr. Horne
holds a significant equity interest in the Company.
Company Policy on Qualifying Compensation
Internal Revenue Code Section 162(m), adopted in 1993, provides that
publicly held companies may not deduct in any taxable year compensation in
excess of one million dollars paid to any of the individuals named in the
Summary Compensation Table which is not "performance-based" as defined in
Section 162(m). The Committee believes that, while there may be circumstances in
which the Company's interests are best served by maintaining flexibility whether
or not the compensation is fully deductible under Section 162(m), it is
generally in the Company's best interest to comply with Section 162(m).
Conclusion
Through the programs described above, a significant portion of the Company's
executive compensation is linked to corporate performance and stock
appreciation. The Committee believes that the Bonus Plan will more closely align
executive compensation to corporate performance. In addition, the Committee
believes that the MSPP, as amended, will encourage executives and management
employees to acquire a greater equity stake in the Company and will motivate
them to contribute to the future growth and success of the Company, thereby
making stock appreciation a shared interest for both executives and management
employees, and all stockholders.
Stock Option and Compensation Committee
Daniel J. Murphy, III (Chairman)
Noah T. Herndon
Wendy E. Lane
<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
Class A 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, 1992 and
ended June 30, 1997. The performance indicator of peer group companies consists
of Keystone International, Inc., Bw Ip, Inc., Zurn Industries, Inc., and Durco
International, Inc. (formerly known as Duriron, Inc.). Goulds Pumps, Inc., which
previously appeared in the Company's peer group of companies, was acquired by
ITT Industries, Inc. on May 28, 1997, and therefore does not appear in the line
graph below. 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, 1992 and that all
dividends were reinvested.
[Bar Chart]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN Among Watts
Industries, Inc., The S&P 500 Index and a Peer Group
Cumulative Total Return
6/30/92 6/30/936/30/94 6/30/956/30/966/30/97
Watts Industries, Inc..........100 77 97 106 80 104
Peer Group.....................100 105 80 89 96 136
S & P 500......................100 114 115 145 183 247
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
Industries, Inc. Retirement Plan for Salaried Employees.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During fiscal 1994, Frederic B. Horne, Corporate Vice President and a
director of the Company, inadvertently failed to report on a timely basis one
transaction (a gift of Class A Common Stock) in his report on Form 5 for fiscal
1994, which was timely filed, but did report the transaction in a Form 4 filed
for the month of November 1996. During fiscal 1997, Neill E. Anderson, the
President of one of the Company's subsidiaries, inadvertently failed to file
with the Securities and Exchange Commission on a timely basis, one Form 4 for
the month of October 1996 reporting one transaction, but did report the
transaction in his year end report on Form 5, which was timely filed.
<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 KPMG Peat Marwick LLP as the Company's independent auditors for fiscal 1997.
The Company engaged KPMG Peat Marwick LLP as its new and sole independent
accountant to audit the Company's financial statements, including those of Watts
Industries Europe B.V., effective April 4, 1997.
Ernst & Young LLP, the Company's former principal independent accountant
which audited the Company's financial statements for the two most recent fiscal
years prior to fiscal 1997, and Deloitte & Touche, an independent accountant
which audited the financial statements of Watts Industries Europe B.V., a
significant subsidiary of the Company, for the two most recent fiscal years
prior to fiscal 1997, and upon whom Ernst & Young LLP expressed reliance in its
reports, were each dismissed as independent accountants of the Company effective
April 4, 1997. Neither Ernst & Young LLP's reports on the Company's financial
statements nor Deloitte & Touche's reports on Watts Industries Europe B.V.'s
financial statements for either of the two fiscal years preceding fiscal 1997
contained an adverse opinion or a disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles.
The decision to change accountants was made because the Company believes it
will be more efficient to have one accounting firm rather than two accounting
firms performing the audit in different parts of the world. The Company
initiated the selection process by inviting proposals for audit and tax services
from Ernst & Young LLP, Deloitte & Touche, and KPMG Peat Marwick LLP. Services
previously provided to the Company by KPMG Peat Marwick LLP were limited to tax
and information technology consulting services. The decision to change
accountants was approved by the Company's Audit Committee and its Board of
Directors.
There were no disagreements between the Company and either of Ernst & Young
LLP or Deloitte & Touche during the two most recent fiscal years prior to fiscal
1997 and subsequent interim periods preceding their dismissal on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
either Ernst & Young LLP or Deloitte & Touche, would have caused either of them
to make a reference to the subject matter of disagreements in connection with
their reports. There were no "reportable events", as that term is defined in
Regulation S-K, Item 304(a)(1)(v) promulgated by the Securities and Exchange
Commission, involving either of Ernst & Young LLP or Deloitte & Touche that
occurred within the Company's two most recent fiscal years prior to fiscal 1997
and subsequent interim periods preceding their dismissal.
The Company did not consult with KPMG Peat Marwick LLP during the Company's
two most recent fiscal years prior to fiscal 1997 and subsequent interim periods
preceding the engagement regarding (i) either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements or
(ii) any matter that was either the subject of a disagreement (as defined in
Regulation S-K, Item 304(a)(1)(iv) promulgated by the Securities and Exchange
Commission) or a "reportable event".
The Company expects that a representative of KPMG Peat Marwick LLP will be
present at the annual 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 KPMG Peat
Marwick LLP as independent auditors have indicated an intention to vote in favor
of this proposal.
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 1998 Annual Meeting of Stockholders, such proposal must be
received at the principal executive offices of the
<PAGE>
Company, 815 Chestnut Street, North Andover, MA 01845, not later than May 19,
1998 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 1998 Annual Meeting if certain conditions set
forth in the Company's bylaws 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 1997 Annual Meeting. If the date of
the 1998 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 stockholder
proposals) prior to the anniversary date of the 1997 Annual Meeting, the Company
will publicly disclose such change, and nominations or other proposals to be
considered at the 1998 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 1998 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 bylaws to the Secretary of the Company at the address set forth above.
<PAGE>
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 on the reverse side, 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 21, 1997 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 1997 Annual Report to
Stockholders.
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 AND 2 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 seven 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., 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
<PAGE>
FOR AGAINST ABSTAIN
2. To ratify the selection of KPMG
Peat Marwick LLP as the
independent auditors of the Company
for the current fiscal year.
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>
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 on the reverse side, 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 21, 1997 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 1997 Annual Report to
Stockholders.
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 AND 2 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 seven 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., 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
<PAGE>
FOR AGAINST ABSTAIN
2. To ratify the selection of KPMG
Peat Marwick LLP as the
independent auditors of the Company
for the current fiscal year.
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: _______________________
