September 17, 1998
VIA EDGAR
- ---------
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Watts Industries, Inc.
Dear Sir/Madam:
Electronically transmitted for filing please find the above-named Company's
Proxy Statement, forms of Proxy and Notice of Annual Meeting of Stockholders for
the October 20, 1998 Annual Meeting of Stockholders of Watts Industries, Inc.
These proxy materials are being distributed on September 17, 1998 to
stockholders of record at the close of business on September 2, 1998. No fee is
required with this filing.
Seven (7) copies of the Company's Annual Report to Stockholders will be mailed
to the Commission pursuant to Rule 14a-3(c) of Regulation 14A and Rule 101(b)(1)
of Regulation S-T. The Annual Report is not deemed to be "filed" with the
Commission. It is being provided to the Commission solely for its information.
Sincerely,
/s/ Thomas J. White
Thomas J. White
Corporate Attorney
TJW/sb
<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:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only
[ X] 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] No fee required.
[ ] 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
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration 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>
WATTS INDUSTRIES, INC.
September 17, 1998
Dear Stockholder:
We cordially invite you to attend our 1998 Annual Meeting, which will be
held on Tuesday, October 20, 1998 at 10:00 a.m., in the Phillips Room of The
Andover Inn at Phillips Academy, Chapel Avenue, Andover, Massachusetts 01810.
At the Annual Meeting the stockholders will elect Directors and act upon
certain other matters as described in the proxy statement. The Board of
Directors urges you to read the proxy statement which describes these matters
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 20th.
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 20, 1998
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 20, 1998, at 10:00 a.m., for the following purposes:
1.To elect to the Board of Directors of Watts Industries, Inc. six
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.If presented, to consider and act upon a shareholder proposal requesting
that the Company's Board of Directors take the steps necessary to amend
and restate the Company's Amended and Restated Certificate of
Incorporation to provide for one class of Common Stock having one vote
per share.
Only stockholders of record at the close of business on September 2,
1998 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 17, 1998
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 20, 1998
PROXY STATEMENT
INFORMATION CONCERNING
SOLICITATION AND VOTING
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Watts Board") of Watts Industries, Inc.
(the "Company") for use at the Company's 1998 Annual Meeting of Stockholders to
be held on Tuesday, October 20, 1998 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 (i) for the election of the nominees named herein
for Director, (ii) for the ratification of the selection of KPMG Peat Marwick
LLP as the independent auditors of the Company for the current fiscal year, and
(iii) against the shareholder proposal requesting that the Watts Board take the
steps necessary to amend and restate the Company's Amended and Restated
Certificate of Incorporation to provide for only one class of Common Stock with
each share having one vote per share, in each case 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. 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.
Stockholders of record at the close of business on September 2, 1998 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, 1998, there were outstanding and entitled to vote 16,721,807 shares of Class
A Common Stock and 10,285,247 shares of Class B Common Stock.
This proxy statement and the enclosed proxy are being mailed together by
the Company on or about September 17, 1998 to stockholders of record as of
September 2, 1998. The Company's Annual Report for the fiscal year ended June
30, 1998 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 will pay $3,500 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.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Watts Board has fixed the number of Directors at six 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 Watts Board . 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 Watts Board 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 certain other information. The information is as of September
14, 1998.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL EMPLOYMENT AND DIRECTOR
NAME AGE PRIOR BUSINESS EXPERIENCE (1) SINCE (1)
---- --- -------------------------------- ---------
<S> <C> <C>
Timothy P. Horne..........60 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........48 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.
Kenneth J. McAvoy.........58 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...........66 Partner of Brown Brothers Harriman & Co., private bankers, since 1981(2)
1974. Mr. Herndon is a director of Fieldcrest Cannon, Inc.,
Cabot Industrial Trust and Zoll Medical Corporation.
Gordon W. Moran...........60 Chairman of Hollingsworth & Vose Company, a paper manufacturer, 1990(2)
since 1997, and served as its President and Chief Executive Officer from
1983 to 1998. 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.....56 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.
(2) Nominee for director.
</FN>
</TABLE>
<PAGE>
FEES TO CERTAIN DIRECTORS
Each non-employee Director receives a fee of $18,000 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 Watts Board held seven meetings during the fiscal year ended June 30,
1998. Each of the Directors of the Company attended at least three-quarters of
the meetings of the Watts Board and of the committees on which such Director
served, except for Noah T. Herndon. The Watts Board 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, 1998. 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
Watts Board and for approving the compensation arrangements of the principal
executive officers of the Company. Messrs. Herndon and Moran comprise the Audit
Committee and Messrs. Murphy and Herndon comprise the Stock Option and
Compensation Committee.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth 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(1)(3) EQUITY VOTING
- --------------------------- ------------ ------ ------
<S> <C> <C> <C>
Timothy P. Horne(4)....................................................9,348,516 (5)(6)(7) 34.4% 76.1%
George B. Horne(4)(9)..................................................2,124,600 (6)(9)(10) 7.9 17.8
Frederic B. Horne......................................................1,840,473 (8) 6.8 9.4
Daniel W. Horne(4)(11).................................................1,335,840 (6)(10)(11) 4.9 11.2
Deborah Horne(4)(12)...................................................1,335,840 (6)(10)(12) 4.9 11.2
Peter W. Horne(4)(13)..................................................1,335,840 (7)(13) 4.9 10.4
Franklin Resources, Inc................................................1,343,150 (14)(15) 8.0 1.1
Noah T. Herndon........................................................1,252,840 (7)(14)(16) 4.6 10.3
Daniel J. Murphy, III.....................................................18,400 (14)(16) * *
Gordon W. Moran...........................................................15,000 (14)(16) * *
David A. Bloss, Sr.......................................................105,000 (14)(17) * *
Kenneth J. McAvoy.........................................................67,000 (14)(18) * *
Paul A. Lacourciere.......................................................40,800 (14)(19) * *
Michael O. Fifer..........................................................19,701 (14)(22) * *
All executive officers and Directors as a group (11 persons)...........9,743,767 (20)(21) 35.4 76.2
- -------------
<FN>
(1) The number of shares and the percentages have been determined as of August
24, 1998 in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). At that date, a total of 27,007,054
shares were outstanding, of which 10,290,247 were shares of Class B Common
Stock entitled to ten votes per share and 16,716,807 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, except that
Frederic B. Horne's address is c/o Conifer Ledges, Ltd., 219 Liberty
Square, Danvers, Massachusetts 01923 and Franklin Resources, Inc., address
is 777 Mariners Island Blvd., San Mateo, California 94403.
(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 62,742 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) 45,000 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 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 trustee and (x) 196,894 shares issuable
upon the exercise of stock options exercisable currently or within 60 days
of August 24, 1998. 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), and (v) through (ix) of this
footnote (7,853,040 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 62,742 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, George B. Horne, 44,220 shares of Class B Common Stock held by
Judith Rae Horne, custodian for her minor daughter, and 45,000 shares of
Class B Common Stock held by Tara V. Horne (7,853,040 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 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 determinative. 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 not 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 requisite number of trustees required to take action under the 1997
Voting Trust. Voting trust certificates are subject to any restrictions on
transfer applicable to the stock which they represent.
Timothy P. Horne holds 35.03% of the total beneficial interest in the 1997
Voting Trust (the "Beneficial Interest") individually, 17.01% of the
Beneficial Interest as trustee of a revocable trust, 17.01% of the
Beneficial Interest as trustee of a trust revocable with the consent of the
trustee, 27.1% of the Beneficial Interest as co-trustee of a revocable
trust and 0.7% of the Beneficial Interest as trustee of two irrevocable
trusts (representing an aggregate of 96.85% of the Beneficial Interest).
George B. Horne holds 27.1% of the Beneficial Interest as co-trustee of a
revocable trust. Tara V. Horne, individually and as beneficiary of an
irrevocable trust holds .96% 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 which may be deemed
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").
Frederic B. Horne disclaims beneficial ownership of, and disclaims
dispositive power with respect to, the shares in the revocable trust for
the benefit of Peter W. Horne. Under the terms of the 1991 Voting Trust,
the two trustees (currently Timothy P. Horne and Noah T. Herndon) have sole
power to vote all shares subject to the 1991 Voting Trust. However, as long
as Timothy P. Horne is serving as trustee 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 Noah T.
Herndon is required for the voting of shares in connection with any vote
involving the election or removal of directors of the Company. John R.
LeClaire, whose professional corporation is a partner in the law firm of
Goodwin, Procter & Hoar LLP has been designated as a successor to Mr.
Herndon. If Timothy P. Horne ceases to serve as a trustee, Mr. Herndon or,
in the event Mr. Herndon has previously ceased to serve as a trustee, Mr.
LeClaire, shall serve as the sole trustee. If Mr. Herndon does not survive
Timothy P. Horne or if Mr. LeClaire replaces Mr. Herndon as a successor
trustee and does not survive Timothy P. Horne, Timothy P. Horne shall
remain as the sole trustee. If each of Timothy P. Horne, Mr. Herndon and
Mr. LeClaire ceases to serve as a trustee 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. 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, the brother of Timothy P. Horne, and George B.
Horne, the father of Timothy P. Horne and Frederic 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 may be deemed to beneficially own 100% of the total
beneficial interest in the 1991 Voting Trust. Frederic B. Horne disclaims
beneficial ownership of, and disclaims dispositive power with respect to,
the shares in the revocable trust for the benefit of Peter W. Horne. See
footnote 8.
(8) The information relating to the number and nature of Frederic B. Horne's
beneficial ownership is based on a Schedule 13D filed with the Securities
and Exchange Commission on May 1, 1998 by Frederic B. Horne (for purposes
of this footnote, "Mr. Horne"). The equity and voting percentages were
calculated as of August 24, 1998. Includes (i) 1,015,323 shares of Class B
Common Stock and 791,550 shares of Class A Common Stock, beneficially owned
by Mr. Horne, (ii) 22,600 shares held for the benefit of Mr. Horne's minor
daughter, under an irrevocable trust for which Mr. Horne serves as trustee,
(iii) 11,000 shares beneficially owned by Mr. Horne's minor daughter for
which Mr. Horne is custodian. All shares beneficially owned or which may be
deemed beneficially owned by Mr. Horne are Class B Common Stock except
791,550 of the shares noted in clause (i).
(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. All of such shares are
subject to the 1997 Voting Trust. See footnote 6.
(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
24, 1998.
(15) The information is based on a Form 13F filed with the Securities and
Exchange Commission by Franklin Resources, Inc., Franklin Advisory
Services, Inc., Franklin Management, Inc. and Franklin Advisers, Inc.
reporting their aggregate holdings of shares of Class A Common Stock as of
June 30, 1998. Franklin Advisory Services, Inc., Franklin Management, Inc.
and Franklin Advisers, Inc. have stated in the Form 13F that they are
investment advisers registered under the Investment Advisers Act of 1940,
and that as direct or indirect investment advisory subsidiaries of Franklin
Resources, Inc. have all investment and/or voting power of the shares.
(16) Includes 14,000 shares of Class A Common Stock issuable upon the exercise
of stock options under the 1991 Non-Employee Directors' Nonqualified Stock
Option Plan.
(17) Includes (i) 96,000 shares of Class A Common Stock issuable upon the
exercise of stock options which are exercisable currently or within 60 days
of August 24, 1998, (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 67,000 shares of Class A Common Stock issuable upon the exercise
of stock options which are exercisable currently or within 60 days of
August 24, 1998.
(19) Represents 40,800 shares of Class A Common Stock issuable upon the exercise
of stock options which are exercisable currently or within 60 days of
August 24, 1998.
(20) Includes (i) 9,093,230 shares of Class B Common Stock, (ii) 81,243 shares
of Class A Common Stock, and (iii) 569,294 shares of Class A Common Stock
issuable upon the exercise of stock options which are exercisable currently
or within 60 days of August 24, 1998.
(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.
(22) Includes (i) 801 shares of Class A Common Stock, (ii) 300 shares of Class A
Common Stock held by Mr. Fifer for three minor children and (iii) 18,600
shares of Class A Common Stock issuable upon the exercise of stock options
presently or within 60 days of August 24, 1998.
</FN>
</TABLE>
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, 1998.
<TABLE>
<CAPTION>
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)
- ------------------ ------ ------ ------- --------- -------
<S> <C> <C> <C> <C> <C>
Timothy P. Horne
Chairman of the Board 1998 685,000 0 159,852 (6) 40,000 (11)
and Chief 1997 656,666 0 281,586 (6) 45,000 (11)
Executive Officer...............1996 640,000 0 (5) 42,669 (6) 40,000 (11)
David A. Bloss, Sr.
President 1998 305,000 0 163,227 (7) 45,000 (11)
and Chief 1997 276,667 134,400 179,198 (7) 45,000 (11)
Operating Officer...............1996 256,670 0 106,781 (7) 35,000 (11)
Kenneth J. McAvoy
Chief Financial Officer, 1998 206,667 0 96,742 (8) 30,000 (11)
Treasurer and 1997 188,333 79,040 105,382 (8) 35,000 (11)
Secretary 1996 178,334 0 63,355 (8) 30,000 (11)
Paul A. Lacourciere 1998 194,167 0 86,804 (9) 15,000 (13)
Corporate Vice 1997 188,333 22,896 45,777 (9) 20,000 (13)
President 1996 157,502 31,203 41,609 (9) 15,000 (12)
Michael O. Fifer
Group 1998 162,500 6,622 39,493 (10) 12,500 (13)
Vice............................1997 147,500 10,628 56,662 (10) 15,000 (13)
President.......................1996 135,000 27,845 80,008 (10) 10,500 (12)
- ------------
<FN>
(1)Amounts awarded under the Executive Incentive Bonus Plan, as amended.
(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 $18.4375, $25.375 and $16.375 on the
RSU grant dates of August 11, 1998, 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, 1996 and 1997 to receive RSUs (i) in lieu of a
specified percentage or dollar amount of his actual annual incentive cash
bonus or (ii) for a specified dollar amount, up to 100% of his targeted
maximum cash bonus, for fiscal years ended June 30, 1996, 1997 and 1998,
respectively. With respect to fiscal years 1998, 1997 and 1996, RSUs were
awarded as of August 11, 1998, 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 $12.35313, $19.03125 and $12.28 per RSU for fiscal years
1998, 1997 and 1996, respectively, which was 67% of $18.4375 and 75% of
$25.375 and $16.375, the closing market prices of the Company's Class A
Common Stock on August 11, 1998, August 4, 1997 and August 5, 1996,
respectively ("1998 RSU Cost", "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.
(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 1998, Mr. Horne's election under the Management Plan was
to receive RSUs equal to $171,250, which was his targeted maximum bonus.
Since Mr. Horne's actual bonus was $75,521, Mr. Horne was required to pay
out of pocket the difference of $95,729. Mr. Horne received 13,862 RSUs
which was determined by dividing $171,250 by the 1998 RSU Cost. For fiscal
year 1997, Mr. 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. 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.
Horne purchased 10,423 RSUs which was determined by dividing $128,000 by
the 1996 RSU Cost. Mr. Horne held 21,520 RSUs at June 30, 1998 with a net
value of $321,230 as determined in accordance with Note (2) above, except
based on a closing market price of the Company's Class A Common Stock of
$20.875 on June 30, 1998.
(7) For fiscal year 1998, Mr. Bloss received 8,853 RSUs in lieu of receiving
all of his annual incentive bonus of $109,363. This number of RSUs was
determined by dividing $109,363 by the 1998 RSU Cost. 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 13,583 RSUs at June
30, 1998 with a value of $283,545 as determined in accordance with Note
(2) above, except based on a closing market price of the Company's Class A
Common Stock of $20.875 on June 30, 1998.
(8) For fiscal year 1998, Mr. McAvoy received 5,247 RSUs in lieu of receiving
all of his annual incentive bonus of $64,817. This number of RSUs was
determined by dividing $64,817 by the 1998 RSU Cost. 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 8,022 RSUs at June
30, 1998 with a value of $167,459 as determined in accordance with Note
(2) above, except based on a closing market price of the Company's Class A
Common Stock of $20.875 on June 30, 1998.
(9) For fiscal year 1998, Mr. Lacourciere received 4,708 RSUs in lieu of
receiving all of his annual incentive bonus of $58,159. This number of
RSUs was determined by dividing $58,159 by the 1998 RSU Cost. For fiscal
year 1997, Mr. Lacourciere received 1,804 RSUs in lieu of receiving 60% of
his total annual incentive bonus of $57,228, or $34,332. This number of
RSUs was determined by dividing $34,332 by the 1997 RSU Cost. For fiscal
year 1996, Mr. Lacourciere received 2,541 RSUs in lieu of receiving 50% of
his total annual incentive bonus of $62,400, or $31,200. The number of
RSUs was determined by dividing $31,200 by the 1996 RSU Cost. Mr.
Lacourciere held 4,345 RSUs at June 30, 1998 with a value of $90,702 as
determined in accordance with Note (2) above, except based on a closing
market price of the Company's Class A Common Stock of $20.875 on June 30,
1998.
(10) For fiscal year 1998, Mr. Fifer received 2,142 RSUs in lieu of receiving
80% of his total annual incentive bonus of $33,083, or $26,461. This
number of RSUs was determined by dividing $26,461 by the 1998 RSU Cost.
For fiscal year 1997, Mr. Fifer received 2,233 RSUs in lieu of receiving
80% of his total annual incentive bonus of $53,125, or $42,497. This
number of RSUs was determined by dividing $42,497 by the 1997 RSU Cost.
For fiscal year 1996, Mr. Fifer received 4,886 RSUs in lieu of receiving
$60,000 of his total annual incentive bonus of $87,845. This number of
RSUs was determined by dividing $60,000 by the 1996 RSU Cost. Mr. Fifer
held 7,119 RSUs at June 30, 1998 with a value of $148,609 as determined in
accordance with Note (2) above, except based on a closing market price of
the Company's Class A Common Stock of $20.875 on June 30, 1998.
(11) Amount awarded under the 1989 Plan.
(12) Amount awarded under the 1986 Plan.
(13) Amount awarded under the 1996 Plan.
</FN>
</TABLE>
STOCK OPTION GRANTS
The following table shows information concerning options to purchase the
Company's Class A Common Stock granted in fiscal 1998 to the named executive
officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
---------------------------------------------------------- -----------------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE MARKET PRICE
OPTIONS EMPLOYEES OR BASE ON DATE OF
GRANTED IN FISCAL PRICE GRANT EXPIRATION
NAME (#)(1)(2) YEAR ($/SH) ($/SH) DATE 5%($) 10%($)
- ---- --------- -------- ------- -------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Timothy P. Horne...............40,000(4) 14.49 25.375(6) 25.375 8-4-2007 638,200 1,617,800
David A. Bloss, Sr.............45,000(4) 16.3 25.375(6) 25.375 8-4-2007 717,975 1,820,025
Kenneth J. McAvoy..............30,000(4) 10.86 25.375(6) 25.375 8-4-2007 478,650 1,213,350
Paul A. Lacourciere............15,000(5) 5.43 25.375(7) 25.375 8-4-2007 239,325 606,675
Michael O. Fifer...............12,500(5) 4.52 25.375(7) 25.375 8-4-2007 199,438 505,563
<FN>
(1) All options were granted as of August 4, 1997.
(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 1998 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 -- -- 155,894 124,000 547,763 192,200
David A. Bloss, Sr. -- -- 60,000 120,000 122,900 182,600
Kenneth J. McAvoy 13,000 182,335 36,000 94,000 22,650 148,650
Paul A. Lacourciere 36,800 354,000 25,200 48,000 0 81,200
Michael O. Fifer 3,000 35,463 9,300 34,200 0 54,000
- ------------
<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.
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 1998 on the Grant Date, each non-employee Director was
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 and 1998 Pension Plan
years, 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 (i) a select
group of key executives, (ii) 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 and (iii) to executives who will be affected by IRS
limits on Pension Plan Compensation. Tier one benefits are provided to a select
group of key executives. The annual benefit under this tier payable at normal
retirement is equal to the difference between (1) 2% of the highest three year
average pay multiplied by years of service up to ten years, plus 3% of average
pay times years of service in excess of ten years, to a maximum of 50% of
average pay and (2) the annual benefit payable under the Pension Plan described
above. Normal retirement under this tier is age 62.
Tier two benefits are provided to individuals not covered under Tier one
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. The annual normal
retirement benefit payable under this tier 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 for 1997 and 1998 ($175,000 for
years prior to 1997). For the 1998 Plan Year, Annual Compensation in excess of
$334,160 is disregarded for all purposes under Tier two of the Supplemental
Plan. Tier three benefits are provided to individuals not covered under Tier one
or Tier two who will be affected by IRS limits on Pension Plan compensation. The
annual normal retirement benefit payable under this tier is based on the Pension
Plan formula set forth above, with Annual Compensation in excess of $267,330
disregarded. 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 62 during 1998) for various levels of Final Average
Compensation and years of benefit service under Tier one of the Supplemental
Plan, 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, TIER ONE)
FINAL AVERAGE COMPENSATION FOR BASED ON YEARS OF SERVICE(1)
THREE HIGHEST CONSECUTIVE YEARS --------------------------------------------------------
IN LAST 10 YEARS: 5 YEARS 10 YEARS 15 YEARS 20 YEARS
- -------------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$100,000..........................................$10,000 $20,000 $35,000 $50,000
150,000...........................................15,000 30,000 52,500 75,000
200,000...........................................20,000 40,000 70,000 100,000
250,000...........................................25,000 50,000 87,500 125,000
300,000...........................................30,000 60,000 105,000 150,000
350,000...........................................35,000 70,000 122,500 175,000
400,000...........................................40,000 80,000 140,000 200,000
450,000...........................................45,000 90,000 157,500 225,000
500,000...........................................50,000 100,000 175,000 250,000
550,000...........................................55,000 110,000 192,500 275,000
600,000...........................................60,000 120,000 210,000 300,000
- ------------
<FN>
(l) The annual Pension Plan benefit is computed on the basis of a straight
life annuity.
</FN>
</TABLE>
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 1998) for various levels of Final Average
Compensation and years of benefit service under Tier two of the Supplemental
Plan, 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, TIER TWO)
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
- -------------------------------- --------- ---------- ---------- ----------
<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...........................................31,714 47,570 63,427 79,284
250,000...........................................40,714 61,070 81,427 101,784
300,000...........................................49,714 74,570 99,427 124,284
350,000...........................................52,989 79,484 105,978 132,473
- ------------
<FN>
(l) The annual Pension Plan benefit is computed on the basis of a straight
life annuity.
</FN>
</TABLE>
Messrs. Timothy P. Horne, Bloss, McAvoy, Lacourciere and Fifer have 39,
5, 17, 12 and 5 years, respectively, of benefit service under the Pension Plan.
Messrs. Bloss, McAvoy and Fifer are eligible for Tier one benefits, and Messrs.
Horne and Lacourciere are eligible for Tier two benefits. Eligible employees are
currently limited to a maximum annual benefit under the Pension Plan of $130,000
(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 all 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 two times the base
salary in effect on the date of termination.
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 a prior Supplemental Compensation
Agreement. 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. Mr. Murphy is the Chairman of the Committee.
The 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 1998 to Timothy P. Horne, the Chief
Executive Officer, and the four other most highly compensated executive officers
named in the Summary Compensation Table.
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 the Chief Executive Officer's compensation in fiscal 1998, 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.
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
Executive 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 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.
With respect to the Bonus Plan for fiscal 1998, the Company's sales were
adversely impacted by unfavorable foreign exchange rate changes, elimination of
sales caused by certain divestitures, and reduced sales of oil and gas valves
caused by a lower demand in Asia for energy and the unusually warm winter
experienced in North America. As a result of these events, the sales and
inventory turnover objectives were only partially achieved thereby offsetting
the substantial achievement in the economic value added objective. The partial
achievement of the sales and inventory turnover objectives resulted in lower
annual incentive bonuses for the CEO and most of the executive officers.
MANAGEMENT STOCK PURCHASE PLAN
The Management Stock Purchase Plan (the "MSPP") 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. 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. 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 has decreased the number of stock options
granted under the Company's stock option plans in order to further motivate
executives participation in the MSPP.
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. However, as previously noted, the Committee has decreased
the number of stock options granted to motivate executives participation in the
MSPP. Stock options granted in fiscal 1998 were approximately 90,000 less than
what was granted in fiscal 1997. Stock options are a vehicle for the payment of
long-term compensation which are 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 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.
CHIEF EXECUTIVE OFFICER COMPENSATION
The base salary received by the CEO in fiscal 1998 was $685,000, an
increase of 4.3% from $656,666 in the prior fiscal year. Under the terms of the
1996 Employment Agreement with the Company, the CEO'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 2.3% from June 1996 to June 1997,
the twelve month period immediately prior to the Committee's adjustment in the
CEO's base salary for fiscal 1998. The CEO's base salary, bonus and stock option
grant for fiscal 1998 were determined by the Committee using the same criteria
described above for all executives, and as provided by the 1996 Employment
Agreement. The bonus received by the CEO in fiscal 1998 was $75,521, which was
combined with $95,729 of the CEO's own funds to purchase 13,862 RSUs. In fiscal
1998, the CEO received options under the 1989 Plan to purchase 40,000 shares
with an exercise price of $25.375, which represents 100% of the fair market
value of the Class A Common Stock on the grant date. This compares to 45,000
options received in fiscal 1997. The CEO 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 closely aligns
executive compensation to corporate performance. In addition, the Committee
believes that properly balancing the grant of stock options and RSUs will
further 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
<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 two peer groups of companies engaged in the valve and
pump industries, for a period of five fiscal years commencing June 30, 1993 and
ended June 30, 1998. Peer group 1 is a newly selected performance indicator of
peer companies consisting of Flowserve Corporation, U.S. Industries, Inc. and
Dresser Industries, Inc. Peer group 2, the peer group used by the Company in
last year's proxy statement, consists only of Flowserve Corporation because
Keystone International, Inc. and Zurn Industries, Inc., the other two companies
which previously appeared in the Company's peer group of companies, were
acquired by Tyco International Ltd. and U.S. Industries, Inc., respectively, and
therefore do not appear in the peer group 2 line graph below. Bw Ip, Inc. and
Durco International, Inc. (formerly known as Duriron, Inc.) which also
previously appeared in the Company's peer group of companies, merged on July 22,
1997 to form Flowserve Corporation. 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, 1993 and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among Watts Industries, Inc., The S&P 500 Index
and Two Peer Groups
[Page 17 - Line Graph]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
<S> <C> <C> <C> <C> <C> <C>
Watts Industries, Inc.........................100 126 137 103 135 119
Peer Group 1..................................100 92 105 147 193 222
Peer Group 2..................................100 113 163 177 221 189
S & P 500.....................................100 101 128 161 217 282
</TABLE>
CERTAIN TRANSACTIONS
George B. Horne, the father of Timothy P. 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
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and more than 10% shareholders to file
with the Securities and Exchange Commission reports on prescribed forms of their
ownership and changes in ownership of Company stock and provide copies of such
forms to the Company. Based on a review of the copies of such forms provided to
the Company, the Company believes that during the fiscal year ended June 30,
1998, all reports on forms required by Section 16(a) to be filed by the
aforementioned persons were filed on a timely basis.
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 1998.
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 that stockholders vote FOR this
proposal.
PROPOSAL 3
Mr. Frederic B. Horne, c/o Conifer Ledges, Ltd., 219 Liberty Square,
Danvers, MA 01923, who is the beneficial owner of 1,840,473 shares of Company
common stock according to a Schedule 13D filed with the Securities and Exchange
Commission, has requested inclusion of the following proposal and supporting
statement in this proxy statement, which proposal will be acted upon if
presented at the meeting.
RESOLVED: To request the Board of Directors to take the steps necessary to
amend and restate the Amended and Restated Certificate of
Incorporation of this corporation to delete the provisions that
create two classes of Common Stock, so that there is only one class
of Common Stock, each with one vote per share.
SUPPORTING STATEMENT.
The Amended and Restated Certificate of Incorporation provides that each
Class B share (which are limited by the charter to the Horne family, descendants
or trusts for their benefit, and are mostly controlled by voting trusts
disclosed in this proxy statement) is entitled to ten votes, while each Class A
share is only entitled to one vote.
In the proponent's opinion, eliminating the super voting provisions of
Class B shares benefits stockholders by:
o equalizing elective power for the board of directors, thereby
supporting board independence,
o encouraging fair value for the price of Class A shares, and
o improving use of the company's equity as a source of capital to
continue growth by acquisition and otherwise.
The super voting provisions and continuity of control have provided
stability of leadership and ownership. However, the combination of super voting
and the Horne family voting trusts create the perception among certain investors
of limited available outstanding shares and reduced board independence. By
granting Class A holders the voting majority, effective control will continue to
remain with the Horne family, but the Class A gain the opportunity to have more
influence with the board.
Please see the Performance Graph in this Proxy Statement. In the
proponent's opinion, the Class B super voting provisions may represent an
impediment to enhanced share valuation and appreciation by limiting the
potential stockholder base primarily to value oriented (investor) funds, causing
lower trading volume and fewer potential buyers. This proposal endeavors to
broaden the stockholder base and confirm management's focus on maximizing value
for all stockholders.
Although the super voting provisions existed prior to Watts public
offerings, and each Class A stockholder bought them with knowledge of the super
voting provisions, this proposal would expand the stockholder base by
encouraging other investors (who may have policies against owning a class of
securities that does not control the issuer) to invest. In the proponent's
opinion, a larger base of potential purchasers would create greater trading
volume and greater demand. Expanding the stockholder base ultimately enures to
the benefit of stockholders.
By enhancing the company's market capitalization, additional advantages
accrue to Watts by improving its flexibility and opportunity to use Watts equity
for future acquisitions and other corporate purposes.
The elimination of the Class B shares would enhance stockholder value for
all stockholders. If you AGREE, please mark your proxy FOR this proposal.
BOARD'S STATEMENT IN OPPOSITION TO PROPOSAL 3
REASONS FOR THE RETENTION OF THE DUAL CLASS CAPITAL STRUCTURE
The Company believes that retaining two classes of common stock with
different voting rights is in the best interest of the Company and its
stockholders. The Watts Board believes that the current dual class
capitalization (a) provides the Company with greater flexibility in financing
its growth, (b) promotes stability in the leadership, involvement and
substantial voting interest of the Horne family which allows the Company to
focus on long-term growth, and (c) enhances the Company's ability to attract,
retain and motivate highly qualified key employees. The Watts Board's reasons
for its position are described below.
In determining its position on the proposal, in addition to the reasons
set forth below, the Watts Board also considered that Frederic B. Horne, the
proponent of the proposal, was employed by the Company since 1973 and served as
a director of the Company since 1980 until voluntarily resigning from all
positions in 1997. In particular, the Watts Board considered that the proponent
voted in favor of adopting the dual class capital structure in 1986 both as a
stockholder and a director of the Company. In addition, though he attended
virtually every board of directors meeting since adoption of the structure in
1986, at no time did the proponent make any proposal to change or eliminate the
Company's dual class capital structure or any proposal relating to the
governance of the Company and its long-term growth strategy. The Watts Board
also noted that there is no record of any dissenting vote made by the proponent
as a director of the Company.
FINANCING FLEXIBILITY
The dual class capital structure provides the Company with greater
flexibility to pursue its growth strategy, which includes the acquisition and
integration of related businesses. The Watts Board believes that the Company's
ability to issue Class A Common Stock, for which there is already a sizeable and
liquid market, better positions the Company to take advantage of acquisition
opportunities without significantly diluting the voting interest of the
Company's existing stockholders or providing target stockholders with undue
voting power. The dual class capitalization also provides the Company with
increased flexibility to issue common stock to raise equity capital for a
variety of corporate purposes, including to finance its growth. The Company's
ability to issue Class A Common Stock mitigates any reluctance the Horne family
and senior management might otherwise have to support the issuance of
significant additional common stock of the Company because of the voting
dilution such issuance would entail.
STABILITY
The Company's history of growth, profitability and financial strength is
due in large part to the Company's stable leadership which has focused on
long-term growth. This stability has enabled management to build significant
value during the past twelve years as a public company. The Watts Board believes
that the dual class capital structure reduces the risk of disruption in the
continuity of the Company's current operational policies and long-range strategy
that might otherwise result if the Company were to issue additional equity
securities under a single class structure for acquisitions or other reasons, or
if members of the Horne family were to dispose of a significant percentage of
their equity interest in the Company for estate tax, diversification or other
reasons.
KEY EMPLOYEES
The Watts Board believes that the dual class capital structure enhances
the Company's ability to attract and retain highly qualified key employees. By
issuing Class A Common Stock pursuant to the Company's equity-based compensation
plans, the Company is able to attract, retain and motivate key employees without
materially diluting the voting power of the Class B stockholders.
VOTE REQUIRED
Approval of Proposal 3 requires the affirmative vote of the holders of a
majority of the votes represented by all outstanding shares of Class A Common
Stock and Class B Common Stock, voting as a single class.
The Watts Board unanimously recommends that stockholders vote AGAINST this
proposal.
STOCKHOLDER PROPOSALS
In order for any stockholder proposal to be included in the proxy
statement for the Company's 1999 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 20, 1999 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 1999 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 1998 Annual Meeting which dates will
be August 6, 1999 and June 22, 1999, respectively. Shareholder proposals
received by the Company outside of the aforementioned dates will be considered
untimely received for consideration at such Annual Meeting. If the date of the
1999 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 1998 Annual Meeting, the Company
will publicly disclose such change, and nominations or other proposals to be
considered at the 1999 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 1999 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.
WATTS INDUSTRIES, INC.
815 Chestnut Street, North Andover, MA 01845-6098
Visit out website at: www.wattsind.com
Printed in U.S.A. 764-PS-98
<PAGE>
PROXY
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 20, 1998 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.
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 1998 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, 2 and 3 below, the undersigned's votes will be cast in
favor of Items 1 and 2 and against Item 3. Item 3 is a shareholder
proposal which will be acted upon if presented at the Annual Meeting.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
1. To elect six 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, Gordon W. Moran and Daniel J. Murphy, III.
FOR WITHHELD
ALL NOMINEES FROM ALL NOMINEES
-------------------------------------------
For all nominees except as noted above
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.
FOR AGAINST ABSTAIN
3. To request the Board of Directors
to take the steps necessary to amend
and restate the Amended and
Restated Certificate of Incorporation
of this corporation to delete the
provisions that create two classes of
Common Stock, so that there is only one
class of Common Stock, each with one vote per share.
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>
PROXY
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 20, 1998 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.
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 1998 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, 2 and 3 below, the undersigned's votes will be cast in
favor of Items 1 and 2 and against Item 3. Item 3 is a shareholder
proposal which will be acted upon if presented at the Annual Meeting.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
1. To elect six 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, Gordon W. Moran and Daniel J. Murphy, III.
FOR WITHHELD
ALL NOMINEES FROM ALL NOMINEES
-------------------------------------------
For all nominees except as noted above
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.
FOR AGAINST ABSTAIN
3. To request the Board of Directors
to take the steps necessary to amend
and restate the Amended and Restated
Certificate of Incorporation of this
corporation to delete the provisions that
create two classes of Common Stock, so
that there is only one class of Common
Stock, each with one vote per share.
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:_______________________
