SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14 (a) of the Securities Exchange Act of
1934
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Filed by a Party other than the Registrant |_|
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|_| Preliminary Proxy Statement
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|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Materials Pursuant to s. 240.14a-12
Watts Industries, Inc.
(Name of Registrant as Specified in Its Charter)
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1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
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the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
[LETTERHEAD OF WATTS INDUSTRIES, INC.]
Watts Industries, Inc.
March 15, 2002
Dear Stockholder:
We cordially invite you to attend our 2002 Annual Meeting, which will be
held on Tuesday, April 23, 2002 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 April 23rd.
Sincerely,
/s/ Timothy P. Horne
TIMOTHY P. HORNE
Chairman of the Board,
Chief Executive Officer
and President
WATTS INDUSTRIES, INC.
815 Chestnut Street
North Andover, MA 01845
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on April 23, 2002
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To the Stockholders of
Watts Industries, Inc.
Notice is hereby given that the 2002 Annual Meeting of Stockholders of
Watts Industries, Inc., a Delaware corporation (the "Company"), will be held in
the Phillips Room of The Andover Inn at Phillips Academy, Chapel Avenue,
Andover, Massachusetts 01810, on Tuesday, April 23, 2002, at 10:00 a.m., local
time, for the following purposes:
1. To elect to the Board of Directors of the Company five Directors, each to
hold office until the Company's 2003 Annual Meeting of Stockholders and
until such Director's successor is duly elected and qualified; and
2. To ratify the selection of KPMG LLP as the independent auditors of the
Company for the current fiscal year.
Only stockholders of record at the close of business on March 1, 2002 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/ William C. McCartney
WILLIAM C. McCARTNEY
Secretary
North Andover, Massachusetts
March 15, 2002
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, EVEN
IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
WATTS INDUSTRIES, INC.
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ANNUAL MEETING OF STOCKHOLDERS
April 23, 2002
PROXY STATEMENT
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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 2002 Annual Meeting of Stockholders to
be held on Tuesday, April 23, 2002 at 10:00 a.m., local time, 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
("Annual Meeting").
Only stockholders of record at the close of business on March 1, 2002 are
entitled to receive notice of and to vote at the Annual Meeting. Each share of
Class A common stock, par value $.10 per share ("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, par value $.10 per share ("Class B Common Stock"), of
the Company outstanding on the record date is entitled to ten votes. As of the
close of business on March 1, 2002, there were outstanding and entitled to vote
17,792,754 shares of Class A Common Stock and 8,735,224 shares of Class B Common
Stock.
The presence, in person or by proxy, of outstanding shares of Class A
Common Stock and Class B Common Stock representing a majority of the total votes
entitled to be cast is necessary to constitute a quorum for the transaction of
business at the Annual Meeting. A quorum being present, the affirmative vote of
a plurality of the votes cast is necessary to elect a nominee as a Director of
the Company.
Shares that reflect abstentions or "broker non-votes" (i.e., shares
represented at the Annual Meeting held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote such shares and with respect to which the broker or nominee
does not have discretionary power to vote such shares) will be counted for
purposes of determining whether a quorum is present for the transaction of
business at the Annual Meeting, but will have no effect on the outcome of the
election of Directors. In the election of Directors, votes may be cast in favor
of, against or withheld from each nominee; votes that are withheld will be
excluded entirely from the vote and will have no effect on the outcome.
Shares represented by duly executed proxies received by the Company and
not revoked will be voted at the Annual Meeting in accordance with the
instructions contained therein. If no instructions are given, properly executed
proxies will be voted (i) for the election of each of the nominees named herein
for Director, and (ii) for the ratification of the selection of KPMG LLP as the
independent auditors of the Company for the current fiscal year.
Any properly completed proxy may be revoked at any time before it is voted
on any matter (without, however, affecting any vote taken prior to such
revocation) by (1) giving written notice of such revocation to the Secretary of
the Company at the address set forth below, (2) signing and duly delivering a
proxy bearing a later date, or (3) attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not, by itself, revoke a proxy.
This proxy statement and the enclosed proxy are first being mailed
together by the Company on or about March 15, 2002 to stockholders of record as
of March 1, 2002. The Company's Annual Report for the fiscal year ended December
31, 2001 is being mailed to such stockholders of the Company concurrently with
this proxy statement.
The principal executive offices of the Company are located at 815 Chestnut
Street, North Andover, Massachusetts 01845.
The expenses of preparing, printing and assembling the materials used in
the solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, the Company may also use the
services of some of its officers and employees (who will receive no compensation
therefor in addition to their regular salaries) to solicit proxies personally
and by personal interview, telephone and telegram. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward solicitation
materials to the beneficial owners of shares held of record by them and will be
reimbursed for their reasonable expenses.
At the date hereof the management of the Company has no knowledge of any
business other than the matters set forth in the Notice of Annual Meeting of
Stockholders and described above that will be presented for consideration at the
Annual Meeting. If any other business should come before the Annual Meeting, the
proxies will be voted in accordance with the direction of the proxy holders.
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.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Watts Board has fixed the number of Directors at five and nominated
each of the individuals named below for election as a Director. If elected, each
nominee will serve until the Company's 2003 Annual Meeting of Stockholders and
until such Director's successor shall have been duly elected and qualified.
Proxies will be voted for each of 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 shares representing votes sufficient to elect each of the
nominees named below have indicated an intention to vote in favor of such
nominees.
The Board of Directors recommends that stockholders vote FOR the election
of each nominee as a Director of the Company.
INFORMATION AS TO DIRECTORS AND NOMINEES FOR DIRECTOR
Set forth below is the name and age of each nominee for Director, each of
whom is a current Director of the Company, his principal occupation for at least
the past five years, the year each became a Director of the Company and certain
other information. The information is as of March 13, 2002.
Present Principal Employment and Director
Name Age Prior Business Experience (1) Since (1)
---- --- ----------------------------- ---------
Timothy P. Horne.......63 Chairman of the Board since 1986 and 1962 (2)
Chief Executive Officer since 1978;
President from 1994 to April 1997, and
from April 2000 to present. Mr. Horne
joined the Company in 1959.
Kenneth J. McAvoy......61 Chief Financial Officer and Treasurer 1994 (2)
of the Company from 1986 to 1999; Vice
President of Finance from 1984 to 1994;
Executive Vice President of European
Operations from 1994 to 1996; Secretary
from 1985 to 1999. Mr. McAvoy joined
the Company in 1981, and retired on
December 31, 1999.
Gordon W. Moran........63 Chairman of Hollingsworth & Vose 1990 (2)
Company, a paper manufacturer, since
1997, and served as its President and
Chief Executive Officer from 1983 to
1998.
Daniel J. Murphy, III..60 Chairman of Northmark Bank, a 1986 (2)
commercial bank, since August 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 and CIRCOR
International, Inc.
Roger A. Young.........56 Chairman of the Board of Directors of 1999 (2)
Bay State Gas Company, a wholly owned
subsidiary of NiSource Inc., since 1996
and served on its Board since 1975. Mr.
Young was elected President and Chief
Operating Officer of Bay State Gas
Company in 1981 and Chief Executive
Officer in 1990, serving in such
positions until 1999. Mr. Young is also
a Director of NiSource, Inc.
(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.
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DIRECTORS' COMPENSATION
Each non-employee Director receives a quarterly retainer of $4,500 and
$500 per Board of Directors and committee meeting attended and also receives
reimbursement for out-of-pocket expenses incurred in connection with attending
such meetings. Effective August 1, 2001 the Board voted to increase the
quarterly retainer to $5000. 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 (the "Directors' Plan").
Stock options granted under the Directors' Plan are granted automatically
as of November 1 in each year (with respect to each year, the "Grant Date"). The
Directors' Plan provides that options to purchase 3,094 shares of Class A Common
Stock shall be granted to each non-employee Director duly elected and serving as
such on each Grant Date. All options are granted with an exercise price of
$10.583 per share and are fully exercisable upon grant.
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. During fiscal 2001 and on the Grant Date, each non-employee
Director was granted options to purchase 3,094 shares of Class A Common Stock
under the Directors' 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 six meetings during the fiscal year ended December
31, 2001. Each of the Directors of the Company attended at least 75% of the
total number of meetings of the Watts Board and of the committees on which such
Director served. The Watts Board has a standing Audit Committee and a standing
Stock Option and Compensation Committee. The Audit Committee held four meetings,
and the Stock Option and Compensation Committee held one meeting, during the
fiscal year ended December 31, 2001. The Audit Committee, among other things,
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 equity compensation plans,
determining compensation policies applicable to, and approving, the compensation
arrangements of the principal executive officers of the Company. Messrs. Moran,
Murphy, Young and McAvoy comprise the Audit Committee, and Messrs. Murphy and
Moran comprise the Stock Option and Compensation Committee.
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PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth as of February 15, 2002 (except as
otherwise indicated) certain information concerning shares of Class A Common
Stock and Class B Common Stock held by (i) all beneficial owners of 5% or more
of either class of the Company's common stock, (ii) each Director or person
nominated for election as 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, and
Directors and persons nominated for election as Directors of the Company.
Number of
Shares
Beneficially Percent
Name of Beneficial Owner (2) Owned (1)(3) Equity Voting
- ---------------------------- ------------ ------ ------
Timothy P. Horne (4)........................ 8,949,007 (5)(6)(7) 33.7% 79.8%
Gabelli Funds, LLC, et al................... 5,813,864 (23) 21.9 5.5
Perkins, Wolf, McDonnell & Company.......... 2,794,700 (24) 10.5 2.7
George B. Horne (4)(9)...................... 2,074,600 (6)(10) 7.8 19.7
Berger Small Cap Value Fund................. 1,893,250 (24)(26) 7.1 1.8
Daniel W. Horne (4)(11)..................... 1,337,490 (6)(11) 5.0 12.5
Deborah Horne (4)(12)....................... 1,337,490 (6)(12) 5.0 12.5
Peter W. Horne (4)(13)...................... 1,286,315 (7)(13) 4.8 11.8
Frederic B. Horne........................... 1,229,873 (8) 4.6 1.2
Daniel J. Murphy III (4).................... 1,222,478 (7)(16) 4.6 11.3
Dimensional Fund Advisors Inc............... 1,256,591 (15) 4.7 1.2
Lazard Freres & Co. LLC..................... 1,228,050 (25) 4.6 1.2
Paul A. Lacourciere............................146,411 (14)(28) * *
Michael O. Fifer...............................143,597 (14)(22) * *
William C. McCartney...........................127,433 (14)(19) * *
Gordon W. Moran.................................31,940 (14)(17) * *
Jeffrey A. Polofsky.............................19,901 (14)(29) * *
Kenneth J. McAvoy...............................16,188 (14)(18) * *
Roger A. Young...................................9,282 (14)(27) * *
All Executive Officers and
Directors as a group (12 persons).......... 10,894,567 (20)(21) 41.07 91.8
* Less than one percent
(1) The number of shares and percentages has been determined as of February
15, 2002 in accordance with Rule 13d-3 of the Securities and Exchange Act
of 1934. At that date, a total of 26,527,978 shares were outstanding, of
which 8,735,224 were shares of Class B Common Stock entitled to ten votes
per share and 17,792,754 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. The table's equity percentages reflect the
applicable beneficial owner's combined Class A Common Stock and Class B
Common Stock holdings, if any, divided by the total number of outstanding
shares of both classes. The table's voting percentage reflects the
applicable benefical owner's one vote per share of Class A Common Stock
plus ten votes per share of Class B Common Stock, if any, divided by the
total number of possible votes.
(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, MA 01923, Dimensional Fund Advisors Inc. address is 1299
Ocean Avenue, 11th Floor, Santa Monica, CA 90401, Gabelli Group Capital
Partners, Inc., address is One Corporate Center, Rye, New York 10586,
Perkins, Wolf, McDonnell & Company address is 310 S. Michigan Avenue,
Suite 2600, Chicago, IL 60604, Lazard Freres & Co. LLC address is 30
Rockefeller Plaza, NY, NY 10020 and the Berger Small Cap Value Fund
address is 210 University Boulevard, Suite 900, Denver, CO 80206.
(3) Under the rules promulgated by the Securities and Exchange Commission,
beneficial ownership includes any shares as to which the stockholder has
sole or shared voting power or investment power and includes any shares as
to which the stockholder has the right to acquire beneficial ownership
within 60 days after February 15, 2002. Unless otherwise indicated, each
stockholder has sole voting and investment power with respect to shares
beneficially owned by that stockholder. For purposes of computing the
equity and voting percentages for each stockholder, any shares that such
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stockholder has the right to acquire within 60 days of February 15, 2002
are deemed to be outstanding, but are not deemed to be outstanding for the
purpose of computing the percentages for any other stockholder.
(4) Timothy P. Horne, George B. Horne, Daniel W. Horne, Deborah Horne, Peter
W. Horne, Tara Horne, and Daniel J. Murphy III may be deemed a "group" as
that term is used in Section 13(d)(3) of the Exchange Act.
(5) Includes (i) 2,351,220 shares of Class B Common Stock and 135,211 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) 1,185,840 shares held for the benefit of
Peter W. Horne, Mr. Horne's brother, under a revocable trust for which
Peter W. Horne serves as sole trustee, (v) 2,074,600 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) 40,000 shares owned by Tara
V. Horne, Mr. Horne's daughter, (vii) 30,200 shares held for the benefit
of Tara V. Horne, under an irrevocable trust for which Mr. Horne serves as
trustee, (viii) 22,600 shares held for the benefit of Tiffany R. Horne,
Mr. Horne's daughter, under an irrevocable trust for which Mr. Horne
serves as trustee, and (ix) 437,656 shares issuable upon the exercise of
stock options or upon the conversion of restricted stock units that are
exercisable currently or within 60 days of February 15, 2002. The shares
noted in clause (iv) are held in a voting trust for which Mr. Horne and
Daniel J. Murphy, III serve as co-trustees. See footnote 7. A total of
2,351,220 of the shares of Class B Common Stock noted in (i), 1,285,840 of
the Class B Common Stock shares in (ii), 1,285,840 of the Class B Common
Stock shares in (iii), 2,024,600 of the Class B Common Stock shares in
(v), and all of the shares noted in clauses (vi), (vii) and (viii)
(7,040,300 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 135,211 of the shares noted in clause (i), 25,000 of the
shares noted in each of (ii) and (iii), and all of the shares noted in
clause (ix) of this footnote.
(6) 7,040,300 shares of Class B Common Stock in the aggregate (see footnote 5)
are subject to the terms of The Amended and Restated 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 that Timothy P. Horne ceases to serve as trustee of the 1997 Voting
Trust, then Daniel J. Murphy III, a director of the Company, David F.
Dietz, whose professional corporation is a partner in the law firm of
Goodwin Procter, LLP, and Walter J. Flowers, a partner in the law firm of
Flowers and Manning (each, a "Successor Trustee" and collectively, the
"Successor Trustees"), shall thereupon become co-trustees of the 1997
Voting Trust. If a Successor Trustee shall cease to serve as such for any
reason, then a third person shall become a co-trustee with the remaining
two Successor 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 do not unanimously concur on any matter not
specifically contemplated by the terms of the 1997 Voting Trust, the vote
of a majority of the Successor Trustees shall be determinative.
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
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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. Amendments to the extension, termination and amendment provisions
of the 1997 Voting Trust require the approval of each individual
depositor. 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 33.39% of the total beneficial interest in the 1997
Voting Trust (the "Beneficial Interest") individually, 18.26% of the
Beneficial Interest as trustee of a revocable trust, 18.26% of the
Beneficial Interest as trustee of a trust revocable with the consent of
the trustee, 28.76% of the beneficial interest as co-trustee of a
revocable trust, and .43% and .32% of the beneficial Interest as trustee
of two irrevocable trusts (representing an aggregate of 99.43% of the
Beneficial Interest). George B. Horne holds 28.76% of the beneficial
interest as co-trustee of a revocable trust. Tara V. Horne, individually
and as beneficiary of an irrevocable trust holds .99% of the Beneficial
Interest. Tiffany R. Horne as beneficiary of an irrevocable trust holds
.32% of the Beneficial Interest.
(7) Includes 1,185,840 shares of Class B Common Stock that are beneficially
owned by Peter W. Horne, as sole trustee and beneficiary of a revocable
trust. The shares are subject to the terms of the Horne Family Voting
Trust Agreement - 1991 (the "1991 Voting Trust"). Under the terms of the
1991 Voting Trust, the two trustees (currently Timothy P. Horne and Daniel
J. Murphy, III) have sole power to vote all shares subject to the 1991
Voting Trust. However, as long as Timothy P. Horne is serving as a 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 Daniel J. Murphy, III is required for the voting of shares in
connection with any vote involving the election or removal of directors of
the Company. Under the terms of the 1991 Voting Trust, Timothy P. Horne
has the authority to designate up to two successor trustees. Timothy P.
Horne has not designated any such successor trustee. If each of Timothy P.
Horne and Mr. Murphy ceases to serve as a trustee for any reason, and no
successor trustee has been designated, 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 and George B.
Horne, the father of Timothy P. Horne, can collectively agree to revoke
the designation of any successor trustee before he begins to serve or to
appoint a new designated successor. If one of such Horne family member is
unable to take such action, this power rests in the survivor of them. The
1991 Voting Trust was scheduled to expire on October 31, 2001, but the
term of the 1991 Voting Trust was extended for one year by directive of
the sole beneficiary, Peter W. Horne. The 1991 Voting Trust now expires on
October 31, 2002, subject to extension on or before October 31, 2002 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, Daniel J. Murphy, III and their successors
designated as described in the preceding paragraph is serving as trustee,
the trustees. Shares may not be removed from the 1991 Voting Trust during
its term without the consent of the trustees.
(8) The information is based on a schedule 13D filed with the Securities and
Exchange Commission on January 8, 2002 by Frederick B. Horne (for purposes
of this footnote, "Mr. Horne"). Mr. Horne's beneficial ownership consists
of (i) 1,196,273 shares of Class A Common Stock, beneficially owned by Mr.
Horne, individually (ii) 22,600 shares of Class A Common Stock
beneficially owned by an irrevocable trust for the benefit of Kristina M.
Horne for which Mr. Horne serves as trustee (iii) 11,000 shares of Class A
Common Stock beneficially owned by Mr. Horne as custodian for Kristina M.
Horne under the Massachusetts Uniform Gifts to Minors Act. Such holdings
represent 4.64% of the total shares outstanding and entitled to vote as of
October 31, 2001 as set forth in the Company's 10Q filed on November 13,
2001, according to the 13D.
6
(9) Consists of 2,074,600 shares held in a revocable trust for which Timothy
P. Horne and George B. Horne serve as co-trustees. 2,024,600 of such
shares are subject to the 1997 Voting Trust. See footnote 6.
(10) All shares are Class B Common Stock.
(11) All shares are Class B Common Stock, except for 26,650 shares of Class A
Common Stock. All shares, except for 1650 shares of Class A Common Stock,
are held in a revocable trust for which Timothy P. Horne serves as sole
trustee. 1,285,840 of the Class B Common Stock shares are subject to the
1997 Voting Trust. See footnote 6.
(12) All shares are Class B Common Stock, except for 26,650 shares of Class A
Common Stock. All shares, except for 1650 shares of Class A Common Stock,
are held in a trust for which Timothy P. Horne serves as sole trustee,
which trust is revocable with the consent of the trustee. 1,285,840 of the
Class B Common Stock shares are subject to the 1997 Voting Trust. See
footnote 6.
(13) All shares are Class B Common Stock except for 50,475 shares of Class A
Common Stock. The shares of Class B Common Stock are held in a revocable
trust for which Peter W. Horne serves as sole trustee. 1,185,840 of the
Class B Common Stock shares are subject to the 1991 Voting Trust. See
footnote 7.
(14) All shares are Class A Common Stock or options to purchase Class A Common
Stock or restricted stock units that are convertible to Class A Common
Stock which are exercisable currently or within 60 days of February 15,
2002.
(15) The information is based on a 13G filed with the Securities and Exchange
Commission on February 12, 2002 by Dimensional Fund Advisors, Inc.
reporting their aggregate holdings of shares of Class A Common Stock as of
December 31, 2001. Such holdings represented 7.5% of the Company's Class A
Common Stock as of December 31, 2001 according to the Schedule 13G.
Dimensional Fund Advisors has stated in the 13G that it is an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, furnishes investment advice to four investment companies registered
under the Investment Company Act of 1940, and serves as investment manager
to certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds", according to
the 13G. In its role as investment advisor or manager, Dimensional
possesses voting and or investment power over the securities of the Issuer
described in the 13G that are owned by the Funds. Dimensional Fund
Advisors has stated in its Schedule 13G that it disclaims beneficial
ownership of such securities.
(16) Includes (i) 5,298 shares of Class A Common Stock (ii) 400 shares of Class
A Common Stock beneficially owned by Mr. Murphy as trustee of a trust
(iii) 30,940 shares of Class A Common Stock issuable upon the exercise of
stock options which are exercisable currently or within 60 days from
February 15, 2002, and (iv) 1,185,840 shares of Class B Common Stock held
in the 1991 Voting Trust for which Mr. Timothy P. Horne and Mr. Murphy
serve as co-trustees. See footnote 7.
(17) Includes (i) 1000 shares of Class A Common Stock, and (ii) 30,940 shares
of Class A Common Stock issuable upon the exercise of stock options which
are exercisable currently or within 60 days of February 15, 2002.
(18) Includes (i) 10,000 shares of Class A Common Stock, and (b) 6,188 shares
of Class A Common Stock issuable upon the exercise of stock options which
are exercisable currently or within 60 days of February 15, 2002.
(19) Represents 127,433 shares of Class A Common Stock issuable upon the
exercise of stock options or upon the conversion of restricted stock units
that are exercisable currently or within 60 days of February 15, 2002.
(20) Includes (i) 9,516,330 shares of Class B Common Stock, (ii) 222,110 shares
of Class A Common Stock, and (iii) 1,156,127 shares of Class A Common
Stock issuable upon the exercise of stock options or upon the conversion
of restricted stock units exercisable currently or within 60 days of
February 15, 2002.
(21) Shares of Class B Common Stock 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) 10,801 shares of Class A Common Stock, (ii) 300 shares of
Class A Common Stock held by Mr. Fifer as custodian for three minor
children, and (iii) 132,496 shares of Class A Common Stock issuable upon
the exercise of stock options or the conversion of restricted stock units
that are exercisable currently or within 60 days of February 15, 2002.
(23) The information is based on a Schedule 13D filed with the Securities and
Exchange Commission on
7
February 8, 2002 by Gabelli Funds, LLC, GAMCO Investors, Inc., Gabelli
International Limited, Gabelli Advisors, Inc., Gabelli Group Capital
Partners, Inc., Gabelli Asset Management, Inc., Marc J. Gabelli, and Mario
J. Gabelli reporting their aggregate holdings of shares of Class A Common
Stock. Such holdings represented 32.71% of the Company's 17,780,704 shares
of Class A Common Stock outstanding as reported in the Company's Form 10Q
for the quarter ended September 30, 2001. Messrs. Mario J. Gabelli and
Marc J. Gabelli directly and indirectly control the entities filing the
Schedule 13D which entities are primarily investment advisors to various
institutional and individual clients, including registered investment
companies and pension plans, as broker/dealer and as general partner of
various private investment partnerships. Each of the reporting persons and
other related entities has the sole power to vote or direct the vote and
sole power to dispose or to direct the disposition of the securities
reported for it, either for its own benefit or for the benefit of its
investment clients or its partners, except that (i) GAMCO does not have
the authority to vote 55,000 of the reported shares; (ii) Gabelli Funds
has sole dispositive and voting power with respect to the shares of the
Company held by the Funds so long as the aggregate voting interest of all
joint filers does not exceed 25% of their total voting interest in the
Company and, in that event, the Proxy Voting Committee of each Fund shall
respectively vote that Fund's shares; (iii) at any time, the Proxy Voting
Committee of each Fund may take and exercise in its sole discretion the
entire voting power with respect to the shares held by such Fund under
special circumstances such as regulatory considerations; and (iv) the
power of Mario Gabelli, Marc Gabelli, GAMI and Gabelli partners is
indirect with respect to the Class A Common Stock beneficially owned
directly by other persons referenced above.
(24) The information is based on a Schedule 13G filed with the Securities and
Exchange Commission on February 26, 2002 by Perkins, Wolf, McDonnell &
Company. The reported holdings represented 15.7% of the Class A Common
Stock outstanding as of February 15, 2002. Perkins, Wolf, McDonnell &
Company has stated in the 13G that it is an investment advisor registered
under the Investment Advisors Act of 1940, and that it possesses shared
investment and voting power of the shares.
(25) The information is based on a Schedule 13G filed with the Securities and
Exchange Commission filed by Lazard Freres & Co. LLC on February 7, 2000.
The reported holdings represented 6.9% of the Company's Class A Common
Stock as of February 15, 2002. Lazard Freres has stated in the Schedule
13G that it is an investment adviser registered under the Investment
Advisors Act of 1940, and that it possesses sole investment power of all
of the shares and sole voting power of 1,070,100 of the shares.
(26) The information is based on a Schedule 13G filed with the Securities and
Exchange Commission by the Berger Small Cap Value Fund reporting ownership
of 10.7% of the Company's Class A Common Stock as of December 31, 2001.
The Berger Small Cap Value Fund has stated in the Schedule 13G that it is
a portfolio series established under the Berger Omni Investment Trust, an
open-ended management investment company registered under the Investment
Company Act of 1940, as amended, and that it possesses shared investment
and voting power of the shares. The Berger Small Cap Value Fund has stated
in the Schedule 13G that Perkins, Wolf, McDonnell & Company is the sub
investment advisor delegated with investment and voting authority over the
shares.
(27) Represents 9282 shares of Class A Common Stock issuable upon the exercise
of stock options that are exercisable currently or within 60 days of
February 15, 2002.
(28) Represents 146,411 shares of Class A Common Stock issuable upon the
exercise of stock options or upon the conversion of restricted stock units
that are exercisable currently or within 60 days of February 15, 2002.
(29) Represents 19,901 shares of Class A Common Stock issuable upon the
exercise of stock options or conversion of restricted stock units
exercisable currently or within 60 days of February 15, 2002.
8
COMPENSATION ARRANGEMENTS
Summary Compensation Table
The following table contains information with respect to the compensation
for the twelve month fiscal years ended December 31, 2001 and December 31, 2000,
the six month fiscal period of July 1, 1999 to December 31, 1999 ("1999.5"), and
the twelve month fiscal year ended June 30, 1999 of the Company's Chief
Executive Officer and the four most highly compensated executive officers (the
"named executive officers") serving in such capacity at December 31, 2001.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards
------------------- ----------------------
Restricted Stock Securities Underlying
Name and Fiscal Salary Bonus Units Options
Principal Position Year ($)(1) ($)(1)(3) ($)(2)(4)(5) (#)(2)(6)
- ------------------ ------ ------ --------- ------------ ---------
Timothy P. Horne 2001 705,000 84,388 0(7) 0
Chairman of the Board 2000 705,000 101,520 0(7) 0
Chief Executive Officer 1999.5 352,000 96,857 0(7) 61,890
and President 1999 701,666 0 0(7) 61,890
Jeffrey A. Polofsky 2001 210,000 36,358 163,598(8) 22,130(12)
Executive Vice President 2000 200,000 30,914 46,350(8) 15,000
of Retail Sales 1999.5 93,333 5,976 8,564(8) 15,470
and Marketing 1999 90,000 60,000 0(8) 15,470
Michael O. Fifer 2001 228,333 0 61,525(9) 40,000
President North 2000 215,000 0 113,790(9) 40,000
American Operations 1999.5 103,333 0 75,155(9) 46,415
1999 184,417 0 152,941(9) 23,210
William C. McCartney 2001 210,000 0 78,989(10) 25,000
Chief Financial Officer, 2000 186,292 0 120,180(10) 25,000
Treasurer and Secretary 1999.5 81,333 12,676 56,758(10) 18,565
1999 151,250 3,823 17,055(10) 12,380
Paul A. Lacourciere 2001 184,000 14,031 21,047(11) 20,000
Vice President 2000 177,000 41,957 20,970(11) 20,000
of Manufacturing 1999.5 87,333 12,665 18,896(11) 18,565
1999 174,167 21,655 32,322(11) 15,470
(1) As a result of the Company changing its fiscal year end from June 30 to
December 31st of each year, the salary and bonus amounts for the six-month
fiscal period of July 1, 1999 to December 31, 1999 represent the actual
amounts earned for that period.
(2) Except for those granted in fiscal years 2001 and 2000, the stock option
and Restricted Stock Unit (RSUs) numbers and exercise/purchase prices were
equitably adjusted as a result of the Company's spin-off of CIRCOR
International, Inc. on October 18, 1999 in which all shareholders of the
Company received one share of common stock in CIRCOR for every two shares
of common stock of the Company.
(3) Amounts awarded under the Executive Incentive Bonus Plan, as amended.
Certain of the named executive officers elected to receive Restricted
Stock Units (RSUs) in lieu of all or a portion of a cash bonus.
(4) 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 Class A Common Stock of $14.05, $15.00, $14.25 and $12.441, on the RSU
grant dates of February 5, 2002, February 6, 2001, February 8, 2000 and
August 9, 1999, respectively.
9
(5) Each of the named executive officers made an election under the Management
Plan in December 1998, August 1999, June 2000, and June 2001 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,
1999, six-month fiscal period ended December 31, 1999, and the fiscal
years ended December 31, 2000 and December 31, 2001, respectively. With
respect to fiscal years 2001, 2000, 1999.5, and 1999, RSUs were awarded as
of February 5, 2002, February 6, 2001, February 8, 2000, and August 9,
1999, respectively (the dates annual incentive bonuses were determined) by
dividing the named executive officers election amount by the RSU cost. The
RSU cost was $9.36667, $10.00, $9.5475, and $8.336, per RSU for fiscal
years 2001, 2000, 1999.5, and 1999, respectively, which was 67% of $14.05,
$15.00, $14.25, and $12.441, the closing market prices of the Company's
Class A Common Stock on February 5, 2002, February 6, 2001, February 8,
2000, and August 9, 1999, respectively ("2001 RSU Cost", "2000 RSU Cost",
"1999.5 RSU Cost", and "1999 RSU Cost"). Except for fiscal years 2001 and
2000, closing market prices and RSU Cost were equitably adjusted as
described in Note 2. Each RSU is 100% vested three years after the date of
the grant, and at the end of a deferral period, if one has 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 officers account for each non-vested 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.
(6) Awarded under the 1996 Stock Option Plan (the "1996 Plan").
(7) For fiscal years 2001, 2000, 1999.5 and 1999, Mr. Horne did not elect to
receive RSUs. Mr. Horne elected to not accept any bonus for fiscal year
1999. Mr. Horne held 21,447 RSUs at December 31, 2001 with a net value of
$321,705 as determined in accordance with Note (4) above, except based on
a closing market price of the Company's Class A Common Stock of $15.00 on
December 31, 2001.
(8) For fiscal year 2001, Mr. Polofsky received 11,644 RSUs in lieu of
receiving 75% of his annual incentive bonus of $145,432, or $109,074. The
number of RSUs was determined by dividing $109,074 by the 2001 RSU cost.
For fiscal year 2000, Mr. Polofsky received 3,090 RSUs in lieu of
receiving 50% of his incentive bonus of $61,814, or $30,907. The number of
RSUs was determined by dividing $30,907 by the 2000 RSU cost. For fiscal
year 1999.5, Mr. Polofsky received 601 RSUs in lieu of receiving 50% of
his incentive bonus of $11,493, or $5,746. The number of RSUs was
determined by dividing $5,746 by the 1999.5 RSU Cost. Mr. Polofsky did not
participate in the Management Plan in fiscal year 1999. Mr. Polofsky held
3,691 RSUs at December 31, 2001 with a value of $55,365 as determined in
accordance with Note (4) above, except based on a closing market price of
the Company's Class A Common Stock of $15.00 on December 31, 2001.
(9) For fiscal year 2001, Mr. Fifer received 4,379 RSUs in lieu of receiving
his entire bonus of $41,021. The number of RSUs was determined by dividing
$41,021 by the 2001 RSU Cost. For fiscal year 2000, Mr. Fifer received
7,586 RSUs in lieu of receiving his entire bonus of $75,863. The number of
RSUs was determined by dividing $75,863 by the 2000 RSU cost. For fiscal
year 1999.5, Mr. Fifer received 5,274 RSUs in lieu of receiving his entire
incentive bonus of $50,356. The number of RSUs was determined by dividing
$50,356 by the 1999.5 RSU cost. For fiscal year 1999, Mr. Fifer received
12,293 RSUs in lieu of receiving his entire annual incentive bonus of
$102,471. The number of RSUs was determined by dividing $102,471 by the
1999 RSU cost. Mr. Fifer held 39,481 RSUs at December 31, 2001 with a
value of $592,215 as determined in accordance with Note (4) above, except
based on a closing market price of the Company's Class A Common Stock of
$15.00 on December 31, 2001.
(10) For fiscal year 2001, Mr. McCartney received 5,622 RSUs in lieu of
receiving his entire bonus of $52,668. The number of RSUs was determined
by dividing $52,668 by the 2001 RSU cost. For fiscal year 2000, Mr.
McCartney received 8,012 RSUs in lieu of receiving his entire bonus of
$80,120. The number of RSUs was determined by dividing $80,120 by the 2000
RSU Cost. For fiscal year 1999.5, Mr. McCartney received 3983 RSUs in lieu
of receiving 75% of his incentive bonus of $50,702, or $38,027. The number
of RSUs was determined by dividing $38,027 by the 1999.5 RSU Cost. For
fiscal year 1999, Mr. McCartney received 1,371 RSUs in lieu of receiving
75% of his annual incentive bonus of $15,261, or $11,438. The number of
RSUs was determined by dividing $11,438 by the 1999 RSU cost. Mr.
McCartney held 21,412 RSUs at December 31, 2001 with a value of $321,180
as determined in accordance with Note (4) above, except based on a closing
market price of the Company's Class A Common Stock of $15.00 on December
31, 2001.
10
(11) For fiscal year 2001, Mr. Lacourciere received 1,498 RSUs in lieu of
receiving 50% of his annual incentive bonus of $28,063, or $14,032. The
number of RSUs was determined by dividing $14,032 by the 2001 RSU Cost.
For fiscal year 2000, Mr. Lacourciere received 1,398 RSUs in lieu of
receiving 25% of his annual incentive bonus of $55,942, or $13,985. The
number of RSUs was determined by dividing $13,985 by the 2000 RSU Cost.
For fiscal year 1999.5, Mr. Lacourciere received 1,326 RSUs in lieu of
receiving 50% of his annual incentive bonus of $25,331 or $12,665. The
number of RSUs was determined by dividing $12,665 by the 1999.5 RSU cost.
For fiscal year 1999, Mr. Lacourciere received 2598 RSUs in lieu of
receiving 50% of his annual incentive bonus of $43,309.8, or $21,655. The
number of RSUs was determined by dividing $21,655 by the 1999 RSU cost.
Mr. Lacourciere held 19,329 RSUs at December 31, 2001 with a value of
$289,935 as determined in accordance with Note (4) above, except based on
a closing market price of the Company's Class A Common Stock of $15.00 on
December 31, 2001.
(12) 2,130 of the noted stock options were granted on February 5, 2002 at a
grant price of $14.05, as part of Mr. Polofsky's annual incentive bonus.
Stock Option Grants
The following table shows information concerning options to purchase the
Company's Class A Common Stock granted in fiscal 2001 to the named executive
officers.
Potential Realizable Value
At Assumed Annual Rates
Of Stock Price Appreciation
Individual Grant For Option Term (5)
--------------------------------------------------------- ---------------------------
% of Total
Options
Granted to Market
Options Employees Exercise or Price
Granted in Fiscal Base price On Date Expiration
(#)(1)(2) Year ($/sh) Of Grant Date 5% ($) 10% ($)
--------- ---- ------ -------- ---- ------ -------
Name
Timothy P. Horne 0(3) 0 N/A N/A N/A N/A N/A
Jeffrey A. Polofsky 20,000(4) 9.52 15.450(5) 15.450 8-20-2011 194,328 492,466
Michael O. Fifer 40,000(4) 19.05 15.450(5) 15.450 8-20-2011 388,657 984,933
William C. McCartney 25,000(4) 11.9 15.450(5) 15.450 8-20-2011 242,911 615,583
Paul A. Lacourciere 20,000(4) 9.52 15.450(5) 15.450 8-20-2011 194,328 492,466
(1) All options were granted as of August 20, 2001 under the 1996 Plan.
(2) All options vest over five years at the rate of 20% per year on successive
anniversaries of the date of grant 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 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) Mr. Horne did not receive stock options in fiscal year 2001.
(4) 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.
(5) 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 Securities
and Exchange Commission and therefore are not intended to forecast
possible future appreciation, if any, of the Company's stock price.
11
Aggregated Option Exercises and Option Values
The following table shows information concerning the exercise of stock
options during fiscal year 2001 by each of the named executive officers and the
fiscal year-end value of unexercised options.
Number of
Shares Unexercised Value of
Acquired Options at Unexercised
On Value Fiscal Year In-the-Money Options
Exercise Realized End At Fiscal Year End
(#) (1) (#)(2) (3)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------
Timothy P. Horne 50,894 $178,106 416,209 74,268 $941,412 $171,373
Jeffrey A. Polofsky 0 0 18,470 47,470 $ 55,336 $ 86,337
Michael O. Fifer 0 0 103,927 113,001 $201,473 $215,786
William C. McCartney 15,470 $ 35,430 113,147 64,340 $191,815 $116,277
Paul A. Lacourciere 0 0 129,323 57,969 $201,160 $105,589
- --------------
(1) Based on 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 grant date and generally terminate upon the earlier
of the termination of employment, subject to certain exceptions, or ten
years from the date of grant.
(3) Based on the difference between the market price on the last day of the
fiscal year and the exercise price of the options before income taxes.
Compensation Committee Interlocks and Insider Participation
The members of the Company's compensation committee are Messrs. Murphy and
Moran, neither of whom is an executive officer of the Company.
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 terminations after the 2001 plan
year, annual compensation in excess of $200,000 per year is disregarded under
the Pension Plan for all purposes. However, benefits accrued prior to the 1989
plan year may be based on compensation in excess of $200,000. Compensation
recognized under the Pension Plan includes base salary and annual bonus.
12
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. For the 2002 Plan
Year, Annual Compensation in excess of $369,325 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 $295,460 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 2002) 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.
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
- ------------------------------- ------- -------- -------- --------
$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
(1) The annual Pension Plan benefit is computed on the basis of a straight
life annuity.
13
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 2002) 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.
Estimated Total Annual Retirement Benefit
(Pension Plan plus Supplemental Plan, Tier two)
Based on Years of Service(1)
Final Average Compensation for
Five Highest Consecutive Years 25 Years
in Last 10 Years: 10 Years 15 Years 20 Years or more
------------------------------------------------
$100,000 $ 18,000 $ 27,000 $ 36,000 $ 45,000
150,000 27,000 40,500 54,000 67,500
200,000 36,000 54,000 72,000 90,000
250,000 45,000 67,500 90,000 112,500
300,000 54,000 81,000 108,000 135,000
350,000 and higher 63,000 94,500 126,000 157,500
- ------------
(1) The annual Pension Plan benefit is computed on the basis of a straight
life annuity.
Messrs. Timothy P. Horne, Fifer, McCartney, Lacourciere and Polofsky have
43, 8, 17, 16 and 4 years, respectively, of benefit service under the Pension
Plan. Messrs. Fifer and McCartney are eligible for Tier one benefits, and
Messrs. Horne and Lacourciere are eligible for Tier two benefits. Mr. Polofsky
is eligible for Tier three benefits. Eligible employees are currently limited to
a maximum annual benefit under the Pension Plan of $160,000 (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.
The Company and Timothy P. Horne are parties to a Supplemental
Compensation Agreement pursuant to which Mr. 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. On July 25, 2000 the
Company and Mr. Horne amended the Supplemental Compensation Agreement to allow
Mr. Horne in the event of a change in control of the Company to elect to receive
a lump sum payment instead of the monthly payments describe above. The lump sum
payment would equal the present value of a series of the monthly payments equal
to $23,650. The final size of the payment will be determined with reference to
discount rates and mortality tables applicable under the Company's Retirement
Plan for Salaried Employees and an adjustment for inflation. If Mr. Horne elects
to receive the lump sum payment his obligation to provide consulting services to
the Company terminates.
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.
14
Stock Option and Compensation Committee Report
The Stock Option and Compensation Committee is currently composed of
Messrs. Murphy and Moran. 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.
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 Company's executive compensation program consists of three key
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 the 1996 Stock Option Plan (the "1996 Plan"). These programs, as
well as the basis for the Chief Executive Officer's compensation for fiscal
2001, 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 and the Chief Financial Officer in consultation with the
Committee. Each selected participant is generally assigned three goals,
consisting of sales growth, an economic value added percentage or cash flow
objectives, and earnings objectives. 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 33 1/3% 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.
15
With respect to the Bonus Plan for fiscal 2001, the Company sales were
impacted by the continued weakness in both the North American and European
economies. This weakness adversely effected the Company's sales to plumbing and
heating wholesalers. The decreased sales to wholesalers were offset by the
inclusion of the sales of acquired companies during fiscal 2001. As a result of
decreased sales to wholesalers, the Company's profit objective was essentially
not achieved. The Company's continued focus on asset management contributed to
an increased attainment on the economic value added objectives. The CEO and most
of the named executive officers achieved between 28% and 40% of the 2001
targeted objectives.
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 June 30 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 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 and the number
of individuals receiving options 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, which was 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 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, which may either be
incentive or nonqualified options, 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. Under the 1996 Plan, nonqualified stock
options 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 the 1996 Plan is generally 10 years, with the exception of incentive stock
option grants to owners of more than 10% of the combined voting power of the
Company, in which case such grants terminate after 5 years. Options are normally
granted in 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 CEO received a base salary of $705,000 for fiscal year 2001. The CEO
declined an annual adjustment in his base salary for fiscal 1999.5. The base
salary received by the CEO in fiscal 1999.5 was $352,500, which on an annualized
basis is a base salary of $705,000, an increase of .48% from $701,666 in the
1999 fiscal year. The nominal increase in base salary is attributed to the CEO's
last annual adjustment to base salary which took place in fiscal 1999. 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
("CPI"), with such other additional increase, if any, as the Committee deems
appropriate in its discretion. The "CPI" increased by approximately 1.6% from
June 1998 to June 1999, the twelve month period immediately prior to the
Committee's last adjustment in the CEO's base salary for fiscal 1999. The bonus
received by the CEO in fiscal 2001 was $84,388. The CEO did not make an election
to receive RSU's in lieu of any portion of his annual bonus for fiscal 2001. In
fiscal year 2001, the CEO opted not to receive options. The CEO's bonus and
stock option grants are determined
16
by the Committee using the same criteria described above for all executives. In
fiscal 1999.5,the CEO received options under the 1996 Plan to purchase 61,890
shares with an exercise price of $12.441, which represents 100% of the fair
market value of the Class A Common Stock on the grant date. This compares to
61,890 options received in fiscal 1999. The CEO holds a significant equity
interest in the Company.
Company Policy on Qualifying Compensation
Internal Revenue Code Section 162(m), provides that publicly held
companies may not deduct in any taxable year compensation in excess of one
million dollars paid to any of the named executive officers 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)
Gordon W. Moran
17
Audit Committee Report
During fiscal year 2001, the Audit Committee of the Board of Directors of
the Company was composed of four non-employee Directors. The Board has made a
determination that the members of the Audit Committee satisfy the requirements
of the New York Stock Exchange as to independence, financial literacy and
experience. All members of the audit committee, except Mr. McAvoy, meet the
independence definition in Section 303.01 (B) (3) of the listing requirements of
the New York Stock Exchange. Mr. McAvoy does not meet the independence
definition because he was employed by the Company until December 31, 1999 when
he retired from his position as Chief Financial Officer and Treasurer. Based on
Mr. McAvoy's unique combination of extensive financial management, audit and
accounting experience and his knowledge of the Company and it's industry, the
Board of Directors determined that Mr. McAvoy's membership on the Audit
Committee is required by the best interests of the Company and its stockholders.
The responsibilities of the Audit Committee are set forth in the charter
of the Audit Committee, which was adopted by the Board of Directors of the
Company on April 26, 2000. The Audit Committee, among other matters, is
responsible for the annual recommendation of the independent accountants to be
appointed by the Board of Directors as the auditors of the Company and its
subsidiaries, and reviews the arrangements for and the results of the auditors'
examination of the Company's books and records, auditors' compensation, internal
accounting control procedures, and activities and recommendations of the
Company's internal auditors. It also reviews the Company's accounting policies,
control systems and compliance activities. Finally, the Audit Committee reviews
the charter of the Audit Committee.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2001 with the
management of the Company.
The Audit Committee has discussed with KPMG LLP the matters required to be
discussed by SAS No. 61 (Codification of Statements on Auditing Standards, AU
Section 380). The Audit Committee has received the written disclosures on fees
and staffing from KPMG LLP required by Independence Standards Board Standard No.
1 (Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committee) and has discussed with KPMG LLP their independence.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's fiscal 2001 Annual Report on Form 10-K
for filing with the Securities and Exchange Commission.
In accordance with the rules of the Securities and Exchange Commission,
the foregoing information, which is required by paragraphs (a) and (b) of
Regulation S-K Item 306, shall not be deemed to be "soliciting material", or to
be "filed" with the Commission or subject to the Commission's regulation 14A,
other than as provided in the item, or to the liabilities of section 18 of the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically requests that the information be treated as soliciting
material or specifically incorporates it by reference into a document filed
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.
Audit Committee
--------------------------
Gordon W. Moran (Chairman)
Daniel J. Murphy, III
Roger A. Young
Kenneth J. McAvoy
18
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, the Russell 2000 Index, and one peer group of companies
engaged in the valve and pump industries, for a period of five and one-half
fiscal years commencing June 30, 1996 and ended December 31, 2001. The peer
group is a selected performance indicator of peer companies consisting of
Flowserve Corporation, U.S. Industries, Inc. and IDEX Corporation. The Company
is including an additional broad equity market index, the Russell 2000, which
consists of companies with market capitalizations of less than $1 Billion. 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, 1996 and that all dividends were
reinvested.
COMPARISON OF 66 MONTH CUMULATIVE TOTAL RETURN*
Among Watts Industries, Inc., The S&P 500 Index,
the Russell 2000 Index and a Peer Group
[PERFORMANCE GRAPH]
*$100 invested on 6/30/96 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
Cumulative Total Return
6/96 6/97 6/98 6/99 12/99 12/00 12/01
-------------------------------------------------------------------------
Watts Industries, Inc 100.00 130.56 115.02 108.02 116.58 112.17 123.25
S & P 500 100.00 134.70 175.33 215.22 230.83 196.59 185.66
Russell 2000 100.00 116.33 135.53 137.56 157.27 158.30 151.70
Peer Group 100.00 138.04 140.02 109.35 96.04 87.08 81.28
19
Certain Relationships and Related 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 persons who own more than 10% of
the Class A Common Stock to file with the Securities and Exchange Commission and
the New York Stock Exchange initial reports of 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 and
written representations furnished to it, the Company believes that during the
fiscal year ended December 31, 2001, all reports required by Section 16(a) to be
filed by the aforementioned persons were filed on a timely basis, except: Mr.
Daniel J. Murphy III, a Director of the Company, inadvertantly failed to report
on Form 5 small acquisitions of shares acquired during fiscal year 2000 upon Mr.
Murphy's reinvestment of cash dividends. The small acquisitions were reported on
an amended Form 4.
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 LLP as the Company's independent auditors for fiscal 2002.
The Company expects that a representative of KPMG 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.
During fiscal year 2001, KPMG LLP provided various audit, audit related
and non-audit services to the Company as follows:
a) Audit Fees: Aggregate fees billed for professional services rendered
for the audit of the Company's December 31, 2001 annual financial
statement and review of financial statements in the Company's Quarterly
Reports on Form 10-Q: $473,400.
b) Financial information systems design and implementation fees: NONE.
c) All Other Fees: Aggregate fees billed for all other professional
services rendered during the year ended December 31, 2001: $695,000.
All other fees include fees for audit-related services totalling $160,000
and non-audit services of $535,000. Audit related services consist of audits of
financial statements of certain enployee benefit plans, due diligence services
in connection with business acquisitions, and additional statutory audit
services. Non audit-related services primarily consist of tax compliance
services.
The Audit Committee has considered whether, and determined that, the
provision of the services described in sections (b) and (c) above is compatible
with maintaining the independence of KPMG LLP.
Holders of voting rights sufficient to ratify the selection of KPMG LLP as
independent auditors have indicated an intention to vote in favor of this
proposal.
The Board of Directors recommends that stockholders vote FOR the
ratification of the selection of KPMG LLP as the Company's independent auditors
for Fiscal 2002.
20
STOCKHOLDER PROPOSALS
In order for any stockholder proposal to be included in the proxy
statement for the Company's 2003 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 November 15, 2002 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 2003 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 2002 Annual Meeting which dates will
be February 7, 2003 and December 24, 2002, 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
2003 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 2002 Annual Meeting, the Company
will publicly disclose such change, and nominations or other proposals to be
considered at the 2003 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 2003 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.
21
[WATTS LOGO]
WATTS INDUSTRIES, INC.
815 Chestnut Street, North Andover, Massachusetts 01845-6098
Visit our website at: www.wattsind.com
Printed in U.S.A. 0764-PS-02
DETACH HERE ZWAT92
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 William C. McCartney, 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, April 23, 2002 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 Annual Report to Stockholders.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
INTERNET ACCESS IS HERE!
Watts Industries, Inc. is pleased to announce that registered shareholders now
have an innovative and secure means of accessing and managing their registered
accounts on-line. This easy-to-use service is only a click away at:
http://www.equiserve.com
In order to access your account and request your temporary password (or PIN),
you will need your Social Security number, and Issue ID (076410). Please click
on the "Account Access" tab and follow the instructions and a temporary password
will be mailed to your address of record.
DETACH HERE ZWAT91
|X| Please mark
votes as in
this example.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no instruction is indicated with respect to
items 1 and 2 below, the undersigned's votes will be cast in favor of items 1
and 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
1. To elect five Directors to hold office until the next Annual Meeting of
Stockholders and until their successors are duly elected and qualified.
Nominees: (01) Timothy P. Horne, (02) Kenneth J. McAvoy,
(03) Gordon W. Moran, (04) Daniel J. Murphy, III and (05) Roger A. Young
FOR WITHHELD
ALL |_| |_| FROM ALL
NOMINEES NOMINEES
|_| __________________________________________
For all nominees except as noted above
2. To ratify the selection of KPMG LLP as the independent auditors of the
Company for the current fiscal year.
FOR AGAINST ABSTAIN
|_| |_| |_|
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT |_|
Sign exactly as your 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: ______