SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
WATSCO, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
WATSCO, INC.
-------------------------------------------
(Name of Persons(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on the 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 transactions apply:
(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:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
WATSCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 3, 1996
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To the Shareholders of Watsco, Inc.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders (the
"Annual Meeting") of Watsco, Inc., a Florida corporation (the "Company"),
will be held at 10:00 A.M., Eastern Standard Time, on Monday, June 3, 1996,
at the Grand Bay Hotel, 2669 South Bayshore Drive, Coconut Grove, Florida
33133, for the following purposes:
(1) To elect three members to the Company's Board of Directors to hold
office until the 1999 Annual Meeting of Shareholders or until their
successors are duly elected and qualified, one of whom will be elected by
the holders of Common Stock and two of whom will be elected by the holders
of Class B Common Stock;
(2) To consider and act upon a proposal to ratify the action of the Board
of Directors amending the Company's 1991 Stock Option Plan to increase the
aggregate number of shares of Common Stock and Class B Common Stock
available for grant under the plan by 500,000 shares;
(3) To consider and act upon a proposal to approve the Incentive Plan for
the President and Chief Executive Officer of the Company;
(4) To ratify the reappointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the year ended December 31,
1996; and
(5) To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponements thereof.
The Board of Directors has fixed the close of business on April 5, 1996 as
the record date for determining those shareholders entitled to notice of, and
to vote at, the Annual Meeting and any adjournments or postponements thereof.
Whether or not you expect to be present, please sign, date and return the
enclosed proxy card in the enclosed pre-addressed envelope as promptly as
possible. No postage is required if mailed in the United States.
By Order of the Board of Directors
RONALD P. NEWMAN, Secretary
Coconut Grove, Florida
April 15, 1996
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND
THE MEETING IN PERSON. THOSE SHAREHOLDERS WHO ARE UNABLE TO ATTEND ARE
RESPECTFULLY URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY
AS POSSIBLE. SHAREHOLDERS WHO EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND
THE MEETING, REVOKE THEIR PROXY, AND VOTE THEIR SHARES IN PERSON.
1996 ANNUAL MEETING OF SHAREHOLDERS
OF
WATSCO, INC.
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PROXY STATEMENT
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DATE, TIME AND PLACE OF ANNUAL MEETING
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Watsco, Inc., a Florida corporation (the
"Company"), of proxies from the holders of the Company's Common Stock, par
value $.50 per share (the "Common Stock"), and the Company's Class B Common
Stock, par value $.50 per share (the "Class B Common Stock"), for use at the
1996 Annual Meeting of Shareholders (the "Annual Meeting") of the Company to
be held at 10:00 A.M., Eastern Standard Time, on Monday, June 3, 1996, at the
Grand Bay Hotel, 2669 South Bayshore Drive, Coconut Grove, Florida 33133, and
at any adjournments or postponements thereof, pursuant to the enclosed Notice
of Annual Meeting. This Proxy Statement and the enclosed form of proxy are
first being sent to holders of Common Stock and Class B Common Stock on or
about April 15, 1996. Shareholders should review the information provided
herein in conjunction with the Company's 1995 Annual Report to Shareholders
(the "1995 Annual Report") which accompanies this Proxy Statement. The
complete mailing address, including zip code, of the Company's principal
executive office is 2665 South Bayshore Drive, Suite 901, Coconut Grove,
Florida 33133.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in
person should any shareholder giving the proxy so desire. Shareholders have
an unconditional right to revoke their proxy at any time prior to the
exercise thereof, either in person at the Annual Meeting or by filing with
the Company's Secretary at the Company's headquarters a written revocation or
duly executed proxy bearing a later date; however, no such revocation will be
effective until written notice of the revocation is received by the Company
at or prior to the Annual Meeting.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders and the enclosed proxy is to be
borne by the Company. In addition to the use of mail, employees of the
Company may solicit proxies personally and by telephone and telegraph. They
will receive no compensation therefor in addition to their regular salaries.
The Company may request banks, brokers and other custodians, nominees and
fiduciaries to forward copies of the proxy material to their principals and
to request authority for the execution of proxies. The Company may reimburse
such persons for their expenses in so doing.
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's shareholders will consider and vote
upon the following matters:
(1) To elect three members to the Company's Board of Directors to hold
office until the 1999 Annual Meeting of Shareholders or until their
successors are duly elected and qualified, one of whom will be elected by the
holders of Common Stock and two of whom will be elected by the holders of
Class B Common Stock;
(2) To consider and act upon a proposal to ratify the action of the Board
of Directors amending the Company's 1991 Stock Option Plan to increase the
aggregate number of shares of Common Stock and Class B Common Stock available
for grant under the plan by 500,000 shares;
(3) To consider and act upon a proposal to approve the Incentive Plan for
the President and Chief Executive Officer of the Company;
(4) To ratify the reappointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the year ended December 31,
1996; and
(5) To transact such other business as may properly come before the Annual
Meeting and any adjournments or postponements thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation
(and which have not been revoked in accordance with the procedures set forth
above) will be voted (a) for the election of the respective nominees for
director named below to be elected by the holders of Common Stock and by the
holders of Class B Common Stock (see "Outstanding Voting Securities and
Voting Rights"), and (b) in favor of all other proposals described in the
Notice of Annual Meeting or as may properly come before the Annual Meeting.
In the event a shareholder specifies a different choice by means of the
enclosed proxy, such shares will be voted in accordance with the
specification so made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on April 5, 1996, as
the record date (the "Record Date") for determining shareholders of the
Company entitled to notice of and to vote at the Annual Meeting. As of the
Record Date, there were 7,549,231 shares of Common Stock and 1,440,878 shares
of Class B Common Stock issued and outstanding, all of which are entitled to
be voted at the Annual Meeting. Holders of Common Stock are entitled to one
vote per share on each matter that is submitted to shareholders for approval
and vote as a separate class to elect 25 percent of the directors of the
Company (rounded up to the next whole number), which presently equates to
three directors. Holders of Class B Common Stock are entitled to ten votes
per share on each matter that is submitted to shareholders for approval and
vote as a separate class to elect 75 percent of the directors (rounded down
to the next whole number), which presently equates to six directors. See
"Election of Directors."
2
The attendance, in person or by proxy, of the holders of Common Stock and
Class B Common Stock representing a majority of the combined voting power of
the outstanding shares of such stock entitled to vote at the Annual Meeting
is necessary to constitute a quorum. For purposes of electing directors at
the Annual Meeting, the nominees receiving the greatest number of votes of
Common Stock and Class B Common Stock, voting as separate classes, shall be
elected as directors.
The affirmative vote of a majority of votes of Common Stock and Class B
Common Stock present, in person or by proxy at the Annual Meeting and voting
together as a single class, is required for the approval of (i) the proposal
to amend the 1991 Stock Option Plan (the "1991 Plan"); (ii) the Incentive
Plan for Albert H. Nahmad; (iii) the proposal to ratify the reappointment of
Arthur Andersen LLP as the Company's independent certified public accountants
for the year ended December 31, 1996; and (iv) any other matter that may be
submitted to a vote of the Company's shareholders.
As of the Record Date, the directors and executive officers of the Company
and certain entities affiliated with such persons beneficially owned (i)
Common Stock representing 5.4% of the outstanding shares of Common Stock,
(ii) Class B Common Stock representing 55.1% of the outstanding shares of
Class B Common Stock and (iii) 38.1% of the aggregated combined votes of
Common Stock and Class B Common Stock entitled to be cast at the Annual
Meeting. Such persons and entities have informed the Company that they intend
to vote all of their shares of Common Stock and Class B Common Stock in favor
of all proposals set forth in the Proxy Statement.
Prior to the Annual Meeting, the Company will select one or more
inspectors of election for the meeting. Such inspector(s) shall determine the
number of shares of Common Stock and Class B Common Stock represented at the
meeting, the existence of a quorum and the validity and effect of proxies,
and shall receive, count and tabulate ballots and votes and determine the
results thereof. Abstentions will be considered as shares present and
entitled to vote at the Annual Meeting and will be counted as votes cast at
the Annual Meeting, but will not be counted as votes cast for or against any
given matter. If less than a majority of the combined voting power of the
outstanding shares of Common Stock and Class B Common Stock are represented
at the Annual Meeting, a majority of the shares so represented may adjourn
the Annual Meeting from time to time without further notice.
A broker or nominee holding shares registered in its name, or in the name
of its nominee, which are beneficially owned by another person and for which
it has not received instructions as to voting from the beneficial owner, may
have discretion to vote the beneficial owner's shares with respect to the
election of directors and other matters addressed at the Annual Meeting. Any
such shares which are not represented at the Annual Meeting either in person
or by proxy will not be considered to have cast votes on any matters
addressed at the Annual Meeting.
3
BENEFICIAL SECURITY OWNERSHIP
The following table sets forth as of the Record Date, information with
respect to the beneficial ownership of the Company's Common Stock and Class B
Common Stock by (i) each shareholder known by the Company to beneficially own
more than 5% of any class of the Company's voting securities, (ii) each
director of the Company who owns any such shares, (iii) each executive
officer named in the Summary Compensation Table in "Executive Compensation",
and (iv) all directors and executive officers as a group. The table also sets
forth, in its final column, the combined voting power of the voting
securities on all matters presented to the shareholders for their approval
except for the election of directors and for such separate class votes as are
required by Florida law.
CLASS B
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY COMBINED
OWNED(2) OWNED(2) PERCENT
NAME AND ADDRESS ---------------------- ------------------------ OF VOTING
OF BENEFICIAL OWNERS(1) SHARES PERCENT SHARES PERCENT SECURITIES(2)
- --------------------------------------- ---------- ---------- ------------ ---------- --------------
Alna Capital Associates(3) ............ 106,790 1.4% 677,345 41.8% 29.0%
Albert H. Nahmad(4) ................... 313,965 4.1 1,216,893 61.9 45.5
Rheem Manufacturing Company (5) ...... 964,361 12.8 -- -- 4.4
T. Rowe Price and Associates, Inc.(6) 598,000 7.9 -- -- 2.7
FMR Corp.(7) .......................... 430,130 5.7 108,780 7.5 6.9
Putnam Investments, Inc. (8) .......... 378,750 5.0 -- -- 1.7
Dimensional Fund Advisers, Inc.(9) ... -- -- 75,171 5.2 3.4
D. A. Coape-Arnold(10) ................ 27,988 * 8,269 * *
David B. Fleeman(11) .................. 132,367 1.7 25,279 1.7 1.7
James S. Grien(12) .................... 4,500 * 2,250 * *
Roberto Motta(13) ..................... 96,607 1.3 62,081 4.2 3.2
Paul F. Manley(14) .................... 15,833 * 558 * *
Bob L. Moss(15) ....................... 26,453 * -- -- *
Alan H. Potamkin(16) .................. 18,600 * 21,450 1.5 1.1
Gary L. Tapella (17) .................. 3,000 * -- -- 4.4
Ronald P. Newman(18) .................. 40,415 * 45,213 3.0 2.2
All directors and executive officers
as a group (10 persons)(19) ......... 679,728 8.7% 1,381,993 67.7% 51.3%
* Less than 1%.
(1) Unless otherwise indicated below, (a) the address of each of the
beneficial owners identified is 2665 South Bayshore Drive, Suite 901,
Coconut Grove, Florida 33133 and (b) each person or group has sole
voting and investment power with respect to all such shares.
(2) Although each named person and all directors and executive officers as a
group are deemed to be the beneficial owners of securities that may be
acquired within 60 days through the exercise of exchange or conversion
rights, and the Class B Common Stock is immediately convertible into
Common Stock on a one-for-one basis, the number of shares set forth
opposite each shareholder's name does not include shares of Common Stock
issuable upon conversion of the Company's Class B Common Stock. Includes
Class B Common Stock issuable on conversion of the Company's 10%
Convertible Subordinated Debentures due 1996 (the "Debentures"). The
Debentures have a face value of $500 and are each convertible into 74.18
shares of Class B Common Stock.
4
(3) Alna Capital Associates ("Alna Capital") is a New York limited
partnership of which Mr. Nahmad owns a 43% interest and is the sole
general partner and David B. Fleeman is a limited partner. The number of
shares of Class B Common Stock indicated includes (i) 512,211 shares
directly owned and (ii) 165,134 shares issuable upon conversion of the
Debentures. The address of Alna Capital is 505 Park Avenue, 16th Floor,
New York, New York 10022.
(4) Includes shares indicated as beneficially owned by Alna Capital. See
footnote (3) above. The number of shares of Common Stock indicated also
includes (i) 8,401 shares directly owned; (ii) 8,599 shares owned
pursuant to the Watsco, Inc. Amended and Restated Profit Sharing
Retirement Plan and Trust (the "Profit Sharing Plan"); (iii) 3,300
shares owned by Mr. Nahmad's children; and (iv) 186,875 shares issuable
upon exercise of presently exercisable options granted pursuant to the
1991 Plan. The number of shares of Class B Common Stock indicated also
includes (i) 192,955 shares directly owned; (ii) 324,708 shares issuable
upon exercise of presently exercisable options granted pursuant to the
1991 Plan; and (iii) 21,885 shares issuable upon conversion of the
Debentures.
(5) The address of Rheem Manufacturing Company is 405 Lexington Avenue, 22nd
Floor, New York, New York 10174.
(6) The address of T. Rowe Price and Associates, Inc. is 100 E. Pratt
Street, Baltimore, Maryland 21202.
(7) The address of FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109.
(8) The address of Putnam Investments, Inc. is One Post Office Square,
Boston, Massachusetts 02109.
(9) The address of Dimensional Fund Advisers, Inc. is 1299 Ocean Avenue,
Santa Monica, California 90401.
(10) The number of shares of Common Stock indicated includes (i) 26,488
shares directly owned and (ii) 1,500 shares issuable upon exercise of
presently exercisable options granted pursuant to the 1991 Plan.
(11) Excludes shares beneficially owned by Alna Capital. See footnote (3)
above. The number of shares of Common Stock indicated includes (i)
12,195 shares directly owned; (ii) 90,468 shares owned by Fleeman
Builders, a Florida partnership of which Mr. Fleeman is a General
Partner; (iii) 19,689 shares issuable upon exercise of presently
exercisable options granted pursuant to the 1991 Plan; and (iv) 10,015
shares owned by 3JG Trust of which Mr. Fleeman is a trustee. The number
of shares of Class B Common Stock indicated includes (i) 5,907 shares
directly owned and (ii) 19,372 shares owned by Fleeman Builders.
(12) Includes (i) 2,250 shares directly owned and (ii) 2,250 shares issuable
upon exercise of presently exercisable options granted pursuant to the
1991 Plan.
(13) The number of shares of Common Stock indicated is owned by Republic
Trading, Inc. ("Republic Trading") of which Mr. Motta is a principal.
The number of shares of Class B Common Stock indicated includes (i)
6,747 shares directly owned; (ii) 24,554 shares issuable upon conversion
of the Debentures owned by Republic Trading; and (iii) 30,780 shares
owned by Republic Trading.
(14) The number of shares of Common Stock indicated includes (i) 555 shares
directly owned and (ii) 15,278 shares issuable upon exercise of
presently exercisable options granted pursuant to the 1991 Plan.
5
(15) The number of shares of Common Stock indicated includes (i) 11,229
shares directly owned; (ii) 3,411 shares owned by Mr. Moss's spouse; and
(iii) 11,813 shares issuable upon exercise of presently exercisable
options granted pursuant to the 1991 Plan.
(16) The number of shares of Common Stock indicated includes (i) 1,300 shares
directly owned; (ii) 12,800 shares owned by a trust of which Mr.
Potamkin is a trustee; and (iii) 4,500 shares issuable upon exercise of
presently exercisable options granted pursuant to the 1991 Plan.
(17) The number of shares of Common Stock indicated excludes 964,361 shares
owned by Rheem Manufacturing Company, of which Mr. Tapella is the
President and Chief Executive Officer.
(18) The number of shares of Common Stock indicated includes (i) 3,513 shares
directly owned; (ii) 1,702 shares owned by Mr. Newman's spouse; (iii)
4,420 shares owned pursuant to the Profit Sharing Plan; and (iv) 30,780
shares issuable upon exercise of presently exercisable options granted
pursuant to the 1991 Plan. The number of shares of Class B Common Stock
indicated includes (i) 3,200 shares directly owned and (ii) 42,013
shares issuable upon exercise of presently exercisable options granted
pursuant to the 1991 Plan.
(19) Includes shares beneficially owned by directors and executive officers,
as described in footnotes (3), (4), (10), (11), (12), (13), (14), (15),
(16), (17) and (18).
I.
ELECTION OF DIRECTORS
NOMINEES
The Company's Amended and Restated Articles of Incorporation and Bylaws
provide that the Board of Directors shall consist of not less than three nor
more than nine members, and shall be divided, as nearly as possible, into
three equal divisions to serve in staggered terms of office of three years.
Each director elected at the Annual Meeting will serve for a term expiring at
the 1999 Annual Meeting of Shareholders or until his successor has been duly
elected and qualified.
One director is to be elected at the Annual Meeting by the holders of
Common Stock voting separately as a class. Mr. Paul F. Manley has been
nominated as the director to be elected by the holders of Common Stock and
proxies will be voted for Mr. Manley absent contrary instructions. Mr. Manley
has served as a Director of the Company since 1984.
Two directors are to be elected at the Annual Meeting by the holders of
Class B Common Stock voting separately as a class. Messrs. Nahmad and
Coape-Arnold, who have served as directors of the Company since 1973 and
1981, respectively, have been nominated as the directors to be elected by the
holders of Class B Common Stock and proxies will be voted for Messrs. Nahmad
and Coape-Arnold absent contrary instructions.
The Board of Directors has no reason to believe that any nominee will
refuse to act or be unable to accept election; however, in the event that a
nominee for a directorship is unable to accept election or if any other
unforeseen contingencies should arise, it is intended that proxies will be
voted for the remaining nominees, if any, and for such other person as may be
designated by the Board of Directors, unless it is directed by a proxy to do
otherwise.
6
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY
- ------------------ ------ ------------------------------------------------
Albert H. Nahmad 55 Chairman of the Board and President
Ronald P. Newman 49 Chief Financial Officer, Secretary and
Treasurer
D.A. Coape-Arnold 78 Director
David B. Fleeman 82 Director
James S. Grien 38 Director
Paul F. Manley 59 Director
Bob L. Moss 48 Director
Roberto Motta 82 Director
Alan H. Potamkin 47 Director
Gary L. Tapella 52 Director
ALBERT H. NAHMAD has served as Chairman of the Board and President of the
Company since December 1973. Mr. Nahmad is the general partner of Alna
Capital Associates, a New York limited partnership, which is the principal
shareholder of the Company. Mr. Nahmad also serves as a member of the Board
of Directors of the Panama Canal Commission, a United States federal agency.
Additionally, Mr. Nahmad is a Director of American Bankers Insurance Group,
Inc. and Pediatrix Medical Group, Inc., both of which are publicly held
companies.
RONALD P. NEWMAN has served as Chief Financial Officer, Secretary and
Treasurer of the Company since October 1982. Prior to joining the Company,
Mr. Newman, a certified public accountant, was associated with the accounting
firm of Arthur Young & Company from 1977 to 1982.
D. A. COAPE-ARNOLD has been a director of the Company since 1981. From
1982 to present, Mr. Coape-Arnold has served as a consultant for a variety of
businesses. From 1978 until 1982, he served as Vice President of The Wickes
Corporation, a diversified New York Stock Exchange company. From 1961 to
1978, he served as Vice President and Group Executive of W. R. Grace & Co., a
diversified New York Stock Exchange holding company.
DAVID B. FLEEMAN has been a director of the Company since 1977. Since
1956, Mr. Fleeman has served as the Managing Partner of Fleeman Builders, a
Florida general partnership engaged primarily in real estate development.
JAMES S. GRIEN has been a director of the Company since 1994. Mr. Grien is
a Managing Director of Prudential Securities, Inc. and has been employed by
Prudential Securities, Inc. in various positions since l989.
PAUL F. MANLEY has been a director of the Company since 1984. Mr. Manley
served as Executive Director of the law firm of Holland & Knight from 1987 to
1991. From 1982 to 1987, Mr. Manley served
7
as Vice President of Planning at Sensormatic Electronics Corporation, a
publicly held manufacturer of electronic article surveillance systems. Prior
to 1982, Mr. Manley served as the Managing Partner of the Miami office of
Arthur Young & Company.
BOB L. MOSS has been a director of the Company since 1992. Since 1986, Mr.
Moss has served as Chairman of the Board and President of Centex-Rooney
Enterprises, Inc., the largest general contractor in the real estate industry
in the Southeastern United States, Caribbean and Bahamas.
ROBERTO MOTTA has been a director of the Company since 1975. Mr. Motta has
been engaged as a private investor in various business activities for more
than five years.
ALAN H. POTAMKIN has been a director of the Company since 1994. Since
1970, Mr. Potamkin has served as President of Potamkin Companies, one of the
nation's largest retail automobile dealers. In addition, Mr. Potamkin is an
owner of various media properties and an owner of Office Depot, Inc.
franchises in eastern Europe.
GARY L. TAPELLA has been a director of the Company since April 1996. Since
1991, Mr. Tapella has served as President of Rheem Manufacturing Company, one
of the nation's largest manufacturers of air conditioning, heating and water
heating equipment.
The Company's Amended and Restated Articles of Incorporation provide for
the Board of Directors to have up to nine members, to be divided as nearly as
possible in three equal divisions to serve in staggered terms of three years.
Each division consists of one director to be elected by the holders of Common
Stock and two directors to be elected by the holders of Class B Common Stock.
The number of members comprising the Board of Directors presently is nine,
three of whom are Common Stock directors and six of whom are Class B Common
Stock directors. Messrs. Manley (Common Stock), Nahmad (Class B) and
Coape-Arnold (Class B) serve until the 1996 Annual Meeting of Shareholders;
Messrs. Potamkin (Common Stock), Motta (Class B) and Tapella (Class B) serve
until the 1997 Annual Meeting of Shareholders; and Messrs. Grien (Common
Stock), Fleeman (Class B) and Moss (Class B) serve until the 1998 Annual
Meeting of Shareholders. See "Election of Directors".
There are no arrangements or understandings with respect to the selection
of officers or directors. The Company pays each director who is not an
employee a $1,000 fee for each meeting of the Board of Directors attended and
reimburses directors for their expenses in connection with their activities
as directors of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities
and Exchange Commission (SEC), the New York Stock Exchange and the American
Stock Exchange. Officers, directors and greater than ten percent shareholders
are required by the SEC regulations to furnish the Company with copies of all
Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors, and greater
than ten percent beneficial owners complied with all filing requirements
applicable to them with respect to transactions during fiscal 1995.
8
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1995, the Company's Board of
Directors took certain actions by unanimous written consent and held three
meetings. During 1995, other than Messrs. Coape- Arnold and Motta, no
incumbent director attended fewer than 75 percent of the aggregate of (i) the
number of meetings of the Board of Directors held during the period he served
on the Board, and (ii) the number of meetings of committees of the Board of
Directors held during the period he served on such committees.
The Board of Directors has established four standing committees: (1) the
Audit Committee, (2) the Compensation Committee, (3) the Stock Option
Committee and (4) the Nominating Committee.
Messrs. Manley and Potamkin are members of the Audit Committee, which held
one meeting during 1995. The duties and responsibilities of the Audit
Committee include (a) recommending to the full Board of Directors the
appointment of the Company's independent auditors and any termination of
engagement, (b) reviewing the plan and scope of audits, (c) reviewing the
Company's significant accounting policies and internal controls, and (d)
having general responsibility for all related auditing matters.
Messrs. Manley and Fleeman are members of the Compensation Committee,
which held two meetings during 1995. The Compensation Committee reviews and
determines the compensation of the Company's officers.
Messrs. Moss and Grien are members of the Stock Option Committee. The
Stock Option Committee administers the Company's stock option plans and has
the power and authority to (a) determine the persons to be awarded options
and the terms thereof pursuant to the terms of the plans, and (b) construe
and interpret the Company's stock option plans.
Messrs. Nahmad and Moss are members of the Nominating Committee. The
Nominating Committee is responsible for (a) establishing procedures for the
selection and retention of members of the Board of Directors, (b) evaluating
Board nominees and members, and (c) recommending nominees.
9
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid to the
Company's Chief Executive Officer and each of the Company's other executive
officers whose total annual salary and bonus for the 1995 fiscal year was
$100,000 or more.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------- ----------------------------
FISCAL OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- ---------------------------- --------- ----------- -------------- ---------------- ---------- ----------------
Albert Nahmad 1995 $379,633 $550,000(3) -- -- $2,250
President and Chief 1994 $368,391 $528,000(3) -- -- $3,538
Executive Officer 1993 $358,775 $222,000(3) -- 60,000 $3,433
Ronald P. Newman 1995 $145,607 $ 62,500 -- -- $2,250
Vice President of Finance, 1994 $140,240 $ 52,000 -- -- $2,890
Secretary and Treasurer 1993 $138,450 $ 1,000(3) -- 10,000 $2,827
(1) The officers listed in this table receive certain personal benefits;
however, such additional benefits do not exceed the lesser of $50,000 or
10% of such officer's salary and bonus for any of the years reported.
(2) These amounts represent the Company's contribution to the Profit Sharing
Plan. The Profit Sharing Plan is qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended.
(3) In 1994, includes a bonus of $200,000 paid to Mr. Nahmad which normally
would have been paid in 1995. In 1993, includes a bonus of $212,000 paid
to Mr. Nahmad which normally would have been paid in 1994. The
Compensation Committee approved payment of these bonuses for tax
withholding requirements. 1993 also does not include bonuses of $420,000
and $49,000 paid to Mr. Nahmad and Mr. Newman, respectively, which were
paid in 1992. The Compensation Committee approved payment of these
bonuses in order to take advantage of the 1992 income tax rate change.
OPTION GRANTS IN FISCAL YEAR 1995
The Company did not grant any stock options or appreciation rights to the
Company's executive officers during fiscal 1995.
10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning stock
options exercised in 1995 and unexercised stock options held by the Company's
executive officers as of December 31, 1995.
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END
ACQUIRED VALUE --------------------------------- --------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- -------------- ----------- --------------- ---------------- -------------- ----------------
Albert H. Nahmad -- -- 478,250 -- $4,367,128 --
Ronald P. Newman -- -- 67,793 -- $ 620,480 --
(1) Represents options as to 186,875 shares of Common Stock and 291,375
shares of Class B Common stock for Mr. Nahmad and 30,780 shares of Common
Stock and 37,013 shares of Class B Common Stock for Mr. Newman granted
pursuant to the 1991 Plan.
EMPLOYMENT AGREEMENT
In March 1996, the Company renewed an employment agreement with Albert H.
Nahmad which expires January 31, 1999 and each January 31 automatically
extends one year from its then expiration date unless the Compensation
Committee shall have notified Mr. Nahmad to the contrary in writing prior to
that date. Under the terms of the employment agreement, Mr. Nahmad shall be
employed as President and Chairman of the Board of the Company at an annual
salary of not less than $480,000. Additionally, Mr. Nahmad will receive
additional compensation of $450,000 on January 2, 1997, provided he does not
voluntarily leave employment of the Company before that date, and will be
entitled to additional compensation pursuant to an Incentive Plan. See
"Approval of Incentive Plan for President and Chief Executive Officer."
REVERSE SPLIT DOLLAR AGREEMENT
The Company's executive officers participate in a reverse split dollar
insurance program which provides the Company limited interests in the
insurance policies, including death benefits aggregating approximately $5
million plus any prepaid and unearned premiums. Under the insurance program,
the officers retain all incidents of ownership in excess of the Company's
limited interests.
KEY EXECUTIVE DEFERRED COMPENSATION AGREEMENT
The Company entered into a Key Executive Deferred Compensation Agreement
(the "Deferred Compensation Agreement") on January 31, 1983, with Mr. Nahmad
that provides benefits to Mr. Nahmad or his family upon disability, death or
retirement or upon change in control of the Company. The minimum monthly
benefit payable under the plan is based on Mr. Nahmad's length of service to
age 65 and is the lesser of one-twelfth (1/12) of 10% of (i) $727,000 plus
certain amounts accrued for each year of service, or (ii) his maximum annual
salary prior to the event triggering payment of benefits. The estimated
minimum annual benefits payable to Mr. Nahmad upon retirement at age 65 and
the service to the Company that will have been completed by him are $72,700
and 33 years, respectively.
11
COMMITTEES' REPORT TO SHAREHOLDERS
The Company's executive compensation programs are based on three
components: base salary, annual incentives and long-term compensation; each
intended as an important piece of the overall compensation philosophy.
Base salary is used to attract and retain the Company's key executives and
is calculated using comparisons with the Company's industry competitors
and/or companies of similar market value. Salaries are reviewed by the
Compensation Committee on an annual basis.
Annual incentives are a significant component of executive compensation,
reflecting the Company's belief that management's contribution to shareholder
returns (via increasing stock prices and dividends) comes from maximizing
earnings and the potential of the Company. Each executive officer has an
annual incentive opportunity based upon the pre-tax earnings of the Company.
By its extensive reliance on this incentive compensation system, which has
been employed by the Company for the Chief Executive Officer without material
change for more than five years, the Company links a substantial portion of
the executive officers' annual pay directly to profits. As a result of this
approach, the Company's executives' total compensation is likely to vary from
year to year more significantly than the pay of executives of many of the
Company's competitors. This philosophy is essential to an entrepreneurial
business such as the Company's business. Certain other employees have their
pay levels set primarily in relation to comparisons to similar executives of
competitors, with additional annual incentives based on the attainment of
specific objectives supporting the overall goals of the Company.
In terms of long-term compensation, management incentives generally are
provided through annual grants of stock options to the Company's executives
to retain and motivate executives to improve the Company's stock value. Stock
options have been granted at an exercise price equal to the closing price of
the Company's Common Stock or Class B Common Stock as reported by the New
York Stock Exchange and the American Stock Exchange, respectively, on the day
prior to the date of grant. Accordingly, grants of stock options will produce
value only if there are increases in the underlying stock price. There were
no grants of stock options to executive officers in 1995. The Company
provides no defined benefit pension plan nor supplemental executive
retirement plan but does provide a 401(k) plan for all of its employees
employed for at least one year.
In 1995, the Company's pre-tax earnings increased to $14.1 million, up 17%
from $12.0 million in 1994, despite continued economic weakness in
California, one of the Company's primary markets. The 1995 results include
the operations of four businesses acquired during 1995 from the date of their
acquisitions, which positioned the Company in three additional states and
strengthened its position in existing markets. During the last five years, a
time period among the most challenging faced in the history of the home
building industry, management, through its strategy of acquisitions and
capturing replacement market share, has achieved consistent growth in
earnings and has been successful in positioning the Company as a leader in
the residential central air conditioner industry in Florida, Texas and
California, the three largest air conditioner markets in the United States,
as well as in North Carolina, Alabama, Arkansas, Louisiana, Arizona and
Nevada.
These successful efforts of the Company's management team were led by the
Company's President and Chief Executive Officer, Albert H. Nahmad. Mr.
Nahmad's base compensation was increased during
12
1995 to $379,633, representing a 3% cost of living increase from his 1994
base salary. As discussed in more detail below, Mr. Nahmad and other key
executives of the Company received a significant portion of their total
compensation through incentive compensation.
In order to promote an increase in net worth of the Company, maximize the
return to shareholders and effectively motivate senior management, the
executive compensation philosophy of the Company has been to link
compensation with Company performance.
In order to take advantage of income tax rates prevailing at the time, the
Committee approved the payment of bonuses to executive officers in 1992 which
normally would have been paid in 1993 and certain bonuses in 1993 and 1994
which normally would have been paid in 1994 and 1995, respectively. Therefore
Mr. Nahmad received 66% of his cash compensation related to 1995 from
incentives. The Committee believes that this represents evidence of the
strong and explicit link between executive compensation and the creation of
shareholder value.
Decisions with regard to compensation of the Company's executives are made
by the two-member Compensation Committee, which has meetings at least once a
year and is called upon to meet more often when the need arises. Decisions
with regard to stock options for all employees of the Company are made by the
two-member Stock Option Committee, which is called upon to meet when the need
arises. Each member of the Committees is a non-employee director. The
executive compensation practices of the Company are constantly re-evaluated
to ensure their relevance, their support of the strategic goals of the
Company and their contribution to the creation of shareholder value.
The above Committees' Report to Shareholders of the Compensation and Stock
Option Committees and the Company's Common Stock Price Performance Graph
which follows shall not be deemed to be incorporated by reference by any
general statement incorporating this Proxy Statement by reference into any
filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent that the Company specifically incorporates this
information by reference.
In December 1993, the Internal Revenue Service issued proposed regulations
concerning compliance with Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Section 162(m) generally disallows a public
company's deduction for compensation to any one employee in excess of $1
million per year unless the compensation is pursuant to a plan approved by
the public company's shareholders. Amounts payable to Mr. Nahmad pursuant to
his employment agreement, which expired January 31, 1996, are excluded under
Section 162(m) as such employment agreement was in effect prior to February
17, 1993 and had not been materially modified. Accordingly, the Compensation
Committee does not anticipate that the Named Executive Officers received
annual cash compensation in excess of the $1 million cap provided in Section
162(m) in 1995.
13
In March 1996, the Compensation Committee renewed and amended the
employment agreement between the Company and Mr. Nahmad. The terms of the
employment agreement include a provision for an Incentive Plan for Mr.
Nahmad. Shareholders of the Company will vote at the 1996 Annual Meeting to
ratify the Incentive Plan for Mr. Nahmad. See "Approval of Incentive Plan for
President and Chief Executive Officer." Such Incentive Plan is intended to
comply with the provisions of Section 162 (m).
COMPENSATION AND STOCK OPTION COMMITTEES
COMPENSATION COMMITTEE:
Paul F. Manley, Chairman
David B. Fleeman
STOCK OPTION COMMITTEE:
Bob L. Moss, Chairman
James S. Grien
April 15, 1996
14
WATSCO, INC. COMMON STOCK PRICE PERFORMANCE
The following graph compares the cumulative total shareholder return of
Watsco, Inc. Common Stock and Class B Common Stock, based on their market
prices and assuming reimbursement of dividends, with (i) the S & P Small-Cap
600 Index, (ii) the AMEX Market Index and (iii) a Peer Group Index.
The Peer Group Index is comprised of the following publicly traded
companies: Hughes Supply, Inc.; SPX Corp.; Noland Company; and Inter-City
Products, Inc. The Company believes that this information demonstrates that
the compensation earned by its executive officers compares consistently with
increased shareholder value.
1/1/91 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
Watsco, Inc. Common Stock 100 105 169 181 237 388
Watsco, Inc. Class B Common Stock 100 121 111 119 156 251
Peer Group Index 100 103 134 127 120 124
S&P Small-Cap 600 100 148 180 213 203 264
AMEX Market Index 100 128 130 155 141 178
The line graph assumes that $100 was invested on January 1, 1991 in the
Company's Common Stock and Class B Common Stock, the S & P Small-Cap 600
Index, the AMEX Market Index and the Peer Group Index.
The closing price of the Company's Common Stock and Class B Common Stock
was $17 7/8 and $17 1/2 , respectively, at December 31, 1995. As of the
Record Date, the closing price of the Company's Common Stock and Class B
Common Stock was $26 1/4 and $27 per share, respectively. The stock price
performance of Watsco, Inc. Common Stock and Class B Common Stock depicted in
the graph above represents past performance only and is not necessarily
indicative of future performance.
15
CERTAIN TRANSACTIONS
Alna Capital Associates, a New York limited partnership ("Alna Capital")
of which Mr. Nahmad, the Company's President and Chief Executive Officer, is
the sole general partner, owns $1,113,000 of the Company's 10% Convertible
Subordinated Debentures due 1996 that are convertible into shares of Class B
Common Stock (see "Beneficial Security Ownership"). In 1995, the Company made
interest payments totaling $117,550 to Alna Capital as a result of its
ownership of the Debentures.
II.
PROPOSAL TO RATIFY AN AMENDMENT
TO THE 1991 STOCK OPTION PLAN
The Company has in effect the 1991 Stock Option Plan adopted by the Board
of Directors in March 1991, ratified by the stockholders in June 1991,
amended by the Board of Directors in December 1992 and ratified, as amended,
by the stockholders in June 1993 (the "1991 Plan"), pursuant to which options
to purchase an aggregate of 1,372,500 shares (adjusted for stock dividends
and stock splits) of Common Stock and Class B Common Stock may be granted. At
the Record Date, there were 11,364 options available for future grant. In
April 1996, the Company's Board of Directors adopted, subject to approval by
the Company's shareholders, an amendment to the 1991 Plan. The only change
effected by the amendment is to increase the aggregate shares of Common Stock
and Class B Common Stock available for grant under the 1991 Plan by 500,000
shares. The material features of the 1991 Plan, as amended, are discussed
below; however, the description is subject to and qualified in its entirety
by the full text of the 1991 Plan which is available from the Company upon
request.
The purpose of the 1991 Plan is to encourage stock ownership by certain
directors and key employees, including officers of the Company and its
subsidiaries, so that they may have an additional incentive to provide
management services to the Company and to remain in the employ of the
Company. In furtherance of this purpose, the 1991 Plan authorizes, among
other things, the granting of options to purchase Common Stock and Class B
Common Stock to persons selected by the Stock Option Committee from all
regular employees (approximately 1,200 persons) and directors of the Company.
Approval of the 1991 Plan, as amended, by the Company's shareholders is
one of the conditions of Rule 16b-3, a rule promulgated by the SEC that
provides an exemption from the operation of the "short-swing profit" recovery
provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), for the acquisition of options and certain
other transactions by officers and directors under the 1991 Plan. Shareholder
approval of the 1991 Plan, as amended, is also required (i) in order for the
1991 Plan to be eligible under the "plan leader" exemption from the margin
requirements of Regulation G promulgated under the Exchange Act, and (ii) by
the rules of the New York Stock Exchange and American Stock Exchange.
The 1991 Plan is a qualified stock option plan as the term is defined in
Section 422 of the Code. Any option granted under the 1991 Plan may be
designated as an incentive stock option ("ISO"), within the meaning of
Section 422, or as nonqualified stock option.
16
The 1991 Plan is administered by the Stock Option Committee (the
"Committee") of the Board of Directors. The Committee in its sole discretion
determines the persons who will receive options under the 1991 Plan, the
number of shares of Common Stock and Class B Common Stock subject to each
option, option exercise prices, the date or dates on which options vest,
become exercisable or expire, whether an option is an ISO or nonqualified
stock option and other terms and conditions as the Committee shall determine.
The 1991 Plan also requires that the Committee consist of directors who are
"disinterested persons", as required for compliance with Rule 16b-3, in the
event that options are granted to employees who are officers or directors of
the Company. A disinterested person is a director who is not, during the one
year prior to his service as administrator of the 1991 Plan, or during such
service, granted or awarded equity securities pursuant to the 1991 Plan or
any other plan of the Company, with certain exceptions.
The shares acquired upon exercise of options granted under the 1991 Plan
will be authorized and issued shares of Common Stock or Class B Common Stock.
The Company's shareholders will not have any preemptive rights to purchase or
subscribe for any Common Stock or Class B Common Stock by reason of the
reservation and issuance of Common Stock or Class B Common Stock under the
1991 Plan. If any option granted under the 1991 Plan should expire or
terminate for any reason other than having been exercised in full, the
unpurchased shares subject that option will again be available for purposes
of the 1991 Plan.
OPTIONS GRANTED UNDER THE 1991 PLAN
In order to furnish additional incentives to the executive officers of the
Company, on February 1, 1996, the Committee granted, subject to shareholder
approval of the amendment to increase the number of shares available under
the 1991 Plan, nonqualified stock options for 100,000 shares and 15,000
shares of Class B Common Stock to Mr. Nahmad and Mr. Newman, respectively.
All of such options were granted with an exercise price equal to $16 1/2 (the
closing price on the American Stock Exchange on the business day immediately
preceding the date of grant) and have a term of ten years. Of such options,
33 1/3 % are immediately exercisable (subject to shareholder approval of the
1991 Plan at the Annual Meeting) and 33 1/3 % will become exercisable on each
successive anniversary of February 1 until fully exercisable.
As of the Record Date, subject to shareholder approval of the increase in
shares awarded under the 1991 Plan, options to purchase 490,834 shares of
Common Stock and 443,388 shares of Class B Common Stock were outstanding at
exercise prices ranging from $6 to $26 3/4 per share (fair market value at
the dates of grant) and options to purchase 318,298 shares of Common Stock
and 362,541 shares of Class B Common Stock were exercisable at prices ranging
from $6 to $16 1/2 per share.
17
The table below indicates, as of the Record Date, the aggregate number
(adjusted for stock dividends and stock splits) of options granted under the
Plan since its inception to the persons and groups indicated, and the number
of outstanding options held by such persons and groups as of such date.
OPTIONS GRANTED OPTIONS OUTSTANDING
---------------------- ----------------------
CLASS B CLASS B
COMMON COMMON COMMON COMMON
NAME OF INDIVIDUAL OR GROUP POSITION STOCK STOCK STOCK STOCK
- ------------------------------ ------------------------- ---------- ---------- ---------- ----------
Albert H. Nahmad Chairman of the Board 418,125 430,750 186,875 391,375
and President
Ronald P. Newman V.P., Finance, Secretary 121,155 55,013 30,780 52,013
and Treasurer
D.A. Coape-Arnold Director 1,500 -- 1,500 --
David B. Fleeman Director 27,564 -- 19,689 --
James S. Grien Director 11,250 -- 11,250 --
Roberto Motta Director 27,564 -- -- --
Paul F. Manley Director 15,278 -- 15,278 --
Bob L. Moss Director 23,626 -- 11,813 --
Alan H. Potamkin Director 11,250 -- 11,250 --
Gary L. Tapella Director 7,500 -- 7,500 --
All current Executive
Officers 539,280 485,763 217,655 443,388
All current directors who are
not Executive Officers 125,532 -- 78,280 --
All employees, other than --
Executive Officers 320,687 194,702 194,899
The Company's management believes that options granted under the 1991 Plan
have been and will be awarded primarily to those persons who possess a
capacity to contribute significantly to the successful performance of the
Company. Because persons to whom grants of options are to be made are to be
determined from time to time by the Committee in its discretion, it is
impossible at this time to indicate the precise number, name or positions of
persons who will hereafter receive options or the number of shares for which
options will be granted.
CERTAIN TERMS AND CONDITIONS
All grants of options under the 1991 Plan must be evidenced by a written
agreement between the Company and the optionee. Such agreement shall contain
such terms and conditions as the Committee shall prescribe, consistent with
1991 Plan, including, without limitation, the exercise price, term, and
restrictions on the exercisability of the options granted.
Under the 1991 Plan, the option price per share of Common Stock or Class B
Common Stock may be any price determined by the Committee, provided, however,
that in no event shall the option price of any incentive stock option be less
than the fair market value per share of Common Stock or Class B Common Stock.
For purposes of the 1991 Plan, and for so long as the Company's Common Stock
or Class B Common Stock is listed on the New York Stock Exchange and American
Stock Exchange,
18
respectively, "fair market value" means the closing price of the Common Stock
or Class B Common Stock as reported on the New York Stock Exchange and
American Stock Exchange, respectively, on the business day immediately
preceding the date of grant, unless the Committee shall determine otherwise
in a fair and uniform manner. The exercise price of an option may be paid in
cash, by certified or official bank check, by money order or by delivery of
shares of the Company's Common Stock or Class B Common Stock already owned by
the optionee, or by a combination of the foregoing. The 1991 Plan also
authorizes the Company to make loans to optionees to enable them to exercise
their options. If the exercise price is paid with the optionee's promissory
note, the note must (i) provide for recourse to the optionee, (ii) bear
interest at a rate no less than the prime rate of interest of the Company's
principal lender, and (iii) be secured by the shares of common stock
purchased. Cash payments received by the Company for the exercise of options
will be used by the Company for general corporate purposes. Payments made in
common stock must be made by delivery of stock certificates in negotiable
form.
The use of already owned shares of common stock applies to payment for the
exercise of an option in a single transaction and to the "pyramiding" of
already owned shares in successive simultaneous option exercises. In general,
pyramiding permits an option holder to start with as little as one share of
common stock and exercise an entire option to the extent then exercisable (no
matter what number of shares subject thereto). By utilizing already owned
shares of common stock, no cash (except for fractional share adjustments) is
needed to exercise an option. Consequently, the optionee would receive common
stock equal in value to the spread between the fair market value of the
shares subject to the option and the exercise price of the option.
No option granted under the 1991 Plan is assignable or transferable, other
than by will or by the laws of decent and distribution. During the lifetime
of an optionee, an option is exercisable only by the optionee. The expiration
date of an option will be determined by the Committee at the time of the
grant, but in no event will an option be exercisable after the expiration of
10 years from the date of the grant. An option may be exercised at any time
from time to time or only after a period of time or in installments, as the
Committee determines. The Committee may, in its sole discretion, accelerate
the date on which any option may be exercised. Each outstanding option will
automatically become exercisable in the event of certain transactions,
including certain changes in control of the Company, certain mergers and
reorganizations, and certain dispositions of substantially all the Company's
assets.
The unexercised portion of any option granted under the 1991 Plan shall
automatically be terminated (a) three months after the date on which the
optionee's employment is terminated for any reason other than (i) cause (as
defined in the 1991 Plan), (ii) mental or physical disability, or (iii)
death; (b) immediately upon termination of the optionee's employment for
cause; (c) twelve months after the date on which the optionee's employment is
terminated by reason of mental or physical disability; or (d) twelve months
after the date on which optionee's employment is terminated by reason of the
optionee's death, or three months after the date on which the optionee shall
die if such death shall occur during the one year period following the
termination of the optionee's employment by reason of mental or physical
disability.
To prevent dilution of the rights of option holders, the 1991 Plan
provides for appropriate adjustment of the number of shares for which options
may be granted, the number of shares subject to outstanding options and the
exercise price of outstanding options, in the event of any increase or
decrease in the number of issued and outstanding shares of the Company's
Common Stock or Class B
19
Common Stock resulting from a stock dividend or stock split, recapitalization
or other capital adjustment of the Company. The Committee has discretion to
make appropriate antidilution adjustments to outstanding options in the event
of a merger, consolidation or other reorganization of the Company or a sale
or other disposition of substantially all the Company's assets.
The 1991 Plan will expire on March 1, 2001, and any option outstanding on
such date will remain outstanding until it expires or is exercised. The
Committee may amend the 1991 Plan or any option at any time provided that
such amendment may not adversely affect the rights of an optionee under an
outstanding option without the optionee's consent. In addition, no such
amendment may, without approval of the Company's shareholders (a) materially
increase the benefits accruing to participants under the 1991 Plan, (b)
materially increase the number of shares of common stock reserved for
issuance under the 1991 Plan, or (c) materially modify the requirements for
eligibility to receive options under the 1991 Plan.
FEDERAL INCOME TAX CONSEQUENCES
The 1991 Plan is not qualified under the provisions of Section 401 (a) of
the Code, nor is it subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
NONQUALIFIED STOCK OPTIONS. On exercise of a nonqualified stock option
granted under the Stock Option Plan, an optionee (other than an officer or
director of the Company) will recognize ordinary income equal to the excess,
if any, of the fair market value on the date of exercise of the option of the
shares of Common Stock or Class B Common Stock acquired on exercise over the
exercise price. That income will be subject to the withholding of Federal
income tax. The optionee's tax basis in those shares will be equal to their
fair market value on the date of exercise of the option, and the optionee's
holding period for those shares will begin on that date.
An officer or director of the Company or any other person to whom the
short-swing profit recovery provisions of Section 16(b) of the Exchange Act
apply in connection with an option under the 1991 Plan (a "Reporting Person")
generally will not recognize ordinary income until the earlier of the
expiration of the six month period after the exercise of an option and the
first day on which a sale at a profit of shares acquired on exercise of the
option would not subject the Reporting Person to suit under Section 16(b) of
the Exchange Act. The amount of ordinary income will equal the excess, if
any, of the fair market value of the shares on the date the income is
recognized over the exercise price of the option. A Reporting Person,
however, is entitled under Section 83(b) of the code to elect to recognize
ordinary income on the date of exercise of the option, in which case the
amount of income will be equal to the excess, if any, of the fair market
value of the shares on that date over the exercise price of the option. A
Section 83(b) election must be made within 30 days after exercising the
option.
If an optionee pays for shares of Common Stock or Class B Common Stock on
exercise of an option by delivering shares of the Company's Common Stock or
Class B Common Stock, the optionee will not recognize gain or loss on the
shares delivered, even if their fair market value at the time of exercise
differs from the optionee's tax basis in them. The optionee, however,
otherwise will be taxed on the exercise of the option in the manner described
above as if he had paid the exercise price in cash. If a separate
identifiable stock certificate is issued for that number of shares equal to
the number of shares delivered on exercise of the option, the optionee's tax
basis in the shares represented by that certificate will be equal to his tax
basis in the shares delivered and the holding period for those shares will
include
20
the holding period for the shares delivered. The optionee's tax basis and
holding period for the additional shares received on exercise of the option
will be the same as if the optionee had exercised the option solely in
exchange for cash.
The Company will be entitled to a deduction for Federal income tax
purposes equal to the amount of ordinary income taxable to the optionee,
provided that amount constituted an ordinary and necessary business expense
for the Company and is reasonable in amount, and either the optionee includes
that amount in income or the Company timely satisfies its reporting
requirements with respect to that amount.
INCENTIVE STOCK OPTIONS. The 1991 Plan provides for the grant of stock
options that qualify as "incentive stock options" as defined in Section 422
of the Code. Under the Code, an optionee generally is not subject to tax upon
the grant or exercise of an incentive stock option. In addition, if the
optionee holds a share received on exercise of an incentive stock option for
at least two years from the date the option was granted and at least one year
from the date the option was exercised (the "Required Holding Period"), the
difference, if any, between the amount realized on a sale or other taxable
disposition of that share and the holder's tax basis in that share will be
long-term capital gain or loss.
If, however, an optionee disposes of a share acquired on exercise of an
incentive stock option before the end of the Required Holding Period (a
"Disqualifying Disposition"), the optionee generally will recognize ordinary
income in the year of the Disqualifying Disposition equal to the excess, if
any, of the fair market value of the share on the date the incentive stock
option was exercised over the exercise price. If, however, the Disqualifying
Disposition is a sale or exchange on which a loss, if realized, would be
recognized for Federal income tax purposes, and if the sales proceeds are
less than the fair market value of the share on the date of exercise of the
option, the amount of ordinary income the optionee recognizes will not exceed
the gain, if any realized on the sale. If the amount realized on a
Disqualifying Disposition exceeds the fair market value of the share on the
date of exercise of the option, that excess will be short-term capital gain,
depending on whether the holding period for the share exceeds one year.
An optionee who exercises an incentive stock option by delivering shares
of Common Stock or Class B Common Stock acquired previously pursuant to the
exercise of an incentive stock option before the expiration of the Required
Holding Period for those shares is treated as making a Disqualifying
Disposition of those shares. This rule prevents "pyramiding" the exercise of
an incentive stock option (that is, exercising an incentive stock option for
one share and using that share, and others so acquired, to exercise
successive incentive stock options) without the imposition of current income
tax.
For purposes of the alternative minimum tax, the amount by which the fair
market value of a share of Common Stock or Class B Common Stock acquired on
exercise of an incentive stock option exceeds the exercise price of that
option generally will be an item of adjustment included in the optionee's
alternative minimum taxable income for the year in which the option is
exercised. If, however, there is a Disqualifying Disposition of the share in
the year in which the option is exercised, there will be no item of
adjustment with respect to that share. If there is a Disqualifying
Disposition in a later year, no income with respect to the Disqualifying
Disposition is included in the optionee's alternative minimum taxable income
for that year. In computing alternative minimum taxable income, the tax basis
of a share acquired on exercise of an incentive stock option is increased by
the amount of the item of adjustment taken into account with respect to that
share for alternative minimum tax purposes in the year the option is
exercised.
21
The Company is not allowed an income tax deduction with respect to the
grant or exercise of an incentive stock option or the disposition of a share
acquired on exercise of an incentive stock option after the Required Holding
Period. However, if there is a Disqualifying Disposition of a share, the
Company is allowed a deduction in an amount equal to the ordinary income
includible in income by the optionee, provided that amount constitutes an
ordinary and necessary business expense for the Company and is reasonable in
amount, and either the optionee includes that amount in income or the Company
timely satisfies its reporting requirements with respect to that amount.
IMPORTANCE OF CONSULTING TAX ADVISER. The information set forth above is a
summary only and does not purport to be complete. In addition, the
information is based upon current Federal income tax rules and therefore is
subject to change when those rules change. Moreover, because the tax
consequences to any optionee may depend on his particular situation, each
optionee should consult his or her tax adviser as to the Federal, state,
local and other tax consequences of the grant or exercise of an option or the
disposition of Common Stock or Class B Common Stock acquired on exercise of
an option.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL AND RATIFICATION
OF THE AMENDMENT TO THE COMPANY'S 1991 STOCK OPTION PLAN.
III.
APPROVAL OF INCENTIVE PLAN FOR PRESIDENT
AND CHIEF EXECUTIVE OFFICER
In March 1996, the Compensation Committee of the Board of Directors
approved the renewal and amendment of an employment agreement which, among
other things, provides an incentive plan (the "Incentive Plan") under which
annual incentive compensation for Mr. Nahmad, the Company's President and
Chief Executive Officer, will be determined. The Incentive Plan is designed
to provide performance compensation to Mr. Nahmad consistent with attaining
specific growth goals of the Company.
The Revenue Reconciliation Act of 1993 added Section 162(m) to the Code
effective January 1, 1994. Section 162(m) provides, among other things, that
compensation in excess of $1 million paid to a corporation's Chief Executive
Officer and the four other highest paid executive officers who are employed
by the corporation at the end of a fiscal year will not be deductible for
Federal income tax purposes unless the compensation is "qualified
performance-based compensation." The Compensation Committee believes that the
Incentive Plan, subject to shareholder approval, complies with the
requirements of Section 162(m). A copy of the Incentive Plan is available
from the Company upon request. The following is a summary of the material
terms of the Incentive Plan:
ADMINISTRATION. The Incentive Plan will be administered by the
Compensation Committee of the Board of Directors. The only eligible
participant in the Incentive Plan is Mr. Nahmad.
OPERATION OF THE INCENTIVE PLAN. Under the Incentive Plan, the
Compensation Committee sets appropriate performance targets relating to one
or more of the following: income before income taxes, net income, earnings
per share or Common Stock price. The goals established by the Compensation
Committee can be different for each year. Except as otherwise permitted by
Section 162(m), the goals must be established no later than 90 days after the
commencement of the fiscal year to which the bonus
22
relates. The Compensation Committee may amend the Incentive Plan; however, no
amendment shall be effective if it would require shareholder approval to
comply with Section 162(m), unless requisite shareholder approval is
obtained.
Assuming the Incentive Plan had been in effect in 1995, Mr. Nahmad would
have received incentive compensation of $790,000 using the performance
targets provisionally established by the Compensation Committee for Mr.
Nahmad for 1996. The amounts paid to Mr. Nahmad for 1996 may be higher than
such amount.
It is recognized by the Company that, at times, there may be years in
which it wishes to pay Mr. Nahmad special non-performance based compensation
to reward unexpected accomplishments. At such times, the Compensation
Committee may award additional non-incentive compensation to Mr. Nahmad in
such amount as it shall desire but in no such case shall total
non-performance based compensation exceed that amount which is tax
deductible. Performance based compensation shall be paid as soon after year
end as the amount of such compensation can be determined with reasonable
certainty and the Compensation Committee has certified that the performance
goals have been met.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE INCENTIVE PLAN FOR THE PRESIDENT AND CHIEF EXECUTIVE
OFFICER.
IV.
RATIFICATION OF THE REAPPOINTMENT OF THE COMPANY'S
PRINCIPAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of Arthur Andersen LLP, independent certified public accountants,
has been the Company's auditor since 1985 and has advised the Company that
the firm does not have any direct financial interest or indirect financial
interest in the Company or any of its subsidiaries.
The Board of Directors, on the recommendation of the Company's Audit
Committee, has selected Arthur Andersen LLP as the Company's principal
independent certified public accountants for the year ending December 31,
1996. One or more representatives of Arthur Andersen LLP are expected to be
present at the Annual Meeting, will have the opportunity to make a statement
if they desire to do so, and are expected to be available to respond to
appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE
"FOR" RATIFICATION OF THE REAPPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
COMPANY'S PRINCIPAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR
ENDED DECEMBER 31, 1996.
OTHER BUSINESS
The Board of Directors knows of no other business to be brought before the
Annual Meeting. If, however, any other business should properly come before
the Annual Meeting, the persons named in the accompanying proxy will vote
proxies as in their discretion they may deem appropriate, unless they are
directed by a proxy to do otherwise.
23
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the Securities and Exchange
Commission, a shareholder intending to present a proposal to be presented at
the 1997 Annual Meeting to Shareholders must deliver a proposal in writing to
the Company's principal executive offices on or before December 16, 1996.
By Order of the Board of Directors
RONALD P. NEWMAN, Secretary
Coconut Grove, Florida
April 15, 1996
24
WATSCO, INC.
PROXY FOR CLASS B COMMON STOCK
1996 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ALBERT H. NAHMAD, RONALD P. NEWMAN and
each of them, the true and lawful attorneys, agents for and in the name of
the undersigned, with full power of substitution for and in the name of the
undersigned, to vote all shares the undersigned is entitled to vote at the
1996 Annual Meeting of Shareholders of WATSCO, INC. to be held on Monday,
June 3, 1996, at 10:00 A.M., Eastern Standard Time, at the Grand Bay Hotel,
2669 South Bayshore Drive, Coconut Grove, Florida 33133, and at any and all
adjournments thereof, on the following matters:
(1) FOR [ ] WITHHOLD VOTE [ ] the election of Paul F. Manley as a Common Stock
Director to serve until the Annual Meeting of Shareholders in 1999 or until
his successor is duly elected and qualified;
(2) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the proposal to approve an amendment
to the Company's 1991 Stock Option Plan to increase the aggregate number of
shares of Common Stock and Class B Common Stock available for grant under
the plan by 500,000 shares;
(3) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the approval of the Incentive Plan
for Albert H. Nahmad, President and Chief Executive Officer of the Company;
(4) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the reappointment of Arthur Andersen
LLP as the Company's independent certified public accountants for the year
ending December 31, 1996; and
(5) In their discretion, on any other matters which may properly come before
the Annual Meeting or any adjournment or postponements thereof.
(see reverse side)
1
(continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" ITEMS 1, 2, 3 AND 4.
The undersigned hereby acknowledges receipt of (i) the Company's 1995
Annual Report to Shareholders, (ii) the Proxy Statement and (iii) the Notice
of Annual Meeting dated April 15, 1996.
Date: _________ , 1996
______________________
______________________
Please sign exactly as
your name appears
hereon. If stock is
registered in more
than one name, each
holder should sign.
When signing as an
attorney,
administrator,
executor, guardian or
trustee, please add
your title as such. If
executed by a
corporation or
partnership, the proxy
should be signed in
full corporate or
partnership name by a
duly authorized
officer or partner as
applicable.
2
WATSCO, INC.
PROXY FOR COMMON STOCK
1996 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ALBERT H. NAHMAD, RONALD P. NEWMAN and
each of them, the true and lawful attorneys, agents for and in the name of
the undersigned, with full power of substitution for and in the name of the
undersigned, to vote all shares the undersigned is entitled to vote at the
1996 Annual Meeting of Shareholders of WATSCO, INC. to be held on Monday,
June 3, 1996, at 10:00 A.M., Eastern Standard Time, at the Grand Bay Hotel,
2669 South Bayshore Drive, Coconut Grove, Florida 33133, and at any and all
adjournments thereof, on the following matters:
(1) FOR [ ] WITHHOLD VOTE [ ] the election of Albert H. Nahmad and D.A. Coape-
Arnold as Class B Directors to serve until the Annual Meeting of
Shareholders in 1999 or until their successors are duly elected and
qualified, except vote withheld from the following nominee
_________________________ (if any);
(2) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the proposal to approve an amendment
to the Company's 1991 Stock Option Plan to increase the aggregate number of
shares of Common Stock and Class B Common Stock available for grant under
the plan by 500,000 shares;
(3) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the approval of the Incentive Plan
for Albert H. Nahmad, President and Chief Executive Officer of the Company;
(4) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the reappointment of Arthur Andersen
LLP as the Company's independent certified public accountants for the year
ending December 31, 1996; and
(5) In their discretion, on any other matters which may properly come before
the Annual Meeting or any adjournment or postponements thereof.
(see reverse side)
1
(continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" ITEMS 1, 2, 3 AND 4.
The undersigned hereby acknowledges receipt of (i) the Company's 1995
Annual Report to Shareholders, (ii) the Proxy Statement and (iii) the Notice
of Annual Meeting dated April 15, 1996.
Date: _________ , 1996
______________________
______________________
Please sign exactly as
your name appears
hereon. If stock is
registered in more
than one name, each
holder should sign.
When signing as an
attorney,
administrator,
executor, guardian or
trustee, please add
your title as such. If
executed by a
corporation or
partnership, the proxy
should be signed in
full corporate or
partnership name by a
duly authorized
officer or partner as
applicable.
2
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
INCENTIVE PLAN
I. PURPOSES. The purposes of the Incentive Plan are (i) to establish an
annual incentive compensation program for the Company's President and
Chief Executive Officer (the "Executive") that awards the Executive
for the achievement of objectives and goals established by the Board
of Directors which contribute to the success of the Company, thus
providing a means for participation by the Executive in such success,
and (ii) to afford an incentive to the Executive to contribute his
best efforts to promote the success of the Company.
II. DEFINITIONS. The following words and phrases shall have the meaning
set forth below whenever used herein:
A. "COMMON STOCK PRICE" shall mean the reported New York Stock
Exchange closing price of the Company's Common Stock on the
last day of trading during that year.
B. "COMPENSATION COMMITTEE" shall mean the Compensation
Committee of the Company's Board of Directors. The
membership of the Compensation Committee shall in all cases
be comprised solely of two or more outside directors (within
the meaning of Section 162(m)).
C. "EARNINGS PER SHARE" shall mean the fully diluted earnings
per share of the Company as reported in the Company's annual
report to shareholders.
D. "EMPLOYMENT AGREEMENT" shall mean the employment agreement,
dated as of January 31, 1996, between the Company and the
Executive, as such agreement may be amended or renewed from
time to time.
E. "INCOME BEFORE TAXES" shall mean that amount as reported in
the Company's annual report to shareholders.
F. "NET INCOME" shall mean that amount as reported in the
Company's annual report to shareholders.
G. "PERFORMANCE BASED COMPENSATION" shall mean the compensation
paid or payable to the Executive pursuant to Article III of
this Incentive Plan.
H. "SECTION 162(M)" shall mean Section 162(m) (or any successor
provision) of the Internal Revenue Code of 1986, as amended,
and applicable authority thereunder.
III. OPERATION OF INCENTIVE PLAN.
A. ESTABLISHMENT OF PERFORMANCE GOALS. In each year in which
the Executive's Employment Agreement is in effect, not later
than 90 days after the end of the prior year, the
Compensation Committee and the Executive shall agree upon
the Performance Based Compensation which the Executive will
earn for that year if he achieves the agreed upon incremental
goals for increases in any one of more of the following
categories: Income Before Taxes, Net Income, Earnings Per
Share and Common Stock Price. Such performance goals shall
be in writing and become Exhibit A-1 to this Incentive Plan.
The performance goals will automatically be adjusted for any
increase or decrease in the number of shares of Common Stock
resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of
shares of Common Stock effected without receipt of
consideration by the Company.
B. PAYMENT OF PERFORMANCE BASED COMPENSATION. Performance Based
Compensation shall be paid to the Executive as soon after
year end as the amount of such compensation can be determined
with reasonable certainty and the Compensation Committee has
certified that the performance goals have been met.
IV. NON-PERFORMANCE BASED COMPENSATION. It is recognized by the Company
that, at times, there may be years in which the Compensation Committee
desires to pay the Executive special non-performance based
compensation. At such times, the Compensation Committee may award
additional non-performance based compensation to the Executive in such
amount as it shall desire.
V. TERMINATION OF EMPLOYMENT. The Executive must be employed for the
entire year to be entitled to the Performance Based Compensation for
such year, unless the Compensation Committee specifically determines
that such amounts are to be paid.
VI. ADMINISTRATION. The Incentive Plan shall be administered by the
Compensation Committee, which will have the authority and
responsibility for (i) interpreting and administering the Incentive
Plan, (ii) establishing the performance goals for each year of the
Incentive Plan, (iii) determination of Performance Based Compensation
and final approval of payments to the Executive, and (iv) payment of
prorated
A-2
awards if, in its judgment, the payment of such awards would be in
the best interest of the Company.
VII. AMENDMENT AND TERMINATION. The Compensation Committee shall have the
power to amend, modify, suspend or terminate any part of the Incentive
Plan at any time; provided, however, that notwithstanding any other
provisions of the Incentive Plan, no such amendment or modification
shall (i) be effective without the approval of the shareholders of the
Company if such shareholder approval is required to preserve the
Company's Federal income tax deduction for Performance Based
Compensation paid under the Incentive Plan pursuant to the "other
performance based compensation" exception in Section 162(m), or (ii)
without the consent of the Executive, reduce the right of the
Executive to a payment hereunder to which he is entitled with respect
to a fiscal year that has ended prior to such amendment, modification,
suspension or termination.
VIII. WITHHOLDING TAXES. The Company shall have the right to deduct from
all payments under this Incentive Plan any Federal, state or local
taxes required by law to be withheld with respect to such payments.
IX. REORGANIZATION OR DISCONTINUANCE. The obligations of the Company under
the Incentive Plan shall be binding upon any successor corporation or
organization resulting from merger, consolidation or other
reorganization succeeding to substantially all of the assets and
business of the Company. The Company will make appropriate provision
for the preservation of the Executive's rights under the Incentive
Plan in any agreement or plan which it may enter into or adopt to
effect any such merger, consolidation, reorganization or transfer
of assets.
If the business conducted by the Company shall be discontinued, any
previously earned and unpaid compensation under the Incentive Plan
shall be immediately payable to the Executive.
X. GENERAL PROVISIONS. The general provisions of the Executive's
Employment Agreement shall be applicable to this Incentive Plan.
XI. EFFECTIVE DATE. The Incentive Plan is effective initially for the
fiscal year ended December 31, 1996, subject to approval by the
shareholders of the Company at the annual meeting of shareholders
on June 3, 1996, and shall remain in effect as long as the Executive
is employed by the Company.
A-3
EXHIBIT A-1
1996 PERFORMANCE GOALS AND PERFORMANCE BASED COMPENSATION
PERFORMANCE
BASED
COMPENSATION
------------
A. EARNINGS PER SHARE
For each $.01 increase . . . . . . . . . . . . . . . . $29,000
B. INCREASE IN COMMON STOCK PRICE
For each $.125 increase in per share price of a share of
Common Stock . . . . . . . . . . . . . . . . . . . . . $5,500
