PROXY STATEMENT PURSUANT TO
SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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[ ] Preliminary Proxy Statement
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(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or section 240.14a-12
WATSCO, INC.
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(Name of Registrant as Specified In Its Charter)
WATSCO, INC.
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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the Form or Schedule and the date of its filing. 1) Amount Previously Paid:
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WATSCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 30, 1997
----------------
To the Shareholders of Watsco, Inc.:
NOTICE IS HEREBY GIVEN that the 1997 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 Friday,
May 30, 1997, at the Hyatt Regency Coral Gables, 50 Alhambra Plaza, Coral
Gables, Florida 33134, for the following purposes:
(1) To elect three members to the Company's Board of Directors to hold
office until the 2000 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 Company's Second
Amended and Restated 1991 Stock Option Plan;
(3) To consider and act upon a proposal to ratify the Company's 1996
Qualified Employee Stock Purchase Plan;
(4) To ratify the reappointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the year ended December 31,
1997; 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 4, 1997 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 21, 1997
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.
1997 ANNUAL MEETING OF SHAREHOLDERS
OF
WATSCO, INC.
----------------------
PROXY STATEMENT
----------------------
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 1997 Annual Meeting
of Shareholders (the "Annual Meeting") of the Company to be held at 10:00 A.M.,
Eastern Standard Time, on Friday, May 30, 1997, at the Hyatt Regency Coral
Gables, 50 Alhambra Plaza, Coral Gables, Florida 33134, 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 21, 1997.
Shareholders should review the information provided herein in conjunction with
the Company's 1996 Annual Report to Shareholders (the "1996 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 2000 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 Company's Second
Amended and Restated 1991 Stock Option Plan;
(3) To consider and act upon a proposal to ratify the Company's 1996
Qualified Employee Stock Purchase Plan;
(4) To ratify the reappointment of Arthur Andersen LLP as the Company's
independent certified public accountants for the year ended December 31, 1997;
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 4, 1997, 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 15,010,821 shares of Common Stock and 2,190,697 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."
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
2
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
ratify the Company's Second Amended and Restated 1991 Stock Option Plan (the
"1991 Plan"); (ii) the proposal to ratify the Company's 1996 Qualified Employee
Stock Purchase Plan; (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, 1997; 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 7.4% of the outstanding shares of Common Stock, (ii) Class B
Common Stock representing 79.8% of the outstanding shares of Class B Common
Stock and (iii) 54.3% 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 COMBINED STOCK
BENEFICIALLY BENEFICIALLY
OWNED(2) OWNED(2) COMBINED
------------------------ ------------------------- PERCENT
NAME AND ADDRESS OF VOTING
OF BENEFICIAL OWNERS(1) SHARES PERCENT SHARES PERCENT SECURITIES(2)
- --------------------------------------------- ----------- ---------- ------------ ---------- ---------------
Alna Capital Associates(3) ............... 160,185 1.1% 1,016,201 46.4% 28.0%
Albert H. Nahmad(4) ........................ 470,886 3.1 2,042,211 73.1 48.3
Rheem Manufacturing Company(5) ............ 1,446,541 9.6 - - 3.9
T. Rowe Price and Associates, Inc.(6) ...... 1,654,537 11.0 - - 4.5
The Kaufmann Fund, Inc.(7) .................. 1,213,400 8.1 - - 3.3
Cesar L. Alvarez ........................... - - - - -
D. A. Coape-Arnold(8) ..................... 43,482 * 12,403 * *
David B. Fleeman(9) ........................ 197,544 1.3 37,917 1.7 1.6
James S. Grien(10) ........................ 9,550 * - * *
Paul F. Manley(11) ........................ 23,749 * 837 * *
Bob L. Moss(12) ........................... 41,178 * - - *
Roberto Motta(13) ........................... 144,910 1.0 93,149 4.3 2.9
Alan H. Potamkin(14) ........................ 132,275 * 32,175 1.5 1.2
Gary L. Tapella(15) ........................ 6,750 * - - *
Ronald P. Newman(16) ........................ 30,553 * 50,689 2.3 1.4
Barry S. Logan(17) ........................ 39,352 * - - *
All directors and executive officers
as a group (12 persons)(18) ............... 1,140,229 7.4% 2,269,381 79.8% 54.3%
- ----------------
* 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.
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 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) 10,451 shares directly owned; (ii) 12,988 shares owned
pursuant to the Watsco, Inc. Amended and Restated Profit Sharing Retirement
Plan and Trust (the "Profit Sharing Plan"); (iii) 6,950 shares owned
by Mr. Nahmad's children; and (iv) 280,312 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)
322,282 shares directly owned; (ii) 100,000 shares owned pursuant to a
Restricted Stock Agreement; and (iii) 603,728 shares issuable upon exercise
of presently exercisable options granted pursuant to the 1991 Plan.
(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 The Kaufmann Fund, Inc. is 140 E. 45th Street, New York, New
York 10017.
(8) The number of shares of Common Stock indicated includes (i) 39,732 shares
directly owned and (ii) 3,750 shares issuable upon exercise of presently
exercisable options granted pursuant to the 1991 Plan.
(9) Excludes shares beneficially owned by Alna Capital. See footnote (3) above.
The number of shares of Common Stock indicated includes (i) 17,292 shares
directly owned; (ii) 135,701 shares owned by Fleeman Builders, a Florida
partnership of which Mr. Fleeman is a General Partner; (iii) 29,529 shares
issuable upon exercise of presently exercisable options granted pursuant to
the 1991 Plan; and (iv) 15,022 shares owned by 3JG Trust of which Mr.
Fleeman is a trustee. The number of shares of Class B Common Stock
indicated includes (i) 8,860 shares directly owned and (ii) 29,057 shares
owned by Fleeman Builders.
(10) Includes (i) 2,800 shares directly owned and (ii) 6,750 shares issuable
upon exercise of presently exercisable options granted pursuant to the 1991
Plan.
(11) The number of shares of Common Stock indicated includes (i) 832 shares
directly owned and (ii) 22,917 shares issuable upon exercise of presently
exercisable options granted pursuant to the 1991 Plan.
(12) The number of shares of Common Stock indicated includes (i) 18,343 shares
directly owned; (ii) 5,116 shares owned by Mr. Moss's spouse; and (iii)
17,719 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) 4,227
shares directly owned and (ii) 88,922 shares owned by Republic Trading.
(14) The number of shares of Common Stock indicated includes (i) 36,950 shares
directly owned; (ii) 75,200 shares owned by two trusts of which Mr.
Potamkin is a trustee; (iii) 10,000 shares owned by Mr. Potamkin's spouse
and (iv) 10,125 shares issuable upon exercise of presently exercisable
options granted pursuant to the 1991 Plan.
5
(15) The number of shares of Common Stock indicates (i) 4,500 shares directly
owned and (ii) 2,250 shares issuable upon exercise of presently exercisable
options granted pursuant to the 1991 Plan. The number of shares of Common
Stock indicated excludes 1,446,541 shares owned by Rheem Manufacturing
Company, of which Mr. Tapella is the President and Chief Executive Officer.
(16) The number of shares of Common Stock indicated includes (i) 2,569 shares
directly owned; (ii) 17,500 shares owned pursuant to a Restricted Stock
Agreement; (iii) 1,212 shares owned pursuant to the 1996 Qualified Employee
Stock Purchase Plan; (iv) 2,553 shares owned by Mr. Newman's spouse; and
(v) 6,719 shares owned pursuant to the Profit Sharing Plan. The number of
shares of Class B Common Stock indicated is represented by shares issuable
upon exercise of presently exercisable options granted pursuant to the 1991
Plan.
(17) The number of shares of Common Stock indicates (i) 300 shares directly
owned; (ii) 15,000 shares owned pursuant to a Restricted Stock Agreement;
(iii) 1,196 shares owned pursuant to the 1996 Qualified Employee Stock
Purchase Plan; (iv) 356 shares owned pursuant to the Profit Sharing Plan;
and (v) 18,000 and 4,500 shares issuable upon exercise of presently
exercisable options granted pursuant to the 1983 Executive Stock Option
Plan and 1991 Plan, respectively.
(18) Includes shares beneficially owned by directors and executive officers, as
described in footnotes (3), (4), (8), (9), (10), (11), (12), (13), (14),
(15), (16) and (17).
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
2000 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. Alan H. Potamkin has been
nominated as the director to be elected by the holders of Common Stock and
proxies will be voted for Mr. Potamkin absent contrary instructions. Mr.
Potamkin has served as a Director of the Company since 1994.
Two directors are to be elected at the Annual Meeting by the holders of
Class B Common Stock voting separately as a class. Mr. Motta, who has served as
a director of the Company since 1975, and Mr. Cesar L. Alvarez have been
nominated as the directors to be elected by the holders of Class B Common Stock.
Proxies will be voted for Messrs. Motta and Alvarez 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 56 Chairman of the Board and President
Ronald P. Newman 50 Chief Financial Officer and Secretary
Barry S. Logan 34 Treasurer
Cesar L. Alvarez 49 Director nominee
D.A. Coape-Arnold 79 Director
David B. Fleeman 83 Director
James S. Grien 39 Director
Paul F. Manley 60 Director
Bob L. Moss 49 Director
Roberto Motta 83 Director
Alan H. Potamkin 48 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.
BARRY S. LOGAN has served as Treasurer of the Company since 1996. From 1992
to 1996, Mr. Logan served as the Controller of the Company. Prior to joining the
Company, Mr. Logan, a certified public accountant, was associated with the
accounting firm of Arthur Andersen LLP from 1985 to 1992.
CESAR L. ALVAREZ has been a lawyer with the law firm of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A. for over twenty years, where he has
served as chairman of its corporate, securities and banking department and
currently serves as the firm's Chief Executive Officer and Managing
Shareholder. Mr. Alvarez also serves as a director of Pediatrix Medical Group,
Inc., Atlantis Plastics, Inc., FDP Corp., CompuTrac, Inc. and Texpack, N.V.
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.
7
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 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.
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. Potamkin (Common Stock), Motta (Class B) and Tapella (Class
B) serve until the 1997 Annual Meeting of Shareholders; Messrs. Grien (Common
Stock), Fleeman (Class B) and Moss (Class B) serve until the 1998 Annual Meeting
of Shareholders; and Messrs. Manley (Common Stock), Nahmad (Class B) and
Coape-Arnold (Class B) serve until the 1999 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
8
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 1996, except that
one report was filed late by Mr. Tapella in connection with stock options issued
under a formula grant under the 1991 Plan.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1996, the Company's Board of
Directors took certain actions by unanimous written consent and held five
meetings. During 1996, 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 1996. 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 four meetings during 1996. 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 1996 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 1996 $524,679 $ 1,350,000 - 150,000 $2,250
President and Chief 1995 379,633 550,000(3) - - 2,250
Executive Officer 1994 368,391 528,000(3) - - 3,538
Ronald P. Newman 1996 149,921 100,000 - 22,500 2,250
Vice President of Finance 1995 145,607 62,500 - - 2,250
and Secretary 1994 140,240 52,000 - - 2,890
Barry S. Logan 1996 85,755 22,000 - 15,000 1,733
Treasurer 1995 80,944 28,000 - - 1,500
1994 74,575 - - 11,250 1,111
- ----------------
(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 and excludes 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.
10
OPTION GRANTS IN FISCAL YEAR 1996
The following table sets forth certain information concerning grants of
stock options made during 1996 to the Named Executive Officers. All options were
granted at exercise prices equal to fair market value.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
NUMBER OF % OF FOR OPTION TERM(2)
NUMBER OF TOTAL OPTIONS ---------------------------
OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION
NAME GRANTED(1) EMPLOYEES IN 1996 PER SHARE DATE 5% 10%
- ------------------ ------------- -------------------- ----------------- ------------ ------------- ------------
Albert Nahmad 150,000 51.1% $11.00 2/01/06 $1,037,676 $2,629,675
Ronald P. Newman 22,500 7.7% 11.00 2/01/06 155,651 394,451
Barry S. Logan 7,500 2.6% 20.00 6/27/06 94,334 239,061
7,500 2.6% 19.75 10/25/06 93,155 236,073
- ----------------
(1) Class B Common Stock as to Messrs. Nahmad and Newman and Common Stock as to
Mr. Logan.
(2) The dollar amounts set forth in these columns are the result of calculations
at the five percent and ten percent rates set forth by the Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the market price of the common stock.
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 1996 and unexercised stock options held by the Company's executive
officers as of December 31, 1996.
NUMBER OF VALUE OF UNEXERCISE
NUMBER OF UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR END FISCAL YEAR END
ACQUIRED VALUE ------------------------------------- ------------------------------
NAME ON EXERCISE(1) REALIZED EXERCISABLE(2) UNEXERCISABLE(3) EXERCISABLE UNEXERCISABLE
- ------------------ ----------------- ------------- ----------------- ------------------- -------------- ---------------
Albert H. Nahmad 150,000 $1,227,000 817,374 50,000 $18,427,414 $893,750
Ronald P. Newman 142,500 1,529,025 50,689 7,500 1,096,288 134,062
Barry S. Logan - - 22,500 26,250 527,648 389,284
- ----------------
(1) Represents options as to Common Stock for Mr. Nahmad and options as to
122,670 shares of Common Stock and 19,830 shares of Class B Common Stock for
Mr. Newman.
(2) Represents options as to 280,312 shares of Common Stock and 537,062 shares
of Class B Common Stock for Mr. Nahmad, Class B Common Stock for Mr. Newman
and Common Stock for Mr. Logan.
(3) Represents options as to Class B Common Stock for Mr. Nahmad and Mr. Newman
and Common Stock for Mr. Logan.
11
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 and will be entitled to additional compensation pursuant to an
Incentive Plan.
REVERSE SPLIT DOLLAR AGREEMENT
Messrs. Nahmad and Newman participate in reverse split dollar insurance
programs which provide 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, Messrs. Nahmad and Newman
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.
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 six years, the Company links a substantial
12
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 1996, the Company's pre-tax earnings increased to $21.2 million, up 50%
from $14.1 million in 1995. The 1996 results include the operations of three
businesses acquired during 1996 from the date of their acquisitions, which
positioned the Company in five additional states and increased its market
presence in six existing states. 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 the largest distributor of residential central air
conditioning and heating equipment and related parts and supplies in the United
States.
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 1996 to $524,679, representing a 38%
increase from his 1995 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. Therefore, Mr. Nahmad received 72% of his 1996 cash
compensation from incentives. The Committee believes that this represents
evidence of the strong and explicit link between executive compensation and the
creation of shareholder value.
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. In 1996, Mr. Nahmad received
options to acquire 150,000 shares of the Company's Class B Common Stock at an
exercise price equal to the then market value of $11.00 per share. 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.
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.
13
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.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") 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. 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 which was approved by
the shareholders of the Company at the 1996 Annual Meeting. 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 21, 1997
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.
[GRAPHIC OMITTED]
1/1/92 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
------ -------- -------- -------- ------- --------
Watsco, Inc. Common Stock 100 161 172 226 371 905
Watsco, Inc. Class B Common Stock 100 92 98 129 207 496
Peer Group Index 100 130 123 117 121 242
S&P Small-Cap 600 100 121 144 137 178 216
AMEX Market Index 100 101 121 110 139 148
15
The line graph assumes that $100 was invested on January 1, 1992 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 $28-7/8 and $28-1/4, respectively, at December 31, 1996. As of the Record
Date, the closing price of the Company's Common Stock and Class B Common Stock
was $25-7/8 and $26-1/4 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.
CERTAIN TRANSACTIONS
In 1996, the Company made interest payments totaling $86,876 to 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, as a result of Alna Capital's ownership of $1,113,000 of the Company's
10% Convertible Subordinated Debenture which were redeemed in September 1996.
Mr. Cesar L. Alvarez, a nominee for director, is the Chief Executive
Officer and Managing Shareholder of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., which serves as the Company's principal outside counsel and
receives customary fees for legal services. The Company currently anticipates
that such arrangement will continue.
II.
PROPOSAL TO RATIFY THE COMPANY'S SECOND
AMENDED AND RESTATED 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 shareholders in June 1991, and
subsequently amended and approved by the Board of Directors and shareholders in
1993 and 1996.
The Stock Option Committee of the Board of Directors has adopted, and is
submitting to the shareholders for approval, the Second Amended and Restated
1991 Stock Option Plan (the "1991 Plan"). The 1991 Plan has been amended and
restated to respond to certain changes made to Rule 16b-3 ("Rule 16b-3") of the
Securities Exchange Act of 1934 (the "Exchange Act"). The changes to Rule 16b-3
were announced by the Securities Exchange Commission (the "SEC") in May 1996,
and became effective as of November 1, 1996. The changes to Rule 16b-3 are
designed to simplify administration of stock option plans. Consistent with the
changes to Rule 16b-3, the proposed amendment provides for the following: (i)
deleting the definition of Disinterested Person and substituting Outside
Director, (ii) providing that options may be granted by either a Stock Option
Committee or the Board, provided that a committee comprised solely of outside
directors must approve option grants to covered employees subject to Section
162(m), (iii) permitting the grant of options to
16
Outside Directors in addition to the formula grant provided in the 1991 Plan,
(iv) permitting the transfer of Non-Qualified Stock Options with the prior
written consent of the Stock Option Committee or the Board, (v) providing for
additional flexibility with regard to the manner in which options may be
exercised including (a) cashless exercises and (b) elections to defer receipt of
shares resulting from exercise of options, (vi) permitting Non-Qualified Stock
Options to have a term of greater than 10 years and permitting the Committee or
the Board to extend the term of outstanding options, (vii) enabling the Board of
Directors or the Stock Option Committee to amend, suspend or terminate the 1991
Plan from time to time without shareholder approval; provided, however, that,
any amendment to the 1991 Plan shall be subject to the approval of the
Company's shareholders if such shareholder approval is required by any federal
or state law or regulation (including, without limitation, Rule 16b-3 or to
comply with Section 162(m) of the Code) or the rules of any stock exchange or
automated quotation system on which the Common Stock or Class B Common Stock may
then be listed or granted. Previously, the 1991 Plan could not be amended
without shareholder approval if the amendment would materially (a) increase the
benefits accruing to participants under the 1991 Plan, (b) increase the number
of securities that may be issued under the 1991 Plan, or (c) modify the
requirements as to eligibility for participation in the 1991 Plan. The 1991 Plan
also has been amended, in accordance with Section 162(m) of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), to provide for a
maximum number of options that may be granted to any optionee. Pursuant to this
amendment, no one 1991 Plan participant may be granted an aggregate number of
options exceeding 2,500,000 shares of Common Stock and Class B Common Stock,
subject to adjustment as provided in the 1991 Plan. In addition, the 1991 Plan
has been amended to increase the number of shares eligible for grant from
2,808,750 to 3,500,000. The material features of the 1991 Plan, as amended by
the amendments described above, are discussed below, but the description is
subject to, and is qualified in its entirety by, the full text of the 1991 Plan,
which is available from the Company upon request. Unless the context otherwise
requires, the "1991 Plan" refers to the 1991 Plan as amended and restated.
GENERAL TERMS AND CONDITIONS
The purpose of the 1991 Plan is to advance the interest of the Company by
providing additional incentives to attract and retain qualified and competent
persons, who provide services to the Company and its subsidiaries, and upon
whose efforts and judgment the success of the Company and such entities is
largely dependent, through the encouragement of stock ownership in the Company
by such persons. In furtherance of this purpose, the 1991 Plan authorizes (a)
the granting of incentive or nonqualified stock options to purchase Common Stock
or Class B Common Stock to key employees, executive officers, independent
contractors and directors (whether or not employees) satisfying the description
above, (b) the provision of loans for the purpose of financing the exercise of
options and the amount of taxes payable in connection therewith, and (c) the use
of already owned Common Stock or Class B Common Stock as payment of the exercise
price for options granted under the 1991 Plan and other forms of cashless
exercises of options. In addition, the Committee or the Board may, in its sole
discretion, permit an optionee to elect to defer receipt of any shares to which
the optionee may be entitled as a result of the exercise of any option in
accordance with the rules (including rules regarding when such elections must be
made) as the Committee or the Board may establish from time to time. A total of
3,500,000 shares of Common Stock and Class B Common Stock are currently reserved
for issuance under the 1991 Plan. As of the Record Date, options to purchase
2,635,677 shares of Common Stock and Class B Common Stock had been granted under
the 1991 Plan. The 1991 Plan also provides that each Outside Director, who was
not granted an option to purchase shares prior to 1993, shall receive options to
purchase 7,500 shares of Common Stock on the date of his or her initial election
as a director, which options become fully exercisable at 20% per year commencing
on the one-year anniversary date of the grant. Each Outside Director who was
granted an option to purchase shares of Common Stock
17
prior to 1993 is permitted to receive, commencing on the sixth anniversary of
the date of the last grant of an option to such Outside Director, an option to
purchase 1,000 shares of Common Stock which options become full exercisable on
the first anniversary of the date of grant. The unexercised portion of any
option granted to a Outside Director becomes null and void three months after
the date on which such Outside Director ceases to be a director of the Company
for any reason. The primary purpose for the grants to the Outside Directors is
to provide a means for such directors to increase their interest as shareholders
of the Company, which serves to align the interest of such directors with other
shareholders of the Company.
The Stock Option Committee, or the Board, if this proposal is approved by
the shareholders at the Annual Meeting, has the power to determine the terms of
options granted to employee directors and all other eligible participants,
including the exercise price, the number of shares subject to the option and the
exercisability thereof, except that the per share exercise price of incentive
stock options and of formula grants of options to Outside Directors cannot be
less than the fair market value of the Common Stock or Class B Common Stock on
the date of grant. Each option is exercisable after the period or periods
specified in the option agreement, and the term of such outstanding options may
be extended by the Stock Option Committee or the Board. In general, options
granted under the 1991 Plan are not transferable other than by will or by the
laws of descent and distribution, however, Non- Qualified Stock Options may be
transferred with the prior written consent of the Stock Option Committee or the
Board and provided that the transfer does not violate the provisions of Rule
16b-3. The 1991 Plan also authorizes the Company to make loans to optionees to
enable them to exercise their options. Such loans 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 or Class B Common Stock purchased. The Stock Option Committee or
the Board of Directors has the authority to amend or terminate the 1991 Plan,
provided that no such action may impair the rights of the holder of any
outstanding option without the written consent of such holder, and provided
further that certain amendments of the 1991 Plan are subject to shareholder
approval. Unless terminated sooner, the 1991 Plan will terminate in 2001.
Subject to the provisions in any separate employment agreement with an
optionee, the unexercised portion of any option granted to an employee 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 the termination of the optionee's employment
for Cause; (c) one year after the date on which the optionee's employment is
terminated by reason of mental or physical disability; or (d) (i) one year after
the date on which the optionee's employment is terminated by reason of the death
of the employee, or (ii) 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 a holder of an option, the 1991 Plan
provides for 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 subdivision or consolidation of
shares, any stock dividend, recapitalization or other capital adjustment of the
Company. Provisions governing the effect upon options of a merger, consolidation
or other reorganization of the Company are also included in the 1991 Plan.
18
FEDERAL INCOME TAX EFFECTS
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 1991 Plan, an optionee 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 his holding
period for those shares will begin on that date.
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 his
holding period for those shares will include his 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 constitutes an ordinary and necessary business expense for the Company
and is reasonable in amount, and either the employee 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 to employees of the Company or its subsidiaries. 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
19
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 or
long-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.
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 or her 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.
20
OPTIONS GRANTED UNDER THE 1991 PLAN
As of the Record Date, options to purchase 918,154 shares of Common Stock
and 845,251 shares of Class B Common Stock were outstanding at exercise prices
ranging from $4 to $29-3/8 per share (fair market value at the dates of grant).
Of these, options to purchase 514,406 shares of Common Stock and 654,420 shares
of Class B Common Stock were exercisable at prices ranging from $4 to $22-3/4
per share.
The table below indicates, as of the Record Date, the aggregate number
(adjusted for stock dividends and stock splits) of options granted under the
1991 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 627,187 846,125 280,312 787,062
and President
Ronald P. Newman V.P., Finance and 181,732 82,519 - 58,189
Secretary
Barry S. Logan Treasurer 36,250 - 36,250 -
All current Executive
Officers (3 persons) 845,169 928,644 316,562 845,251
All current directors
who are not Executive
Officers (8 persons) 178,548 - 107,665 -
All employees, other than
Executive Officers (90 persons) 730,030 292,053 493,927 -
The Stock Option Committee 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 Stock Option 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, except (i) to the extent already granted, and (ii) no
one plan participant may be granted an aggregate number of options exceeding
2,500,000 shares subject to adjustment as provided in the 1991 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO
RATIFY THE COMPANY'S SECOND AMENDED AND RESTATED 1991 STOCK OPTION PLAN.
21
III.
PROPOSAL TO RATIFY THE COMPANY'S
1996 QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
Effective July 1, 1996, the Board of Directors adopted, subject to
shareholder approval, the 1996 Qualified Employee Stock Purchase Plan (the
"Stock Purchase Plan"). A general description of the basic features of the Stock
Purchase Plan is presented below, but such description is qualified in its
entirety by the full text of the Stock Purchase Plan, which is available from
the Company upon request.
GENERAL TERMS AND CONDITIONS
The purpose of the Stock Purchase Plan is to encourage stock ownership in
the Company by employees of the Company and those subsidiaries of the Company
designated by the Compensation Committee as eligible to participate, thereby
enhancing employee interest in the continued success and progress of the
Company.
The Stock Purchase Plan permits employees to purchase stock of the Company
at a favorable price and possibly with favorable tax consequences to the
participants. All employees (including officers, other than Mr. Nahmad) of the
Company or of those subsidiaries designated by the Compensation Committee who
are regularly scheduled to work at least 20 hours per week and more than five
months per year are eligible to participate in any of the purchase periods of
the Stock Purchase Plan after completing 90 days of continuous employment.
However, any participant who would own (as determined under the Code),
immediately after the grant of an option, stock possessing 5% or more of the
total combined voting power or value of all classes of the stock of the Company
will not be granted an option under the Stock Purchase Plan. As of the Record
Date, the Company had approximately 1,600 eligible participants.
The Stock Purchase Plan is administered by the Compensation Committee
appointed by the Board consisting of persons who are Non-Employee Directors
under Rule 16b-3 under the Exchange Act. The Stock Purchase Plan gives broad
powers to the Compensation Committee to administer and interpret the Stock
Purchase Plan.
Purchase periods begin on January 1, April 1, July 1, and October 1 of each
year. No later than 15 days before the commencement date of each purchase
period, each participant must elect to have compensation withheld during the
purchase period of a specific dollar amount of not less than $10 per payroll
period for employees that are paid weekly, $20 for employees that are paid
either bi-weekly or semi-monthly or a minimum $100 lump sum purchase. The
percentage or amount designated may not be increased or decreased during a
purchase period, but a participant can discontinue payroll deductions for the
remainder of a purchase period and withdraw his or her funds entirely. As of the
first day of the purchase period, a participant is granted an option to purchase
that number of shares determined by dividing the total amount to be withheld by
the purchase price described below. Based on the amount of salary withheld at
the end of the purchase period, shares will be purchased for the account of each
participant within five business days of the termination date of such purchase
period (the "Purchase Date"). In no event, however, may a participant receive an
option for shares which would cause the participant to own 5% or more of the
total combined voting power of all classes of common stock of the Company. The
purchase price to be paid by the participants will be the lower of the amount
determined under Paragraphs A and B below:
22
A. 85% of the closing sales price of the Company's Common Stock as
reported on the New York Stock Exchange as of the commencement date of the
purchase period; or
B. 85% of the closing sales price of the Company's Common Stock as
reported on the New York Stock Exchange as of the Purchase Date.
As required by tax law, no participant may receive an option under the
Stock Purchase Plan for shares which have a fair market value in excess of
$25,000 in one calendar year. Any funds not used to purchase shares remain
credited to the participant's account and applied to the purchase of shares of
Common Stock in the next succeeding purchase period. No interest is paid by the
Company on funds withheld, and such funds are used by the Company for general
operating purposes. In general, the shares of Common Stock purchased by a
participant may not be sold, transferred or disposed of by the participant other
than by will or laws of descent and distribution or to immediate family members
or trusts established for their benefit, for a period of 12 months.
The Compensation Committee may, from time to time, revise or amend the
Stock Purchase Plan as the Compensation Committee may deem proper and in the
best interest of the Company or as may be necessary to comply with Section 423
of the Code; provided, that no such revision or amendment may, without prior
approval of the Company's shareholders, (i) increase the total number of shares
for which options may be granted under the Stock Purchase Plan except as
provided in the case of stock splits, consolidations, stock dividends or similar
events, (ii) materially modify requirements as to eligibility for participation
in the Stock Purchase Plan, or (iii) materially increase the benefits accruing
to participants under the Stock Purchase Plan.
Under the Stock Purchase Plan, 200,000 shares of the Company's Common Stock
are reserved for issuance during the duration of the Stock Purchase Plan.
The Board of Directors shall equitably adjust the number of shares
remaining reserved for issuance, the number of shares of stock subject to
outstanding options and the price per share of stock subject to an option in the
event of certain increases or decreases in the number of outstanding shares of
Common Stock of the Company effected as a result of stock splits or
consolidations, stock dividends or other transactions in which the Company
receives no consideration.
FEDERAL INCOME TAX EFFECTS
Options granted under the Stock Purchase Plan are intended to qualify for
favorable tax treatment to the employees under Sections 421 and 423 of the Code.
Employee contributions are made on an after-tax basis. A capital gain or capital
loss on Common Stock purchased under the Stock Purchase Plan would not be
realized until the participant would sell the shares of Common Stock. If a
participant disposes of shares two years or more after the date of the beginning
of the purchase period when the shares were acquired, and more than one year
after the shares are purchased, the participant would recognize as ordinary
income the lesser of: (i) the excess of the fair market value of the shares on
the date of sale over the price paid or (ii) 15% of the fair market value of the
shares at the beginning of the purchase period(s). Additionally, the participant
would recognize a long-term capital gain or loss (within the meaning of the
Code) equal to the difference between the amount realized from the sale of the
shares and the basis (the basis would be the purchase price plus any amount
taxed as ordinary
23
compensation income). If a participant disposes of shares within two years of
the date of the beginning of the purchase period when the shares were acquired,
or within one year after the shares are purchased, the participant would
recognize ordinary compensation income equal to the excess of the fair market
value of the shares on the purchase date(s) over the price paid for the shares.
Additionally, the participant would recognize a capital gain or loss (within the
meaning of the Code) equal to the difference between the amount realized from
the sale of the shares and the basis (the basis would be the purchase price plus
the amount taxed as ordinary compensation income). If the participant held the
shares for more than one year, the capital gain or loss would be a long-term
gain or loss. The Company would not receive an income tax deduction upon either
the grant or exercise of the option by the participant, but generally would
receive a deduction equal to the ordinary compensation income required to be
recognized by the participant as a result of the disposition if the shares are
disposed of by the participant within two years of purchase.
IMPORTANCE OF CONSULTING A 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
participant may depend on his or her particular situation, each participant
should consult his or her tax adviser as to the Federal, state, local and other
tax consequences of the acquisition or disposition of Common Stock under the
Stock Purchase Plan.
SHARES PURCHASED UNDER THE STOCK PURCHASE PLAN
The following table sets forth certain information, as of December 31,
1996, regarding shares purchased under the Stock Purchase Plan by the persons
and groups indicated:
AGGREGATE AGGREGATE AGGREGATE
NUMBER OF PURCHASE PRICE DOLLAR VALUES AT
NAME OF INDIVIDUAL OR GROUP POSITION SHARES PURCHASED PAID TO COMPANY PURCHASE DATES(1)
- ----------------------------- ------------------------ ------------------- ------------------ -------------------
Albert H. Nahmad Chairman of the Board - - -
and President(2)
Ronald P. Newman V.P., Finance and 1,212 21,250 13,748
Secretary
Barry S. Logan Treasurer 1,196 20,904 13,631
All current Executive
Officers (2 persons) 2,408 42,154 27,379
All current directors
who are not Executive
Officers(2) - - -
All employees, other than
Executive Officers
(300 persons) 86,959 1,522,002 988,938
- ----------------
(1) Aggregate Dollar Values at Purchase Dates represents the aggregate market
value of the shares acquired on the Purchase Dates in 1996, less the
aggregate purchase price paid for such shares under the Stock Purchase Plan.
Purchase Dates during 1996 occurred on September 30, 1996 and December 31,
1996.
(2) Not eligible to participate.
24
The Compensation Committee believes that shares granted under the Stock
Purchase Plan have been and will be awarded to all employees presently meeting
the existing eligibility requirements, except no one plan participant may be
granted an aggregate number of shares with a fair market value exceeding $25,000
in one calendar year as determined at the beginning of each purchase period as
defined under the Stock Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO
RATIFY THE COMPANY'S 1996 QUALIFIED EMPLOYEE STOCK PURCHASE PLAN.
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, 1997.
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, 1997.
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.
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
1998 Annual Meeting to Shareholders must deliver a proposal in writing to the
Company's principal executive offices on or before December 15, 1997.
By Order of the Board of Directors
RONALD P. NEWMAN, Secretary
Coconut Grove, Florida
April 21, 1997
25
WATSCO, INC.
PROXY FOR COMMON STOCK
1997 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 1997
Annual Meeting of Shareholders of WATSCO, INC. to be held on Friday, May 30,
1997, at 10:00 A.M., Eastern Standard Time, at the Hyatt Regency Coral Gables,
50 Alhambra Plaza, Coral Gables, Florida 33134, and at any and all adjournments
thereof, on the following matters:
(1) FOR [ ] WITHHOLD VOTE [ ] the election of Alan H. Potamkin as a Common
Stock Director to serve until the Annual Meeting of
Shareholders in 2000 or until his successor is duly
elected and qualified;
(2) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the proposal to ratify the
Company's Second Amended and Restated
1991 Stock Option Plan;
(3) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the proposal to ratify the
Company's 1996 Qualified Employee Stock
Purchase Plan;
(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, 1997; 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)
(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 1996
Annual Report to Shareholders, (ii) the Proxy Statement and (iii) the Notice of
Annual Meeting dated April 21, 1997.
Date:______________, 1997
_____________________________
_____________________________
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.
WATSCO, INC.
PROXY FOR CLASS B COMMON STOCK
1997 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 1997
Annual Meeting of Shareholders of WATSCO, INC. to be held on Friday, May 30,
1997, at 10:00 A.M., Eastern Standard Time, at the Hyatt Regency Coral Gables,
50 Alhambra Plaza, Coral Gables, Florida 33134, and at any and all adjournments
thereof, on the following matters:
(1) FOR [ ] WITHHOLD VOTE [ ] the election of Roberto Motta and Cesar L.
Alvarez as Class B Directors to serve until the
Annual Meeting of Shareholders in 2000 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 ratify the
Company's Second Amended and Restated
1991 Stock Option Plan;
(3) FOR [ ] AGAINST [ ] WITHHOLD VOTE [ ] the proposal to ratify the
Company's 1996 Qualified Employee Stock
Purchase Plan;
(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, 1997; 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)
(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 1996
Annual Report to Shareholders, (ii) the Proxy Statement and (iii) the Notice of
Annual Meeting dated April 21, 1997.
Date:_______________, 1997
_____________________________
_____________________________
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.
INDEX TO EXHIBIT
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.18 Second Amended and Restated 1991 Stock Option Plan
EXHIBIT 10.18
----------------------------------------------------
WATSCO, INC.
SECOND AMENDED AND RESTATED
1991 STOCK OPTION PLAN
----------------------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the interests of
Watsco, Inc., a Florida corporation (the "Company"), and its Subsidiaries by
providing an additional incentive to attract and retain qualified and competent
persons who provide services to the Company and its Subsidiaries, and upon whose
efforts and judgment the success of the Company and its Subsidiaries is largely
dependent, through the encouragement of stock ownership in the Company by such
persons.
2. DEFINITIONS. As used herein, the following terms shall have the meaning
indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the stock option committee appointed
by the Board pursuant to Section 13(a) hereof.
(c) "Director" shall mean a member of the Board.
(d) "Fair Market Value" of a Share on any date of reference shall
mean the "Closing Price" (as defined below) on the business day immediately
preceding such date of the Common Stock, par value $.05. per share, of the
Company (the "Common Stock"), in the case of options to purchase Common Stock,
and the Class B Common Stock, par value $.50 per share, of the Company (the
"Class B Common Stock"), in the case of options to purchase Class B Common
Stock, unless the Committee in its sole discretion shall determine otherwise in
a fair and uniform manner. For the purpose of determining Fair Market Value, the
"Closing Price" of the Common Stock or the Class B Common Stock on any business
day shall be (i) if such common stock is listed or admitted for trading on any
United States national securities exchange, or if actual transactions are
otherwise reported on a consolidated transaction reporting system, the last
reported sale price of such common stock on such exchange or reporting system,
as reported in any newspaper of general circulation, (ii) if such common stock
is quoted on the National Association of Securities Dealers Automated Quotations
System ("NASDAQ"), or any similar system of automated dissemination of
quotations of securities prices in common use, the last reported sale price of
such common stock on such system or, if sales prices are not reported, the mean
between the closing high bid and low asked quotations for such day of such
common stock on such system, as reported in any newspaper of general circulation
or (iii) if neither clause
(i) or (ii) is applicable, the mean between the high bid and low asked
quotations for such common stock as reported by the National Quotation Bureau,
Incorporated if at least two securities dealers have inserted both bid and
asked quotations for such common stock on at least five of the ten preceding
days. If neither (i), (ii), or (iii) above is applicable, then Fair Market
Value shall be determined in good faith by the Committee or the Board in a fair
and uniform manner.
(e) "Incentive Stock Option" shall mean an incentive stock option
as defined in Section 422 of the Internal Revenue Code.
(f) "Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time.
(g) "Non-Qualified Stock Option" shall mean an Option which is
not an Incentive Stock Option.
(h) "Option" (when capitalized) shall mean any option granted
under this Plan.
(i) "Optionee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(j) "Outside Director" shall mean a member of the Board who
qualifies as an "outside director" under Section 162(m) of the Internal Revenue
Code and the regulations thereunder and as a "Non-Employee Director" under Rule
16b-3 promulgated under the Securities Exchange Act.
(k) "Plan" shall mean this Second Amended and Restated 1991 Stock
Option Plan for the Company.
(l) "Securities Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.
(m) "Share" shall mean a share or shares of either the Common
Stock or Class B Common Stock.
(n) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. SHARES AVAILABLE FOR OPTION GRANTS. The Committee or the Board may
grant to Optionees from time to time Options to purchase an aggregate of up to
Three Million Five
-2-
Hundred Thousand (3,500,000) Shares from the Company's authorized and unissued
Shares. If any Option granted under the Plan shall terminate, expire, or be
cancelled or surrendered as to any Shares, new Options may thereafter be
granted covering such Shares.
4. INCENTIVE AND NON-QUALIFIED OPTIONS.
(a) An Option granted hereunder shall be either an Incentive
Stock Option or a Non-Qualified Stock Option as determined by the Committee or
the Board at the time of grant of such Option and shall clearly state whether it
is an Incentive Stock Option or a Non-Qualified Stock Option. All Incentive
Stock Options shall be granted within 10 years from the effective date of this
Plan. Incentive Stock Options may not be granted to any person who is not an
employee of the Company or any Subsidiary.
(b) Options otherwise qualifying as Incentive Stock Options
hereunder will not be treated as Incentive Stock Options to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the Shares, with respect to which Options meeting the requirements of Section
422(b) of the Internal Revenue Code are exercisable for the first time by any
individual during any calendar year (under all plans of the Company and its
parent and subsidiary corporations as defined in Section 424 of the Internal
Revenue Code), exceeds $100,000.
5. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that
may contain any term deemed necessary or desirable by the Committee or the
Board, provided such terms are not inconsistent with this Plan or any applicable
law. Optionees shall be (i) those persons selected by the Committee from the
class of all regular employees of, or persons who provide consulting or other
services as independent contractors to, the Company or its Subsidiaries,
including Directors and officers who are regular employees of the Company or any
Subsidiaries, and (ii) Directors who are not employees of the Company or of any
Subsidiaries. Any person who files with the Committee or the Board, in a form
satisfactory to the Committee or the Board, a written waiver of eligibility to
receive any Option under this Plan shall not be eligible to receive any Option
under this Plan for the duration of such waiver.
(b) In granting Options, the Committee or the Board shall take
into consideration the contribution the person has made to the success of the
Company or its Subsidiaries and such other factors as the Committee or the Board
shall determine. The Committee or the Board shall also have the authority to
consult with and receive recommendations from officers and other personnel of
the Company and its Subsidiaries with regard to these matters. The Committee or
the Board may from time to time in granting Options under the Plan prescribe
such other terms and conditions concerning such Options as it deems appropriate,
including, without limitation, (i) prescribing the date or dates on which the
Option becomes exercisable, (ii) providing that the Option rights accrue or
become exercisable in installments over a period of years, or upon the
attainment of stated goals or both, or (iii) relating an Option to
-3-
the continued employment of the Optionee for a specified period of time,
provided that such terms and conditions are not more favorable to an Optionee
than those expressly permitted herein.
(c) The Options granted to employees under this Plan shall be in
addition to regular salaries, pension, life insurance or other benefits related
to their employment with the Company or its Subsidiaries. Neither the Plan nor
any Option granted under the Plan shall confer upon any person any right to
employment or continuance of employment by the Company or its Subsidiaries.
(d) Notwithstanding any other provision of this Plan, an
Incentive Stock Option shall not be granted to any person owning directly or
indirectly (through attribution under Section 424(d) of the Internal Revenue
Code) at the date of grant, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company (or of its parent or
subsidiary corporation [as defined in Section 424 of the Internal Revenue Code]
at the date of grant) unless the option price of such Option is at least 110% of
the Fair Market Value of the Shares subject to such Option on the date the
Option is granted, and such Option by its terms is not exercisable after the
expiration of five years from the date such Option is granted.
(e) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, the aggregate number of Options
granted to any one Optionee may not exceed 2,500,000 subject to adjustment as
provided in Section 10 hereof.
6. OPTION PRICE. The option price per Share of any Option shall be any
price determined by the Committee or the Board but shall not be less than the
par value per Share; provided, however, that in no event shall the option price
per Share of any Incentive Stock Option be less than the Fair Market Value of
the Shares underlying such Option on the date such Option is granted.
7. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i) the
Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee or the Board in its sole discretion have
been made for the Optionee's payment to the Company of the amount that is
necessary for the Company or Subsidiary employing the Optionee to withhold in
accordance with applicable Federal or state tax withholding requirements. Unless
further limited by the Committee or the Board in any Option, and subject to such
guidelines as the Committee or the Board may establish, the option price of any
Shares purchased shall be paid (1) in cash, (2) by certified or official bank
check, (3) by money order, (4) with Shares, (5) by the withholding of Shares
issuable upon exercise of the Option or by any other form of cashless exercise
procedure approved by the Committee or the Board , or (6) in such other
consideration as the Committee or the Board deems appropriate, or by a
combination of the above. The Committee or the Board also may, in its sole
discretion, permit an Optionee to elect to defer receipt of any Shares to which
he may be entitled as a result of his exercise of any Option, in accordance with
such rules
-4-
(including without limitation rules regarding when such elections must be made)
as the Committee or the Board may establish from time to time. The
Committee or the Board in its sole discretion may accept a personal check in
full or partial payment of any Shares. If the exercise price is paid in whole or
in part with Shares, or through the withholding of Shares issuable upon exercise
of the Option, the value of the Shares surrendered or withheld shall be their
Fair Market Value on the date the Option is exercised. The Company in its sole
discretion may, on an individual basis or pursuant to a general program
established in connection with this Plan, lend money to an Optionee, guarantee a
loan to an Optionee, or otherwise assist an Optionee to obtain the cash
necessary to exercise all or a portion of an Option granted hereunder or to pay
any tax liability of the Optionee attributable to such exercise. If the exercise
price is paid in whole or part with Optionee's promissory note, such note shall
(i) provide for full recourse to the maker, (ii) be collateralized by the pledge
of the Shares that the Optionee purchases upon exercise of such Option, (iii)
bear interest at the prime rate of the Company's principal lender, and (iv)
contain such other terms as the Board in its sole discretion shall reasonably
require. No Optionee shall be deemed to be a holder of any Shares subject to an
Option unless and until a stock certificate or certificates for such Shares are
issued to such person(s) under the terms of this Plan. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as expressly provided
in Section 10 hereof.
8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in such
amounts, at such intervals and upon such terms as the Committee or the Board
shall provide in such Option, except as otherwise provided in this Section 8.
(a) The expiration date of an Option shall be determined by the
Committee or the Board at the time of grant, but in no event shall an Incentive
Stock Option be exercisable after the expiration of 10 years from the date on
which the Option is granted. Non-Qualified Stock Options may have a term that
expires more than 10 years from the date on which the Option is granted, and the
term of any outstanding Non-Qualified Stock Options may be extended by the Board
or the Committee in its discretion.
(b) Unless otherwise provided in any Option, each outstanding
Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall
include a series of transactions occurring within 60 days or occurring pursuant
to a plan), that has the result that shareholders of the Company immediately
before such transaction cease to own at least 51 percent of the voting stock of
the Company or of any entity that results from the participation of the Company
in a reorganization, consolidation, merger, liquidation or any other form of
corporate transaction;
(ii) if the shareholders of the Company shall approve
a plan of merger, consolidation, reorganization, liquidation or dissolution in
which the Company does not survive
-5-
(unless the approved merger, consolidation, reorganization, liquidation or
dissolution is subsequently abandoned); or
(iii) if the shareholders of the Company shall approve
a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).
(c) The Committee or the Board may in its sole discretion
accelerate the date on which any Option may be exercised and may accelerate the
vesting of any Shares subject to any Option or previously acquired by the
exercise of any Option.
9. TERMINATION OF OPTION PERIOD. The unexercised portion of any Option
shall automatically and without notice terminate and become null and void at the
time of the earliest to occur of the following:
(i) three months after the date on which the
Optionee's employment is terminated for any reason other than by reason of (A)
Cause, which, solely for purposes of this Plan, shall mean the termination of
the Optionee's employment by reason of the Optionee's willful misconduct or
gross negligence, (B) a mental or physical disability (within the meaning of
Internal Revenue Code Section 22(e)) as determined by a medical doctor
satisfactory to the Committee, or (C) death;
(ii) immediately upon the termination of the
Optionee's employment for Cause;
(iii) twelve months after the date on which the
Optionee's employment is terminated by reason of a mental or physical disability
(within the meaning of Internal Revenue Code Section 22(e)) as determined by a
medical doctor satisfactory to the Committee or the Board;
(iv) (A) twelve months after the date of termination
of the Optionee's employment by reason of death of the Optionee, or (B) three
months after the date on which the Optionee shall die if such death shall occur
during the one year period specified in Subsection 9(a)(iii) hereof.
All references herein to the termination of the Optionee's employment shall, in
the case of a Optionee who is not an employee of the Company or a Subsidiary,
refer to the termination of the Optionee's service with the Company.
(b) The Committee or the Board in its sole discretion may by
giving written notice ("cancellation notice") cancel, effective upon the date of
the consummation of any corporate transaction described in Subsections 8(b)(ii)
or (iii) hereof that remains unexercised on such date. Such cancellation notice
shall be given a reasonable period of time prior to the
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proposed date of such cancellation and may be given either before or
after-approval of such corporate transaction.
10. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan, or available for
grant to any person under the Plan, so that the same percentage of the Company's
issued and outstanding Shares shall continue to be subject to being so optioned;
and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) Unless otherwise provided in any Option, the Committee or the
Board may change the terms of Options outstanding under this Plan, with respect
to the option price or the number of Shares subject to the Options, or both,
when, in the Committee's or Board's sole discretion, such adjustments become
appropriate so as to preserve but not increase benefits under the Plan.
(c) Except as otherwise expressly provided herein, the issuance
by the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection with
a direct sale or upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made to, the number of or exercise price for Shares then
subject to outstanding Options granted under the Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
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11. TRANSFERABILITY OF OPTIONS AND SHARES.
(a) Except as otherwise provided in paragraph (b) hereof, (i) no
Option, shall be subject to alienation, assignment, pledge, charge or other
transfer other than by the Optionee by will or the laws of descent and
distribution, and any attempt to make any such prohibited transfer shall be
void; (ii) each Option shall be exercisable during the Optionee's lifetime only
by the Optionee, or in the case of a Non-Qualified Stock Option that has been
assigned or transferred with the prior written consent of the Committee or the
Board, only by the permitted assignee.
(b) A Non-Qualified Stock Option may be transferred by the
Optionee to one of more transferees during the lifetime of the Optionee, and may
be exercised by such transferees in accordance with the terms of the Plan and
the Option, but only if and to the extent such transfers and exercises are
permitted by the Board or the Committee pursuant to the express terms of the
Option agreement or as otherwise agreed to in writing by the Board or the
Committee, and subject to (i) any terms and conditions which the Board or the
Committee may impose thereon and (ii) any prohibitions or restrictions on such
transfers pursuant to Rule 16b-3 promulgated under the Securities Exchange Act.
(c) Unless the prior written consent of the Committee or the
Board is obtained and the transaction does not violate the requirements of Rule
16b-3 promulgated under the Securities Exchange Act, no Shares acquired by an
officer or Director pursuant to the exercise of an Option may be sold, assigned,
pledged or otherwise transferred prior to the expiration of the six-month period
following the date on which the Option was granted.
12. ISSUANCE OF SHARES.
(a) Notwithstanding any other provision of this Plan, the Company
shall not be obligated to issue any Shares unless it is advised by counsel of
its selection that it may do so without violation of the applicable Federal and
State laws pertaining to the issuance of securities, and may require any stock
so issued to bear a legend, may give its transfer agent instructions, and may
take such other steps, as in its judgment are reasonably required to prevent any
such violation.
(b) As a condition to any sale or issuance of Shares upon
exercise of any Option, the Committee or the Board may require such agreements
or undertakings as the Committee or the Board may deem necessary or advisable to
facilitate compliance with any applicable law or regulation including, but not
limited to, the following:
(i) a representation and warranty by the Optionee to
the Company, at the time any Option is exercised, that he is acquiring the
Shares to be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
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(ii) a representation, warranty and/or agreement to be
bound by any legends endorsed upon the certificate(s) for such Shares that are,
in the opinion of the Committee or the Board, necessary or appropriate to
facilitate compliance with the provisions of any securities laws deemed by the
Committee or the Board to be applicable to the issuance and transfer of such
Shares.
13. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by a committee appointed by
the Board (the "Committee") which shall be composed of two or more Directors all
of whom shall be Outside Directors. The membership of the Committee shall be
constituted so as to comply at all times with the applicable requirements of
Rule 16b-3 promulgated under the Securities Exchange Act and Section 162(m) of
the Internal Revenue Code. The Committee shall serve at the pleasure of the
Board and shall have the powers designated herein and such other powers as the
Board may from time to time confer upon it.
(b) The Board may grant Options pursuant to this Plan to
Directors who are not employees of the Company or any Subsidiary and/or other
persons to whom Options may be granted under Section 5(a) hereof.
(c) The Committee or the Board, from time to time, may adopt
rules and regulations for carrying out the purposes of the Plan. The
determinations by the Committee or the Board, and the interpretation and
construction of any provision of the Plan or any Option by the Committee or the
Board, shall be final and conclusive.
(d) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written approval of the
members of the Committee.
14. WITHHOLDING OR DEDUCTION FOR TAXES. If at any time specified herein
for the making of any issuance or delivery of any Option or Common Stock to any
Optionee or beneficiary, any law or regulation of any governmental authority
having jurisdiction in the premises shall require the Company to withhold, or to
make any deduction for, any taxes or take any other action in connection with
the issuance or delivery then to be made, such issuance or delivery shall be
deferred until such withholding or deduction shall have been provided for by the
Optionee or beneficiary, or other appropriate action shall have been taken.
15. FORMULA GRANTS TO OUTSIDE DIRECTORS.
(a) Each Outside Director who was not granted an option to
purchase shares of Common Stock prior to 1993 will receive an option to purchase
7,500 shares of Common Stock upon his or her initial election to the Board. All
such options will become fully exercisable at 20% per year commencing on the
first anniversary of the date of grant. Commencing on the sixth anniversary of
the date of his or her initial election to the Board, and
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thereafter on each anniversary that such Director is a member of the Board each
such Outside Director will receive an option to purchase 1,000 shares of Common
Stock, which option will become fully exercisable on the first anniversary of
the date of grant.
(b) Each Outside Director who was granted an option to purchase
shares of Common Stock prior to 1993 will receive, commencing on the sixth
anniversary of the date of the last grant of an option to such Outside Director
and thereafter on each anniversary that such outside Director is a member of the
Board of Directors, an option to purchase 1,000 shares of Common Stock which
option will become fully exercisable on the first anniversary of the date of
grant.
(c) The per share exercise price of all Options granted to
Outside Directors pursuant to paragraphs (a) and (b) of this Section 15 will be
equal to the Fair Market Value of the Shares underlying such Option on the date
such Option is granted. The unexercised portion of any Option granted pursuant
to paragraphs (a) or (b) of this Section 15 shall become null and void three
months after the date on which such Outside Director ceases to be a Director for
any reason.
(d) The Board may also grant Options to Outside Directors
pursuant to Section 5, subject to the provisions of the Plan generally
applicable to Options granted pursuant to Section 5.
16. INTERPRETATION.
(a) As it is the intent of the Company that the Plan comply in
all respects with Rule 16b-3 promulgated under the Securities Exchange Act
("Rule 16b-3"), any ambiguities or inconsistencies in construction of the Plan
shall be interpreted to give effect to such intention, and if any provision of
the Plan is found not to be in compliance with Rule 16b-3, such provision shall
be deemed null and void to the extent required to permit the Plan to comply with
Rule 16b-3. The Committee or the Board may from time to time adopt rules and
regulations under, and amend, the Plan in furtherance of the intent of the
foregoing.
(b) The Plan shall be administered and interpreted so that all
Incentive Stock Options granted under the Plan will qualify as Incentive Stock
Options under section 422 of the Internal Revenue Code. If any provision of the
Plan should be held invalid for the granting of Incentive Stock Options or
illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead the Plan shall be construed and enforced as if
such provision had never been included in the Plan.
(c) This Plan shall be governed by the laws of the State of
Florida.
(d) Headings contained in this Plan are for convenience only and
shall in no manner be construed as part of this Plan.
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(e) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
17. AMENDMENT AND DISCONTINUATION OF THE PLAN. The Committee or the Board
may from time to time amend, suspend or terminate the Plan or any Option;
provided, however, that, any amendment to the Plan shall be subject to the
approval of the Company's shareholders if such shareholder approval is required
by any federal or state law or regulation (including, without limitation, Rule
16b-3 or to comply with Section 162(m) of the Internal Revenue Code) or the
rules of any Stock exchange or automated quotation system on which the Common
Stock may then be listed or granted. Except to the extent provided in Sections 9
and 10 hereof, no amendment, suspension or termination of the Plan or any Option
issued hereunder shall substantially impair the rights or benefits of any
Optionee pursuant to any Option previously granted without the consent of the
Optionee.
18. EFFECTIVE DATE AND TERMINATION DATE. The Plan shall terminate on the
tenth anniversary of the date on which it first was adopted by the Board. The
effective date of this Second Amendment and Restatement of the Plan shall be the
date on which the Board adopts this Second Amendment and Restatement of the
Plan.
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