UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

 

 

Watts Water Technologies, Inc.

March 27, 2006

Dear Stockholder:

We cordially invite you to attend our 2006 Annual Meeting of Stockholders, which will be held on Thursday, May 4, 2006 at 10:00 a.m., at The Andover Inn at Phillips Academy, Chapel Avenue, Andover, Massachusetts 01810.

On the pages following this letter you will find the notice of our 2006 Annual Meeting, which lists the business matters to be considered at the meeting, and the proxy statement, which describes the matters listed in the notice. We have also enclosed your proxy card and our annual report for the year ended December 31, 2005.

Your support of our efforts is important to the other directors and to me regardless of the number of shares you own. I hope you will vote as soon as possible. If you are a stockholder of record, you may vote by completing, signing and mailing the enclosed proxy card in the envelope provided. If your shares are held in “street name”—that is, held for your account by a broker or other nominee—you will receive instructions from the holder of record that you must follow for your shares to be voted.

Following completion of the scheduled business at the 2006 Annual Meeting, we will report on our operations and answer questions from stockholders. We hope that you will be able to join us on May 4th.

 

 

WATTS WATER TECHNOLOGIES, INC.
815 Chestnut Street
North Andover, MA 01845

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 4, 2006

To the Stockholders of
Watts Water Technologies, Inc.

Notice is hereby given that the 2006 Annual Meeting of Stockholders of Watts Water Technologies, Inc., a Delaware corporation (the “Company”), will be held at The Andover Inn at Phillips Academy, Chapel Avenue, Andover, Massachusetts 01810, on Thursday, May 4, 2006, at 10:00 a.m., local time (the “Annual Meeting”), for the following purposes:

1.                To elect to the Board of Directors of the Company seven directors, each to hold office until the Company’s 2007 Annual Meeting of Stockholders and until such director’s successor is duly elected and qualified;

2.                To ratify the selection of KPMG LLP as the independent registered public accounting firm of the Company for the current fiscal year; and

3.                To consider and act upon any other matters that may properly come before the Annual Meeting.

Only stockholders of record at the close of business on March 21, 2006 are entitled to notice of and to vote at the meeting or any adjournment or postponement thereof.

 

North Andover, Massachusetts
March 27, 2006

WATTS WATER TECHNOLOGIES, INC.

ANNUAL MEETING OF STOCKHOLDERS
May 4, 2006
PROXY STATEMENT

INFORMATION CONCERNING SOLICITATION AND VOTING

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Watts Water Technologies, Inc. (the “Company”) for use at the Company’s 2006 Annual Meeting of Stockholders to be held on Thursday, May 4, 2006 at 10:00 a.m., local time, at The Andover Inn at Phillips Academy, Chapel Avenue, Andover, Massachusetts 01810 and at any adjournment or postponement thereof (the “Annual Meeting”).

This proxy statement and the enclosed proxy are first being mailed together by the Company on or about March 27, 2006 to stockholders of record as of March 21, 2006. The Company’s Annual Report for the fiscal year ended December 31, 2005 is being mailed to such stockholders of the Company concurrently with this proxy statement. The Company will furnish, upon written request of any stockholder and the payment of an appropriate processing fee, copies of the exhibits to its Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Please address all such requests to Lester J. Taufen, Secretary, Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, MA  01845.

Only stockholders of record at the close of business on March 21, 2006 are entitled to receive notice of and to vote at the Annual Meeting. Each share of class A common stock, par value $.10 per share, of the Company outstanding on the record date is entitled to one vote, and each share of class B common stock, par value $.10 per share, of the Company outstanding on the record date is entitled to ten votes. As of the close of business on March 21, 2006, there were outstanding and entitled to vote 25,353,181 shares of class A common stock and 7,293,880 shares of class B common stock.

If your shares are held in “street name,” your brokerage firm, under certain circumstances, may vote your shares for you if you do not return your proxy. Brokerage firms have authority under the rules of the New York Stock Exchange (“NYSE”) to vote customers’ unvoted shares on some routine matters. If you do not give a proxy to your brokerage firm to vote your shares, your brokerage firm may either vote your shares on routine matters or leave your shares unvoted. The election of directors (proposal 1) and the ratification of the selection of KPMG LLP as the Company’s independent registered public accounting firm (proposal 2) are considered routine matters. We encourage you to provide voting instructions to your brokerage firm by returning your completed proxy. This ensures your shares will be voted at the meeting according to your instructions. You should receive directions from your brokerage firm about how to submit your proxy to them at the time you receive this proxy statement.

The presence, in person or by proxy, of outstanding shares of class A common stock and class B common stock representing a majority of the total votes entitled to be cast is necessary to constitute a quorum for the transaction of business at the Annual Meeting. Shares that reflect abstentions will be counted for purposes of determining whether a quorum is present for the transaction of business at the Annual Meeting.

The seven nominees for director receiving the highest number of votes FOR election will be elected as directors. This is called a plurality. As discussed above, if your shares are held by your broker in “street name,” and if you do not vote your shares, your brokerage firm has authority under the rules of the NYSE to vote your unvoted shares on proposal 1. You may vote FOR all of the director nominees, WITHHOLD your vote from all of the director nominees or WITHHOLD your vote from any one or more of the director nominees. Votes that are withheld will not be included in the vote tally for the election of directors and will have no effect on the results of the vote.

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Ratification of the selection of KPMG as the Company’s independent registered public accounting firm for 2006 requires the affirmative vote of a majority of all the votes present or represented at the Annual Meeting and entitled to be cast on the proposal. As discussed above, if your shares are held by your broker in “street name,” and if you do not vote your shares, your brokerage firm has authority under the rules of the NYSE to vote your unvoted shares on proposal 2. If you vote to ABSTAIN on proposal 2, your shares will not be voted in favor of such proposal, although your shares will be considered to have been entitled to vote on the proposal. As a result, voting to ABSTAIN on proposal 2 has the effect of voting AGAINST such proposal.

Shares represented by duly executed proxies received by the Company and not revoked will be voted at the Annual Meeting in accordance with the instructions contained therein. If no instructions are given, properly executed proxies will be voted FOR the election of each of the nominees named herein for director, and FOR the ratification of the selection of KPMG as the independent registered public accounting firm of the Company for the current fiscal year.

Any properly completed proxy may be revoked at any time before it is voted on any matter by (1) giving written notice of such revocation to the Secretary of the Company at the address set forth below, (2) signing and duly delivering a proxy bearing a later date, or (3) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, revoke a proxy.

The principal executive offices of the Company are located at 815 Chestnut Street, North Andover, Massachusetts 01845.

The expenses of preparing, printing and assembling the materials used in the solicitation of proxies will be borne by the Company. In addition to the solicitation of proxies by use of the mails, the Company may also use the services of some of its officers and employees (who will receive no compensation for such services in addition to their regular salaries) to solicit proxies personally and by telephone and email. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward solicitation materials to the beneficial owners of shares held of record by them and will be reimbursed for their reasonable expenses.

Management of the Company does not know of any business other than the matters set forth in the Notice of Annual Meeting of Stockholders and described above that will be presented for consideration at the Annual Meeting. If any other business should come before the Annual Meeting, the proxies will be voted in accordance with the direction of the proxy holders. Each of the persons appointed by the enclosed form of proxy present and acting at the meeting, in person or by substitute, may exercise all of the powers and authority of the proxies in accordance with their judgment.

PROPOSAL 1
ELECTION OF DIRECTORS

The Board has fixed the number of directors at seven and nominated each of the individuals named below for election as a director. If elected, each nominee will serve until the Company’s 2007 Annual Meeting of Stockholders and until such director’s successor shall have been duly elected and qualified. Proxies will be voted for each of the nominees named below unless otherwise specified in the proxy. All of the nominees are presently members of the Board. Management does not contemplate that any of the nominees will be unable to serve, but in that event, proxies solicited hereby may be voted for a substitute nominee designated by the Board or the Board may choose to reduce the number of directors serving on the Board. Holders of shares representing votes sufficient to elect each of the nominees named below have indicated to the Company an intention to vote in favor of such nominees.

The Board of Directors recommends that stockholders vote FOR the election of each nominee as a director of the Company.

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INFORMATION AS TO NOMINEES FOR DIRECTOR

Set forth below is the name and age of each nominee for director, his principal occupation for at least the past five years, the year each became a director of the Company and certain other information. The information is as of February 1, 2006.

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DIRECTOR COMPENSATION

Directors of the Company who are employees of the Company receive no compensation for their service as directors. Non-employee directors are compensated for their service as directors as follows:

Cash Compensation

Each non-employee director of the Company receives:

 

Fees for attendance at regularly scheduled Board and/or committee meetings are limited to $1,000 per day for each non-employee director. The Company also reimburses non-employee directors for reasonable out-of-pocket expenses incurred in connection with attending Board and committee meetings.

Stock Compensation

Each non-employee director receives an annual grant of restricted stock under the Company’s 2004 Stock Incentive Plan with a fair market value on the date of grant equal to $30,000. The restricted stock awards vest in three equal annual installments beginning one year from the date of grant. If a non-

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employee director’s service as a director of the Company is terminated for any reason (other than death or disability) prior to vesting of shares of restricted stock, the shares of restricted stock that have not vested are automatically forfeited upon termination of such service as a director. The Board granted 936 shares of restricted stock to each of Mr. Horne, Mr. Jackson, Mr. McAvoy, Mr. McGillicuddy, Mr. Moran and Mr. Murphy under the 2004 Stock Incentive Plan as of August 5, 2005.

CORPORATE GOVERNANCE

Our Commitment to Good Corporate Governance

We believe that good corporate governance and an environment of the highest ethical standards are important for the Company to achieve business success and to create value for its stockholders. The Board is committed to high governance standards and continually works to improve them. We periodically review our corporate governance policies and practices and compare them to those suggested by various authorities on corporate governance and other public companies. We also review guidance and interpretations provided from time to time by the Securities and Exchange Commission (“SEC”) and the NYSE and consider changes to our corporate governance policies and practices in light of such guidance and interpretations.

Role of Our Board of Directors

The Board monitors overall corporate performance and the integrity of the Company’s financial controls and legal compliance procedures. It elects senior management and oversees succession planning and senior management’s performance and compensation. The Board oversees the development of fundamental operating, financial and other corporate plans, strategies and objectives, and conducts a year-long process which culminates in Board review and approval each year of a business plan, a capital expenditures budget and other key financial and business objectives.

Members of the Board keep informed about the Company’s business through discussions with the Chief Executive Officer and other members of the Company’s senior management team, by reviewing materials provided to them on a regular basis and in preparation for Board and committee meetings and by participating in meetings of the Board and its committees. We regularly review key portions of the business with the Board, and we introduce our executives to the Board so that the Board can become familiar with the Company’s key employees. In addition, we hold periodic strategy sessions between members of senior management and the Board, during which members of the senior management team provide in-depth reviews of various aspects of the Company’s business operations and discuss the Company’s strategy with respect to such operations.

In 2005, the Board met six times. During 2005, each director attended at least 75% of the total number of meetings of the Board and all committees of the Board on which the director served.

Performance of Our Board

We consider it important to continually evaluate and improve the effectiveness of the Board and its committees. The Board and each of its standing committees conducts an annual self-evaluation. The Nominating and Corporate Governance Committee oversees the Board’s self-evaluation process. The results of each committee’s annual self-evaluation are reported to the full Board.

Business Ethics and Compliance

We have adopted a Code of Business Conduct and Ethics applicable to all officers, employees and Board members. The Code of Business Conduct and Ethics is posted in the “Investors” section of our website at www.wattswater.com, and a print copy is available free of charge on written request to Lester J.

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Taufen, Secretary, Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, MA 01845. Any amendments to, or waivers of, the Code of Business Conduct and Ethics which apply to our Chief Executive Officer, Chief Financial Officer, Corporate Controller or any person performing similar functions will be disclosed on our website promptly following the date of such amendment or waiver.

Independence of Non-Employee Directors

The listing standards of the NYSE require companies listed on the NYSE to have a majority of “independent” directors. The NYSE listing standards generally provide that a director will not be independent unless such director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company).  In addition, a director is not independent if (1) the director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer of the Company, (2) the director or a member of the director’s immediate family has received during any twelve-month period within the last three years more than $100,000 in direct compensation from the Company other than director and committee fees and pension or other deferred compensation for prior service as an employee of the Company, (3) the director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor, the director is a current employee of such a firm, the director has an immediate family member who is a current employee of such a firm and who participates in the firm’s audit, assurance or tax compliance practice, or the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the Company’s audit within that time, (4) the director or a member of the director’s immediate family is, or has been within the last three years, employed as an executive officer of another company where an executive officer of the Company at the same time serves or served on the compensation committee of such company, or (5) the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.

The Board has reviewed all relationships between the Company and each non-employee director to determine compliance with the NYSE standards described above and to evaluate whether there are any other facts or circumstances that might impair a director’s independence. Based on that review, the board has determined that Mr. Jackson, Mr. McAvoy, Mr. McGillicuddy, Mr. Moran and Mr. Murphy are independent directors.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines that govern the structure and functioning of the Board and set out the Board’s policies on governance issues. The Corporate Governance Guidelines are posted in the “Investors” section of the our website at www.wattswater.com, and a print copy will be made available free of charge on written request to Lester J. Taufen, Secretary, Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, MA 01845.

Executive Sessions

In accordance with the Company’s Corporate Governance Guidelines, the non-management directors meet in executive session at least quarterly. At least one executive session includes only independent directors. The Chairman of the Board or, in his absence, a director chosen by the non-management directors in attendance, presides at such meetings.

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Communications with the Board

The Board welcomes the submission of any comments or concerns from stockholders and any interested parties. Communications should be in writing and addressed to Lester J. Taufen, Secretary, Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, MA 01845 and marked to the attention of the Board or any of its committees, individual directors or non-management directors as a group. All correspondence will be forwarded to the intended recipient(s).

Annual Meeting Attendance

Directors are encouraged to attend the Company’s annual meetings of stockholders. Six of the Company’s directors attended the 2005 Annual Meeting of Stockholders.

Committees of the Board

The Board currently has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each committee is composed solely of directors determined by the Board to be independent under the applicable NYSE and SEC rules. The Board has adopted a written charter for each standing committee. You may find copies of the charters of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee in the “Investors” section of our website at www.wattswater.com, and print copies will be made available free of charge on written request to Lester J. Taufen, Secretary, Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, MA 01845. The Board also appoints from time to time ad hoc committees to address specific matters.

Audit Committee.   The Audit Committee consists of Mr. McGillicuddy (Chair), Mr. Jackson, Mr. Moran and Mr. Murphy. The Board has made a determination that each of the members of the Audit Committee satisfies the independence requirements of the NYSE as well as Rule 10A-3 under the Securities Exchange Act of 1934.  In addition, the Board has determined that each of Mr. McGillicuddy and Mr. Jackson is an “audit committee financial expert,” as defined by SEC rules. During 2005, the Audit Committee held six meetings. Our Audit Committee assists the Board in its oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the qualifications, independence and performance of the Company’s independent registered public accounting firm, and the performance of the Company’s internal audit function. This includes the selection and evaluation of our independent registered public accounting firm, the oversight of our systems of internal accounting and financial controls, the review of the annual independent audit of our financial statements, the review of the Company’s Code of Business Conduct and Ethics, the establishment of “whistle-blowing” procedures, and the oversight of other compliance matters.

Compensation Committee.   The Compensation Committee consists of Mr. Murphy (Chair), Mr. Jackson, Mr. McGillicuddy and Mr. Moran. During 2005, the Compensation Committee held six meetings. The primary responsibilities of the Compensation Committee are to assist the Board in establishing compensation policies for the Board and the Company’s executive officers, including reviewing and making recommendations to the Board, or in the case of the Chief Executive Officer, to the independent members of the Board, regarding executive officer compensation. This committee also is responsible for administering the Company’s equity incentive plans.

Nominating and Corporate Governance Committee.   Our Nominating and Corporate Governance Committee consists of Mr. Jackson (Chair), Mr. McGillicuddy, Mr. Moran and Mr. Murphy. During 2005, the Nominating and Corporate Governance Committee held four meetings. The Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become Board members, consistent with criteria approved by the Board, and recommending that the Board select the director nominees for election at each annual meeting of stockholders. The Nominating and Corporate

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Governance Committee is also responsible for periodically reviewing the Company’s Corporate Governance Guidelines and recommending any changes thereto, and overseeing the evaluation of the Board and management.

The Nominating and Corporate Governance Committee will consider for nomination to the Board candidates recommended by stockholders. Recommendations should be sent to the Nominating and Corporate Governance Committee, c/o Lester J. Taufen, Secretary, Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, MA 01845. In order to be considered for inclusion as a nominee for director in the Company’s proxy statement for its 2007 Annual Meeting of Stockholders, a recommendation must be received no later than November 27, 2006. Recommendations must be in writing and must contain the information set forth in Section IV.C of the Nominating and Corporate Governance Committee charter, which is available in the “Investors” section of our website at www.wattswater.com or on written request to Lester J. Taufen, Secretary, Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, MA 01845. The minimum qualifications and specific qualities and skills required for a nominee for director are that the nominee shall have the highest personal and professional integrity, shall have demonstrated exceptional ability and judgment, and shall be most effective, in conjunction with the other nominees to the Board, in collectively serving the long-term interests of the stockholders. Additional factors to be considered by the Nominating and Corporate Governance Committee in selecting nominees for the Board are set forth in Exhibit A to the Nominating and Corporate Governance Committee charter. In addition to considering candidates suggested by stockholders, the Nominating and Corporate Governance Committee may consider potential candidates suggested by current directors, company officers, employees, third-party search firms and others. The Nominating and Corporate Governance Committee screens all potential candidates in the same manner regardless of the source of the recommendation. The Nominating and Corporate Governance Committee’s review is typically based on any written materials provided with respect to the potential candidate. The Nominating and Corporate Governance Committee determines whether the candidate meets the Company’s minimum qualifications and specific qualities and skills for directors and whether requesting additional information or an initial screening interview is appropriate.

Stockholders also have the right under the Company’s bylaws to directly nominate director candidates, without any action or recommendation on the part of the Nominating and Corporate Governance Committee or the Board, by following the procedures set forth under “Stockholder Proposals”.

LEGAL PROCEEDING INVOLVING DIRECTOR

The SEC commenced a civil action on August 15, 2002 against Timothy P. Horne, a member of our Board, our controlling stockholder, and former Chief Executive Officer and Chairman, alleging that Mr. Horne received confidential information as an officer of the Company and used it to profit from trading he did in shares of Central Sprinkler Corp. in May 1999. The complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder based on insider trading.

On February 21, 2003, Mr. Horne entered into an agreement with the SEC to settle the civil action. Pursuant to the agreement, Mr. Horne, without admitting or denying the allegations of the complaint filed by the SEC, consented to the entry of a final judgement against him which required him to disgorge profits gained as a result of the conduct alleged in the complaint, pay prejudgment interest, plus a civil money penalty, and which permanently restrains and enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial ownership of our class A and class B common stock as of February 1, 2006, by:

·       each person or entity known by us to own beneficially more than 5% of either class of our common stock;

·       each of our directors;

·       each of the executive officers named in the summary compensation table; and

·       all of our directors and executive officers as a group.

In accordance with SEC rules, we have included in the number of shares beneficially owned by each stockholder all shares over which such stockholder has sole or shared voting or investment power, and we have included all shares that the stockholder has the right to acquire within 60 days after February 1, 2006 through the exercise of stock options, the settlement of restricted stock units or any other right. Unless otherwise indicated, each stockholder has sole voting and investment power with respect to shares beneficially owned by that stockholder. For purposes of computing the equity and voting percentages for each stockholder, any shares that such stockholder has the right to acquire within 60 days after February 1, 2006 are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentages for any other stockholder.

*                    Represents less than 1%

(1)          The address of each stockholder in the table is c/o Watts Water Technologies, Inc., 815 Chestnut Street, North Andover, Massachusetts 01845, except that (i) the address of Gabelli Funds, LLC et al. is One Corporate Center, Rye, NY 10586, and (ii) the address of FMR Corp. is 82 Devonshire Street, Boston, MA 02109.

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(2)          The number of shares and percentages has been determined as of February 1, 2006 in accordance with Rule 13d-3 of the Securities and Exchange Act of 1934. At that date, a total of 32,549,090 shares were outstanding, of which 25,205,210 were shares of class A common stock and 7,343,880 were shares of class B common stock. Each share of class A common stock is entitled to one vote and each share of class B common stock is entitled to ten votes. Each share of class B common stock is convertible into one share of class A common stock. A holder of shares of class B common stock is deemed to beneficially own the shares of class A common stock into which the class B shares are convertible. Shares of class A common stock are not convertible. The table’s voting percentage reflects the applicable beneficial owner’s one vote per share of class A common stock plus ten votes per share of class B common stock, if any, divided by the total number of possible votes.

(3)          Timothy P. Horne, George B. Horne, Daniel W. Horne, Deborah Horne and Peter W. Horne may be deemed a “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934.

(4)          Consists of (i) 1,651,220 shares of class B common stock and 400 shares of class A common stock held by Timothy P. Horne (for purposes of this footnote 4, “Mr. Horne”), (ii) 1,210,840 shares of class B common stock and 4,825 shares of class A common stock held by a revocable trust for the benefit of Daniel W. Horne, Mr. Horne’s brother, for which Mr. Horne serves as sole trustee, (iii) 1,210,840 shares of class B common stock and 6,475 shares of class A common stock held by a revocable trust for the benefit of Deborah Horne, Mr. Horne’s sister, for which Mr. Horne serves as sole trustee, which trust is revocable with the consent of the trustee, (iv) 1,085,840 shares of class B common stock held by a revocable trust for the benefit of Peter W. Horne, Mr. Horne’s brother, for which Peter W. Horne serves as sole trustee, (v) 1,924,600 shares of class B common stock and 50,000 shares of class A common stock held for the benefit of George B. Horne, Mr. Horne’s father, under a revocable trust for which Mr. Horne and George B. Horne serve as co-trustees, (vi) 22,600 and 20,200 shares of class B common stock held for the benefit of Tiffany Rae Horne and Tara V. Horne (Mr. Horne’s daughters), respectively, under irrevocable trusts for which Mr. Horne serves as trustee,  (vii) 147,740 shares of class B common stock held by a revocable trust for the benefit of Tiffany Rae Horne, (viii) 3,094 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006, and (ix) 1,736 shares of class A common stock issued to Mr. Horne as a restricted stock award under the Company’s 2004 Stock Incentive Plan, which remain subject to certain restrictions on the transfer and disposition of such shares. All of the shares of class B common stock noted in clauses (i) through (vii) (7,273,880 shares of class B common stock in the aggregate) are subject to The Amended and Restated George B. Horne Voting Trust Agreement—1997 (“1997 Voting Trust”) for which Mr. Horne serves as trustee. (See footnote 5 for a description of the 1997 Voting Trust).

(5)          7,273,880 shares of class B common stock in the aggregate (see footnote 4) are subject to the terms of the 1997 Voting Trust. Under the terms of the 1997 Voting Trust, the trustee (currently Timothy P. Horne) has sole power to vote all shares subject to the 1997 Voting Trust. Timothy P. Horne, for so long as he is serving as trustee of the 1997 Voting Trust, has the power to determine in his sole discretion whether or not proposed actions to be taken by the trustee of the 1997 Voting Trust shall be taken, including the trustee’s right to authorize the withdrawal of shares from the 1997 Voting Trust (for purposes of this footnote, the “Determination Power”). In the event that Timothy P. Horne ceases to serve as trustee of the 1997 Voting Trust, no trustee thereunder shall have the Determination Power except in accordance with a duly adopted amendment to the 1997 Voting Trust. Under the terms of the 1997 Voting Trust, in the event that Timothy P. Horne ceases to serve as trustee of the 1997 Voting Trust, then Daniel J. Murphy III, a director of the Company, and Walter J. Flowers, a partner in the law firm of Flowers and Manning (each, a “Successor Trustee” and collectively, the “Successor Trustees”), shall thereupon become co-trustees of the 1997 Voting Trust. If a Successor Trustee shall cease to serve as such for any reason, then a third person shall become a

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co-trustee with the remaining two Successor Trustees, in accordance with the following line of succession: first, any individual designated as the Primary Designee, next, any individual designated as the Secondary Designee, and then, an individual appointed by the holders of a majority in interest of the voting trust certificates then outstanding. In the event that the Successor Trustees do not unanimously concur on any matter not specifically contemplated by the terms of the 1997 Voting Trust, the vote of a majority of the Successor Trustees shall be determinative. The 1997 Voting Trust expires on August 26, 2021, subject to extension on or after August 26, 2019 by stockholders (including the trustee of any trust stockholder, whether or not such trust is then in existence) who deposited shares of class B common stock in the 1997 Voting Trust and are then living or, in the case of shares in the 1997 Voting Trust the original depositor of which (or the trustee of the original depositor of which) is not then living, the holders of voting trust certificates representing such shares. The 1997 Voting Trust may be amended by vote of the holders of a majority of the voting trust certificates then outstanding and by the number of trustees authorized to take action at the relevant time or, if the trustees (if more than one) do not concur with respect to any proposed amendment at any time when any trustee holds the Determination Power, then by the trustee having the Determination Power. Amendments to the extension, termination and amendment provisions of the 1997 Voting Trust require the approval of each individual depositor. Shares may not be removed from the 1997 Voting Trust during its term without the consent of the requisite number of trustees required to take action under the 1997 Voting Trust. Voting trust certificates are subject to any restrictions on transfer applicable to the stock that they represent. Timothy P. Horne holds 22.7% of the total beneficial interest in the 1997 Voting Trust (the “Beneficial Interest”) individually, 16.5% of the Beneficial Interest as trustee of a revocable trust for the benefit of Daniel W. Horne, 16.5% of the Beneficial Interest as trustee of a revocable trust for the benefit of Deborah Horne, 14.9% of the beneficial interest as trustee of a revocable trust for the benefit of Peter W. Horne, 26.5% as co-trustee of a revocable trust for the benefit of George B. Horne, 0.3% and 0.3% of the beneficial Interest as trustee of two irrevocable trusts for the benefit of Tiffany Rae Horne and Tara V. Horne, respectively, and 2.0% of the beneficial interest as trustee of the 1997 Voting Trust to which shares held in a revocable trust for the benefit of Tiffany Rae Horne are subject (representing an aggregate of 100% of the Beneficial Interest). George B. Horne holds 26.5% of the beneficial interest as co-trustee of a revocable trust. Tara V. Horne as beneficiary of an irrevocable trust holds 0.3% of the Beneficial Interest. Tiffany R. Horne as beneficiary of an irrevocable trust holds 0.3% of the Beneficial Interest.

(6)          Consists of 1,924,600 shares of class B common stock and 50,000 shares of class A common stock held in a revocable trust for which Timothy P. Horne and George B. Horne serve as co-trustees. All of the shares of class B common stock are subject to the 1997 Voting Trust (see footnote 5 for a description of the 1997 Voting Trust).

(7)          Consists of 1,210,840 shares of class B common stock and 6,475 shares of class A common stock. All of the shares are held in a revocable trust for which Timothy P. Horne serves as sole trustee. 1,185,840 of the shares of class B common stock are subject to the 1997 Voting Trust (see footnote 5 for a description of the 1997 Voting Trust).

(8)          Consists of 1,210,840 shares of class B common stock and 4,825 shares of class A common stock. All of the shares are held in a revocable trust for which Timothy P. Horne serves as sole trustee. 1,185,840 of the shares of class B common stock are subject to the 1997 Voting Trust (see footnote 5 for a description of the 1997 Voting Trust).

(9)          All of the shares are class B common stock and are held in a revocable trust for which Peter W. Horne serves as sole trustee. 1,085,840 of the shares of class B common stock are subject to the 1997 Voting Trust (see footnote 5 for a description of the 1997 Voting Trust).

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(10)   The amount shown and the following information is based on a Schedule 13D/A filed with the SEC on April 20, 2005 by Gabelli Funds, LLC, GAMCO Investors, Inc., MJG Associates, Inc., Gabelli Securities, Inc., Gabelli Advisers, Inc., GGCP, Inc., Gabelli Asset Management Inc., and Mario J. Gabelli reporting their aggregate holdings of shares of class A common stock. Mario J. Gabelli directly and indirectly controls the entities filing the Schedule 13D, which entities are primarily investment advisors to various institutional and individual clients, including registered investment companies and pension plans, as broker/dealer and as general partner of various private investment partnerships. Each of the reporting persons and other related entities has the sole power to vote or direct the vote and sole power to dispose or to direct the disposition of the securities reported for it, either for its own benefit or for the benefit of its investment clients or its partners, except that (i) GAMCO does not have the authority to vote 308,500 of the reported shares; (ii) Gabelli Funds has sole dispositive and voting power with respect to the shares of the Company held by each of the funds for which Gabelli Funds provides discretionary managed account services (collectively, the “Funds”) so long as the aggregate voting interest of all joint filers does not exceed 25% of their total voting interest in the Company and, in that event, the proxy voting committee of each Fund shall respectively vote that Fund’s shares; (iii) at any time, the proxy voting committee of each Fund may take and exercise in its sole discretion the entire voting power with respect to the shares held by such Fund under special circumstances such as regulatory considerations; and (iv) the power of Mario J. Gabelli, Gabelli Asset Management Inc. and Gabelli Group Capital Partners, Inc. is indirect with respect to the class A common stock beneficially owned directly by other persons referenced above.

(11)   The amount shown and the following information is based on a Schedule 13G/A filed with the SEC on February 14, 2006 by FMR Corp. FMR Corp., on behalf of certain of its direct subsidiaries, and Fidelity International Limited (collectively, “Fidelity”), beneficially own the indicated number of shares of class A common stock. The beneficial ownership of the class A common stock arises in the context of passive investment activities by the various investment accounts managed by Fidelity. Fidelity has sole dispositive power over all of the shares indicated and sole power to vote or to direct the vote of 377,233 of the shares indicated. Edward C. Johnson 3d also holds sole dispositive power over 1,525,922 of the indicated shares and has sole power to vote or to direct the vote of 314,900 of the indicated shares.

(12)   Consists of 17,750 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006 and 4,008 shares of class A common stock issuable upon settlement of restricted stock units within 60 days after February 1, 2006.

(13)   Consists of 6,977 shares of class A common stock held by Mr. Jackson and 1,692 shares of class A common stock issued as a restricted stock award under the Company’s 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.

(14)   Consists of 1,398 shares of class A common stock held by Mr. Lacourciere, 25,000 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006 and 10,436 shares of class A common stock issuable upon settlement of restricted stock units within 60 days after February 1, 2006.

(15)   Consists of 400 shares of class A common stock held by Mr. McAvoy, 9,282 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006 and 1,736 shares of class A common stock issued as a restricted stock award under the Company’s 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.

(16)   Consists of 6,000 shares of class A common stock held by Mr. McCartney, 72,495 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006 and

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18,760 shares of class A common stock issuable upon settlement of restricted stock units within 60 days after February 1, 2006.

(17)   Consists of 400 shares of class A common stock held by Mr. McGillicuddy, 3,094 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006 and 1,736 shares of class A common stock issued as a restricted stock award under the Company’s 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.

(18)   Consists of 3,494 shares of class A common stock held by Mr. Moran, 24,792 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006 and 1,736 shares of class A common stock issued as a restricted stock award under the Company’s 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.

(19)   Consists of 5,699 shares of class A common stock held by Mr. Murphy, 400 shares of class A common stock beneficially owned by Mr. Murphy as trustee of a trust, 24,792 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006 and 1,736 shares of class A common stock issued as a restricted stock award under the Company’s 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.

(20)   Consists of 8,333 shares of class A common stock held by Mr. O’Keefe, 62,500 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006 and 16,667 shares of class A common stock issued as a restricted stock award under the Company’s 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.

(21)   Consists of 10,000 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006.

(22)   Consists of 114,909 shares of class A common stock, 7,273,880 shares of class B common stock, 347,200 shares of class A common stock issuable upon the exercise of stock options within 60 days after February 1, 2006, 39,403 shares of class A common stock issuable upon settlement of restricted stock units within 60 days after February 1, 2006 and 27,039 shares of class A common stock issued as restricted stock awards under the Company’s 2004 Stock Incentive Plan, which are subject to certain restrictions with respect to the transfer and disposition of such shares.

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COMPENSATION ARRANGEMENTS

Summary Compensation Table

The following table contains information with respect to the compensation for each of the fiscal years ended December 31, 2005, December 31, 2004 and December 31, 2003 of the Company’s Chief Executive Officer and the Company’s four most highly compensated executive officers, other than the Chief Executive Officer, who were serving as executive officers at the end of the last completed fiscal year (the “named executive officers”).

SUMMARY COMPENSATION TABLE

(1)             Amounts awarded under the Executive Incentive Bonus Plan. Certain of the named executive officers elected to receive Restricted Stock Units (“RSUs”) in lieu of all or a portion of a cash bonus.

(2)             Represents the dollar value of RSUs received under the Company’s Management Stock Purchase Plan determined by multiplying the number of RSUs received by the closing market prices of the class A common stock of $34.83, $33.25 and $23.14 on the RSU grant dates of February 10, 2006, February 28, 2005 and February 27, 2004, respectively. Each of the named executive officers made an election under the Management Stock Purchase Plan to receive RSUs (i) in lieu of a specified percentage or dollar amount of his actual annual incentive cash bonus or (ii) for a specified dollar amount, up to 100% of his targeted maximum cash bonus, for each of fiscal years 2005, 2004 and 2003. With respect to fiscal years 2005, 2004 and 2003, RSUs were awarded as of February 10, 2006, February 28, 2005 and February 27, 2004 by dividing the named executive officer’s election amount by the RSU cost. The RSU cost was $23.34, $22.28 and $15.50 per RSU for fiscal years 2005, 2004 and 2003, respectively, which was 67% of $34.83, $33.25 and $23.14, the closing market prices of the Company’s class A common stock on February 10, 2006, February 28, 2005 and February 27, 2004, respectively (the “2005 RSU Cost”, “2004 RSU Cost” and “2003 RSU Cost”). Each RSU vests in three equal annual installments beginning one year after the date of grant. At the end of the deferral period specified by the named executive officer under the Management Stock Purchase Plan, the Company will issue one share of class A common stock for each vested RSU. Cash dividends, equivalent to those paid on the Company’s class A common stock, will be credited to the named executive officer’s account for non-vested RSUs and will be paid in cash to such person when such RSUs become vested. Such dividends will also be paid in cash to individuals for vested RSUs held during any deferral period.

(3)             Consists of term life and accidental death and dismemberment insurance premiums paid by the Company.

(4)             During 2003 and part of 2004, Mr. O’Keefe’s primary residence was in Atlanta, Georgia, and the Company provided an apartment for his use when he was in Massachusetts. The amounts indicated for Mr. O’Keefe under Other Annual Compensation include housing expenses (including rent, laundry service and meals), airfare to and from Georgia, relocation expenses paid to a third party relocation services company and reimbursed relocation expenses, amounts paid to Mr. O’Keefe as

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a gross-up to cover his income tax liability with respect to such housing, relocation and airfare expenses and lease payments and maintenance expenses for an automobile leased by the Company for Mr. O’Keefe’s use, as follows:

 

(5)             For fiscal year 2005, Mr. O’Keefe received 27,942 RSUs in lieu of receiving his entire annual bonus of $652,188. The number of RSUs was determined by dividing $652,188 by the 2005 RSU Cost. For fiscal year 2004, Mr. O’Keefe received 31,457 RSUs in lieu of receiving his entire annual bonus of $700,875. The number of RSUs was determined by dividing $700,875 by the 2004 RSU Cost. For fiscal year 2003, Mr. O’Keefe received 28,451 RSUs in lieu of receiving his entire annual bonus of $441,000. The number of RSUs was determined by dividing $441,000 by the 2003 RSU Cost. Mr. O’Keefe held 59,908 RSUs at December 31, 2005 with a value of $1,814,613 determined by multiplying the number of RSUs by the closing market price of the Company’s class A common stock of $30.29 on December 30, 2005 (the last trading day prior to December 31, 2005).

(6)             The amount indicated represents the dollar value of 25,000 shares of restricted stock awarded to Mr. O’Keefe on June 11, 2004 based on the closing market price of the Company’s class A common stock on June 10, 2004 (the last trading day prior to the date of grant) of $25.00.

(7)             The amounts indicated for Mr. McCartney under Other Annual Compensation consist of lease payments and maintenance expenses for an automobile leased by the Company for Mr. McCartney’s use.

(8)             For fiscal year 2005, Mr. McCartney received 5,419 RSUs in lieu of receiving 50% of his annual bonus of $252,980, or $126,490. The number of RSUs was determined by dividing $126,490 by the 2005 RSU Cost. For fiscal year 2004, Mr. McCartney received 6,361 RSUs in lieu of receiving 50% of his annual bonus of $283,465, or $141,733. The number of RSUs was determined by dividing $141,733 by the 2004 RSU cost. For fiscal year 2003, Mr. McCartney received 6,751 RSUs in lieu of receiving 50% of his annual incentive bonus of $209,300, or $104,650. The number of RSUs was determined by dividing $104,650 by the 2003 RSU Cost. Mr. McCartney held 31,872 RSUs at December 31, 2005 with a value of $965,403 determined by multiplying the number of RSUs by the closing market price of the Company’s class A common stock of $30.29 on December 30, 2005 (the last trading day prior to December 31, 2005).

(9)             The amounts indicated for Mr. Lacourciere under Other Annual Compensation include an automobile allowance paid in 2003 and part of 2004 and lease payments and maintenance expenses for an automobile leased by the Company for Mr. Lacourciere’s use for part of 2004 and all of 2005, as follows:

 

(10)       For fiscal year 2005, Mr. Lacourciere received 3,390 RSUs in lieu of receiving 75% of his annual bonus of $105,500, or $79,125. The number of RSUs was determined by dividing $79,125 by the 2005 RSU Cost. For fiscal year 2004, Mr. Lacourciere received 4,488 RSUs in lieu of receiving $100,000 of his annual bonus of $218,124. The number of RSUs was determined by dividing $100,000 by the 2004 RSU Cost. For fiscal year 2003, Mr. Lacourciere received 6,451 RSUs in lieu of receiving $100,000 of his annual bonus of $189,674. The number of RSUs was determined by dividing $100,000 by the 2003 RSU Cost. Mr. Lacourciere held 23,974 RSUs at December 31, 2005 with a value of $726,173 determined by multiplying the number of RSUs by the closing market price of the Company’s class A common stock of $30.29 on December 30, 2005 (the last trading day prior to December 31, 2005).

(11)       The amounts shown for Mr. Cawte under Salary, Other Annual Compensation and All Other Compensation for 2005 have been converted from British pounds into U.S. dollars based on the conversion rate of 1.72 U.S. Dollars for one British pound as of December 31, 2005.

(12)       The amounts shown for Mr. Cawte under Salary, Other Annual Compensation and All Other Compensation for 2004 have been converted from British pounds into U.S. dollars based on the conversion rate of 1.93 U.S. Dollars for one British pound as of December 31, 2004.

(13)       The amounts shown for Mr. Cawte under Salary, Other Annual Compensation and All Other Compensation for 2003 have been converted from British pounds into U.S. dollars based on the conversion rate of 1.79 U.S. Dollars for one British pound as of December 31, 2003.

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(14)       The amounts indicated for Mr. Cawte under Other Annual Compensation consist of an annual automobile allowance and an annual payment equal to 16% of Mr. Cawte’s bonus and base salary for investment by Mr. Cawte into his personal retirement savings plan. Mr. Cawte does not participate in the Company’s Pension Plan or Supplemental Plan. The allocations of the amounts indicated are as follows:

 

(15)       For fiscal year 2005, Mr. Cawte received 8,031 RSUs in lieu of receiving his entire annual bonus of $187,463. The number of RSUs was determined by dividing $187,463 by the 2005 RSU cost. For fiscal year 2004, Mr. Cawte received 5,451 RSUs in lieu of receiving his entire annual bonus of $121,469. The number of RSUs was determined by dividing $121,469 by the 2004 RSU cost. For fiscal year 2003, Mr. Cawte received 8,700 RSUs in lieu of receiving his entire annual bonus of $134,855. The number of RSUs was determined by dividing $134,855 by the 2003 RSU Cost. Mr. Cawte held 18,159 RSUs at December 31, 2005 with a value of $550,036 determined by multiplying the number of RSUs by the closing market price of the Company’s class A common stock of $30.29 on December 30, 2005 (the last trading day prior to December 31, 2005).

(16)       The amounts indicated for Mr. White under Other Annual Compensation consist of automobile allowance payments.

(17)       For fiscal year 2005, Mr. White received 2,554 RSUs in lieu of receiving 40% of his annual bonus of $149,064, or $59,626. The number of RSUs was determined by dividing $59,626 by the 2005 RSU Cost. For fiscal year 2004, Mr. White received 2,667 RSUs in lieu of receiving 40% of his annual bonus of $148,574, or $59,430. The number of RSUs was determined by dividing $59,430 by the 2004 RSU cost. For fiscal year 2003, Mr. White received 615 RSUs in lieu of receiving 20% of his annual incentive bonus of $47,678, or $9,536. The number of RSUs was determined by dividing $9,536 by the 2003 RSU Cost. Mr. White held 6,316 RSUs at December 31, 2005 with a value of $191,312 determined by multiplying the number of RSUs by the closing market price of the Company’s class A common stock of $30.29 on December 30, 2005 (the last trading day prior to December 31, 2005).

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Stock Option Grants

The following table shows information concerning options to purchase the Company’s class A common stock granted during 2005 to the named executive officers.

(1)          All options were granted under the Company’s 2004 Stock Incentive Plan as of August 5, 2005. All options vest over four years at the rate of 25% per year on successive anniversaries of the date of grant and generally terminate upon the earlier of six months following termination of employment, subject to certain exceptions, or ten years from the date of grant.

(2)          Represents the closing sale price on the date of grant.

(3)          Based upon the closing sale price on the date of grant and an annual appreciation at the rate stated through the expiration date of such options. The dollar amounts in these columns are the result of calculations at the 5% and 10% rates set by the SEC and therefore are not intended to forecast possible future appreciation, if any, of the Company’s stock price.

Aggregated Option Exercises and Option Values

The following table shows information concerning the exercise of stock options during 2005 by each of the named executive officers and the fiscal year-end value of unexercised options.

(1)          Based on the difference between the market price on the date of exercise and the exercise price of the options before income taxes.

(2)          Options vest over either four or five years at the rate of 25% or 20% per year, respectively, on successive anniversaries of the grant date and generally terminate upon the earlier of six months following the termination of employment, subject to certain exceptions, or ten years from the date of grant.

(3)          Based on the difference between the closing sale price of $30.29 on December 30, 2005 (the last trading day prior to December 31, 2005) and the exercise price of the options before income taxes.

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Compensation Committee Interlocks and Insider Participation

During 2005, Mr. Jackson, Mr. McGillicuddy, Mr. Moran and Mr. Murphy served as members of the Company’s Compensation Committee. None of the directors who served as members of the Compensation Committee during 2005 is an executive officer of the Company.

None of the Company’s executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of the Company’s Board of Directors or Compensation Committee.

Pension Plan

The Company maintains a qualified noncontributory defined benefit pension plan (the “Pension Plan”) for eligible salaried employees of the Company and its subsidiaries, including the named executive officers specified in the “Summary Compensation Table” above, and it maintains a nonqualified noncontributory defined benefit supplemental plan (the “Supplemental Plan”) generally for certain highly compensated employees. The eligibility requirements of the Pension Plan are attainment of age 21 and one year of service of 1,000 or more hours. The assets of the Pension Plan are maintained in a trust fund at Citigroup Institutional Trust Company. The Pension Plan is administered by the Pension Plan Committee, which is appointed by the Board of Directors of the Company. Annual contributions to the Pension Plan are computed by an actuarial firm based on normal pension costs and a portion of past service costs. The Pension Plan provides for monthly benefits to, or on behalf of, each covered employee at age 65 and has provisions for early retirement after ten years of service and attainment of age 55 and surviving spouse benefits after five years of service. Covered employees who terminate employment prior to retirement with at least five years of service are vested in their accrued retirement benefit. The Pension Plan is subject to the Employee Retirement Income Security Act of 1974, as amended.

The annual normal retirement benefit for employees under the Pension Plan is 1.67% of Final Average Compensation (as defined in the Pension Plan) multiplied by years of service (maximum 25 years), reduced by the Maximum Offset Allowance (as defined in the Pension Plan). For employment terminations after the 2001 plan year, annual compensation in excess of $200,000 per year (subject to cost of living adjustments) is disregarded under the Pension Plan for all purposes. For plan year 2005, this limit is $210,000. However, benefits accrued prior to the 1989 plan year may be based on compensation in excess of $210,000. Compensation recognized under the Pension Plan includes base salary and annual cash bonus.

The Supplemental Plan provides additional monthly benefits to (i) a select group of key executives, including the Company’s Chief Executive Officer, under Tier 1-T, Tier 1 or Tier 1-A, as determined by the Board of Directors, (ii) to individuals who were projected to receive reduced benefits as a result of changes made to the Pension Plan to comply with the Tax Reform Act of 1986 under Tier 2 and (iii) to executives who will be affected by IRS and other plan-specific limits on Pension Plan Compensation under Tier 3 or Tier 4.  With regard to executives who are affected by plan-specific limits on Pension Plan compensation, Tier 3 of the Supplemental Plan includes any compensation paid in excess of the statutory qualified Pension Plan limit, while Tier 4 includes any amounts of deferred compensation that would otherwise have been treated as pensionable wages under the qualified Pension Plan.

Tier 1-T benefits are provided to a select group of key executives. The annual benefit payable under this Tier is equal to the difference between (1) 3.00% of the highest three-year average pay multiplied by years of service, to a maximum of 50% of average pay and (2) the annual benefit payable under the Pension Plan described above. Normal retirement under this Tier is age 62.

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The following table illustrates total annual normal retirement benefits (payable from both the Pension Plan and from the Supplemental Plan and assuming attainment of age 62 during 2005) for various levels of Final Average Compensation and years of benefit service under Tier 1-T of the Supplemental Plan.

(1)          The annual Pension Plan benefit is computed on the basis of a straight life annuity.

Tier 1 benefits are provided to a select group of key executives. The annual benefit under this Tier payable at normal retirement is equal to the difference between (1) 2% of the highest three-year average pay multiplied by years of service up to ten years, plus 3% of average pay times years of service in excess of ten years (but not to exceed 20 years), to a maximum of 50% of average pay and (2) the annual benefit payable under the Pension Plan described above. Normal retirement under this Tier is age 62.

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The following table illustrates total annual normal retirement benefits (payable from both the Pension Plan and from the Supplemental Plan and assuming attainment of age 62 during 2005) for various levels of Final Average Compensation and years of benefit service under Tier 1 of the Supplemental Plan.

(1)          The annual Pension Plan benefit is computed on the basis of a straight life annuity.

Tier 1-A benefits are provided to a select group of key executives. The annual benefit payable under this Tier is equal to the difference between (1) 1.75% of the highest three year average pay multiplied by years of service up to ten years, plus 2.25% of average pay times years of service in excess of ten years (but not to exceed 20 years), to a maximum of 40% of average pay and (2) the annual benefit payable under the Pension Plan described above. Normal retirement under this Tier is age 62.

The following table illustrates total annual normal retirement benefits (payable from both the Pension Plan and from the Supplemental Plan and assuming attainment of age 62 during 2005) for various levels of Final Average Compensation and years of benefit service under Tier 1-A of the Supplemental Plan.

(1)          The annual Pension Plan benefit is computed on the basis of a straight life annuity.

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Tier 2 benefits are provided to individuals not covered under Tier 1-T, Tier 1, or Tier 1-A who were projected to receive reduced benefits as a result of changes made to the Pension Plan to comply with the Tax Reform Act of 1986. The annual normal retirement benefit payable under this Tier is equal to the difference between (1) the pre-Tax Reform Act formula of 45% of Final Average Compensation less 50% of the participant’s Social Security Benefit, the result prorated for years of service less than 25, and (2) the Pension Plan formula above. For the 2005 Plan Year, Annual Compensation in excess of $393,900 is disregarded for all purposes under Tier 2 of the Supplemental Plan. Tier 3 benefits are provided to individuals not covered under Tier 1-T, Tier 1, Tier 1-A or Tier 2 who will be affected by IRS or other plan-specific limits on Pension Plan compensation. The annual normal retirement benefit payable under this Tier is based on the Pension Plan formula set forth above, with Annual Compensation in excess of $315,120 disregarded. Compensation recognized under the Supplemental Plan is W-2 pay, including amounts deferred under the Management Stock Purchase Plan, the Nonqualified Deferred Compensation Plan, and pursuant to Sections 401 and 125 of the Internal Revenue Code, but excluding income realized upon the exercise of stock options.

The following table illustrates total annual normal retirement benefits (payable from both the Pension Plan and from the Supplemental Plan and assuming attainment of age 65 during 2005) for various levels of Final Average Compensation and years of benefit service under Tier 2 of the Supplemental Plan, prior to application of the Social Security offset, which is an integral part of the benefits payable under the Supplemental Plan.

(1)          The annual Pension Plan benefit is computed on the basis of a straight life annuity.

Mr. O’Keefe, Mr. McCartney, Mr. Lacourciere, and Mr. White have 4, 21, 20, and 5 years, respectively, of benefit service under the Pension Plan. Mr. O’Keefe is eligible for Tier 1-T benefits.   Mr. McCartney is eligible for Tier 1 benefits. Mr. Lacourciere is eligible for Tier 1-A benefits. Mr. White is eligible for Tier 3 and Tier 4 benefits. Mr. Cawte does not participate in the Pension Plan or the Supplemental Plan. For the 2005 plan year, eligible employees were limited to a maximum annual benefit under the Pension Plan of $170,000 (subject to cost of living adjustments) under Internal Revenue Code requirements regardless of their years of service or Final Average Compensation.

Consulting and Deferred Compensation Agreements

The Company and Timothy P. Horne, a director of the Company and the Company’s former Chief Executive Officer and President, are parties to a Supplemental Compensation Agreement, providing for Mr. Horne’s services to the Company and compensation following his retirement from the Company on December 31, 2002. Mr. Horne has agreed to provide consulting services to the Company for 300 to 500 hours per year so long as he is physically able. For these services, the Company agreed to pay Mr. Horne $500,000 for calendar years 2003, 2004 and 2005, $410,665 for calendar year 2006 and $400,000 for each calendar year thereafter, subject to certain cost-of-living increases each year. In the event of a

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change of control of the Company, Mr. Horne has the right to elect to receive a lump-sum payment instead of the payments described above. If Mr. Horne elects to receive the lump-sum payment, his obligation to provide consulting services to the Company terminates. The lump-sum payment would equal the present value of $23,650 monthly for life and would be determined with reference to discount rates and mortality tables applicable under the Company’s Retirement Plan for Salaried Employees and an adjustment for inflation. The Company has also agreed to provide lifetime benefits to Mr. Horne, including use of Company secretarial services, use of an office at the Company’s corporate headquarters, retiree health insurance and reimbursement of tax and financial planning expenses, automobile maintenance expenses, one club membership, a customary director indemnification agreement and travel expenses when visiting Company facilities.

Timothy P. Horne was also entitled under a Deferred Compensation Agreement to retirement benefits aggregating $233,333 payable over a period of 28 consecutive months, which payments commenced upon his retirement from the Company on December 31, 2002. The Deferred Compensation Agreement represents compensation that Mr. Horne deferred prior to his retirement. The Company has fully expensed its obligations under this Deferred Compensation Agreement. The final payment under the Deferred Compensation Agreement was made in April 2005.

Compensation Committee Report

The primary objective of the Compensation Committee is to develop and implement compensation policies and plans that are appropriate for the Company in light of all relevant circumstances and which provide incentives that further the Company’s long-term strategic plan and the overall goal of enhancing enduring stockholder value. The Compensation Committee reviews and approves the corporate goals and objectives with respect to the compensation of the Company’s executive officers, evaluates the performance of the Company’s executive officers in light of the goals and objectives that were set, considers management’s recommendations regarding the compensation of executive officers, makes recommendations to the Board or, with respect to the Chief Executive Officer, the independent members of the Board, as to the type and amount of compensation to be paid to the Company’s executive officers, and administers the Company’s equity incentive plans and executive compensation plans.

Compensation Philosophy

The Company’s executive compensation program is designed to promote corporate performance by aligning the interests of the Company’s executives with those of the stockholders thereby enhancing stockholder value. The Compensation Committee believes that executives should have a significant portion of their compensation tied directly and primarily to the performance of the business and secondarily to individual objectives established by management. To this end, overall compensation strategies and specific compensation plans have been developed to tie a significant portion of executive compensation to the success of the Company in meeting specified performance goals. The Executive Incentive Bonus Plan and the Management Stock Purchase Plan are intended to strengthen the executive compensation/corporate performance relationship. The overall objectives of this strategy are to attract and retain the best possible executive talent, to motivate executives to achieve goals inherent in the Company’s business strategy, to link executive and stockholder interests and to provide compensation packages that recognize individual contributions as well as promote achievement of overall business goals.

The Company’s executive compensation program consists of three key components, each of which is intended to serve the overall compensation philosophy: base salary, an annual bonus or award of RSUs under the Management Stock Purchase Plan in lieu of all or a portion of the annual bonus, and grants of stock options. These programs, as well as the basis for the Chief Executive Officer’s compensation for 2005, are discussed below.

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Base Salary

Base salaries for executive officers are initially determined by evaluating the responsibilities of the position held and the experience of the individual, coupled with a review of the compensation for similar positions at other comparable companies. In general, the base salary for an executive officer is intended to be at the midpoint in the base salary range for similar positions at comparable companies after three years of employment.

Executives’ base salaries are reviewed on an annual basis. Adjustments are determined by evaluating the performance of the Company and each executive officer. The performance of executive officers with functional or administrative responsibilities is considered by reviewing the quality and efficiency of administrative and functional processes. In the case of executive officers with responsibility for one or more business units within the Company, the business results of those units are also considered. The Compensation Committee also considers, where appropriate, certain non-financial performance measures, such as market expansion, corporate development and acquisitions, achievement of manufacturing efficiencies, product quality and/or relations with customers, suppliers or employees. Adjustments in base salary are also made when and as appropriate to reflect changes in job responsibilities. Executive officer base salaries were reviewed by the Compensation Committee in 2005, and the Compensation Committee recommended to the Board that it approve cost-of-living adjustments for all of the Company’s executive officers and employees and increases in the base pay for some of the executive officers based on merit.

The Compensation Committee believes that the Company’s most direct competitors for executive talent are not necessarily all of the companies that would be included in the same-industry peer group established to compare stockholder returns. Thus, the compensation packages which may be considered during the Company’s compensation review process are not the same group as the peer group index in the Comparison of Five Year Cumulative Total Return graph included elsewhere in this proxy statement.

Annual Bonus

Under the Executive Incentive Bonus Plan (the “Bonus Plan”), each of the Company’s executive officers and other key employees are eligible for an annual cash bonus. Corporate performance objectives are established at or near the beginning of each fiscal year by the Chief Executive Officer and the Chief Financial Officer in consultation with the Compensation Committee. The participants are generally assigned three goals, consisting of a sales growth objective, an economic value added or cash flow objective, and an earnings objective. The economic value added objective compares the net after tax return on investment to the Company’s long-term cost of capital. In the discretion of the Compensation Committee, a participant’s goals with respect to each of the above described objectives may be based on the performance of the business unit or segment for which such participant is primarily responsible. For 2005, Mr. Lacourciere’s bonus was based on the performance of the Company’s North America and China segments, Mr. Cawte’s bonus was based on the performance of the Company’s Europe segment and Mr. White’s bonus was based on the performance of the Company’s water treatment and under-floor radiant applications business units. Once the goals are established, eligible executives are assigned a target bonus as a percentage of base salary. Each of the three goals described above carries a percentage weight of 331¤3% of the target bonus. For those participants who are assigned alternative goals, the Compensation Committee, in consultation with the Chief Executive Officer, determines the relative weight to be assigned to each goal. To the extent the Company achieves more than 100% of a goal, the participant is eligible to receive more than 100% of his target bonus attributable to that goal, which can result in a participant receiving more than 100% of his total target bonus, up to a maximum of 200% of the participant’s target bonus. The Compensation Committee believes that a significant portion of executive compensation should be tied to an annual bonus based primarily on the performance of the Company and that the Bonus Plan accomplishes that objective. The Compensation Committee believes that the target bonus for each executive officer should generally allow such officer to achieve the midpoint in the total cash compensation

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range for similar positions at comparable companies when the Company achieves 100% of the Bonus Plan objectives. Correspondingly, executive officers should receive total cash compensation above the midpoint of such range when the Company achieves greater than 100% of the Bonus Plan objectives and below the midpoint of such range when the Company achieves less than 100% of the Bonus Plan objectives.

With respect to bonuses for 2005, the Company achieved greater than 100% of the financial objectives for the fiscal year. The Company had increased sales in North America, Europe and Asia. These increased sales, in addition to improved manufacturing efficiencies in the Company’s North America and Europe segments, contributed to the achievement of the operating profit objective. The Company’s continued focus on asset management, as well as continued strong cash flows generated from operations, contributed to the attainment of the economic value added objective.

Stock Plans

Equity-based incentive compensation for executive officers during 2005 was provided in the form of the purchase of restricted stock units under the Company’s Management Stock Purchase Plan and/or stock option awards under the Company’s 2004 Stock Incentive Plan. The Compensation Committee believes equity-based incentive compensation aligns executive and shareholder interests because (i) the use of a multi-year vesting schedule for stock option awards and restricted stock units encourages executive retention and emphasizes long-term growth, and (ii) paying a significant portion of management’s compensation in equity of the Company provides management with an incentive to increase shareholder value over the long term.

The Compensation Committee monitors compliance with the stock retention and ownership guidelines approved by the Compensation Committee for all executive officers and other members of senior management. These guidelines require executive officers and certain other members of senior management to hold Company stock within five years of the beginning of their employment with a value that is at least equal to twice the amount of their base salary. The Compensation Committee reserves the right to reduce or eliminate stock option awards or prevent participation in the Company’s Management Stock Purchase Plan to those officers who do not meet the stock ownership guidelines.

Management Stock Purchase Plan.   The Company’s Management Stock Purchase Plan is intended to increase the incentive for the Company’s executives to purchase and hold more of the Company’s class A common stock thereby more closely aligning their interests with the interests of the stockholders. Under the Management Stock Purchase Plan, participants may elect to receive RSUs in lieu of all or a portion of their pre-tax annual incentive bonus and, in some circumstances, make after-tax contributions up to 100% of the participant’s maximum bonus, in exchange for RSUs. Participants are required to make an election no later than the last day of the fiscal year prior to the year in which such annual incentive bonus is earned. Each RSU represents the right to receive one share of class A common stock after a three-year vesting period and a participant may elect to defer receipt of the underlying stock for an additional period of time after the vesting period. The Management Stock Purchase Plan permits a participant to defer income and the taxes due thereon until the RSUs are converted to stock. RSUs are granted at a discount of 33% from the fair market value of the Company’s class A common stock on the date of grant which is the date that annual incentive bonuses are paid or would otherwise be paid. The Compensation Committee has restricted the number of stock options granted and the number of individuals receiving options under the Company’s stock option plans in order to further motivate executives to participate in the Management Stock Purchase Plan.

Stock Options.   Under the Company’s 2004 Stock Incentive Plan, stock options may be granted to the Company’s executive officers and other employees. The Compensation Committee will continue to set guidelines for the size of stock option awards based on similar factors as used to determine base salaries and annual bonuses, including corporate performance, individual performance against objectives and peer

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group comparisons. However, as previously noted, the Compensation Committee has restricted the number of stock options granted to executives in order to motivate them to participate in the Management Stock Purchase Plan. Stock options are a vehicle for the payment of long-term compensation and are intended to motivate executives to improve stock market performance.

Stock options are designed to align the interests of the executives with those of the stockholders over the long-term, as the full benefit of the compensation package will not be realized unless stock appreciation occurs over a number of years. Stock options under the 2004 Stock Incentive Plan, which may be either incentive or nonqualified options, are typically granted annually and vest 25% per year over four years beginning with the first anniversary of the grant date. Under the 2004 Stock Incentive Plan, the exercise price for incentive stock option grants equals the market price of the class A common stock on the date of the grant with an exception for executives who own more than 10% of the combined voting power of the Company; for those employees, the exercise price is equal to 110% of the market price on the date of the grant. Under the 2004 Stock Incentive Plan, nonqualified stock options have an exercise price which may be no less than 50% of the market price on the date of the grant and generally vest 25% per year over four years beginning with the first anniversary of the grant date. The Company’s Board of Directors has not granted any stock options under the 2004 Stock Incentive Plan with an exercise price below fair market value. The duration of options under the 2004 Stock Incentive Plan is generally 10 years, with the exception of incentive stock option grants to owners of more than 10% of the combined voting power of the Company, in which case such grants terminate after 5 years. Options for 2005 were granted in August at a regularly scheduled meeting of the Board of Directors.

Chief Executive Officer Compensation

In August 2005, Mr. O’Keefe’s annual base salary was increased by 5.14% from $525,000 to $552,000, and his target bonus as a percentage of base salary was increased from 75% to 85%. This change was made as a result of a review of Mr. O’Keefe’s compensation and performance conducted by the Compensation Committee with the assistance of an outside compensation consulting firm. The Compensation Committee determined that Mr. O’Keefe’s base salary of $525,000 was below the 25th percentile of base salary compensation levels for chief executive officers of selected peer companies, including A.O. Smith Corporation, Albany International Corp., Ametek, Inc., CIRCOR International, Inc., Flowserve Corporation, Gardner Denver, Inc., Graco Inc., IDEX Corporation, Modine Manufacturing Company, Mueller Industries, Inc., Robbins & Myers, Inc., Roper Industries, Inc. and Waters Corporation. The companies included in the peer group are all in the durable goods and manufacturing industry and had revenues of between $382 million and $2.4 billion in 2004, with median revenue of $970 million, which approximates the revenue generated by the Company in 2005. Mr. O’Keefe’s target bonus of 75% of his base salary was approximately between the 35th and 40th percentiles of paid bonus compensation for chief executive officers of the same group of peer companies, assuming the Company achieved 100% of the bonus goals assigned to Mr. O’Keefe. Mr. O’Keefe’s increased compensation amounts place his base salary at approximately the 25th percentile of the selected peer companies and his target bonus at approximately the 40th percentile of paid bonuses of the selected peer companies, assuming the Company achieves 100% of the bonus goals assigned to Mr. O’Keefe. The Compensation Committee believes the increase in Mr. O’Keefe’s compensation was appropriate in light of the Company’s performance and in order to remain competitive with the Company’s peer group identified above. The amount of Mr. O’Keefe’s bonus for 2005 was determined using the same criteria described above for all executive officers. In August 2005, Mr. O’Keefe was granted stock options to purchase an aggregate of 50,000 shares of the Company’s class A common stock. In determining the number of options granted to Mr. O’Keefe, the Compensation Committee considered Mr. O’Keefe’s total remuneration, prior equity awards, the Company’s financial results over the preceding twelve-month period and the number and expected value of options granted to chief executive officers of the selected peer companies. Based on an analysis performed by the outside compensation consulting firm retained by the Compensation Committee, the number of shares underlying

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the stock options granted to Mr. O’Keefe in 2005 was approximately between the 30th and 40th percentiles with respect to the number of shares underlying annual stock option grants to the chief executive officers of the peer companies identified above and the expected value of the shares underlying such option grants. Mr. O’Keefe participates in the Company’s Pension Plan and Supplemental Plan as described above under “Pension Plan.”  Retirement benefits payable to Mr. O’Keefe under the Company’s Pension Plan and Supplemental Plan are not included in the above described peer group comparisons of Mr. O’Keefe’s base salary, bonus and stock option grant and would have the effect of increasing the relative value of Mr. O’Keefe’s total compensation when compared to companies in the peer group that do not have similar benefit plans. The Company also provides Mr. O’Keefe with a leased automobile. The Compensation Committee believes that Mr. O’Keefe’s total compensation, including his participation in the Company’s Pension Plan and Supplemental Plan, is fair and consistent with the Company’s results in 2005.

Company Policy on Qualifying Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction to public companies for certain compensation in excess of $1 million paid, in any taxable year, to the Company’s Chief Executive Officer and the four other most highly compensated executive officers. Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if certain requirements are met. The Compensation Committee reviews the potential effect of Section 162(m) periodically and uses its judgment to authorize compensation payments that may be subject to the limit when the Compensation Committee believes such payments are appropriate and in the best interests of the Company and its stockholders, after taking into consideration changing business conditions and the performance of its employees.

Conclusion

Through the programs described above, a significant portion of the Company’s executive compensation is linked to corporate performance and stock appreciation. The Compensation Committee believes that the Bonus Plan closely aligns executive compensation to corporate performance. In addition, the Compensation Committee believes that properly balancing the grant of stock options and restricted stock units will further encourage executives and management employees to acquire a greater equity stake in the Company and will motivate them to contribute to the future growth and success of the Company, thereby making stock appreciation a shared interest for both stockholders and executive officers and other key employees.

Compensation Committee
Daniel J. Murphy, III, Chair
Ralph E. Jackson, Jr.
John K. McGillicuddy
Gordon W. Moran

Audit Committee Report

The responsibilities of the Audit Committee are set forth in the charter of the Audit Committee. The Audit Committee, among other matters, is responsible for assisting the Board in its oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the qualifications, independence and performance of the Company’s independent registered public accounting firm, and the performance of the Company’s internal audit function. This includes the selection and evaluation of the Company’s independent registered public accounting firm, oversight of the Company’s systems of internal accounting and financial controls, a review of the annual independent audit of the Company’s financial statements, review of the Company’s Code of Business Conduct and Ethics, the establishment of “whistle-blowing” procedures, and oversight of other compliance matters.

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