Exhibit 99.1

 

PROPOSAL 4

APPROVAL OF THE WATTS WATER TECHNOLOGIES, INC.

SECOND AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

(the “Second Amended and Restated 2004 Plan”)

 

We adopted the Watts Water Technologies Amended and Restated 2004 Stock Incentive Plan (the “2004 Plan”) to encourage and enable the non-employee directors, officers, employees and other key persons (including consultants and prospective employees) of the Company and its subsidiaries to acquire a proprietary interest in the Company.   It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.  One of the purposes of the second amendment and restatement is to allow the Company to continue to use the 2004 Plan beyond February 2014 when, pursuant to its present terms, the plan will otherwise expire.  Upon the approval of the Second Amended and Restated 2004 Plan, the “Expiration Date” of the plan will be February 19, 2023, the tenth anniversary of the approval of the Second Amended and Restated 2004 Plan by our Board of Directors.

 

In addition to extending the Expiration Date, the amendments to the 2004 Plan reflected in the Second Amended and Restated 2004 Plan would effect the following material changes:

 

·                   increase the number of shares of class A common stock, par value $.10 per share, that may be granted under the Second Amended and Restated 2004 Plan by 1,500,000 shares to 4,500,000 shares;

 

·                   expand the performance criteria that may be used to establish performance goals in connection with “performance based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), as more fully described below;

 

·                   limit the amount of Awards that can be granted to non-employee directors to 100,000 shares of class A common stock in any one calendar year;

 

·                   provide that dividend equivalents will not be paid on any performance vesting Awards unless the Award vests;

 

·                   provide that shares withheld to satisfy the exercise price of an Award will not be added back to the pool of shares available for grant under the Second Amended and Restated 2004 Plan;

 

·                   prohibit discount option and SAR Awards; and

 

·                   specifically provide that the Administrator (as defined below) does not have the authority to reprice option or SAR Awards.

 

We believe that equity incentives are critical to attracting and retaining the most talented employees. As of February 1, 2013, the 2004 Plan had only 582,257 shares (plus any shares returned due to forfeitures or withheld to satisfy tax withholding obligations) available for future awards.  If the Second Amended and Restated 2004 Plan is not approved, our ability to grant Awards will be limited,

 

 

and we will be limited in our ability to use equity compensation as a tool for aligning our Board’s and employees’ interests with those of Watts Water and our stockholders.

 

Significant Historical Award Information

 

Historically, we have granted predominantly stock options, restricted stock awards, stock awards and deferred stock awards under the 2004 Plan.  The table below presents information about the shares of our class A common stock that were subject to the various outstanding equity awards as of February 1, 2013.

 

Number of shares underlying outstanding stock options:		1,054,675
Weighted-average exercise price of stock options:		$	33.41
Weighted-average remaining term (years) of stock options:		7.73
Number of unvested restricted stock award shares:		233,859
Number of shares underlying deferred stock awards:		20,285

 

Shares underlying Awards granted under the 2004 Plan that are forfeited, cancelled, reacquired by the Company prior to vesting, satisfied without the issuance of shares or otherwise terminated, and shares used to pay the exercise price (if any) or satisfy tax withholdings with respect to an Award will become available again for grant under the 2004 Plan.  These shares would also be added back to the shares available for grant under the Second Amended and Restated 2004 Plan, except that any shares used to pay the exercise price (if any) of an Award would not be added back.

 

The following table shows how we have used equity compensation for the last three years:

 

Key Equity Metrics		2012		2011		2010
Percentage of equity awards granted to named executive officers (1)		36	%	33	%	32	%
Equity burn rate (2)		1.8	%	1.4	%	1.5	%
Dilution (3)		8.5	%	9.8	%	11.0	%
Overhang (4)		4.3	%	5.2	%	5.2	%

 

(1) Percentage of equity awards granted to our named executive officers is calculated by dividing the number of shares subject to equity awards that were granted to the named executive officers during the fiscal year by the total shares subject to equity awards that were granted during the fiscal year.

(2) Equity burn rate is calculated by dividing the number of shares subject to equity awards granted during the fiscal year by the weighted-average number of shares outstanding during the period.

(3) Dilution is calculated by dividing the sum of (x) the number of shares subject to equity awards outstanding at the end of the fiscal year and (y) the number of shares available for future grants, by the number of shares outstanding at the end of the fiscal year.

 

(4) Overhang is calculated by dividing the number of shares subject to equity awards outstanding at the end of the fiscal year by the number of shares outstanding at the end of the fiscal year.

 

 

Employees, non-employee directors and other key persons (including consultants and prospective employees) are eligible to receive equity awards.  As of February 1, 2013, approximately 100 employees and seven non-employee directors were eligible to receive awards under the 2004 Plan.   If approved, approximately the same number of employees and non-employee directors would be eligible for grants under the Second Amended and Restated 2004 Plan.  As of February 1, 2013, 101 employees and seven non-employee directors held awards granted under the 2004 Plan.

 

Background for Request to Increase the Share Reserve

 

In determining to recommend the adoption of the Second Amended and Restated 2004 Plan and increase the shares of class A common stock by 1,500,000 shares over the share reserve under the 2004 Plan, our Board considered the following factors:

 

·                   If the Second Amended and Restated 2004 Plan is not approved, we would be limited in the amount of equity compensation that could be used as part of our total compensation program, which could limit our ability to attract, motivate and retain talent.

 

·                   The additional 1,500,000 shares would increase dilution to other stockholders by 4.3%.

 

·                   Based on historical usage, we estimate that the additional 1,500,000 shares would be sufficient for three additional years of Awards, or four years in total, assuming we continue to grant Awards consistent with our historical usage and current practices, and noting that future circumstances may require us to make changes to our current practices.

 

Summary of the Second Amended and Restated 2004 Plan

 

A summary of the principal provisions of the Second Amended and Restated 2004 Plan is set forth below.  The summary is qualified by reference to the full text of the Second Amended and Restated 2004 Plan, which is attached as Appendix B to this Proxy Statement.

 

The Second Amended and Restated 2004 Plan was approved by our Board on February 19, 2013, subject to approval by our stockholders.  The Second Amended and Restated 2004 Plan provides for the grant of options (both nonqualified and incentive stock options), SARs, restricted stock, performance awards, dividend equivalents, unrestricted stock awards and deferred stock (collectively, “Awards”).

 

Shares Subject to the Second Amended and Restated 2004 Plan

 

Under the Second Amended and Restated 2004 Plan, the aggregate number of shares of our class A common stock that may be issued or transferred pursuant to Awards is 4,500,000, which is an increase of 1,500,000 shares over the number of shares that may be issued or transferred under the 2004 Plan.

 

The Second Amended and Restated 2004 Plan provides for specific limits on the number of shares that may be subject to different types of Awards:

 

·                   No more than 2,000,000 shares of our class A common stock may be granted in the form of unrestricted stock awards, restricted stock awards or deferred stock awards.

 

·                   Stock options or SARs with respect to no more than 300,000 shares of our class A common stock may be granted to any one individual during any calendar year.

 

 

·                   No more than 300,000 shares of our class A common stock may be granted to any one “covered employee” (within the meaning of Section 162(m) of the Code) for any one performance cycle.

 

·                   No non-employee director may be granted an Award of more than 100,000 shares of our class A common stock in any calendar year.

 

The shares of our class A common stock available under the Second Amended and Restated 2004 Plan may be either previously authorized and unissued shares or treasury shares.  The Second Amended and Restated 2004 Plan provides for appropriate adjustments in the number and kind of shares subject to the plan and to outstanding Awards thereunder in the event of a corporate event or transaction, including any stock dividend, stock split, reorganization, recapitalization, reclassification, merger, consolidation or other similar change in the Company’s capital stock or sale of all or substantially all of the assets of the Company.

 

If any shares subject to an Award under the Second Amended and Restated 2004 Plan are forfeited, canceled, held back upon exercise of an option or settlement of an Award to cover the tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of shares of our class A common stock or otherwise terminated, then such shares shall be available again for grant under the plan.  To the extent permitted by applicable law or any exchange rule, shares issued in assumption of, or in substitution for, any outstanding awards or an entity acquired by the Company or any of its subsidiaries will not be counted against the shares available for grant under the Second Amended and Restated 2004 Plan. Shares tendered or withheld to satisfy the exercise price of an option granted under the Second Amended and Restated 2004 Plan will not again be available for grant under the plan.

 

On March 21, 2013, the closing price of a share of our Class A common stock on the NYSE was $49.50.

 

Administration

 

The Second Amended and Restated 2004 Plan is administered by either our Board or a committee of not less than two non-employee directors (the “Administrator”).

 

The Administrator is authorized to determine the individuals who will receive Awards (the “participants”), the terms and conditions of such Awards, the types of Awards to be granted and the number of shares to be subject to each Award; approve written award agreements; accelerate the vesting or exercisability of all or a portion of any Award; and extend the period during which an option may be exercised.  The Administrator is also authorized to adopt, alter and repeal rules relating to the administration of the Second Amended and Restated 2004 Plan.  The Administrator may delegate to the Company’s Chief Executive Officer all or part of its authority to grant Awards at fair market value to participants other than senior executive officers subject to Section 16 of the Exchange Act or employees covered by Section 162(m).

 

Amendment and Termination

 

The Board may amend or discontinue the Second Amended and Restated 2004 Plan at any time, and the Administrator may amend or cancel any outstanding Award for the purpose of satisfying changes in law, but no action by the Administrator can adversely affect the rights of an outstanding Award without the holder’s consent.  Any material plan amendments, including amendments that (i) increase the number of shares available under the plan, (ii) expand that type of Awards available, the plan eligibility requirements or the term of the plan or (iii) materially change the method of determining fair market

 

 

value, are subject to stockholder approval.  In no event may the Administrator exercise discretion to reduce the exercise price of outstanding options or effect repricing through cancellations and regrants.

 

The Second Amended and Restated 2004 Plan will expire and no further Awards may be granted after February 19, 2023, the tenth anniversary of its approval by our Board of Directors.

 

Eligibility

 

Awards under the Second Amended and Restated 2004 Plan may be granted to individuals who are our employees, officers, non-employee directors and other key persons (including consultants and prospective employees).  However, options which are intended to qualify as ISOs may only be granted to employees.

 

Awards

 

The following will briefly describe the principal features of the various Awards that may be granted under the Second Amended and Restated 2004 Plan.

 

Stock Options — Stock options provide for the right to purchase our class A common stock at a specified price, and usually will become exercisable in the discretion of the Administrator in one or more installments after the grant date.  The option exercise price may be paid in:

 

·                   cash,

·                   check,

·                   shares of our class A common stock (including shares issuable pursuant to the exercise of an Award or shares of which have been held by the participant for such period required by the Administrator),

·                   broker assisted cashless exercise, or

·                   such other instrument acceptable to the Administrator.

 

Stock options may take two forms, non-statutory options (“NSOs”) and incentive stock options (“ISOs”).  NSOs may be granted for any term specified by the Administrator, but shall not exceed ten years.  ISOs will be designed to comply with the provision of the Code and will be subject to certain restrictions contained in the Code in order to qualify as ISOs.  Among such restrictions, ISOs must:

 

·                   have an exercise price not less than the fair market value of our class A common stock on the date of grant, or if granted to certain individuals who own or are deemed to own at least 10% of the total combined voting power of all of our classes of stock (“10% stockholders”), then such exercise price may not be less than 110% of the fair market value of our class A common stock on the date of grant,

 

·                   be granted only to our employees,

 

·                   expire within a specified time following the option holder’s termination of employment,

 

·                   be exercised within ten years after the date of grant, or with respect to 10% stockholders, no more than five years after the date of grant, and

 

 

·                   not be exercisable for the first time by any participant during any calendar year for shares of our class A common stock with an aggregate fair market value in excess of $100,000, determined based on the exercise price.

 

No ISO may be granted under the Second Amended and Restated 2004 Plan after February 19, 2023.

 

Restricted Stock — A restricted stock award is the grant of shares of our class A common stock at a price determined by the Administrator (which price shall be no less than the par value of such shares) that is nontransferable and unless otherwise determined by the Administrator at the time of award, may be repurchased by the Company upon termination of a participant’s employment or service during a restricted period.  Participants will have all rights as a stockholder, including the right to vote the shares of restricted stock, unless otherwise provided in the Award agreement. Restricted stock granted to participants will vest according to the terms of each individual Award agreement, as determined by the Administrator. In the event that restricted stock has performance-based vesting, the restricted period will not be less than one year, and if the restricted stock has time-based vesting, the restricted period will not be less than three years.

 

Stock Appreciation Rights — SARs provide for the payment to the holder based upon increases in the price of our class A common stock over a set base price.  SARs may be granted in connection with stock options or other Awards or separately.  The term and conditions of each SAR, including the period during which a vested SAR may be exercised, is set by the Administrator; provided that, (i) SARs granted in tandem with options will be exercisable at such time and to the extent that the related options are exercisable, (ii) upon the exercise of a SAR, the applicable portion of any related option must be surrendered and (iii) SARs are only exercisable by the holder or his or her legal representative during the holder’s lifetime.  All SARs granted will count against the number of shares that may be issued or transferred under the Second Amended and Restated 2004 Plan.

 

Dividend Equivalents — Dividend equivalents represent the value of the dividends per share of our class A common stock that we pay, calculated with reference to the number of shares covered by an Award (other than a dividend equivalent award) held by the participant.  These may be paid currently or may be deemed to be reinvested in additional shares of our class A common stock, which may thereafter accrue additional equivalents.  Dividend equivalents may be settled in cash or shares or a combination thereof.  In addition, dividend equivalents granted with respect to performance-based Awards will be held in escrow and will only be paid to the grantee upon and to the extent that the performance-based vesting conditions are subsequently satisfied and the Award vests.

 

Unrestricted Stock Awards — The Administrator may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Administrator) an unrestricted stock award to any participant, pursuant to which such participant will receive shares of our class A common stock free of any restrictions.

 

Deferred Stock — Deferred stock is an award of phantom stock units to a participant, typically without the payment of consideration and subject to vesting conditions, including satisfaction of performance criteria.  Like restricted stock, deferred stock may not be sold, or otherwise transferred, until the vesting conditions are removed or expire.  Unlike restricted stock, deferred stock is not actually issued until the deferred stock award has vested.  Recipients of deferred stock also will have no voting or dividend rights prior to the time when the vesting conditions are met and the underlying shares of class A common stock are delivered.  In the event that deferred stock has performance-based vesting, the vesting period will not be less than one year, and if the deferred stock has time-based vesting, the vesting period

 

 

will not be less than three years.

 

Performance Awards — If the Administrator determines that an Award is intended to meet the requirements of “qualified performance-based compensation” and therefore be deductible under Section 162(m), then the performance criteria upon which the Award will be based shall be with reference to any one or more of the following:

 

·                   net earnings (either before or after interest, taxes, depreciation and amortization),

·                   economic value,

·                   gross or net sales or revenue,

·                   net income (before or after taxes),

·                   adjusted net income,

·                   operating earnings or profit,

·                   cash flow (including, but not limited to, operating cash flow and free cash flow),

·                   return on capital,

·                   return on assets,

·                   return on stockholders’ equity,

·                   total stockholder return,

·                   return on sales,

·                   gross or net profit or operating margin,

·                   costs,

·                   expenses,

·                   working capital,

·                   earnings per share,

·                   adjusted earnings per share,

·                   price per share,

·                   market share,

·                   regulatory body approval for commercialization of a product,

·                   implementation or completion of critical projects,

·       return on investment, and

·                   funds from operations,

 

 

any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

 

Sale Event

 

In connection with a sale event, all options and SARs that are not exercisable immediately prior to the sale event will become fully exercisable and all other Awards will become fully vested and nonforfeitable as of the effective time of such event, except as the Administrator may otherwise specify with respect to particular Awards.  Upon the occurrence of a sale event, the Second Amended and Restated 2004 Plan and all outstanding Awards will terminate, unless provision is made in connection with such sale event for the assumption or continuation of Awards with new awards of the successor entity.

 

Adjustments upon Certain Events

 

In the event of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in our capital stock, the outstanding shares of class A common stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of Watts Water, or additional shares or new or different shares or other securities of Watts Water or other non-cash assets are distributed with respect to such shares or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of Watts Water, the outstanding shares of class A common stock are converted into or exchanged for a different number or kind of securities of Watts Water or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Second Amended and Restated 2004 Plan, including the maximum number of shares that may be issued in the form of unrestricted stock awards, restricted stock awards or deferred stock awards, (ii) the number of options or SARs that can be granted to any one individual grantee and the maximum number of shares that may be granted under a performance-based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Second Amended and Restated 2004 Plan, (iv) the repurchase price per share subject to each outstanding restricted stock award, and (v) the price for each share subject to any then outstanding options and SARs under the Second Amended and Restated 2004 Plan, without changing the aggregate exercise price as to which such options and SARs remain exercisable.

 

Awards Not Transferable

 

Generally the Awards may not be sold, pledged, assigned or otherwise transferred other than by will or by the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a domestic relations order, as defined in the Code. The Administrator may allow Awards other than ISOs to be transferred for estate or tax planning purposes to members of the holder’s family, charitable institutions or trusts for the benefit of family members.

 

Prohibition on Repricing

 

The Second Amended and Restated 2004 Plan prohibits the Administrator from reducing the exercise price of outstanding options or repricing options and SARs, including a repricing accomplished through the cancellation of an option or SAR in exchange for cash or another award when the exercise price of the option or the base measurement price of the SAR exceeds the current fair market value of the class A common stock subject to such option or SAR.

 

 

Miscellaneous

 

As a condition to the issuance or delivery of shares of class A common stock or payment of other compensation pursuant to the exercise or lapse of restrictions on any Award, we have the authority to require participants to discharge all applicable withholding tax obligations.  Shares held by or to be issued to a participant may also be used to discharge tax withholding obligations, subject to approval by the Administrator.

 

U.S. Federal Income Tax Consequences

 

The tax consequences of the Second Amended and Restated 2004 Plan under current U.S. federal law are summarized in the following discussion.  This discussion is limited to the general tax principles applicable to the Second Amended and Restated 2004 Plan for U.S. taxpayers, and is intended for general information only.  State, local or foreign taxes are not discussed.  Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality.  The tax information summarized is not tax advice.

 

Nonqualified Stock Options .   For U.S. federal income tax purposes, an optionee generally will not recognize taxable income at the time a non-qualified stock option is granted under the Second Amended and Restated 2004 Plan.  The optionee will recognize ordinary income, and we will be entitled to a deduction, upon the exercise of a non-qualified stock option.  The amount of income recognized (and the amount generally deductible by us) generally will be equal to the excess, if any, of the fair market value of the shares at the time of exercise over the aggregate exercise price paid for the shares, regardless of whether the exercise price is paid in cash, shares or other property.  An optionee’s basis for the stock for purposes of determining his or her gain or loss upon a subsequent disposition of the shares generally will be the fair market value of the stock on the date of exercise of the non-qualified stock option, and any subsequent gain or loss will generally be taxable as capital gain or loss.

 

Incentive Stock Options .  An optionee generally will not recognize taxable income either at the time an incentive stock option is granted or when it is exercised.  However, the amount by which the fair market value of the shares at the time of exercise exceeds the exercise price will be an “item of tax preference” to the optionee for purposes of alternative minimum tax.  Generally, upon the sale or other taxable disposition of the shares acquired upon exercise of an incentive stock option, the optionee will recognize taxable income.  If shares acquired upon the exercise of an incentive stock option are held for the longer of two years from the date of grant or one year from the date of exercise, the gain or loss (in an amount equal to the difference between the fair market value on the date of sale and the exercise price) upon disposition will be treated as a long-term capital gain or loss, and the Company will not be entitled to any deduction.  If this holding period is not met and the stock is sold for a gain, then the difference between the option price and the fair market value of the stock on the date of exercise will be taxed as ordinary income and any gain over that will be eligible for long or short term capital gain treatment.  If the holding period is not met and the shares are disposed of for less than the fair market value on the date of exercise, then the amount of ordinary income is limited to the excess, if any, of the amount realized over the exercise price paid.  We generally will be entitled to a deduction in the amount of any ordinary income recognized by the optionee.

 

Stock Appreciation Rights .  No taxable income is generally recognized upon the receipt of an SAR.  Upon exercise of an SAR, the cash or the fair market value of the shares received generally will be taxable as ordinary income in the year of such exercise.  We generally will be entitled to a compensation deduction for the same amount which the recipient recognizes as ordinary income.

 

 

Restricted Stock .   A participant to whom restricted stock is issued generally will not recognize taxable income upon such issuance and we generally will not then be entitled to a deduction, unless an election is made by the participant under Section 83(b) of the Code.  However, when restrictions on shares of restricted stock lapse, such that the shares are no longer subject to a substantial risk of forfeiture, the participant generally will recognize ordinary income and we generally will be entitled to a deduction for an amount equal to the excess of the fair market value of the shares on the date such restrictions lapse over the purchase price thereof.  If an election is made under Section 83(b) of the Code, then the participant generally will recognize ordinary income on the date of issuance equal to the excess, if any, of the fair market value of the shares on that date over the purchase price therefor and we will be entitled to a deduction for the same amount.

 

Deferred Stock . A participant will generally not recognize taxable income upon the grant of deferred stock.  However, when the shares are delivered to the participant, the value of such shares at that time will be taxable to the participant as ordinary income.  Generally, we will be entitled to a deduction for an amount equal to the amount of ordinary income recognized by the participant.

 

Unrestricted Stock Award .   A participant will recognize taxable ordinary income on the fair market value of the stock delivered as payment of bonuses or other compensation under the Second Amended and Restated 2004 Plan and generally we will be entitled to a corresponding deduction.

 

Performance Awards .  A participant who has been granted a performance award (either performance unit or stock) generally will not recognize taxable income at the time of grant, and we will not be entitled to a deduction at that time.  When an award is paid, whether in cash or shares, the participant generally will recognize ordinary income, and we will be entitled to a corresponding deduction.

 

Code Section 409A .  Certain Awards under the Second Amended and Restated 2004 Plan, depending in part on particular Award terms and conditions, may be considered non-qualified deferred compensation subject to the requirements of Code Section 409A.  If the terms of such Awards do not meet the requirements of Code Section 409A, then the violation may result in an additional 20% tax obligation, plus penalties and interest for such participant.

 

Section 162(m) Limitation .  In general, Section 162(m) of the Code imposes a limit on corporate tax deductions for compensation in excess of $1 million per year paid by a public company to its Chief Executive Officer or any of the next three highest paid executive officers (other than the Chief Financial Officer) as listed in the proxy statement.  An exception to this limitation is provided for performance-based compensation that satisfies certain conditions in order to be exempt from the $1 million deduction cap.  In particular, the compensation must be paid solely on account of the attainment of one or more objective, pre-established performance goals, and three other requirements must be met:

 

·                   the performance goals are determined within a specified time frame by a committee or subcommittee of the corporation’s board of directors consisting solely of two or more “outside directors” (within the meaning of Section 162(m));

 

·                   the materials terms of the remuneration, including the performance goals, are disclosed to the corporation’s stockholders and approved by a majority of the vote of such stockholders before such compensation is paid; and

 

 

·                   the committee of outside directors certifies the attainment of the performance goals and satisfaction of other terms before such compensation is paid.

 

If the Second Amended and Restated 2004 Plan is approved by stockholders then Awards under the Second Amended and Restated 2004 Plan should be able to qualify as performance-based compensation under Section 162(m) since the Second Amended and Restated 2004 Plan sets forth the various performance goals pursuant to which performance-based compensation may be payable and the maximum number of shares or cash compensation that can be granted to any person during any calendar year, thereby establishing the maximum amount of compensation that can be payable during the term of the Second Amended and Restated 2004 Plan to any one individual.  As a result, if awarded by a qualifying compensation committee, stock options and SARs granted under the Second Amended and Restated 2004 Plan will satisfy the “performance-based compensation” exception to Section 162(m) as the compensation payable is based solely on an increase in the stock price after the grant date (i.e., the option exercise price is equal to or greater than the fair market value of the stock subject to the award on the grant date).  Restricted stock and deferred stock Awards granted under the Second Amended and Restated 2004 Plan may also qualify as “qualified performance-based compensation” for purposes of Section 162(m) if such awards are awarded by a qualifying compensation committee, such awards are granted or vest upon pre-established objective performance measures based on the performance goals described above under the section entitled “Performance Awards”, and the other technical requirements for granting such Awards are met at the time the performance based awards are granted.

 

We have attempted to structure the Second Amended and Restated 2004 Plan in such a manner that Awards made under such plan are able to qualify as “performance-based compensation” for purposes of the Section 162(m) $1,000,000 compensation limit.  However, we have not requested a ruling from the IRS or an opinion of counsel regarding this issue.  This discussion will neither bind the IRS nor preclude the IRS from taking a contrary position with respect to the Second Amended and Restated 2004 Plan.  Additionally, nothing in the Second Amended and Restated 2004 Plan requires or otherwise guarantees that Awards will be qualified “performance-based compensation” under Section 162(m), and the compensation committee may in its discretion make awards that do not so qualify.

 

Plan Benefits

 

The number of Awards that an individual participant may receive under the Second Amended and Restated 2004 Plan is in the discretion of the Administrator and therefore cannot be determined in advance.  However, for illustrative purposes only, in 2012 the following amounts were granted to the named executive officers and the other groups of individuals named below under the 2004 Plan.

 

NEW PLAN BENEFITS

 

Name and Position		Number of Shares of Restricted Stock		Number of Shares Underlying Stock Options		Number of Shares of Stock or Deferred Stock Awards
David J. Coghlan, Chief Executive Officer & President		30,000		90,000		0
Dean P. Freeman, Chief Financial Officer & Executive Vice President		8,000		24,000		0
Srinivas K. Bagepalli, President, North America		7,000		21,000		0
Elie Melhem, President, Asia		5,000		15,000		0
Kenneth R. Lepage, General Counsel, Executive Vice President of Administration & Secretary		7,000	(1)	21,000		0
Executive Group		66,333		181,000		0
Non-Executive Director Group		0		0		16,835
Non-Executive Officer Employee Group		99,433		233,800		0

 

 

(1)          Excludes a special one-time grant on August 3, 2012 of an additional 2,000 shares of restricted stock in recognition of Mr. Lepage’s performance in consummating and integrating the acquisition of Danfoss Socla S.A.S., which are not illustrative of typical annual grants that would be awarded under the Second Amended and Restated 2004 Plan.

 

Equity Compensation Plan

 

The following table provides certain information as of December 31, 2012 about our class A common stock that may be issued under our existing equity compensation plans:

 

Equity Compensation Plan Information

 

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants, and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
		(a)		(b)			(c)
Equity compensation plans approved by security holders		1,250,035		$	31.76		1,484,740
Equity compensation plans not approved by security holders		—		—			—

 

 

Board Recommendation and Vote Required for Approval:

 

Approval of the Watts Water Technologies, Inc. Second Amended and Restated 2004 Stock Incentive Plan requires the affirmative vote of the holders of a majority of the votes present in person or represented by proxy and entitled to be cast at the meeting.

 

The Board of Directors recommends a vote for the approval of the Watts Water Technologies, Inc. Second Amended and Restated 2004 Stock Incentive Plan.

 

Exhibit 99.2

 

WATTS WATER TECHNOLOGIES, INC.

 

SECOND AMENDED AND RESTATED

2004 STOCK INCENTIVE PLAN

 

SECTION 1.  GENERAL PURPOSE OF THE PLAN; DEFINITIONS

 

The name of the plan is the Watts Water Technologies, Inc. 2004 Stock Incentive Plan, as may be further amended and restated from time to time (the “Plan”).  The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and other key persons (including consultants and prospective employees) of Watts Water Technologies, Inc. (the “Company”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company.  It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

 

The following terms shall be defined as set forth below:

 

“Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

 

“Administrator” is defined in Section 2(a).

 

“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock Awards, Unrestricted Stock Awards and Dividend Equivalent Rights.

 

“Board” means the Board of Directors of the Company.

 

“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

 

“Committee” means the Committee of the Board referred to in Section 2.

 

“Covered Employee” means an employee who is a “Covered Employee” within the meaning of Section 162(m) of the Code.

 

“Deferred Stock Award” means Awards granted pursuant to Section 8.

 

“Dividend Equivalent Right” means Awards granted pursuant to Section 11.

 

“Effective Date” means the date on which the Plan is approved by stockholders as set forth in Section 17.

 

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ National System or a national securities exchange, the determination shall be made by reference to market quotations.  If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there are market quotations.

 

“ 409A Award ” is an Award that constitutes a deferral of compensation as provided in Treasury Regulation Section 1.409A-1(b)(1), including, but not limited to, (a) any Nonqualified Stock Option or Stock Appreciation Right that permits the deferral of compensation other than the deferral of recognition of income until the exercise of the Award; or (b) any other Award that either (i) provides by its terms for settlement of all or any portion of the Award on one or more dates following the Short-Term Deferral Period (as defined below), or (ii) permits or requires the grantee to elect one or more dates on which the Award will be settled.

 

“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

 

“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.

 

“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

 

“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.

 

“Performance Criteria” has the meaning set forth in Section 10(a).

 

“Performance Cycle” means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more performance criteria will be measured for the purpose of determining a grantee’s right to and the payment of a Restricted Stock Award or Deferred Stock Award.

 

“Restricted Stock Award” means Awards granted pursuant to Section 7.

 

“ Short-Term Deferral Period ” means, subject to any applicable Treasury Regulations promulgated pursuant to Section 409A of the Code or other applicable guidance, the period ending on the later of (i) the date that is two and one-half months from the end of the Company’s fiscal year in which the applicable portion of the Award is no longer subject to a Substantial Risk of Forfeiture, or (ii) the date that is two and one-half months from the end of the grantee’s taxable year in which the applicable portion of the Award is no longer subject to a Substantial Risk of Forfeiture.

 

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“ Specified Employee ” has the meaning set forth in Treasury Regulation Section 1.409A-1(i).

 

“Stock” means the Class A Common Stock, par value $.10 per share, of the Company, subject to adjustments pursuant to Section 3.

 

“Stock Appreciation Right” means any Award granted pursuant to Section 6.

 

“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has a controlling interest, either directly or indirectly.

 

“Substantial Risk of Forfeiture,” shall have the meaning set forth in any applicable Treasury Regulations promulgated pursuant to Section 409A of the Code or other applicable guidance.

 

“Unrestricted Stock Award” means any Award granted pursuant to Section 9.

 

SECTION 2.  ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

 

(a)                                  Committee .  The Plan shall be administered by either the Board or a committee of not less than two Non-Employee Directors (in either case, the “Administrator”).

 

(b)                                  Powers of Administrator .  The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

 

(i)                                      to select the individuals to whom Awards may from time to time be granted;

 

(ii)                                   to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;

 

(iii)                                to determine the number of shares of Stock to be covered by any Award;

 

(iv)                               to determine and modify from time to time the terms and conditions, including restrictions, of any Award, not inconsistent with the terms of the Plan or the requirements of Section 409A of the Code, which modified terms and conditions may differ among individual Awards and grantees, provided, however, that no such modification can reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect a repricing through cancellation and re-grants of such Awards;

 

(v)                                  to approve the form of written instruments evidencing the Awards (each a “Grant Instrument”);

 

(vi)                               to accelerate at any time the exercisability or vesting of all or any portion of any Award;

 

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(vii)                            subject to the provisions of Section 5(a)(ii), to extend at any time the period in which Stock Options may be exercised;

 

(viii)                         to determine at any time whether, to what extent, and under what circumstances distribution or the receipt of Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the grantee and whether and to what extent the Company shall pay or credit amounts constituting interest (at rates determined by the Administrator) or dividends or deemed dividends on such deferrals; and

 

(ix)                               at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award or Grant Instrument; to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

 

All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.

 

(c)                                   Delegation of Authority to Grant Awards .  The Administrator, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Awards at Fair Market Value, to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act or “covered employees” within the meaning of Section 162(m) of the Code.  Any such delegation by the Administrator shall include a limitation as to the amount of Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price of any Stock Option or Stock Appreciation Right, the conversion ratio or price of other Awards and the vesting criteria.  The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.

 

(d)                                  Indemnification .  Neither the Board nor the Committee, nor any member of either or any delegatee thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegatee thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors’ and officers’ liability insurance coverage which may be in effect from time to time.

 

SECTION 3.  STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

 

(a)                                  Stock Issuable .  The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 4,500,000 shares, subject to adjustment as provided in Section 3(b); provided that not more than 2,000,000 shares shall be issued in the form of Unrestricted Stock Awards, Restricted Stock Awards or Deferred Stock Awards (excluding for purposes of such 2,000,000 share limitation, the shares of Stock underlying any Awards granted in lieu of cash compensation or fees).  For purposes of these limitations, the shares of Stock

 

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underlying any Awards (including any awards granted pursuant to the Watts Industries, Inc. 1996 Stock Option Plan) which are forfeited, canceled, held back upon exercise of an Option or settlement of an Award to cover the tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan.  Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 300,000 shares of Stock may be granted to any one individual grantee during any one calendar year period.  Notwithstanding any other provision of the Plan to the contrary, the maximum aggregate number of shares of Stock with respect to one or more Awards that may be granted to a Non-Employee Director during any one calendar year is 100,000.  The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company and held in its treasury.

 

(b)                                  Changes in Stock .  Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for a different number or kind of securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Unrestricted Stock Awards, Restricted Stock Awards or Deferred Stock Awards, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price per share subject to each outstanding Restricted Stock Award, and (v) the price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable.  The adjustment by the Administrator shall be final, binding and conclusive.  No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.

 

The Administrator may also adjust the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration material changes in accounting practices or principles, extraordinary dividends, acquisitions or dispositions of stock or property or any other event if it is determined by the Administrator that such adjustment is appropriate to avoid distortion in the operation of the Plan, provided that no such adjustment shall be made in the case of an Incentive Stock Option, without the consent of the grantee, if it would constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code.

 

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(c)                                   Mergers and Other Transactions .  In the case of and subject to the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation in which the outstanding shares of Stock are converted into or exchanged for a different kind of securities of the successor entity and the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity immediately upon completion of such transaction, or (iv) the sale of all of the Stock of the Company to an unrelated person or entity (in each case, a “Sale Event”), all Options and Stock Appreciation Rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event and all other Awards shall become fully vested and nonforfeitable as of the effective time of the Sale Event, except as the Administrator may otherwise specify with respect to particular Awards.  Upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate, unless provision is made in connection with the Sale Event in the sole discretion of the parties thereto for the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder).  In the event of such termination, each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights held by such grantee, including those that will become exercisable upon the consummation of the Sale Event; provided, however, that the exercise of Options and Stock Appreciation Rights not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.

 

Notwithstanding anything to the contrary in this Section 3(c), in the event of a Sale Event pursuant to which holders of the Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Administrator of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights; provided, however, that if the amount to which a grantee would be entitled upon the exercise of such Options and Stock Appreciation Rights at the time of the Sale Event is equal to or less than zero, then such Options and Stock Appreciation Rights may be terminated without payment.

 

(d)                                  Substitute Awards .  The Administrator may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation.  The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances.  Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a).

 

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SECTION 4.  ELIGIBILITY

 

Grantees under the Plan will be such full or part-time officers and other employees, Non-Employee Directors and key persons (including consultants and prospective employees) of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.

 

SECTION 5.  STOCK OPTIONS

 

Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.

 

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options.  Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code.  To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

 

(a)                                  Stock Options .  Stock Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable.  If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.

 

(i)                                      Exercise Price .  The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5(a) shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant.  If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.

 

(ii)                                   Option Term .  The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted.  If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the term of such Stock Option shall be no more than five years from the date of grant.

 

(iii)                                Exercisability; Rights of a Stockholder.   Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date.  The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option.  An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.

 

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(iv)                               Method of Exercise .  Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased.  Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award agreement:

 

(A)                                In cash, by certified or bank check or other instrument acceptable to the Administrator;

 

(B)                                Through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or that have been beneficially owned by the optionee for such length of time as required under applicable accounting rules not to result in any accounting consequences to the Company and are not then subject to restrictions under any Company plan.  Such surrendered shares shall be valued at Fair Market Value on the exercise date;

 

(C)                                By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or

 

(D)                                Through the delivery (or attestation to the ownership) of shares of Stock issuable to the optionee upon the exercise of an Award, with a Fair Market Value on the exercise date equal to the aggregate exercise price of the shares of Stock with respect to which such Award is exercised.

 

Payment instruments will be received subject to collection.  The delivery of certificates representing the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award agreement or applicable provisions of laws.  In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of shares attested to.

 

(v)                                  Annual Limit on Incentive Stock Options .  To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000.  To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

 

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(b)                                  Non-transferability of Options .  No Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity.  Notwithstanding the foregoing, the Administrator, in its sole discretion, may provide in the Award agreement regarding a given Option that the optionee may transfer his Non-Qualified Stock Options to members of his immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option.

 

SECTION 6.  STOCK APPRECIATION RIGHTS

 

(a)                                  Nature of Stock Appreciation Rights .  A Stock Appreciation Right is an Award entitling the recipient to receive an amount in cash or shares of Stock or a combination thereof having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right, which price shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant, multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised, with the Administrator having the right to determine the form of payment.

 

(b)                                  Grant and Exercise of Stock Appreciation Rights .  Stock Appreciation Rights may be granted by the Administrator in tandem with, or independently of, any Stock Option granted pursuant to Section 5 of the Plan.  In the case of a Stock Appreciation Right granted in tandem with a Non-Qualified Stock Option, such Stock Appreciation Right may be granted either at or after the time of the grant of such Option.  In the case of a Stock Appreciation Right granted in tandem with an Incentive Stock Option, such Stock Appreciation Right may be granted only at the time of the grant of the Option.

 

A Stock Appreciation Right or applicable portion thereof granted in tandem with a Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Option.

 

(c)                                   Terms and Conditions of Stock Appreciation Rights .  Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator, subject to the following:

 

(i)                                      Stock Appreciation Rights granted in tandem with Options shall be exercisable at such time or times and to the extent that the related Stock Options shall be exercisable.

 

(ii)                                   Upon exercise of a Stock Appreciation Right, the applicable portion of any related Option shall be surrendered.

 

(iii)                                All Stock Appreciation Rights shall be exercisable during the grantee’s lifetime only by the grantee or the grantee’s legal representative.

 

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SECTION 7.  RESTRICTED STOCK AWARDS

 

(a)                                  Nature of Restricted Stock Awards .  A Restricted Stock Award is an Award entitling the recipient to acquire, at such purchase price as determined by the Administrator, shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant (“Restricted Stock”).  Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives.  The grant of a Restricted Stock Award is contingent on the grantee executing the Restricted Stock Award agreement.  The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.

 

(b)                                  Rights as a Stockholder .  Upon execution of a Grant Instrument setting forth the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the Grant Instrument evidencing the Restricted Stock Award.  Unless the Administrator shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank.

 

(c)                                   Restrictions .  Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award agreement.  If a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, the Company shall have the right to repurchase Restricted Stock that has not vested at the time of termination at its original purchase price, from the grantee or the grantee’s legal representative.

 

(d)                                  Vesting of Restricted Stock .  The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company’s right of repurchase or forfeiture shall lapse.  Notwithstanding the foregoing, in the event that any such Restricted Stock shall have a performance based goal, the restriction period with respect to such shares shall not be less than one year and in the event that any such Restricted Stock shall have a time based restriction, the restriction period with respect to such shares shall not be less than three years.  Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed “vested.”  Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 14 below, in writing after the Award agreement is issued, a grantee’s rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the Company’s right of repurchase as provided in Section 7(c) above.

 

SECTION 8.   DEFERRED STOCK AWARDS

 

(a)                                  Nature of Deferred Stock Awards .  A Deferred Stock Award is an Award of phantom stock units to a grantee, subject to restrictions and conditions as the Administrator may

 

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determine at the time of grant.  Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives.  The grant of a Deferred Stock Award is contingent on the grantee executing the Deferred Stock Award agreement.  The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.  Notwithstanding the foregoing, in the event that the vesting of any such Deferred Stock Award is subject to attainment of a performance based goal, the vesting period with respect to such award shall not be less than one year and in the event that the vesting of any such Deferred Stock Award shall be time-based, the vesting period with respect to such award shall not be less than three years.  At the end of the deferral period, the Deferred Stock Award, to the extent vested, shall be paid to the grantee in the form of shares of Stock.

 

(b)                                  Election to Receive Deferred Stock Awards in Lieu of Compensation .  The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of the cash compensation or Restricted Stock Award otherwise due to such grantee in the form of a Deferred Stock Award.  Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with rules and procedures established by the Administrator.  The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate.

 

(c)                                   Rights as a Stockholder .  During the deferral period, a grantee shall have no rights as a stockholder; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the phantom stock units underlying his Deferred Stock Award, subject to such terms and conditions as the Administrator may determine.

 

(d)                                  Restrictions .  A Deferred Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of during the deferral period.

 

(e)                                   Termination .  Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 14 below, in writing after the Award agreement is issued, a grantee’s right in all Deferred Stock Awards that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

 

SECTION 9.  UNRESTRICTED STOCK AWARDS

 

Grant or Sale of Unrestricted Stock .  The Administrator may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award to any grantee pursuant to which such grantee may receive shares of Stock free of any restrictions (“Unrestricted Stock”) under the Plan.  Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

 

SECTION 10.  PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES

 

Notwithstanding anything to the contrary contained herein, if any Restricted Stock Award or Deferred Stock Award granted to a Covered Employee is intended to qualify as

 

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“Performance-based Compensation” under Section 162(m) of the Code (a “Performance-based Award”), such Award shall comply with the provisions set forth below:

 

(a)                                  Performance Criteria .  “Performance Criteria” shall mean the criteria (and adjustments) that the Committee selects for purposes of establishing the performance goals that govern Performance-based Awards granted to Covered Employees:

 

(i)                                      The Performance Criteria that shall be used to establish performance goals may include any or all of the following:  (i) net earnings (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation and (D) amortization); (ii) gross or net sales or revenue; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit; (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) return on assets; (viii) return on capital; (ix) return on stockholders’ equity; (x) total stockholder return; (xi) return on sales; (xii) gross or net profit or operating margin; (xiii) costs; (xiv) expenses; (xv) working capital; (xvi) earnings per share; (xvii) adjusted earnings per share; (xviii) price per share; (xix) regulatory body approval for commercialization of a product; (xx) implementation or completion of critical projects; (xxi) market share; (xxii) return on investment, (xxiii) funds from operations, and (xxiv) economic value, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

 

(ii)                                   The Committee, in its sole discretion, may provide that one or more objectively determinable adjustments shall be made to one or more of the performance goals. Such adjustments may include one or more of the following: (i) items related to a change in accounting principle; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Cycle; (vii) items related to the disposal of a business or segment of a business; (viii) items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards; (ix) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Cycle; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments, (xii) items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-going business activities; (xiv) items related to acquired in-process research and development; (xv) items relating to changes in tax laws; (xvi) items relating to major licensing or partnership arrangements; (xvii) items relating to asset impairment charges; (xviii) items relating to gains or losses for litigation, arbitration and contractual settlements; or (xix) items relating to any other unusual or nonrecurring events or changes in applicable law, accounting principles or business conditions. For all Awards intended to qualify as Performance-based Awards, such determinations shall be made within the time prescribed by, and otherwise in compliance with, Section 162(m) of the Code.

 

(b)                                  Grant of Performance-based Awards .  With respect to each Performance-based Award granted to a Covered Employee, the Committee shall select, within the first 90 days of a Performance Cycle (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the performance criteria for such grant, and the achievement targets with respect to each

 

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performance criterion (including a threshold level of performance below which no amount will become payable with respect to such Award).  Each Performance-based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets.  The performance criteria established by the Committee may be (but need not be) different for each Performance Cycle and different goals may be applicable to Performance-based Awards to different Covered Employees.

 

(c)                                   Payment of Performance-based Awards .  Following the completion of a Performance Cycle, the Committee shall meet to review and certify in writing whether, and to what extent, the performance criteria for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-based Awards earned for the Performance Cycle.  The Committee shall then determine the actual size of each Covered Employee’s Performance-based Award, and, in doing so, may reduce or eliminate the amount of the Performance-based Award for a Covered Employee if, in its sole judgment, such reduction or elimination is appropriate.

 

(d)                                  Maximum Award Payable .  The maximum Performance-based Award payable to any one Covered Employee under the Plan for a Performance Cycle is 300,000 Shares (subject to adjustment as provided in Section 3(b) hereof).

 

SECTION 11.  DIVIDEND EQUIVALENT RIGHTS

 

(a)                                  Dividend Equivalent Rights .  A Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee.  A Dividend Equivalent Right may be granted hereunder to any grantee as a component of another Award or as a freestanding award.  The terms and conditions of Dividend Equivalent Rights shall be specified in the Award agreement.  Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents.  Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any.  Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments.  A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award.  A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other award.  Notwithstanding any of the foregoing, Dividend Equivalent Rights granted with respect to Performance-based Awards shall be held in escrow and will only be paid to the grantee upon and to the extent that the performance-based vesting conditions are subsequently satisfied and the Award vests.

 

(b)          Interest Equivalents .  Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment.  Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.

 

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(c)                                   Termination .  Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 14 below, in writing after the Award agreement is issued, a grantee’s rights in all Dividend Equivalent Rights or interest equivalents shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

 

SECTION 12.  TAX WITHHOLDING

 

(a)                                  Payment by Grantee .  Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such income.  The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee.  The Company’s obligation to deliver stock certificates to any grantee is subject to and conditioned on tax obligations being satisfied by the grantee.

 

(b)                                  Payment in Stock .  Subject to approval by the Administrator, a grantee may elect to have the minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Stock owned by the grantee with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.  Notwithstanding the preceding provisions of this Section 12, in the case of Restricted Stock Awards the Company shall have the right to satisfy the minimum required tax withholding obligation by withholding from shares of Stock no longer subject to repurchase or forfeiture a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.

 

SECTION 12A.  DEFERRED COMPENSATION.

 

(a)                                  Anything in the Plan to the contrary notwithstanding, the following rules shall apply to 409A Awards and shall constitute further restrictions on terms of Awards set forth elsewhere in the Plan:

 

(i)                                      The Administrator may permit a grantee to elect to defer an Award or to defer any payment under an Award (each, an “ Election ”), only if such Election is in writing and specifies the amount of the distribution in settlement of the Award being deferred, as well as the time and form of the distribution as permitted by the Plan.

 

(ii)                                   All Elections shall be made by the end of the grantee’s taxable year prior to the year in which services commence for which an Award may be granted to such grantee; provided, however, that if the Award qualifies as “performance-based compensation” for purposes of Section 409A of the Code, and is based on services performed over a period of at least twelve (12) months, the Election may be made no later than six (6) months prior to the end of such period.

 

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(iii)                                Elections shall continue in effect until a written election to revoke or change such Election is received by the Company, except that a written election to revoke or change such Election must be made prior to the last day for making an Election determined in accordance with Section 12A(a)(ii) of the Plan.

 

(b)                                  Any 409A Award which permits a subsequent Election to delay the distribution or change the form of a distribution in settlement of such Award shall comply with the following requirements:

 

(i)                                      No subsequent Election may take effect until at least twelve (12) months after the date on which the subsequent Election is made;

 

(ii)                                   Each subsequent Election related to a distribution in settlement of an Award not described in Section 12A(c)(ii),  (c)(iii), or (c)(vi) must result in a delay of the distribution for a period of not less than five (5) years from the date such distribution would otherwise have been made; and

 

(iii)                                No subsequent Election related to a distribution pursuant to Section 12A(c)(iv) shall be made less than twelve (12) months prior to the date of the first scheduled payment under such distribution.

 

(c)                                   No distribution in settlement of a 409A Award may commence earlier than:

 

(i)                                      Separation from service (as determined pursuant to Treasury Regulations or other applicable guidance);

 

(ii)                                   The date the grantee becomes Disabled (as defined below in Section 12A(f));

 

(iii)                                Death;

 

(iv)                               A specified time (or pursuant to a fixed schedule) that is either (i) specified by the Administrator upon the grant of an Award and set forth in the Grant Instrument, or (ii) specified by the grantee in an Election complying with the requirements of Section 12A(a) and/or 12A(b), as applicable;

 

(v)                                  To the extent provided by Treasury Regulations promulgated pursuant to Section 409A of the Code or other applicable guidance, a change in the ownership or effective control or the Company or in the ownership of a substantial portion of the assets of the Company; or

 

(vi)                               The occurrence of an Unforeseeable Emergency (as defined below in Section 12A(e)).

 

(d)                                  Notwithstanding anything else herein to the contrary, to the extent that a grantee is a “ Specified Employee, ” no distribution pursuant to Section 12A(c)(i) in settlement of a 409A Award may be made before the date which is six (6) months after such grantee’s date of separation from service, or, if earlier, the date of the grantee’s death.  In the event any distribution is delayed

 

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pursuant to the immediately previous sentence, the 409A Award will be paid at the beginning of the seventh month following the grantee’s termination, or, in the event of the grantee’s death during such six-month period, payment will be made to the grantee’s beneficiary as soon as administratively possible following receipt by the Administrator of satisfactory notice and confirmation of the grantee’s death.

 

(e)                                   If a grantee establishes the occurrence of an Unforeseeable Emergency (as defined in Section 409A of the Code) to the satisfaction of the Administrator, the Administrator shall have the authority to provide for distribution in settlement of all or a portion of such Award.  In such event, the amount(s) distributed with respect to such Unforeseeable Emergency cannot exceed the amounts necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution(s), after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the grantee’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).  All distributions with respect to an Unforeseeable Emergency shall be made in a lump sum as soon as practicable following the Administrator’s determination that an Unforeseeable Emergency has occurred.  The occurrence of an Unforeseeable Emergency shall be judged and determined by the Administrator.  The Administrator’s decision with respect to whether an Unforeseeable Emergency has occurred and the manner in which, if at all, the distribution in settlement of an Award shall be altered or modified, shall be final, conclusive, and not subject to approval or appeal.

 

(f)                                    The Administrator shall have the authority to provide in the Grant Instrument evidencing any Award subject to Section 409A of the Code for distribution in settlement of such Award in the event that the grantee becomes Disabled.  A grantee shall be considered “Disabled” if either:

 

(i)                                      The grantee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or

 

(ii)                                   The grantee is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the grantee’s employer.

 

All distributions payable by reason of a grantee becoming Disabled shall be paid in a lump sum or in periodic installments as established by the grantee’s Election, commencing as soon as practicable following the date the grantee becomes Disabled.  If the grantee has made no Election with respect to distributions upon becoming Disabled, all such distributions shall be paid in a lump sum as soon as practicable following the date the grantee becomes Disabled.

 

(g)                                   If a grantee dies before complete distribution of amounts payable upon settlement of a 409A Award, such undistributed amounts shall be distributed to his or her beneficiary under the distribution method for death established by the grantee’s Election as soon as administratively possible following receipt by the Administrator of satisfactory notice and confirmation of the

 

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grantee’s death.  If the grantee has made no Election with respect to distributions upon death, all such distributions shall be paid in a lump sum as soon as practicable following the date of the grantee’s death.

 

(h)                                  Notwithstanding anything to the contrary herein, the Administrator shall have no authority to accelerate distributions relating to 409A Awards in excess of the authority permitted under Treasury Regulation Section 1.409A-3(j).

 

(i)                                      The Administrator shall not amend or terminate and no amendment or termination of the Plan or a Grant Instrument pursuant to Section 14 of the Plan shall be effective with respect to 409A Awards except insofar as it complies with the requirements of Section 409A of the Code.

 

(j)                                     Any substitution of a new stock right, as defined in Treasury Regulation Section 1.409A-1(l), or assumption of an outstanding stock right pursuant to any changes in stock described in Section 3(b) of the Plan or pursuant to any merger and other transaction described in Section 3(d) of the Plan and any adjustment of a stock right to reflect a stock split or a stock dividend shall comply with the requirements of Treasury Regulation Sections 1.409A-1(b)(5)(v)(D) and (H), as applicable.

 

(k)                                  In the case of any Award providing for a distribution upon the lapse of a Substantial Risk of Forfeiture, if the timing of such distribution is not otherwise specified in the Plan or the Grant Instrument, the distribution shall be made on or after January 1 and on or before March 15 of the year following the year in which the risk of forfeiture lapsed.

 

SECTION 13.  TRANSFER, LEAVE OF ABSENCE, ETC.

 

For purposes of the Plan, the following events shall not be deemed a termination of employment:

 

(a)                                  a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or

 

(b)                                  an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.

 

SECTION 14.  AMENDMENTS AND TERMINATION

 

Subject to Section 12A(i) of the Plan, the Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent.  Except as provided in Section 3(b) or 3(c), in no event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation and re-grants.  Any material Plan amendments (other than amendments that curtail the scope of the Plan), including any Plan amendments that (i) increase the number of shares reserved for issuance under the Plan, (ii) expand the type of Awards available, materially expand the eligibility to

 

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participate or materially extend the term of the Plan, or (iii) materially change the method of determining Fair Market Value, shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders.  In addition, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders.  Nothing in this Section 14 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c).

 

SECTION 15.  STATUS OF PLAN

 

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards.  In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.

 

SECTION 16.  GENERAL PROVISIONS

 

(a)                                  No Distribution; Compliance with Legal Requirements .  The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.

 

No shares of Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied.  The Administrator may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.

 

(b)                                  Stock Certificates .  Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by any applicable laws, the Company shall not be required to deliver to any grantee certificates evidencing shares of Stock issued in connection with any Award and instead such shares of Stock may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).  However, if Stock certificates are delivered to grantees under the Plan, such certificates shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company.

 

(c)                                   Other Compensation Arrangements; No Employment Rights .  Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases.  The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.

 

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(d)                                  Trading Policy Restrictions .  Option exercises and other Awards under the Plan shall be subject to such Company’s insider trading policy and procedures, as in effect from time to time.

 

(e)                                   Designation of Beneficiary .  Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death.  Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator.  If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

 

SECTION 17.  EFFECTIVE DATE OF PLAN

 

This Plan shall become effective upon approval by the holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present.  Subject to such approval by the stockholders and to the requirement that no Stock may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of this Plan by the Board.  No grants of Stock Options and other Awards may be made hereunder after February 19, 2023.

 

SECTION 18.  GOVERNING LAW

 

This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.

 

DATE APPROVED BY BOARD OF DIRECTORS:  February 10, 2004

 

DATE APPROVED BY STOCKHOLDERS:  May 5, 2004

 

DATE AMENDMENT TO SECTION 12 APPROVED BY BOARD OF DIRECTORS:  July 31, 2007

 

DATE ON WHICH AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS:  November 1, 2010

 

DATE ON WHICH SECOND AMENDED AND RESTATED PLAN APPROVED BY BOARD OF DIRECTORS:  February 19, 2013

 

DATE ON WHICH SECOND AMENDED AND RESTATED PLAN APPROVED BY STOCKHOLDERS:  May 15, 2013

 

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Exhibit 99.3

 

PROPOSAL 3

APPROVAL OF THE

WATTS WATER TECHNOLOGIES, INC. EXECUTIVE INCENTIVE BONUS PLAN

 

We have adopted the Watts Water Technologies, Inc. Executive Incentive Bonus Plan (the “Bonus Plan”) as a means of (i) assisting us in attracting and retaining highly qualified individuals; (ii) establishing performance goals based on objective criteria; (iii) underscoring the importance of achieving business objectives for the short and long term; and (iv) providing participants with a compensation package that has an annual incentive component that is tied directly to the achievement of those objectives.

 

We are requesting that our stockholders vote in favor of approving the Bonus Plan, which was approved by the Compensation Committee of the Board on February 18, 2013 and by our Board of Directors on February 19, 2013 and will be effective as of January 1, 2014, subject to approval by our stockholders.  The Bonus Plan will replace our current Executive Incentive Bonus Plan previously approved by our stockholders at the 2008 Annual Meeting.  A summary of the principal provisions of the Bonus Plan is set forth below. The summary is qualified by reference to the full text of the Bonus Plan, which is attached as Appendix A to this Proxy Statement.

 

The Bonus Plan was adopted in order to allow bonuses paid under the Bonus Plan to “covered employees” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), to qualify as performance-based compensation and be deductible without limit under Section 162(m) of the Code and the regulations and interpretations thereunder.

 

General

 

In general, Section 162(m) of the Code imposes a limit on corporate tax deductions for compensation in excess of $1 million per year paid by a public company to its Chief Executive Officer or any of the next three highest paid executive officers (other than the Chief Financial Officer) as listed in the proxy statement.  An exception to this limitation is provided for performance-based compensation.

 

Section 162(m) generally requires that affected executives’ compensation satisfy certain conditions in order to qualify for the performance-based exclusion from the $1 million deduction cap.  The Bonus Plan is intended to meet these conditions and therefore qualify compensation paid under the Bonus Plan as performance-based compensation under Section 162(m) of the Code.

 

Administration

 

The Bonus Plan will be administered by the Compensation Committee, which is composed of at least two “outside directors,” as defined under Section 162(m) of the Code.  The Compensation Committee will have the full power to construe and interpret the Bonus Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Bonus Plan.  The Compensation Committee will exercise all rights and duties under the Bonus Plan with respect to matters under Section 162(m) of the Code that are required to be determined in the sole and absolute discretion of the Compensation Committee.  Any decisions made or actions taken by the Compensation Committee shall be final, conclusive and binding.

 

 

Eligibility and Participation

 

Eligibility to participate in the Bonus Plan is limited to officers of Watts Water and its subsidiaries selected by the Compensation Committee, but including all individuals who are “covered employees” within the meaning of Section 162(m) of the Code (“Participants”).

 

Business Criteria

 

The Bonus Plan allows the Compensation Committee to pay bonuses based upon the attainment of performance objectives which are established by the Compensation Committee and relate to one or more of the following business criteria with respect to Watts Water, any of its subsidiaries, divisions, business units, segments or regions or any individual (collectively, the “Performance Goals”):

 

·      earnings (either before or after one or more of the following: (i) interest, (ii) taxes, (iii) depreciation and (iv) amortization)   ·      economic value-added (as determined by the Compensation Committee)   ·      sales or revenue   ·      net income (either before or after taxes)   ·      cash flow (including, but not limited to, operating cash flow and free cash flow)   ·      return on capital   ·      return on invested capital   ·      return on stockholders’ equity   ·      return on assets   ·      stockholder return   ·      return on sales   ·      gross or net profit   ·       productivity   ·      expenses   ·      operating margin   ·      operating efficiency   ·      customer satisfaction

·      costs   ·       cash flow conversion rate   ·       improvement of financial ratings   ·       gross operating profit   ·       capital deployment   ·       implementation or completion of critical projects   ·       funds from operations   ·       achievement of balance sheet or income statement objectives   ·       organizational or succession planning   ·       sales growth (organic and/or inorganic)   ·      improvements in capital structure   ·       productivity ratios   ·      operating efficiency   ·       enterprise value   ·       safety record   ·       completion of acquisitions or business expansions   ·      completion of dispositions of assets or business units

 

 

·      working capital   ·      earnings per share   ·       price per share of class A common stock   ·       market share

·       working capital percentage to sales   ·      quality record   ·       on-time delivery   ·       inventory value   ·      inventory turns

 

Any of the Performance Goals may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

 

At the time the Performance Goals are established and within the time prescribed by, or otherwise in compliance with, Section 162(m) of the Code, the Compensation Committee may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals.  Such adjustments may include one or more of the following items relating to:

 

·       a change in accounting principle   ·       financing activities   ·       expenses for restructuring or productivity initiatives   ·       other non-operating items   ·       acquisitions or dispositions   ·       the business operations of any entity acquired by the Company during the performance period   ·      discontinued operations

·      stock dividend, stock split, combination or exchange of stock   ·      unusual or extraordinary events, transactions or developments   ·      amortization of intangible assets   ·      other significant income or expense outside the Company’s core, on-going business activities   ·      other nonrecurring items   ·       changes in applicable law

 

All such determinations shall be made in compliance with Section 162(m) of the Code.

 

Performance Periods

 

The Bonus Plan allows the Compensation Committee to select the bonus formulas and Performance Goals applicable for each performance period.  Performance periods may be periods of one, two or three fiscal years of the Company. A performance period may be concurrent or consecutive.

 

Award Determinations

 

By no later than the latest time permitted by Section 162(m) of the Code, but no later than 90 days after the commencement of the performance period and while the performance relating to the

 

 

Performance Goal(s) remains substantially uncertain within the meaning of Section 162(m) of the Code, the Compensation Committee will adopt bonus formulas for each performance period, including the Performance Goals for such performance period and any adjustments permitted.

 

The Compensation Committee may, pursuant to its discretion, reduce a bonus payable under the Bonus Plan pursuant to the applicable bonus formula; however, the Compensation Committee has no discretion to increase the amount of a Participant’s bonus.  Once a bonus formula is established based on one or more Performance Goals, the Compensation Committee may, with the consent of the Participant, establish (and once established, rescind, waive or amend) additional conditions and terms of payment of awards, including the achievement of other financial, strategic or individual goals, which may be objective or subjective, as it deems appropriate.  However, the Compensation Committee has no discretion to increase the amount of a Participant’s bonus or to pay a bonus under the Bonus Plan if the Performance Goals have not been satisfied.

 

A Participant does not need to be employed on the first day of a performance period. If a Participant becomes eligible to participate in the Bonus Plan during a performance period, the Compensation Committee shall determine if such Participant will be eligible to receive a bonus for such performance period and whether or not such bonus will be prorated.  A Participant must be employed by us on the last day of the performance period in order to be eligible for an award; provided, however , that we may provide exceptions to this requirement in the event of the Participant’s death or disability, and pro rata bonuses may be paid to Participants whose employment is terminated during a performance period.

 

All awards will be determined by the Compensation Committee and will be paid in (i) cash or (ii) with the consent of the Participant and the Compensation Committee, restricted stock units pursuant to the terms of our Management Stock Purchase Plan.  No awards will be paid unless and until the Compensation Committee makes a certification in writing (i) of the amounts payable with respect to each award, (ii) that no award exceeds $5,000,000 with respect to any performance period and (iii) that the amount payable to each Participant does not exceed the amount that was determined to be due upon attainment of the performance goals for the performance period.  Awards will be paid as soon as practicable following the end of each performance period, but in no event shall payment be made later than two and one half months following the end of such performance period.

 

Limitations on Bonuses

 

The maximum bonus payable to a Participant under the Bonus Plan shall not exceed $5,000,000 with respect to any performance period.

 

Forfeiture and Claw-Backs

 

The Bonus Plan allows the Compensation Committee to subject bonuses paid under the Bonus Plan to the provisions of any claw-back policy we implement.

 

Bonus Plan Benefits

 

There are currently six employees who would be eligible to receive awards under the Bonus Plan if it were in effect for 2013.  The actual amount of future award payments under the Bonus Plan is not presently determinable because such amounts are dependent on the future attainment of to-be-determined performance goals.  However, the Bonus Plan provides that the maximum award payable to any one individual under the Bonus Plan is $5,000,000.  For sake of illustration only, if the Bonus Plan had been

 

 

in effect for the period January 1, 2012 through December 31, 2012, and based on the targets and performance goals selected for such period as described above under “Compensation Discussion and Analysis — Elements of Compensation — Annual Incentives,” the maximum award the Participants in the Bonus Plan could have received would be as follows:

 

Name and Position		Dollar Value ($)
David J. Coghlan		1,300,000
Dean P. Freeman		513,500	(1)
Srinivas K. Bagepalli		422,400
Elie Melhem		330,000
Kenneth R. Lepage		360,000
Executive Group		3,236,555	(2)
Non-Executive Director Group		0
Non-Executive Officer Employee Group		0

 

(1)          Assumes Mr. Freeman had been employed by us for all of 2012.

 

(2)          Includes amounts denominated in British pounds sterling, which were converted based on a conversion rate of 1.5228 U.S. dollars for one British pound sterling as of February 22, 2013.

 

Other Compensation

 

The Bonus Plan is not exclusive.  Nothing contained in the Bonus Plan prohibits us from granting awards or authorizing other compensation to any person under any other plan or authority or limit our authority to establish other special awards or incentive compensation plans providing for the payment of incentive compensation to employees (including those employees who are eligible to participate in the Bonus Plan).

 

Amendment and Termination

 

The Compensation Committee has the authority to amend or repeal the Bonus Plan at any time or to direct the temporary or permanent discontinuance of awards payable under the Bonus Plan; provided, however , any amendment that changes the maximum award payable to any Participant or materially amends the definition of Performance Goals must be approved by an affirmative vote of a majority of our stockholders.

 

Notwithstanding the foregoing, in the event of a change in control (as defined in the Bonus Plan), the Compensation Committee may not terminate the Bonus Plan during any performance period without payment of a pro rata portion of any bonus based on the period of time elapsed during the performance period and a determination of the Compensation Committee as to the satisfaction of pro rata Performance Goals for such period.

 

 

Board Recommendation and Vote Required for Approval

 

Approval of the Watts Water Technologies, Inc. Executive Incentive Bonus Plan requires the affirmative vote of the holders of a majority of the votes present in person or represented by proxy and entitled to be cast at the 2013 Annual Meeting.

 

The Board of Directors recommends a vote for the approval of the Watts Water Technologies, Inc. Executive Incentive Bonus Plan.

 

Exhibit 99.4

 

WATTS WATER TECHNOLOGIES, INC.

EXECUTIVE INCENTIVE BONUS PLAN

 

I.                                         ESTABLISHMENT AND PURPOSE

 

The Watts Water Technologies, Inc. Executive Incentive Bonus Plan (the “ Plan ”) is hereby adopted by Watts Water Technologies, Inc. (the “ Company ”) effective January 1, 2014.    The purpose of the Plan is to (i) attract and retain highly qualified individuals; (ii) establish performance goals based on objective criteria; (iii) underscore the importance of achieving business objectives for the short and long term; and (iv) include in such individual’s compensation package an annual incentive component which is tied directly to the achievement of those objectives.  The Plan is designed to ensure that the bonuses paid hereunder to Covered Employees (as defined below) are deductible without limit under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the regulations and interpretations hereunder.  The Plan supersedes and replaces the prior Executive Incentive Bonus Plan, as amended and restated effective as of January 1, 2008.

 

II.                                    EFFECTIVE DATE; TERM

 

A.                                     The Plan will be effective as of January 1, 2014, subject to approval of the Plan by the stockholders of the Company.  Once effective, the Plan shall remain in effect until such time as it shall be terminated by the Committee (as defined below) or the Plan is not reapproved by stockholders as provided in Section X.  The Committee may terminate the Plan at any time; provided, however that except in the event of a Change in Control, the Committee may not terminate the Plan during any performance period without payment of a pro rata portion of any bonus based on the period of time elapsed during the performance period and a determination as to satisfaction of pro rata Performance Goals for such period. For this purpose, a “Change in Control” shall mean (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation in which the outstanding shares of stock of the Company are converted into or exchanged for a different kind of securities of the successor entity and the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity immediately upon completion of such transaction, or (iv) the sale of all of the stock of the Company to an unrelated person or entity.

 

III.                               ADMINISTRATION

 

A.                                     Committee .  The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the “ Committee ”). The Committee shall consist at least two directors, each of whom shall qualify as “outside directors” as defined under Section 162(m) of the Code and related Treasury regulations.

 

B.                                     Authority .  The Committee shall have full power to construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, that it believes reasonable and proper and in conformity with the purposes of the Plan.  For the avoidance of

 

 

doubt, the Committee shall exercise any and all rights and duties under the Plan with respect to matters under Section 162(m) of the Code that are required to be determined in the sole and absolute discretion of the Committee.

 

C.                                     Determinations .  Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and/or administration of the Plan shall be final, conclusive and binding on all persons affected thereby. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals.

 

IV.                                ELIGIBILITY AND PARTICIPATION

 

Eligibility to participate in the Plan is limited to certain officers of the Company as determined and selected by the Committee (each a “ Participant ”), but including all individuals who are “covered employees” within the meaning of Code Section 162(m) and the regulations and published guidance thereunder (“ Covered Employees ”).

 

V.                                     BUSINESS CRITERIA

 

A.                                     Performance Goals .  A Participant may receive a bonus payment under the Plan based upon the attainment of performance objectives which are established by the Committee and relate to one or more of the business criteria listed in Appendix A with respect to the Company, any of its subsidiaries, divisions, business units, segments or regions or any individual (the “ Performance Goals ”), any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

 

B.                                     Adjustments .  At the time of establishment of the Performance Goals and within the time prescribed by, or otherwise in compliance with, Section 162(m) of the Code, the Committee may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals.  Such adjustments may include one or more of the following items relating to:  (i) a change in accounting principle, (ii) financing activities, (iii) expenses for restructuring or productivity initiatives, (iv) other non-operating items, (v) acquisitions or dispositions, (vi) the business operations of an entity acquired by the Company during the performance period, (vii) discontinued operations, (viii) stock dividend, split, combination or exchange of stock, (ix) unusual or extraordinary events, transactions or developments, (x) amortization of intangible assets, (xi) other significant income or expense outside the Company’s core on-going business activities, (xii) other nonrecurring items, (xiii) goodwill or intangible writeoffs, or (xiv) changes in applicable law.  All such adjustments shall be made in compliance with Section 162(m) of the Code.

 

VI.                                BONUS DETERMINATIONS

 

A.                                     Bonus Formulas .  Any bonuses paid to Participants under the Plan shall be based upon objectively determinable bonus formulas that tie such bonuses to one or more performance objectives relating to the Performance Goals.  The Committee will select the Performance Goals applicable for each performance period.  Performance periods may be periods of one, two or

 

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three fiscal years of the Company, as specified by the Committee.  A performance period may be concurrent or consecutive.  Participants need not be employed on the first day of a performance period.  If a Participant becomes eligible to participate in the Plan during a performance period, the Committee shall determine if such Participant shall be eligible to participate in an award for such performance period and whether or not such award may be prorated for such period.

 

B.                                     Timing of Adoption .  Bonus formulas for Participants shall be adopted for each performance period by the Committee no later than the latest time permitted by Section 162(m) of the Code, but no later than 90 days after the commencement of the performance period and while the performance relating to the Performance Goal(s) remain substantially uncertain within the meaning of Section 162(m) of the Code.

 

C.                                     Reduction in Bonuses .  Although the Committee may in its sole discretion reduce a bonus payable to a Participant pursuant to the applicable bonus formula, the Committee shall have no discretion to increase the amount of a Participant’s bonus as determined under the applicable bonus formula.

 

D.                                     Limitations on Bonuses .  The maximum bonus payable to a Participant under the Plan shall not exceed $5,000,000 with respect to any performance period.

 

E.                                      Continued Employment .  The payment of a bonus to a Participant with respect to a performance period shall be conditioned upon the Participant’s employment by the Company on the last day of the performance period; provided, however , that in the discretion of the Committee, (i) full bonuses may be paid to Participants who have terminated employment due to disability or following a Change in Control, or to the designee or estate of a Participant who died during such period and (2) pro rata bonuses may be paid to a Participant whose employment is terminated during the performance period based on actual performance.

 

VII.                           ADDITIONAL CONDITIONS

 

A.                                     Additional Criteria .  Once a bonus formula is established under Section VI based on one or more of the Performance Goals, the Committee may with the consent of the Participant establish (and once established, rescind, waive or amend) additional conditions and terms of payment of awards (including but not limited to the achievement of other financial, strategic or individual goals, which may be objective or subjective) as it deems desirable in carrying out the purposes of the Plan and may take into account such other factors as it deems appropriate in administering any aspect of the Plan.  However, the Committee shall have no authority to increase the amount of an award granted to any Participant or to pay an award under the Plan if the Performance Goal has not been satisfied.

 

B.                                     Compliance with 162(m) .  Notwithstanding any other provision of the Plan, any bonus or award granted under this Plan shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.

 

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C.                                     Forfeiture and Claw-Back Provisions .  The Committee may provide that any bonuses paid under the Plan shall be subject to the provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations thereunder, to the extent set forth in such claw-back policy.

 

VIII.                      PAYMENT OF AWARDS

 

A.                                     Form of Payment .  All awards shall be paid in (i) cash or (ii) with the consent of the Participant and the Committee, restricted stock units pursuant to the terms of the Company’s Management Stock Purchase Plan, as it may be amended from time to time, or any successor equity incentive plan thereto.

 

B.                                     Certification Required .  No awards shall be paid unless and until the Committee certifies, in writing, that (i) the amounts payable with respect to each award, (ii) no award exceeds the limitations set forth in Section VI and (iii) the amount payable to each Participant does not exceed the amount of the award granted to the Participant at the beginning of the performance period.

 

C.                                     Timing of Payments .  Awards shall be paid as soon as practicable following the end of the performance period, but in no event shall payment be made later than two and one half months following the end of the performance period.

 

IX.                               SPECIAL AWARDS AND OTHER PLANS

 

Nothing contained in the Plan shall prohibit the Company from granting awards or authorizing other compensation to any person under any other plan or authority or limit the authority of the Company to establish other special awards or incentive compensation plans providing for the payment of incentive compensation to employees (including those employees who are eligible to participate in the Plan).

 

X.                                    STOCKHOLDER APPROVAL

 

No awards shall be paid under the Plan unless and until the Company’s stockholders shall have approved the Plan and the Performance Goals as required by Section 162(m) of the Code.  So long as the Plan shall not have been previously terminated by the Company, it shall be resubmitted for approval by the Company’s stockholders in the fifth year after it shall have first been approved by the Company’s stockholders, and every fifth year thereafter.  In addition, the Plan shall be resubmitted to the Company’s stockholders for approval as required by Section 162(m) of the Code if it is amended in any way that changes the material terms of the Plan’s Performance Goals, including by materially modifying the Performance Goals, increasing the maximum bonus payable under the Plan or changing the Plan’s eligibility requirements.

 

XI.                               AMENDMENT OF THE PLAN

 

The Committee shall have the right to amend the Plan from time to time or to repeal it entirely or to direct the discontinuance of awards either temporarily or permanently; provided, however , that no amendment of the Plan that changes the maximum award payable to any

 

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Participant or all Participants in the aggregate, as set forth in Section VI, or materially amends the definition of Performance Goals under Section V, shall be effective before approval by the affirmative vote of a majority of shares voting at a meeting of the shareholders of the Company.

 

XII.                          RIGHTS OF PLAN PARTICIPANTS

 

A.                                     No Right to Continued Employment .  Neither the Plan, nor the adoption or operation of the Plan, nor any documents describing or referring to the Plan (or any part hereof) shall confer upon any Participant any right to continue in the employ of the Company or shall interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved, to discharge any Participant at any time for any reason whatsoever, with or without cause.

 

B.                                     No Right to Company Assets .  No individual to whom an award has been made or any other party shall have any interest in the cash or any other asset of the Company prior to such amount being paid.

 

C.                                     Awards Not Transferrable .  No right or interest of any Participant shall be assignable or transferable, or subject to any claims of any creditor or subject to any lien.

 

D.                                     No Right to Continued Participation .  In no event shall the Company be obligated to pay to any Participant an award for any period by reason of the Company’s payment of an award to such Participant in any other period, or by reason of the Company’s payment of an award to any other Participant or Participants in such period or in any other period.  Nothing contained in this Plan shall confer upon any person any claim or right to any payments hereunder.  Such payments shall be made at the sole discretion of the Committee.

 

E.                                      Forfeiture and Claw-Back Provisions.   The Committee may provide that any bonuses paid under the Plan shall be subject to the provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations thereunder, to the extent set forth in such claw-back policy.

 

XIII.                     SECTION 409A

 

Awards under this Plan shall either be exempt from or be designed to comply with Section 409A of the Code.  Notwithstanding anything to the contrary in the Plan or any award, if and to the extent the Committee shall determine that the terms of any award may result in the failure of such award to be exempt from or comply with the requirements of Section 409A of the Code, or any applicable regulations or guidance promulgated by the Secretary of the Treasury in connection therewith, the Committee shall have authority to take such action to amend, modify, cancel or terminate the Plan or any award as it deems necessary or advisable, including without limitation:

 

1.                                       amendment or modification of the Plan or any award to conform the Plan or such award to the requirements of Section 409A of the Code or any regulations or other guidance thereunder (including, without limitation, any amendment or modification of the terms of any award regarding vesting, exercise, or the timing or form of payment);

 

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2.                                       cancellation or termination of any unvested award, or portion thereof, without any payment to the Participant holding such award.

 

Any such amendment, modification, cancellation, or termination of the Plan or any award may adversely affect the rights of an Participant with respect to such award without the Participant’s consent.

 

XIV.                      MISCELLANEOUS

 

A.                                     Withholding .  The Company shall deduct all federal, state and local taxes required by law or Company policy from any award paid hereunder.

 

B.                                     Unfunded Plan .  The Plan shall be unfunded and is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.  Amounts payable under the Plan are not and will not be transferred into a trust or otherwise set aside.  The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any award under the Plan.  Any accounts under the Plan are for bookkeeping purposes only and do not represent a claim against the specific assets of the Company.

 

C.                                     Severability .  Any provision of the Plan that is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Plan.

 

D.                                     Governing Law .  The Plan and the rights and obligations of the parties to the Plan shall be governed by, and construed and interpreted in accordance with, the law of the State of Delaware (without regard to principles of conflicts of law).

 

*  *  *  *  *

 

The Plan was duly authorized, approved and adopted by the Board of Directors of the Company on February 19, 2013, and was duly approved by the stockholders of the Company on May 15, 2013.

 

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APPENDIX A

 

·                   earnings (either before or after one or more of the following:  (i) interest, (ii) taxes, (iii) depreciation and (iv) amortization)

 

·                   economic value-added (as determined by the Committee)

 

·                   sales or revenue

 

·                   net income (either before or after taxes)

 

·                   cash flow (including, but not limited to, operating cash flow and free cash flow)

 

·                   return on capital

 

·                   return on invested capital

 

·                   return on stockholders’ equity

 

·                   return on assets

 

·                   stockholder return

 

·                   return on sales

 

·                   gross or net profit

 

·                   productivity

 

·                   expenses

 

·                   operating margin

 

·                   operating efficiency

 

·                   customer satisfaction

 

·                   working capital

 

·                   earnings per share

 

·                   price per share of class A common stock

 

·                   market share

 

·                   costs

 

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·                   cash flow conversion rate

 

·                   improvement of financial ratings

 

·                   gross operating profit

 

·                   capital deployment

 

·                   implementation or completion of critical projects

 

·                   funds from operations

 

·                   achievement of balance sheet of income statement objectives

 

·                   organizational or succession planning

 

·                   sales growth (organic and/or inorganic)

 

·                   improvements in capital structure

 

·                   productivity ratios

 

·                   operating efficiency

 

·                   enterprise value

 

·                   safety record

 

·                   completion of acquisitions or business expansions

 

·                   completion of dispositions of assets or business units

 

·                   working capital percentage to sales

 

·                   quality record

 

·                   on-time delivery

 

·                   inventory value

 

·                   inventory turns

 

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