0001095811-01-502275 10-Q 5 20010331 20010515 WATER PIK TECHNOLOGIES INC 0001094286 3634 251843384 DE 1231 10-Q 34 001-15297 1636422 23 CORPORATE PLAZA STE 246 NEWPORT BEACH CA 92660 9497193700 660 NEWPORT CENTER DRIVE NEWPORT BEACH CA 92660 10-Q 1 a72650e10-q.txt FORM 10-Q PERIOD ENDED MARCH 31, 2001 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________ COMMISSION FILE NUMBER 1-15297 WATER PIK TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 25-1843384 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 23 CORPORATE PLAZA, SUITE 246 NEWPORT BEACH, CA 92660 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 719-3700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Common Stock outstanding on May 7, 2001 was 12,245,011 shares. 2 WATER PIK TECHNOLOGIES, INC. INDEX
Page Number ----------- Part I - Financial Information Item 1. Consolidated Financial Statements Consolidated Balance Sheets - March 31, 2001 (unaudited) and December 31, 2000 3 Consolidated Statements of Income - Three months ended March 31, 2001 and 2000 (unaudited) 4 Consolidated Statements of Cash Flows - Three months ended March 31, 2001 and 2000 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Part II - Other Information Item 2. Changes in Securities and Use of Proceeds 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
3 PART I--FINANCIAL INFORMATION ITEM 1--FINANCIAL STATEMENTS WATER PIK TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share amounts)
March 31, December 31, 2001 2000 ----------------------------------------------------------------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,327 $ 1,383 Accounts receivable, less allowances for doubtful accounts of $1,842 at March 31, 2001 and $1,910 at December 31, 2000 59,654 62,519 Inventories 41,986 33,866 Deferred income taxes 8,367 6,877 Prepaid expenses and other current assets 2,619 2,284 --------- --------- TOTAL CURRENT ASSETS 113,953 106,929 Property, plant and equipment, net 46,031 42,364 Cost in excess of net assets acquired, net 19,730 20,109 Deferred income taxes 1,260 1,760 Other assets 1,925 2,034 --------- --------- TOTAL ASSETS $ 182,899 $ 173,196 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 23,379 $ 26,255 Accrued income taxes -- 3,284 Accrued liabilities 16,074 25,162 Current portion of long-term debt 10,028 5,740 --------- --------- TOTAL CURRENT LIABILITIES 49,481 60,441 Long-term debt, less current portion 45,617 36,995 Other accrued liabilities 8,167 9,013 --------- --------- TOTAL LIABILITIES 103,265 106,449 Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued -- -- Common stock, $0.01 par value: 50,000,000 shares authorized; 11,910,673 and 9,923,685 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively 119 99 Additional paid-in capital 73,640 60,064 Retained earnings 10,647 11,399 Equity adjustments due to stock plans (4,274) (4,314) Accumulated comprehensive loss (498) (501) --------- --------- TOTAL STOCKHOLDERS' EQUITY 79,634 66,747 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 182,899 $ 173,196 ========= =========
See accompanying notes 3 4 WATER PIK TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except for share and per share amounts) (Unaudited)
Three Months Ended March 31, ------------------------------ 2001 2000 --------------------------------------------------------------------------------------- SALES $ 56,174 $ 67,104 Cost and expenses: Cost of sales 38,234 44,782 Selling expenses 11,450 12,096 General and administrative expenses 6,942 8,363 ------------ ------------ 56,626 65,241 ------------ ------------ Income (loss) before other income and expenses (452) 1,863 Interest expense 883 1,001 Other income (100) (60) ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (1,235) 922 Provision (benefit) for income taxes (483) 381 ------------ ------------ NET INCOME (LOSS) $ (752) $ 541 ============ ============ BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE $ (0.06) $ 0.06 ============ ============ SHARES USED IN COMPUTING BASIC EARNINGS PER SHARE 11,643,000 9,742,000 ============ ============ SHARES USED IN COMPUTING DILUTED EARNINGS PER SHARE 11,643,000 9,772,000 ============ ============
See accompanying notes 4 5 WATER PIK TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, ---------------------- 2001 2000 -------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income (loss) $ (752) $ 541 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 2,185 2,411 Deferred income taxes (990) 1,057 Compensation expense arising from stock awards 139 24 Change in operating assets and liabilities: Accounts receivable 2,888 (8,412) Inventories (8,119) (5,213) Accounts payable (2,895) (2,622) Accrued liabilities (9,228) (866) Accrued income taxes (3,209) (703) Other assets and liabilities (1,230) 312 -------- -------- CASH USED IN OPERATING ACTIVITIES (21,211) (13,471) -------- -------- INVESTING ACTIVITIES: Purchases of property, plant and equipment (5,284) (1,111) Disposals of property, plant and equipment 16 3 -------- -------- CASH USED IN INVESTING ACTIVITIES (5,268) (1,108) -------- -------- FINANCING ACTIVITIES: Net long-term debt borrowings 12,914 14,918 Net proceeds from common stock offering 13,646 -- Principal payments on capital leases (58) (60) -------- -------- CASH PROVIDED BY FINANCING ACTIVITIES 26,502 14,858 -------- -------- Effect of exchange rate changes on cash and cash equivalents (79) 28 -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (56) 307 Cash and cash equivalents at beginning of period 1,383 1,514 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,327 $ 1,821 ======== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Property, plant and equipment acquired under capital leases $ -- $ 84 SUPPLEMENTAL INFORMATION Cash paid during the period: Interest $ 818 $ 894 Taxes $ 4,067 $ 64
See accompanying notes 5 6 WATER PIK TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION DESCRIPTION OF BUSINESS Water Pik Technologies, Inc. ("Water Pik Technologies" or the "Company") is a leader in the design, manufacturing and marketing of a broad range of well-recognized personal health care products and pool products and heating systems. The Company's products include: showerheads; oral health products; water filtration products; pool and spa heaters, controls, valves and water features; and residential and commercial water-heating systems. Water Pik Technologies operates in two business segments -- Personal Health Care and Pool Products and Heating Systems. SPIN-OFF FROM ALLEGHENY TELEDYNE INCORPORATED Water Pik Technologies, Inc. became an independent public company on November 29, 1999 when Allegheny Teledyne Incorporated, now known as Allegheny Technologies Incorporated ("ATI"), distributed all of the common stock of Water Pik Technologies to the stockholders of ATI in a tax-free transaction (the "spin-off"). Stockholders of ATI received one share of Company common stock for every 20 shares of ATI stock. Following the spin-off, ATI held no equity interest in the Company. Water Pik Technologies consists of the former consumer products segment of ATI, which includes the operations of the Teledyne Water Pik division with operations in the U.S. and Canada and the Teledyne Laars division with operations in the U.S. and Canada. UNAUDITED INTERIM FINANCIAL INFORMATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts reported in previous years have been reclassified to conform to the 2001 presentation. These reclassifications had no effect on reported results of operations or stockholders' equity. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for the full year ended December 31, 2001. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and in June 2000, issued SFAS No. 138, which amends and clarifies certain guidance in SFAS No. 133. These statements establish accounting and reporting standards for derivative instruments. The statements require that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Adoption of SFAS No. 133 in the first quarter of 2001 did not have a significant effect on the Company's consolidated results of operations or financial position. In September 2000, the Emerging Issues Task Force (EITF) reached a final consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," which addresses the classification of shipping and handling costs and the related revenue. The Company adopted EITF Issue 00-10 in the fourth quarter of 2000 resulting in a reclassification of outgoing freight costs from a deduction in arriving at net sales to an expense in cost of sales. In accordance with the guidance, outgoing freight costs for all prior periods presented have been reclassified. As a result of the reclassification, sales and cost of sales for the three months ended March 31, 2000 increased $1,935,000 to $67,104,000 and $44,782,000, respectively. These reclassifications had no effect on reported gross profit or results of operations. 6 7 In May 2000, the EITF reached a consensus on EITF Issue 00-14, "Accounting for Certain Sales Incentives." EITF 00-14, as amended, addresses the recognition, measurement and income statement classification for sales incentives offered voluntarily by a vendor without charge to customers that can be used in, or that are exercisable by a customer as a result of, a single exchange transaction. The Company is required to adopt EITF Issue 00-14 by the first quarter of 2002. Management does not anticipate that the adoption of EITF Issue 00-14 will have a significant impact on the Company's consolidated results of operations, financial position or income statement classification. In April 2001, the EITF reached a consensus on EITF Issue 00-25 "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer." This guidance requires that consideration paid by a vendor to a retailer be classified in the vendor's income statement as a reduction of revenue instead of expense unless certain criteria are met. The Company is required to adopt EITF Issue 00-25 by the first quarter of 2002. Management is currently evaluating the impact of adopting EITF Issue 00-25. RECLASSIFICATIONS Certain amounts reported in previous periods have been reclassified to conform to the 2001 presentation. These reclassifications had no effect on reported results of operations or stockholders' equity. 2. INVENTORIES Inventories are stated at the lower of cost (last-in, first-out (LIFO) and first-in, first-out (FIFO) cost methods) or market. Inventories consist of the following:
March 31, December 31, 2001 2000 ------------------------------------------------------------------------------------------ (In thousands) Raw materials and supplies $ 14,530 $ 12,207 Work-in-process 6,282 5,273 Finished goods 25,866 21,026 -------- -------- Total inventories at current cost 46,678 38,506 Less: Allowances to reduce current cost values to LIFO basis (4,692) (4,640) -------- -------- Total inventories $ 41,986 $ 33,866 ======== ========
Inventories determined using the LIFO cost method were $35,278,000 at March 31, 2001 and $28,515,000 at December 31, 2000, net of the respective LIFO reserves. The remainder of inventory was determined using the FIFO cost method. These inventory values prior to the LIFO reserve do not differ materially from cost to current cost. 3. LONG-TERM DEBT Long-term debt is comprised of the following:
March 31, December 31, 2001 2000 ------------------------------------------------------------------------------ (In thousands) Revolving credit facility $ 45,519 $ 36,845 Canadian revolving credit facility 6,649 2,399 8 percent promissory note 3,174 3,133 Capitalized leases 303 358 -------- -------- 55,645 42,735 Less: Current portion (10,028) (5,740) -------- -------- Long-term debt $ 45,617 $ 36,995 ======== ========
7 8 4. STOCKHOLDERS' EQUITY On January 3, 2001, the Company sold 1,973,685 shares of common stock at $7.60 per share to two investment funds managed by Special Value Investment Management, LLC in a private placement. Proceeds from the offering in the amount of $15,000,006, net of $1,354,000 in offering costs, were used for capital expenditures related to new product development activities and to repay borrowings under the Company's revolving credit facility pending their future use for new product development activities and for further development of lower cost manufacturing capabilities in accordance with the amended IRS tax ruling received by ATI in connection with the spin-off. Subsequent to January 3, 2002, at the request of the purchaser, the Company has the obligation to register these shares, plus an additional 386,800 shares of common stock that the purchasers owned prior to the offering, under the Securities Act of 1933, as amended, and to pay certain registration expenses. 5. COMPREHENSIVE INCOME (LOSS) The components of comprehensive income (loss) were as follows:
Three Months Ended March 31, ---------------------- 2001 2000 -------------------------------------------------------------------------------- (in thousands) Net income (loss) $(752) $ 541 Foreign currency translation gains 3 47 --------------------- Comprehensive income (loss) $(749) $ 588 =====================
6. INCOME TAXES The provision for income taxes for the 2001 and 2000 interim periods was computed in accordance with FASB Interpretation No. 18, "Accounting for Income Taxes in Interim Periods," and was based on projections of total year pretax income in accordance with SFAS No. 109, "Accounting for Income Taxes." The effective income tax rate was 39.1 percent and 41.3 percent for the three months ended March 31, 2001 and 2000, respectively. The decrease in the effective tax rate in 2001 is due to a more favorable apportionment method for state income taxes and to the identification and utilization of state tax credits and research and development credits not utilized in prior years. 7. LEGAL CONTINGENCIES A number of lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its business, including those pertaining to product liability, personal injury, patent infringement, commercial, employment and employee benefits. While the outcome of litigation cannot be predicted with certainty and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. The Tax Sharing and Indemnification Agreement between the Company and ATI provides that the Company will indemnify ATI and its directors, officers, agents and representatives for any taxes imposed on, and other amounts paid by, them or ATI's stockholders if the Company takes actions or fails to take actions that result in the spin-off not qualifying as a tax-free distribution. Pursuant to the Tax Sharing and Indemnification Agreement, the Company has agreed for a two-year period following the date of the spin-off: (i) to continue to engage in the Company's businesses; (ii) to continue to own and manage at least 50 percent of the assets owned directly or indirectly immediately after the spin-off; and (iii) not to engage in a number of specified transactions without the consent of ATI. If any of the taxes or other amounts were to become payable by the Company, the payment could have a material adverse effect on the Company's business, results of operations, financial condition and cash flow. 8 9 8. EARNINGS PER SHARE Basic income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares outstanding plus the dilutive effect of unvested restricted shares and outstanding stock options using the "treasury stock" method. A reconciliation of weighted average shares outstanding, used to calculate basic net income (loss) per common share, to weighted average shares outstanding assuming dilution, used to calculate diluted net income (loss) per common share, follows:
Three Months Ended March 31, -------------------- 2001 2000 --------------------------------------------------------------------------------------------- (in thousands) Weighted average common shares outstanding - basic 11,643 9,742 Dilutive effect of employee stock options and restricted shares -- 30 -------------------- Weighted average common shares outstanding - diluted 11,643 9,772 ====================
As a result of the net loss reported for the three months ended March 31, 2001, unvested restricted stock and outstanding stock options have been excluded from the calculation of diluted loss per share because their effect would be anti-dilutive. 9. BUSINESS SEGMENTS The Company operates in two business segments organized around its products: Personal Health Care and Pool Products and Heating Systems. The Personal Health Care segment designs, manufactures and markets showerheads, oral health products, water filtration products and professional dental products. The Pool Products and Heating Systems segment designs, manufactures and markets swimming pool and spa heaters, electronic controls, valves, water features and residential and commercial water-heating systems. Information on the Company's business segments is as follows:
Three Months Ended March 31, ------------------------- 2001 2000 ------------------------------------------------------------------------------- (in thousands) Sales: Personal Health Care $ 27,607 $ 28,265 Pool Products and Heating Systems 28,567 38,839 ------------------------- Total sales $ 56,174 $ 67,104 ========================= Operating profit (loss): Personal Health Care $ 1,274 $ 1,000 Pool Products and Heating Systems (1,726) 863 ------------------------- Total operating profit (loss) (452) 1,863 Interest expense 883 1,001 Other income (100) (60) ------------------------- Income (loss) before taxes $ (1,235) $ 922 =========================
9 10
March 31, December 31, 2001 2000 ---------------------------------------------------------------------------- (in thousands) Identifiable assets: Personal Health Care $ 55,437 $ 53,842 Pool Products and Heating Systems 116,777 108,867 Corporate 10,685 10,487 ------------------------ Total identifiable assets: $182,899 $173,196 ========================
Total international sales were $9,814,000 and $12,121,000 for the three months ended March 31, 2001 and 2000, respectively. Of these amounts, sales by operations in the United States to customers in other countries amounted to $4,498,000 and $4,898,000 for the three months ended March 31, 2001 and 2000, respectively. 10 11 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis contains forward-looking statements regarding future events or the future financial performance of the Company that involve certain risks and uncertainties which are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Actual events or the actual future results of the Company may differ materially from any forward-looking statement due to such risks and uncertainties. OVERVIEW OF BUSINESS Water Pik Technologies is a leader in the design, manufacturing and marketing of a broad range of well-recognized personal health care products and pool and water-heating products. The Company operates in two business segments: Personal Health Care and Pool Products and Heating Systems. The Personal Health Care segment designs, manufactures and markets personal health care products, including showerheads, oral health products, water filtration products and professional dental products. The Pool Products and Heating Systems segment designs, manufactures and markets swimming pool and spa heaters, electronic controls, valves, water features and residential and commercial water-heating systems. Total sales of the Company's two segments for the three months ended March 31, 2001 and 2000 are summarized below:
Three Months Ended March 31, ----------------------------------- Segment 2001 2000 ------------------------------------------------------------------------------------------- (Dollars in thousands) Personal Health Care $27,607 49.1% $28,265 42.1% Pool Products and Heating Systems 28,567 50.9% 38,839 57.9% --------------- --------------- Total sales $56,174 100.0% $67,104 100.0% =============== ===============
RESULTS OF OPERATIONS Consolidated Results of Operations
Three Months Ended March 31, ------------------------------- 2001 2000 % Change ---------------------------------------------------------------------------------------- (Dollars in thousands) Sales $56,174 $67,104 (16.3)% Gross profit $17,940 $22,322 (19.6)% Operating profit (loss) $ (452) $ 1,863 (124.3)% Gross profit as a percentage of sales 31.9% 33.3% Operating profit (loss) as a percentage of sales (0.8)% 2.8% International sales as a percentage of sales 17.5% 18.1%
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2000 Sales for the three months ended March 31, 2001 were $56,174,000, representing a decrease of $10,930,000 or 16.3 percent over the comparable period in 2000, primarily due to lower sales in the Pool Products and Heating Systems segment. Gross profit (sales less cost of sales) as a percentage of sales for the three months ended March 31, 2001 decreased to 31.9 percent compared with 33.3 percent for the three months ended March 31, 2000 primarily due to the lower sales volume as discussed above. 11 12 Operating profit (gross profit less selling expenses and general and administrative expenses) decreased $2,315,000 to an operating loss of $452,000 for the three months ended March 31, 2001 from an operating profit of $1,863,000 for the three months ended March 31, 2000. The decrease in gross profit of $4,382,000 resulting from lower sales of pool products and heating systems products was partially offset by a $2,067,000 decrease in selling, general and administrative expenses. Selling expenses decreased $646,000 to $11,450,000 for the three months ended March 31, 2001 from $12,096,000 for the three months ended March 31, 2000. The decrease relates primarily to the lower sales levels as well as to cost reduction initiatives implemented during the quarter to mitigate the impact of lower sales. General and administrative expenses decreased $1,421,000 to $6,942,000 for the three months ended March 31, 2001 from $8,363,000 for the three months ended March 31, 2000. This improvement is primarily due to cost cutting measures implemented in the first quarter of 2001 and to higher initial costs experienced in the first quarter of 2000 subsequent to the spin-off from ATI partially offset by an increase in research and development expense related to new product development. Interest expense, which relates to borrowings under the Company's credit facilities and to the promissory note issued in connection with the acquisition of Olympic, decreased $118,000 to $883,000 for the three months ended March 31, 2001 from $1,001,000 for the three months ended March 31, 2000. This decrease is due to lower average balances outstanding under the credit facilities during first quarter 2001 compared to first quarter 2000 as net offering proceeds of $13,646,000 were used to repay borrowings pending their use for new product development activities and for further development of lower cost manufacturing capabilities in accordance with the amended IRS tax ruling received by ATI in connection with the spin-off. Additionally, the weighted average interest rate on borrowings during first quarter 2001 was lower than the weighted average rate during first quarter 2000. PERSONAL HEALTH CARE
Three Months Ended March 31, --------------------------------- 2001 2000 % Change ------------------------------------------------------------------------------------------- (Dollars in thousands) Sales $27,607 $28,265 (2.3)% Operating profit $ 1,274 $ 1,000 27.4% Operating profit as a percentage of sales 4.6% 3.5% International sales as a percentage of sales 16.9% 19.8%
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2000 Sales in the Personal Health Care segment for the three months ended March 31, 2001 were $27,607,000, a decrease of $658,000 or 2.3 percent over the comparable period in 2000, reflecting the continued difficult U.S. retail environment. Lower sales of showerheads and professional oral health products offset increased consumer oral health sales, including increased sales of the Water Pik(TM) flosser and oral irrigators. Operating profit increased $274,000 to $1,274,000 for the three months ended March 31, 2001 from $1,000,000 for the three months ended March 31, 2000. Lower selling, general and administrative costs from cost reduction initiatives implemented in the fourth quarter of 2000 and first quarter of 2001 were partially offset by increased research and development costs related to new product development. 12 13 POOL PRODUCTS AND HEATING SYSTEMS
Three Months Ended March 31, --------------------------------- 2001 2000 % Change ------------------------------------------------------------------------------------------- (Dollars in thousands) Sales $28,567 $38,839 (26.4)% Operating profit (loss) $(1,726) $ 863 (300.0)% Operating profit (loss) as a percentage of sales (6.0)% 2.2% International sales as a percentage of sales 18.0% 16.8%
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2000 Sales in the Pool Products and Heating Systems were $28,567,000 for the three months ended March 31, 2001, a decrease of $10,272,000 or 26.4 percent from the comparable period of 2000. This decrease is primarily due to high customer inventory levels resulting from aggressive customer purchasing during the fourth quarter 2000 as well as unusually wet weather patterns in the Sunbelt states and a prolonged winter in the Northern states during the first quarter 2001 compared to the first quarter of 2000. Operating profit decreased $2,589,000 to an operating loss of $1,726,000 for the three months ended March 31, 2001 from an operating profit of $863,000 in the comparable period of 2000. This decrease is due to lower sales across all product lines within the segment partially offset by the impact of cost reduction initiatives implemented in the first quarter of 2001. SEASONALITY Our business is highly seasonal, with operating results varying from quarter to quarter. The Personal Health Care segment has historically experienced higher sales in the fourth quarter of each year due to stronger retail demand during the holiday season. However, a number of the Company's larger U.S. retail customers have reported lower retail sales for the fourth quarter 2000 and for the first quarter 2001 and have taken steps to more closely manage their inventories. The Pool Products and Heating Systems segment has historically experienced higher sales in the second and fourth quarters of each year as customers purchase such products in preparation for the cooler weather and in anticipation of the warm spring and summer months. In addition, as a result of the seasonality of sales, the Pool Products and Heating Systems segment offers incentive programs and extended payment terms to encourage pool product customers to purchase products during the winter months, as is consistent with industry practice. However, a number of the Company's larger pool customers have reported a significant slowdown in their business during the first quarter of 2001 due to unusually wet weather patterns in the Sunbelt states and a prolonged winter in the Northern states during the first quarter 2001 compared to the first quarter last year. FINANCIAL CONDITION AND LIQUIDITY Our principal capital requirements are to fund working capital needs and capital expenditures and to meet required debt payments. We anticipate that our operating cash flow, together with available borrowings under our credit facilities described below, will be sufficient to meet our working capital requirements, capital expenditure requirements and interest service requirements on our debt obligations for at least the next 12 months. On January 3, 2001, the Company sold 1,973,685 shares of its common stock at $7.60 per share to two investment funds managed by Special Value Investment Management in a private placement. Proceeds from the offering in the amount of $15,000,006, net of $1,354,000 in offering costs, were used for capital expenditures related to new product development activities and to repay borrowings under the revolving credit facility pending their use for new product development activities and for further development of lower cost manufacturing capabilities in accordance with the amended IRS tax ruling received by ATI in connection with the spin-off. Subsequent to January 3, 2002, at the request of the purchaser, the Company has the obligation to register these shares, plus an additional 386,800 shares of common stock that the purchasers owned prior to the offering, under the Securities Act of 1933, as amended, and to pay certain registration expenses. 13 14 The transaction satisfies the requirements of the tax ruling from the Internal Revenue Service (the IRS) regarding the tax-free status of the spin-off from ATI, as amended on July 12, 2000, which required the Company to complete an equity offering of $15,000,000 by April 30, 2001. Cash and cash equivalents decreased $56,000 from $1,383,000 at December 31, 2000 to $1,327,000 at March 31, 2001. Cash provided by financing activities, including net proceeds of $13,646,000 from the issuance of common stock and $12,914,000 in increased borrowings under the credit facilities, were used to fund operating activities in the amount of $21,221,000 and capital expenditures of $5,284,000. Net cash used in operating activities is primarily due to increases in inventory and decreases in accounts payable, accrued liabilities and income taxes partially offset by a decrease in accounts receivable. The increase in inventory is due to lower than anticipated sales. Accounts payable decreased due to reduced purchasing in response to higher inventory levels and to cost reduction initiatives implemented during first quarter 2001. The decrease in accrued liabilities is due to the payment of customer rebates and commissions in first quarter 2001 as well as to lower accruals of rebates, commissions, cooperative advertising and warranties due to lower sales in first quarter 2001 as compared with fourth quarter 2000. Accrued income tax decreased due to the payment of federal and state income taxes in first quarter 2001. The decrease in accounts receivable is primarily due to collections on seasonally higher sales in the fourth quarter of 2000. For the three months ended March 31, 2000, cash used in operating activities of $13,471,000 and cash used in capital expenditures of $1,111,000 were funded by $14,918,000 from increased borrowings under the credit facilities. The increase in cash used in operating activities in first quarter 2001 as compared to first quarter 2000 is due to lower net income in first quarter 2001, to a decrease in deferred tax assets in first quarter 2001 compared to an increase in first quarter 2000 resulting from changes in the underlying temporary differences in expense recognition for financial reporting and income tax purposes and to an increase in cash used for working capital requirements. Cash used for working capital requirements increased in first quarter 2001 due to a larger increase in inventory resulting from lower sales, to increased income tax payments related to the first full year as an independent public company and to increased rebate and cooperative advertising payments as well as lower accruals in 2001 based on sales levels. These increases in cash usage were partially offset by net cash provided by accounts receivable in first quarter 2001 as compared to net cash used in the comparable period of 2000. The Company's working capital increased to $64,472,000 at March 31, 2001 from $46,488,000 at December 31, 2000. The current ratio increased to 2.3 at March 31, 2001 from 1.8 at December 31, 2000. The increase in working capital at March 31, 2001 was primarily due to higher inventory and deferred income tax asset balances as well as to lower accounts payable, accrued income tax, and accrued liability balances. These effects were partially offset by a lower accounts receivable balance and a higher current portion of long-term debt balance. The Company has a $60,000,000 revolving bank credit facility that expires in November 2004. Borrowings under the facility are limited to borrowing base calculations based upon eligible account receivable, inventory, real property and machinery and equipment balances. The credit facility also provides for the issuance of letters of credit up to the borrowing base less the outstanding line of credit, not to exceed $5,000,000. At March 31, 2001, there was $8,985,000 of borrowing availability remaining under borrowing base limitations of the credit facility. The Company's Canadian subsidiary has a CDN. $11,000,000 revolving bank line of credit facility, increasing by CDN. $1,000,000 for certain months of the year, a forward exchange contract facility of up to CDN. $2,000,000 and a letter of credit facility of up to CDN. $500,000. At March 31, 2001, the Company had CDN. $1,637,000 of borrowing availability remaining under the credit facility. Due to the seasonality of the Company's pool products business, the extended payment term receivables offered during the winter months are collected during the spring and summer. This creates a seasonal peak in borrowing levels during the spring months. These credit facilities require the Company to comply with various financial covenants and restrictions, including covenants and restrictions relating to indebtedness, liens, investments, dividend payments, consolidated net worth, interest coverage and the relationship of total consolidated indebtedness to earnings before interest, taxes, depreciation and amortization. A security interest in substantially all of the Company's assets was granted to the 14 15 lenders under the credit agreements as collateral. The Company currently anticipates that no cash dividends will be paid on Water Pik Technologies common stock in order to conserve cash for use in the Company's business, including new product development and possible future acquisitions. In addition, the terms of the Company's credit facilities prohibit the Company from paying dividends. The Company's Board of Directors will periodically re-evaluate the dividend policy taking into account operating results, capital needs, the terms of the credit facilities and other factors. Prior to November 29, 1999 the Company participated in the general liability, product liability, and workers' compensation insurance programs sponsored by ATI. The Company has since entered into general liability, product liability and workers' compensation insurance programs of its own. Insurance coverage under these programs are subject to policy deductibles for which the Company is at risk for losses. In connection with the spin-off, the Company has agreed to indemnify ATI for losses attributable to its operations prior to the spin-off. Reserves have been established based upon existing and estimated claims and historical experience in settling such matters. As a result of the spin-off, ATI transferred to the Company reserves for estimated losses under these insurance programs totaling $10,423,000 and related deferred taxes of $4,882,000. During 2000 and 2001, a number of these cases were settled and at March 31, 2001, the Company had reserves for estimated losses on claims existing at the time of the spin-off and estimated claims subsequent to the spin-off of $8,537,000. The actual settlements of claims under these insurance programs may differ from estimated reserves, but the possible range of loss in excess of those accrued is not reasonably estimable. Based upon currently available information, management does not believe that settlement of insurance claims will have a material adverse effect on the Company's financial condition, results of operations or liquidity. In connection with the spin-off, ATI received a tax ruling from the IRS stating that the spin-off would be tax-free to ATI and to ATI's stockholders. The continuing validity of the Internal Revenue Service tax ruling, as amended on July 12, 2000, is subject to certain factual representations and assumptions, including the completion of a required offering of the Company's common stock by April 30, 2001 and use of the proceeds from the offering, less associated costs, for further development of high quality, lower cost manufacturing capabilities, for product line extensions, to expand channels of distribution, to develop a self-sustaining product development process, and for acquisitions and/or joint ventures. Pursuant to the Separation and Distribution Agreement that Water Pik Technologies signed prior to the spin-off and pursuant to the supplemental ruling issued by the IRS to ATI modifying certain requirements imposed under the prior tax ruling, the Company agreed with ATI to undertake such an offering. In January 2001, the Company issued 1,973,685 shares of common stock at $7.60 per share in a private placement for gross proceeds of $15,000,006 to fulfill a material requirement of the ruling. The Tax Sharing and Indemnification Agreement between ATI and Water Pik Technologies provides that the Company will indemnify ATI and its agents and representatives for taxes imposed on, and other amounts paid by, them or ATI's stockholders if the Company takes actions or fails to take actions that result in the spin-off not qualifying as a tax-free distribution. If any of the taxes or other amounts were to become payable by the Company, the payment could have a material adverse effect on the Company's business, results of operations, financial condition and cash flow and the amount the Company could be required to pay could exceed its net worth by a substantial amount. ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000. There has been no significant change in the nature or amount of market risk since year-end. 15 16 PART II--OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On January 3, 2001, the Company sold 1,973,685 shares of common stock at $7.60 per share to two investment funds managed by Special Value Investment Management, LLC in a private placement. Proceeds from the offering in the amount of $15,000,006, net of $1,354,000 in offering costs, were used for capital expenditures related to new product development activities and to repay borrowings under the revolving credit facility pending their future use for new product development activities and for further development of lower cost manufacturing capabilities in accordance with the amended IRS tax ruling received by ATI in connection with the spin-off. The shares of common stock were issued to the investment funds in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). Subsequent to January 3, 2002, at the request of the purchaser, the Company has the obligation to register these shares, plus an additional 386,800 shares of common stock that the purchasers owned prior to the offering, under the Securities Act of 1933, as amended, and to pay certain registration expenses. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - *10.1 1999 Non-Employee Director Stock Compensation Plan of Water Pik Technologies, Inc., as amended *10.2 Employee Stock Purchase Plan of Water Pik Technologies, Inc., as amended *10.3 Performance Share Program of Water Pik Technologies, Inc. *10.4 2001 Annual Incentive Plan of Water Pik Technologies, Inc.
----------- * Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K Filed in the first quarter of 2001 - The Company filed a current report on Form 8-K on January 11, 2001 under Item 5 announcing the sale of 1,973,685 shares of its common stock in a private placement for aggregate gross proceeds to the Company of $15,000,006. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WATER PIK TECHNOLOGIES, INC. Date: May 15, 2001 By: /s/ Michael P. Hoopis -------------------------------------------- Michael P. Hoopis President and Chief Executive Officer Date: May 15, 2001 By: /s/ Victor C. Streufert -------------------------------------------- Victor C. Streufert Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17 18 EXHIBIT INDEX *10.1 1999 Non-Employee Director Stock Compensation Plan of Water Pik Technologies, Inc., as amended *10.2 Employee Stock Purchase Plan of Water Pik Technologies, Inc., as amended *10.3 Performance Share Program of Water Pik Technologies, Inc. *10.4 2001 Annual Incentive Plan of Water Pik Technologies, Inc.
-------------- * Management contract or compensatory plan or arrangement.
EX-10.1 2 a72650ex10-1.txt EXHIBIT 10.1 1 Exhibit 10.1 WATER PIK TECHNOLOGIES, INC. 1999 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN, AS AMENDED ARTICLE I. GENERAL 1.1. Purpose. It is the purpose of the Plan to promote the interests of the Company and its stockholders by attracting, retaining and providing an incentive to Non-Employee Directors through the acquisition of a proprietary interest in the Company and an increased personal interest in its performance. This purpose will be served by: (a) providing an opportunity for Non-Employee Directors to elect to receive Common Stock in lieu of Director's Retainer Fee Payments with automatic payment of a portion of the Director's Retainer Fee Payment in the form of Common Stock to those Non-Employee Directors not electing to receive such portion in the form of Common Stock; (b) granting each Non-Employee Director annually an option covering 1,000 shares of Common Stock; (c) granting each Non-Employee Director on a one-time basis an option covering 5,000 shares of Common Stock; and (d) granting each Non-Employee Director on a one-time basis restricted Common Stock in the amount of 3,000 shares. 1.2. Adoption and Term. The Plan has been approved by the Board and shall become effective as of the Effective Date (as hereinafter defined). The Plan shall terminate without further action upon the earlier of (a) the tenth anniversary of the effective date, and (b) the first date upon which no shares of Common Stock remain available for issuance under the Plan. 1.3. Definitions. As used herein the following terms have the following meanings: (a) "Annual Options" means the Stock Options issuable under Section 4.4(b) of the Plan. (b) "Board" means the Board of Directors of the Company. (c) "Change of Control" means any of the events set forth below: (i) The acquisition in one or more transactions, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a number of Company Voting Securities in excess of 25% of the Company Voting Securities unless such acquisition has been approved by the 2 Board; or (ii) Any election has occurred of persons to the Board that causes two-thirds of the Board to consist of persons other than (A) persons who were members of the Board on January 1, 2000 and (B) persons who were nominated for election as members of the Board at a time when two-thirds of the Board consisted of persons who were members of the Board on January 1, 2000; provided, however, that any person nominated for election by the Board at a time when at least two-thirds of the members of the Board were persons described in clauses (A) and/or (B) or by persons who were themselves nominated by such Board shall, for this purpose, be deemed to have been nominated by a Board composed of persons described in clause (A); or (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation, unless, following such reorganization, merger or consolidation, all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Stock and Company Voting Securities immediately prior to such reorganization, merger or consolidation, following such reorganization, merger or consolidation beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or trustees, as the case may be, of the entity resulting from such reorganization, merger or consolidation in substantially the same proportion as their ownership of the Outstanding Stock and Company Voting Securities immediately prior to such reorganization, merger or consolidation, as the case may be; or (iv) Approval by the stockholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) a sale or other disposition of all or substantially all the assets of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. References to a section of the Code shall include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes said section. (e) "Common Stock" means the common stock, par value $0.01 per share, of the Company. (f) "Company" means Water Pik Technologies, Inc., a Delaware corporation, and any successor thereto. (g) "Compensation Year" means each calendar year or portion thereof during which the Plan is in effect. (h) "Director" means a member of the Board. (i) "Director's Retainer Fee Payment" means the dollar value of that portion of the annual retainer fee payable by the Company to a Non-Employee Director for serving as a Director and for serving as the chair of the Board or any committee of the Board as of a particular Payment Date, as established by the Board and in effect from time to time. 2 3 (j) "Disability" means any physical or mental injury or disease of a permanent nature which renders a Non-Employee Director incapable of meeting the requirements of the duties performed by such Non-Employee Director for the Company immediately prior to the commencement of such disability. The determination of whether a Non-Employee Director is disabled shall be made by the Board in its sole and absolute discretion. (k) "Effective Date" means the effective date of the distribution by Allegheny Teledyne Incorporated to its stockholders of the Common Stock. (l) "Employee" means any employee of the Company or an affiliate. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. References to a section of the Exchange Act or rule promulgated thereunder shall include that section or rule and any comparable section(s) or rule(s) of any future legislation or rulemaking that amends, supplements or supersedes said section or rule. (n) "Fair Market Value" means, as of any given date, the average of the high and low trading prices of the Common Stock on such date as reported on the New York Stock Exchange, or, if the Common Stock is not then traded on the New York Stock Exchange, on such other national securities exchange on which the Common Stock is admitted to trade, or, if none, on the National Association of Securities Dealers Automated Quotation System if the Common Stock is admitted for quotation thereon; provided, however, if there were no sales reported as of such date, Fair Market Value shall be computed as of the last date preceding such date on which a sale was reported; provided, further, that if any such exchange or quotation system is closed on any day on which Fair Market Value is to be determined, Fair Market Value shall be determined as of the first date immediately preceding such date on which such exchange or quotation system was open for trading. (o) "First Amendment Date" means the date, June 28, 2000, when the Plan was first amended. (p) "Initial Option" means the Stock Options issuable under Section 4.4(a) of the Plan. (q) "Non-Employee Director" means a Director who is not an Employee. (r) "Non-Employee Director Notice" means a written notice delivered in accordance with Section 4.2. (s) "Option Period" means the term of the Stock Option set forth in Section 4.4 (c) of the Plan. (t) "Payment Date" means the first business day of January and July of each Compensation Year on which the cash portion of the Director's Retainer Fee Payment 3 4 for serving as a Director is paid by the Company and the first business day of January of each Compensation Year on which the Director's Retainer Fee Payment for serving as the chair of the Board or any committee of the Board is paid by the Company. (u) "Plan" means this Water Pik Technologies, Inc. 1999 Non-Employee Director Stock Compensation Plan, as it may hereafter be amended from time to time. (v) "Restricted Stock" means shares of Common Stock awarded to a Non-Employee Director subject to restrictions as described in Section 4.5 of the Plan. (w) "Retirement" means voluntary or involuntary resignation from the Board at or after the third annual meeting of shareholders of the Company held during calendar year 2002. (x) "Stock Options" means options to purchase shares of Common Stock of the Company issuable hereunder. 1.4. Shares Subject to the Plan. The shares to be offered under the Plan shall consist of the Company's authorized but unissued Common Stock or treasury shares and, subject to adjustment as provided in Section 5.1 hereof, the aggregate amount of such stock which may be issued or subject to Stock Options issued hereunder shall not exceed 200,000 shares. If any Stock Option granted under the Plan shall expire or terminate for any reason, without having been exercised or vested in full, as the case may be, the unpurchased shares subject thereto shall again be available for issuance under the Plan. Stock Options granted under the Plan will not be qualified as "incentive stock options" under Section 422 of the Code. ARTICLE II. ADMINISTRATION 2.1. The Board. The Plan shall be administered by the Board. Subject to the provisions of the Plan, the Board shall interpret the Plan, promulgate, amend, and rescind rules and regulations relating to the Plan and make all other determinations necessary or advisable for its administration. Interpretation and construction of any provision of the Plan by the Board shall be final and conclusive. Notwithstanding the foregoing, the Board shall have or exercise no discretion with respect to the selection of persons eligible to participate hereunder, the determination of the number of shares of Common Stock or number of Stock Options issuable to any person or any other aspect of Plan administration with respect to which such discretion is not permitted in order for grants of shares of Common Stock and Stock Options to be exempt under Rule 16b-3 promulgated under the Exchange Act. ARTICLE III. PARTICIPATION 3.1. Participants. Each Non-Employee Director shall participate in the Plan on the terms and conditions hereinafter set forth. 4 5 ARTICLE IV. PAYMENT OF DIRECTOR'S FEES 4.1. General. The Director's Retainer Fee Payment shall be paid to each Non-Employee Director, as of each Payment Date, as set forth in the Plan and subject to such other payment policies and procedures as the Board may establish from time to time. If, for the applicable Compensation Year, a Non-Employee Director has not made an election pursuant to Section 4.2 to receive Common Stock in lieu of at least twenty-five percent (25%) of the Director's Retainer Fee Payment, then seventy-five percent (75%) of such director's Retainer Fee Payment shall be paid in cash and twenty-five percent (25%) of the Director's Retainer Fee Payment shall be paid in the form of Common Stock. 4.2. Non-Employee Director Notice. A Non-Employee Director may file with the Secretary of the Company or other designee of the Board of Directors prior to the commencement of a Compensation Year a Non-Employee Director Notice making an election to receive either twenty-five percent (25%), fifty percent (50%), seventy-five percent (75%) or one hundred (100%) of his or her Director's Retainer Fee Payment in the form of Common Stock with the balance to be paid in cash. If a Director does not timely file an election, he or she shall receive twenty-five percent (25%) of the Director's Retainer Fee Payment in Common Stock and seventy-five percent (75%) in cash. Notwithstanding the foregoing, elections to receive Common Stock may be made at any time during a Compensation Year so long as such elections are made irrevocably in advance of receiving the corresponding Common Stock and approved in accordance with Rule 16b-3 under the Exchange Act. 4.3 Conversion of Retainer Fee Payment to Shares. Each Non-Employee Director who pursuant to Section 4.1 or 4.2 is to receive Common Stock as all or part of his or her Director's Retainer Fee Payment with respect to a Compensation Year and who is elected or reelected or is a continuing Non-Employee Director as of the date of commencement of such Compensation Year, shall receive as of the first business day of January during such Compensation Year a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of the Director's Retainer Fee Payment to be paid in the form of Common Stock by (ii) the Fair Market Value of the Common Stock per share on the first business day of January. Cash shall be paid in lieu of any fractional shares. 4.4 Stock Options (a) Initial Option Grant. An Initial Option covering 5,000 shares of Common Stock shall be granted to each Non-Employee Director on his or her first date of Board service, or on the First Amendment Date for those Non-Employee Directors serving on the Board on such date. The purchase price of the Common Stock covered by the Initial Option will be the Fair Market Value of a share of Common Stock as of the date of grant of the Initial Option. (b) Annual Option Grants. An Annual Option covering 1,000 shares of Common 5 6 Stock shall be granted to each Non-Employee Director on the Effective Date, subject to approval by the stockholders of the Company. Thereafter, an Annual Option covering 1,000 shares of Common Stock will be granted to each Non-Employee Director automatically at the conclusion of each Company Annual Meeting. If, after the Effective Date, a director first becomes a Non-Employee Director on a date other than an Annual Meeting date, an Annual Option covering 1,000 shares of Common Stock will be granted to such director on his or her first date of Board service. The purchase price of the Common Stock covered by each Annual Option will be the Fair Market Value of a share of Common Stock as of the date of grant of the Annual Option. (c) Duration and Exercise of Stock Options. Subject to Section 4.4(f) below, Annual Options become exercisable on the first anniversary of the date on which they were granted, and Initial Options become exercisable in equal one-third increments on the first, second and third anniversaries of the date on which they were granted. Stock Options shall terminate upon the expiration of ten years from the date of grant. No Stock Option may be exercised for a fraction of a share and no partial exercise of any Stock Option may be for less than one hundred (100) shares. (d) Purchase Price. The purchase price for the shares shall be paid in full at the time of exercise (i) in cash or by check payable to the order of the Company, (ii) by delivery of shares of Common Stock of the Company already owned by, and in the possession of Stock Option holder, or (iii) by delivering a properly executed exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the Stock Option price (in which case the exercise will be effective upon receipt of such proceeds by the Company). Shares of Common Stock used to satisfy the exercise price of a Stock Option shall be valued at their Fair Market Value on the date of exercise. (e) Transferability. Stock Options granted hereunder shall not be transferable, other than by will or the laws of descent and distribution, and shall be exercisable during a Stock Option holder's lifetime only by the Stock Option holder or by his or her guardian or legal representative, except to the extent transfer is (i) permitted by Rule 16b-3 promulgated under the Exchange Act and (ii) approved by the Board or its designee. Subject to the foregoing, Stock Options shall not be assigned, pledged or otherwise encumbered by the holder thereof, either voluntarily or by operation of law. (f) Termination of Directorship. In the event the Board service of the Non-Employee Director terminates by reason of death, Disability or Retirement, or upon the occurrence of a Change in Control, all Stock Options shall become immediately and fully vested and exercisable. In the event of removal of a director from the Board of Directors for reasons other than death, Disability or Retirement, or resignation prior to the third annual meeting of shareholders of the Company, all rights of such director in a Stock Option that the director was entitled to exercise on the date of removal or voluntary resignation shall terminate on the 30th day (or, if such day is not a business day, on the next business day) after the date of removal. In no event may a Stock Option be exercised after the earlier to occur of: (i) twelve (12) months after termination of directorship or (ii) expiration of the period specified in Section 4.4(c). 6 7 4.5 Restricted Stock. (a) Restricted Stock Awards. Each Non-Employee Director shall receive an award of 3,000 shares of Restricted Stock on the First Amendment Date. Each Non-Employee Director who first becomes a Non-Employee Director following the First Amendment Date shall receive an award of 3,000 shares of Restricted Stock on the date that he or she first commences Board service. The terms of all such Restricted Stock awards shall be set forth in an award agreement between the Company and each Non-Employee Director which shall contain such forfeiture periods and conditions, restrictions and other provisions, not inconsistent with this Article or the Plan, as shall be determined by the Board. (i) Issuance of Restricted Stock. As soon as practicable after the date of grant of the Restricted Stock award (the "Date of Grant"), the Company shall cause to be transferred on the books of the Company shares of Common Stock, registered on behalf of the Non-Employee Director, evidencing such Restricted Stock, but subject to forfeiture to the Company retroactive to the Date of Grant if an award agreement delivered to the Non-Employee Director by the Company with respect to the Restricted Stock is not duly executed by the Non-Employee Director and timely returned to the Company. Until the lapse or release of all restrictions applicable to an award of Restricted Stock, the stock certificates representing such Restricted Stock shall be held in custody by the Company or its designee. (ii) Common Stockholder Rights. Beginning on the Date of Grant of the Restricted Stock and subject to execution of the award agreement as provided in Section 4.5 (a)(i) , the Non-Employee Director shall become a stockholder of the Company with respect to all Common Stock subject to the award agreement and shall have all of the rights of a stockholder, including, but not limited to, the right to vote such Common Stock and the right to receive dividends (or dividend equivalents) paid with respect to such Common Stock; provided, however, that any Common Stock distributed as a dividend or otherwise with respect to any Restricted Stock as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Restricted Stock and shall be held as prescribed in Section 4.5 (a)(i). (iii) Restriction on Transferability. None of the Restricted Stock may be assigned, transferred (other than by will or the laws of descent and distribution), pledged, sold or otherwise disposed of prior to lapse or release of the restrictions applicable thereto. (iv) Delivery of Common Stock Upon Release of Restrictions. Upon expiration or earlier termination of the forfeiture period without a forfeiture and the satisfaction of or release from any other conditions prescribed by the Board, the restrictions applicable to the Restricted Stock shall lapse. As promptly as administratively feasible thereafter, the Company shall deliver to the Non-Employee Director, or, in the case of the Non-Employee Director's death, to his or her legal representatives, one or more stock certificates for the appropriate number of shares of Common Stock, free of all such restrictions, except for any restrictions that may be imposed by law. (b) Terms of Restricted Stock. 7 8 (i) Forfeiture of Restricted Stock. Subject to Section 4.5 (b)(ii), all Restricted Stock shall be forfeited and returned to the Company and all rights of the Non-Employee Director with respect to such Restricted Stock shall cease and terminate in their entirety if during the applicable forfeiture period: (A) the Non-Employee Director transfers, sells or otherwise disposes of the Restricted Stock other than in a transaction constituting a Change in Control, or (B) the Board service of the Non-Employee Director with the Company terminates for any reason other than death, Disability or Retirement. (ii) Waiver of Forfeiture Period. Notwithstanding anything contained in this Section 4.5 to the contrary, the Board may, in its sole discretion, waive the forfeiture conditions set forth in any award agreement under appropriate circumstances and subject to such terms and conditions (including forfeiture of a proportionate number of the shares of Restricted Stock) as the Board may deem appropriate. ARTICLE V. MISCELLANEOUS 5.1. Adjustments Upon Changes in Common Stock. The number and kind of shares available for issuance under the Plan, and the number and kind of shares subject to, and the exercise price of, outstanding Stock Options, shall be appropriately adjusted to prevent dilution or enlargement of rights by reason of any stock dividend, stock split, combination or exchange of shares, recapitalization, merger, consolidation or other change in capitalization with a similar substantive effect upon the Plan or the shares issuable under the Plan. 5.2. Amendment and Termination. The Board shall have complete power and authority to amend the Plan at any time; provided, however, that the Board shall not, without the affirmative approval of the stockholders of the Company, make any amendment which requires stockholder approval under any applicable law or regulation of a national stock exchange on which the Common Stock is traded. The Board shall have the right and the power to terminate the Plan at any time. No amendment or termination of the Plan may, without the consent of the Non-Employee Director, adversely affect the right of such Non-Employee Director with respect to any Stock Options then outstanding. 5.3. Requirements of Law. The issuance of Common Stock under the Plan shall be subject to all applicable laws, rules and regulations and to such approval by governmental agencies as may be required. 5.4. No Guarantee of Membership. Nothing in the Plan shall confer upon a Non-Employee Director any right to continue to serve as a Director. 5.5 Construction. Words of any gender used in the Plan shall be construed to include any other gender, unless the context requires otherwise. 5.6 Governing Law. This Plan shall be governed by, construed and interpreted in accordance with the laws of the State of Delaware, without regard to its principles of conflict 8 9 of law, as to all matters, including matters of validity, construction, effect, performance and remedies. Adopted by Board on 11/12/99. Approved by Shareholder(s) on 11/12/99. Amended on 6/27/00. Amended on 1/23/01. 9 EX-10.2 3 a72650ex10-2.txt EXHIBIT 10.2 1 Exhibit 10.2 WATER PIK TECHNOLOGIES, INC. EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED ARTICLE I. INTRODUCTION AND PURPOSES OF THE PLAN 1.01 INTRODUCTION. The Water Pik Technologies, Inc. Employee Stock Purchase Plan, also known as The Stock Advantage (the "Plan"), is intended to provide certain employees of the Company the opportunity to acquire shares of the Company's common stock and thereby better align the interests of the employees and the stockholders of the Company. The Plan is divided into two component programs, the Employee Stock Purchase Program, also known as The Stock Advantage (the "ESPP"), and the Stock Acquisition and Retention Program (the "SARP"). While both the ESPP and the SARP programs are subject to the general provisions of the Plan, each program has separate eligibility and stock acquisition provisions. 1.02 PURPOSE OF THE ESPP. The ESPP is intended to provide Eligible Employees (defined below) with an opportunity to purchase shares of Water Pik Technologies, Inc. Common Stock through payroll deductions supplemented by Company Contributions (defined below). The ESPP is designed to provide for voluntary employee stock ownership in the Company. The ESPP is not intended to comply with the provisions of Section 423 of the Internal Revenue Code of 1986, as amended, or any successor tax provision. 1.03 PURPOSE OF THE SARP. The purpose of the SARP is to assist the Company in retaining and motivating selected key management employees who will contribute to the success of the Company. The SARP encourages designated employees to hold a proprietary interest in the Company by offering them an opportunity to receive grants of restricted shares of Common Stock which, in accordance with the terms and conditions set forth below, will vest only if the employees retain, for a specified period of time, ownership of (i) shares of Common Stock purchased pursuant to the SARP or (ii) already-owned shares of Stock which such employees identify as being subject to the SARP. Awards under the SARP will act as an incentive to participating employees to achieve long-term objectives which will inure to the benefit of all stockholders of the Company. ARTICLE II. DEFINITIONS 2.01 AWARD AGREEMENT means a written agreement between the Company and a SARP Participant or a written acknowledgment from the Company specifically setting forth the terms and conditions of an award of Restricted Stock granted to a SARP Participant pursuant to Article VIII. 2.02 BOARD shall mean the Board of Directors of the Company. 2 2.03 BUSINESS DAY means any day on which the New York Stock Exchange shall be open for trading. 2.04 CAUSE means a determination by the Committee that a SARP Participant has engaged in conduct that is dishonest or illegal, involves moral turpitude or jeopardizes the Company's right to operate its business in the manner in which it is now operated. 2.05 CHANGE IN CONTROL means any of the events set forth below: (a) The acquisition in one or more transactions, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a number of Company Voting Securities in excess of 25% of the Company Voting Securities unless such acquisition has been approved by the Board; or (b) Any election has occurred of persons to the Board that causes two-thirds of the Board to consist of persons other than (i) persons who were members of the Board on January 1, 2000 and (ii) persons who were nominated for election as members of the Board at a time when two-thirds of the Board consisted of persons who were members of the Board on January 1, 2000; provided, however, that any person nominated for election by the Board at a time when at least two-thirds of the members of the Board were persons described in clauses (i) and/or (ii) or by persons who were themselves nominated by such Board shall, for this purpose, be deemed to have been nominated by a Board composed of persons described in clause (i); or (c) Approval by the stockholders of the Company of a reorganization, merger or consolidation, unless, following such reorganization, merger or consolidation, all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Stock and Company Voting Securities immediately prior to such reorganization, merger or consolidation, following such reorganization, merger or consolidation beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or trustees, as the case may be, of the entity resulting from such reorganization, merger or consolidation in substantially the same proportion as their ownership of the Outstanding Stock and Company Voting Securities immediately prior to such reorganization, merger or consolidation, as the case may be; or (d) Approval by the stockholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) a sale or other disposition of all or substantially all the assets of the Company. 2.06 COMMITTEE means the Stock Incentive Award Subcommittee of the Board, in the case of performance-based compensation for individuals who are executive officers of 2 3 the Company, and the Personnel and Compensation Committee of the Board, in all other cases. 2.07 COMMON STOCK shall mean shares of common stock of the Company, $.01 par value per share. 2.08 COMPANY shall mean Water Pik Technologies, Inc., a Delaware corporation, its Subsidiaries, and any successors thereto. 2.09 COMPANY CONTRIBUTION shall mean an amount paid by the Company equal to 15% of the ESPP Participant's Contribution. 2.10 COMPENSATION shall mean the base salary or wages received by an employee from the Company, a Division or a Subsidiary. 2.11 COMPANY VOTING SECURITIES means the combined voting power of all outstanding voting securities of the Company entitled to vote generally in the election of the Board. 2.12 DATE OF GRANT means the date as of which an award of Restricted Stock is granted in accordance with Article VIII. 2.13 DESIGNATED STOCK means shares of Common Stock already owned by a SARP Participant that the SARP Participant identifies as being subject to the SARP, thereby triggering the grant of Restricted Stock to such SARP Participant pursuant to Article VIII. 2.14 DESIGNATION NOTICE means a written notice, in a form acceptable to the Committee, by which a SARP Participant designates previously-acquired shares of Common Stock as Designated Stock. 2.15 DISABILITY means any physical or mental injury or disease of a permanent nature which renders a SARP Participant incapable of meeting the requirements of the employment performed by such SARP Participant immediately prior to the commencement of such disability. The determination of whether a SARP Participant is disabled shall be made by the Committee in its sole and absolute discretion. Notwithstanding the foregoing, if a SARP Participant's employment by the Company or an applicable subsidiary terminates by reason of a disability, as defined in an Employment Agreement between such SARP Participant and the Company or an applicable Subsidiary, such SARP Participant shall be deemed to be disabled for purposes of the SARP. 2.16 DIVIDENDS shall mean dividends or dividend equivalents paid with respect to shares of Common Stock. 2.17 DIVISION shall mean any domestic division of the Company or of any Subsidiary designated by the President of the Company or the Board of Directors to participate in the Plan. 2.18 EFFECTIVE DATE means November 29, 1999. 3 4 2.19 ELIGIBLE EMPLOYEES shall mean only those Employees who are eligible to participate in the Plan in accordance with the terms of Article V. 2.20 EMPLOYEES shall mean all persons who are employed by the Company, a Division or a Subsidiary who work in the United States and whose wages are subject to FICA. 2.21 ESPP means the Employee Stock Purchase Program component of the Plan as described in Article I, as the same may be amended from time to time. 2.22 ESPP PARTICIPANT shall mean any Eligible Employee who elects to participate in the ESPP in accordance with the terms of Section 5.01 2.23 ESPP PARTICIPANT CONTRIBUTION shall mean the payroll deduction withheld periodically from the Compensation of each ESPP Participant which shall be credited to each ESPP Participant's Share Account. 2.24 EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. 2.25 FAIR MARKET VALUE means, as of any given date, the average of the high and low trading prices of the Stock on such date as reported on the New York Stock Exchange or, if the Stock is not then traded on the New York Stock Exchange, on such other national securities exchange on which the Stock is admitted to trade, or, if none, on the National Association of Securities Dealers Automated Quotation System if the Stock is admitted for quotation thereon; provided, however, if there were no sales reported as of such date, Fair Market Value shall be computed as of the last date preceding such date on which a sale was reported; provided, further, that if any such exchange or quotation system is closed on any day on which Fair Market Value is to be determined, Fair Market Value shall be determined as of the first date immediately preceding such date on which such exchange or quotation system was open for trading. 2.26 HUMAN RESOURCES DEPARTMENT shall mean the department at the Company, Division or Subsidiary responsible for processing enrollment applications and change forms in connection with the ESPP. 2.27 OUTSTANDING STOCK means, at any time, the issued and outstanding Common Stock. 2.28 PERMITTED TRANSFEREE means a SARP Participant's spouse, or (by blood, adoption or marriage) parent, child, stepchild, descendant or sibling, or the estate, any guardian, custodian, conservator or committee of, or any trust for the benefit of, the SARP Participant or any of the foregoing persons. 2.29 PLAN shall mean the Water Pik Technologies, Inc. Employee Stock Purchase Plan, also known as The Stock Advantage, as the same may be amended from time to time. 4 5 2.30 PLAN ADMINISTRATOR shall mean any broker or other person, as those terms are used in the Exchange Act, selected by the Committee or the Board, from time to time to provide brokerage and other administrative services with respect to the ESPP portion of the Plan. 2.31 PURCHASE AMOUNT means the dollar amount that a SARP Participant specifies in a Purchase Notice with respect to a particular Purchase Date. 2.32 PURCHASE DATE means, with respect to the ESPP feature of the Plan, the Business Day or Days, as the case may be, upon which shares are purchased under the ESPP. With respect to the SARP feature of the Plan, "Purchase Date" shall mean, for any Offering Period, the Business Day immediately following the last day of the Offering Period. 2.33 PURCHASED STOCK means Common Stock purchased by a SARP Participant pursuant to Article VII, which triggers the grant of Restricted Stock to such SARP Participant pursuant to Article VIII. 2.34 PURCHASE LOAN means a loan provided to a SARP Participant by the Company to facilitate the SARP Participant's purchase of Common Stock pursuant to Section 7.01. 2.35 PURCHASE NOTICE means a written notice, in a form acceptable to the Committee, by which a SARP Participant may elect to purchase Common Stock as of a Purchase Date in accordance with Section 7.01. 2.36 RELATED STOCK means, with respect to any share of Restricted Stock, the two shares of Purchased Stock or Designated Stock, as the case may be, which entitle such Participant to receive such share of Restricted Stock pursuant to Article VIII. 2.37 RESTRICTED STOCK means shares of Common Stock awarded to a SARP Participant subject to restrictions as described in Article VIII. 2.38 SARP means the Stock Acquisition and Retention Program component of the Plan as described in Article I, as the same may be amended from time to time. 2.39 SARP PARTICIPANT means any Eligible Employee selected by the Committee, pursuant to Section 5.02, as eligible to participate under the SARP. 2.40 SHARE ACCOUNT shall mean the account established and maintained for each ESPP Participant. 2.41 SUBSIDIARY shall mean any domestic corporation of which at least 50% of the combined voting power of all classes of stock is owned directly or indirectly by the Company and which is designated by the President of the Company or the Board to participate in the Plan. 5 6 2.42 OFFERING PERIOD means each period of time designated by the Committee in any calendar year and generally consisting of the ten (10) consecutive Business Days beginning on the third (3rd) Business Day following the release by the Company of its quarterly or annual summary statements of sales and earnings, as applicable, and ending on the twelfth (12th) Business Day following such date. ARTICLE III. ADMINISTRATION The Plan shall be administered by the Committee, which shall have exclusive and final authority and discretion in each determination, interpretation or other action affecting the Plan and its Participants. The Committee shall have the sole and absolute authority and discretion to (i) interpret the Plan, (ii) to modify or otherwise amend the Plan, (iii) to select, in accordance with Section 5.01, the persons who will be SARP Participants hereunder, (iv) to determine the eligibility of individuals to participate in the Plan, (v) to determine the duration of leaves of absence which may be granted to Participants without constituting a termination of their employment for the purposes of the Plan, (vi) to impose such conditions and restrictions as it determines appropriate and (vii) to take such other actions and make such other determinations in connection with the Plan as it may deem necessary or advisable. Decisions of the Committee shall be final and binding on all parties who have an interest in the Plan and their legal representatives and beneficiaries. No member of the Committee shall be liable for any action taken, or determination made, by the Committee in good faith. ARTICLE IV. STOCK ISSUABLE UNDER THE PLAN 4.01 NUMBER OF SHARES OF STOCK ISSUABLE. Subject to adjustments as provided in Section 9.06 of the Plan, the maximum number of shares of Common Stock available for issuance under the Plan shall be 1,100,000. The Common Stock to be offered under the Plan shall be authorized and unissued Common Stock, or Common Stock which shall have been reacquired by the Company and held in its treasury. 4.02 SHARES SUBJECT TO TERMINATED SARP AWARDS. Shares of Common Stock forfeited as provided in Section 8.02 may again be issued under the SARP. ARTICLE V. ELIGIBILITY TO PARTICIPATE IN THE PLAN 5.01 ELIGIBILITY TO PARTICIPATE IN THE ESPP. (a) Requirements. A regular status Employee shall be eligible to participate in the ESPP feature of the Plan if he or she is employed by the Company, a Division or a Subsidiary on the one year anniversary of his or her hire date and he or she was credited with at least 1,000 hours of employment during the preceding twelve-month period, except for Employees (i) under the age of majority in the applicable state, or (ii) covered by a collective bargaining agreement, unless the agreement specifically provides that such employees are eligible to participate in the Plan. Employees are credited with an hour of employment for every hour for which such Employee is paid by the Company, a 6 7 Division or a Subsidiary, including vacation, holiday, sick leave, jury duty or layoffs. Temporary status employees are not eligible to participate in the Plan. (b) Reemployment. Any Participant whose employment by the Company, a Division or Subsidiary is terminated and is later rehired by the Company, a Division or a Subsidiary is eligible to become an ESPP Participant on the date he or she is rehired. An employee who leaves the Company, a Division or a Subsidiary before fulfilling the eligibility requirements and later is rehired by the Company, a Division or Subsidiary will receive credit for prior service in meeting the eligibility requirements set forth in Section 5.01(a). (c) Limitation on Participation of Certain Officers. No officer (as such term is defined under Rule 16a-1 of the Exchange Act) of the Company shall be eligible to participate in the Plan until such time that the Board authorizes such participation based on advice from counsel to the Company that the ESPP and the Plan meet the criteria of Rule 16b-3 of the Exchange Act. (d) Enrollment. An Eligible Employee may become an ESPP Participant by filing a written enrollment application with the Human Resources Department which includes a purchase order form authorizing the Plan Administrator to establish a Share Account for the benefit of the ESPP Participant and authorizing payroll deductions in accordance with Section 6.01. 5.02 ELIGIBILITY TO PARTICIPATE IN THE SARP. (a) Designation of Participants. Participants in the SARP shall be such officers or senior executives of the Company as the Committee, in its sole discretion, may designate as eligible to participate in the SARP. Prior to the commencement of each calendar year during the term of the SARP, the Committee shall designate the Employees who are eligible to participate in the SARP during such calendar year; provided, however, that with respect to calendar year 1999, such designations shall be made no later than thirty (30) days following the Effective Date. The Committee's designation of a SARP Participant with respect to any calendar year shall not require the Committee to designate such person as a SARP Participant with respect to any other calendar year. The Committee shall consider such factors as it deems pertinent in selecting SARP Participants. The Committee may in its sole discretion limit the extent of participation by any SARP Participant in any calendar year, including but not limited to restricting the number of any Purchased or Restricted Shares, frequency of elections or any other levels of participation. The Committee shall promptly provide to each Employee selected as a SARP Participant written notice of such selection. The designation of an Employee as a SARP Participant with respect to a calendar year shall permit such person to elect to submit one or more Purchase Notices and/or Designation Notices during such calendar year irrespective of whether, in the case of Purchase Notices, the applicable Purchase Date(s) fall within such calendar year. 7 8 (b) SARP Participant Elections. A person who is designated as a SARP Participant in accordance with Section 5.02(a) shall be entitled to purchase Common Stock by delivering one or more Purchase Notices in accordance with Article VII and such Common Stock purchases shall result in the award of Restricted Stock to such SARP Participant in accordance with Article VIII. In addition, a SARP Participant shall be entitled to designate as Designated Stock, in one or more Designation Notices delivered to the Company at any time during a calendar year, any even number of shares of Common Stock then owned by the SARP Participant, other than shares of Purchased Stock, shares of Common Stock credited to the SARP Participant's account under any tax qualified employee benefit plan sponsored by the Company and shares of Common Stock subject to outstanding and as yet unexercised stock options. Such designation of shares as Designated Stock shall result in the award of Restricted Stock to the SARP Participant in accordance with Article VIII. The sum of (i) the aggregate Purchase Amounts elected by a SARP Participant pursuant to one or more Purchase Notices submitted within any one calendar year and (ii) the Fair Market Value of the Designated Stock designated by the SARP Participant pursuant to one or more Designation Notices submitted within such calendar year (such Fair Market Value being determined as of the date the applicable Designation Notice is delivered), shall not exceed such SARP Participant's gross annual salary in effect on the first day of such calendar year or first day of employment, if such SARP Participant was not employed with the Company on the first day of such calendar year; provided, however, that for calendar year 1999, such total amount may equal two times the SARP Participant's gross annual salary. ARTICLE VI. EMPLOYEE STOCK PLAN PROGRAM PROVISIONS 6.01 PARTICIPANT CONTRIBUTIONS (a) Participant Contributions. Each ESPP Participant shall authorize in the election form required under Section 5.01(d) an ESPP Participant Contribution in whole-dollar amounts for each pay period, subject to the minimum and maximum contributions set forth below, depending on the ESPP Participant's payroll schedule:
Frequency of Paycheck Minimum Maximum ----------- ------- ------- Weekly $ 5.00 $ 92.00 Bi-weekly 10.00 184.00 Semi-monthly 10.00 200.00 Monthly 20.00 400.00
(b) Limit on Participant Contribution. Notwithstanding the foregoing, in no event shall an ESPP Participant's Contribution exceed 25% of such ESPP Participant's Compensation for such pay period. 8 9 (c) Effective Date of Payroll Deduction. Except as set forth below, each Eligible Employee's initial enrollment application shall be effective no later than the first payroll period in the quarter next succeeding the date upon which such completed application is received by the Human Resources Department, unless a later date is specified by the Eligible Employee. Each Eligible Employee's completed initial enrollment application received during the calendar quarter in which the Company, Division or Subsidiary commences participation in the Plan will be effective as of the first payroll period in the calendar month next succeeding the date upon which such application is received by the Human Resources Department. Completed initial enrollment applications must be received by the Human Resources Department at least two weeks before the effective date of an Employee's enrollment. Payroll deduction authorizations will remain effective until revised or terminated as hereinafter provided. (d) Plan Administrator. The ESPP feature of the Plan shall be administered by a Plan Administrator designated by the Committee or the Board to serve at its or their pleasure. The Committee shall inform ESPP Participants of the name, address and telephone number of the Plan Administrator. (e) Changing Contribution Elections. ESPP Participants may increase or decrease their payroll deductions (in whole-dollar amounts, subject to the minimum and maximum limitations set forth above) by submitting a written request to the Human Resources Department. Any such changes will be effective as of the earliest of the first day of January, April, July or October, immediately succeeding receipt by the Human Resources Department of the written request, provided that the written request for such changes must be received by the Human Resources Department at least two weeks before the changes are to become effective. ESPP Participants may suspend payroll deductions, without terminating participation in the ESPP, effective as of the payroll cycle following a written request, but must wait one full quarter following the quarter in which the deduction was suspended to resume deductions. (f) Termination of Employment. Upon the termination of an ESPP Participant's employment with the Company, a Division or Subsidiary, the ESPP Participant may not make ESPP Participant Contributions from lump-sum payments to him or her and no Company Contributions will be made with respect thereto. (g) Legal Restrictions on Changes in Contribution Elections. Notwithstanding the foregoing, no change to payroll deductions shall become effective unless such change shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the securities laws of any state having appropriate jurisdiction, and the various rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares of Common Stock may then be listed. 9 10 6.02 COMPANY CONTRIBUTION. The Company shall contribute an amount equal to 15% of each ESPP Participant's monthly Participant Contribution towards the purchase of shares of Common Stock. Such Company Contribution may be made in cash to purchase shares for the ESPP Participant's account, or in treasury or authorized by unissued shares of Common Stock, or both. 6.03 PURCHASE AND ALLOCATION OF COMMON STOCK UNDER THE ESPP (a) Purchases. Subject to and in accordance with the terms of the Plan, each ESPP Participant shall have the ESPP Participant Contribution withheld from his or her Compensation by payroll deduction. The Company, the Divisions and the Subsidiaries shall accumulate on a calendar month basis and hold, without interest to the ESPP Participants, all ESPP Participant Contributions. As soon as practicable after the end of each month, the Company shall apply the sum of all ESPP Participant Contributions and Company Contributions for that month toward the purchase of shares of Common Stock on behalf of those ESPP Participants who have chosen to make Participant Contributions for such month. (b) Allocation. The Company may elect to issue authorized but unissued shares, use treasury shares or instruct the Plan Administrator to purchase shares of common Stock in the open market on the Purchase Date. Shares of Common Stock shall be purchased at the Fair Market Value on the Purchase Date. The Plan Administrator shall then allocate to the Share Account of each ESPP Participant the number of whole shares (or fractional interests in whole shares) of Common Stock purchased by the Plan Administrator under the ESPP for such month, determined by dividing the sum of such ESPP Participant's Participant Contributions withheld during that month, plus the Company Contributions for such ESPP Participants for that month, by the per share price of the Common Stock purchased under the ESPP for that month. (c) Additional Purchases. An ESPP Participant may add other shares of Common Stock to his or her Share Account at any time by separate purchases arranged with the Plan Administrator, or by delivering other shares owned by such ESPP Participant to the Plan Administrator. The Company will pay the Plan Administrator's commissions on purchases made with Participant Contributions and Company Contributions and on dividends reinvested with respect to shares of the Company's Common Stock purchased through the ESPP. The Company will not pay commissions with respect to independent purchases or any sales made by any Participants or reinvested dividends on shares purchased outside of the ESPP (unless the Company adopts a universal dividend reinvestment plan). (d) Vesting and Share Certificates. At the time of purchase, each ESPP Participant immediately acquires fully vested ownership of all shares of Common Stock and any fractional interest in shares purchased on his or her behalf. Each Share Account shall be held by the Plan Administrator in the appropriate ESPP Participant's name. Unless otherwise requested by the ESPP Participant, all shares of Common Stock will be registered in street name and will remain so 10 11 registered until delivery of the shares is requested. An ESPP Participant may request that a certificate for any or all of his or her full shares be delivered to him or her upon the payment by the ESPP Participant of any applicable fee prescribed by the Plan Administrator for such service. (e) Dividends. Each ESPP Participant's Share Account will be credited with all Dividends paid in request of the full shares of any fractional interest in shares held in his or her account. Cash Dividends will be reinvested in the Common Stock as promptly as practicable following receipt thereof by the Plan Administrator unless the ESPP Participant instructs the Plan Administrator to the contrary. Stock Dividends and/or any stock splits with respect to the shares of Common Stock held in the ESPP Participant's Share Account will be credited to the Share Account without charge. 6.04 DISPOSITION OF SHARES. An ESPP Participant may instruct the Plan Administrator to sell any or all of his or her full shares and the fractional interest in shares allocable to his or her Share Account. Based on instructions from the ESPP Participant, upon such sale, the Plan Administrator will either mail the ESPP Participant a check for the proceeds or credit such Participant's Share Account with such proceeds in each case, less the brokerage commission and any transfer taxes, registration fee or other normal charges which are payable by the ESPP Participant. Such instructions to the Plan Administrator or a request for delivery of certificates will not affect the ESPP Participant's status as an ESPP Participant unless he or she sells shares held in his or her Share Account through the Plan Administrator more than twice a year. If an ESPP Participant sells shares held in his or her Share Account through the Plan Administrator more than twice per year, the ESPP Participant must withdraw from the Plan for one year. 6.05 SHARE ACCOUNT STATEMENTS. Each ESPP Participant shall receive statements of his or her account at least quarterly, or more often at the discretion of the management committee supervising administration of the Plan on behalf of the Company. Such statements shall serve as evidence of stock ownership and as the basis for tax records, and should be retained by the ESPP Participant as a permanent record. The relationship between the broker for the Plan Administrator and the ESPP Participant shall be a normal relationship of a broker and its client, and neither the Company, the Division, nor the Subsidiaries, shall assume any responsibility in this respect. 6.06 TERMINATION OF PLAN PARTICIPATION. (a) Notice of Termination. An ESPP Participant may terminate his or her participation in the ESPP at any time upon written notice to the Human Resources Department, effective the payroll cycle following the written notice. Any voluntary termination from the ESPP, or termination pursuant to Section 6.04, shall be for a period of not less than one year in duration. An ESPP Participant's participation in the ESPP shall terminate automatically without notice upon death or other termination of employment by the ESPP Participant with the Company, a Division or Subsidiary. Upon an ESPP Participant's termination of participation in the Plan, the Participant's Share Account shall be closed as set forth below. 11 12 (b) Termination of Share Account. Until the Plan Administrator shall have received written instructions from the ESPP Participant (or his or her estate) upon termination of the ESPP Participant's participation in the ESPP, shares of Common Stock held by the Plan Administrator in the Participant's Share Account shall, unless otherwise instructed, continue to be held by the Plan Administrator in accordance herewith for a reasonable period of time. Upon receipt of appropriate written instructions from the ESPP Participant (or his or her estate), the Plan Administrator shall either cause any whole shares of the Common Stock credited to the Share Account of the Participant to be transferred in accordance with such instructions (and shall cause certificates representing such shares to be mailed in accordance with the instructions), or sell any whole shares of the Common Stock at the prevailing market price and mail the proceeds, less the brokerage commission and any transfer taxes, registration fee or other normal charges which are payable by the ESPP Participant, in accordance with the instructions of the ESPP Participant (or his or her estate). Any fractional interest in a share of Common Stock held in the Share Account will be sold by the Plan Administrator a the prevailing market price and a check for the proceeds of sale thereon will be mailed in accordance with the instructions of the ESPP Participant (or his or her estate). 6.07 VOTING RIGHTS AND SHAREHOLDER COMMUNICATIONS. The Plan Administrator shall deliver to each ESPP Participant as promptly as practicable, by mail or otherwise, all notices of meetings and proxy statements. ESPP Participants shall also receive all other material distributed by the Company to its stockholders. The whole shares in each ESPP Participant's Share Account shall be voted in accordance with the Participant's signed proxy instructions duly delivered to the Plan Administrator, or otherwise, in accordance with rules applicable to stock listed on the New York Stock Exchange or, if the shares of Common Stock are not listed on such exchange, the successor principal national exchange on which the shares of Common Stock are listed. 6.08 ESPP RIGHTS NOT TRANSFERABLE. Rights under the ESPP are exercisable only by the ESPP Participant during his or her lifetime and may not be assigned, transferred or encumbered by his or her prior to the withdrawal of shares of Common Stock from his or her Share Account. If an ESPP Participant attempts to assign, transfer or encumber any rights under the ESPP prior to the withdrawal of shares of Common Stock from his or her Share Account, except through a sale consistent with the terms of the ESPP, such attempt shall be void. ARTICLE VII. STOCK ACQUISITION AND RETENTION PROGRAM PROVISIONS 7.01 STOCK PURCHASE ELECTIONS. A SARP Participant shall have the right to purchase Common Stock in accordance with the terms of this Article VII. A SARP Participant may elect to purchase Common Stock under this SARP by delivering to the Company a Purchase Notice and cash and/or a promissory note executed by the Participant in an amount equal to the purchase price designated in such Participant's Purchase Notice. Such Purchase Notice shall set forth, among other things, the Purchase Amount elected by the Participant. Such promissory note which shall evidence such Participant's Purchase 12 13 Loan in accordance with Section 7.03, shall be in a principal amount equal to the Purchase Amount designated in such Participant's Purchase Notice and shall by its terms become effective as of the applicable Purchase Date. All elections under this Section 7.01 shall be irrevocable. If an election is submitted during an Offering Period, such election shall take effect as of the Purchase Date immediately following the close of such Offering Period. If an election is not submitted during an Offering Period, such election shall take effect as of the Purchase Date immediately following the close of the next Offering Period. 7.02 ISSUANCE OF AND PAYMENT FOR COMMON STOCK. As of each Purchase Date, the Company shall credit to each SARP Participant the number of shares of Purchased Common Stock purchased pursuant to the Purchase Notice submitted by such Participant. The number of shares of Purchased Common Stock to be so credited shall be determined by dividing the Purchase Amount designated by such SARP Participant in his or her Purchase Notice by a purchase price per share equal to the average Fair Market Value during the Window Period. As of any Purchase Date, only an even number of shares of Purchased Common Stock can be purchased by a SARP Participant and in no event shall the Company be required to issue fractional shares. The Purchase Amount elected by a Participant, and the principal amount of the related promissory note, shall be automatically reduced (and if the entire Purchase Amount is paid in cash, cash shall be returned to the Participant) to the minimum extent necessary in order that an even number of whole shares of Purchased Common Stock is credited to such SARP Participant as of the Purchase Date. The purchase price for shares of Purchased Common Stock credited to a SARP Participant as of a Purchase Date shall be paid in cash and/or by means of a Purchase Loan made by the Company to the SARP Participant in accordance with Section 7.03. The SARP Participant shall have all of the rights of a stockholder with respect to the shares of Purchased Common Stock credited to him or her under this Section 7.02 including, but not limited to, the right to vote such shares and the right to receive dividends (or dividend equivalents) paid with respect to such shares. 7.03 TERMS OF PURCHASE LOAN. (a) Purchase Loan. The promissory note delivered to the Company by a SARP Participant in accordance with Section 7.01 shall evidence a Purchase Loan in principal amount equal to such Participant's Purchase Amount reduced by the amount of cash paid, if any. Unless the Committee shall otherwise determine prior to the applicable Purchase Date, each Purchase Loan shall have a term not to exceed ten years, and be secured by the shares of Purchased Common Stock acquired with such Purchase Loan. (b) Interest on Purchase Loan. Until the SARP Participant's Purchase Loan is paid in full, or otherwise satisfied or discharged in full, interest on the outstanding balance of the Purchase Loan shall accrue at a fixed rate per annum equal to the minimum rate required to avoid imputed interest under the applicable provisions of the Internal Revenue Code of 1986, as amended. (c) Repayment of Purchase Loan. No principal or interest payments with respect to a Purchase Loan shall be required prior to the fifth anniversary of the 13 14 date such Purchase Loan is made; provided, however, that prior to such fifth anniversary, cash dividends on shares of Purchased Common Stock held as security for such Purchase Loan, and on the related shares of Restricted Common Stock, shall be applied to pay accrued interest on the Purchase Loan (any non-cash dividends shall remain as part of the collateral securing such Purchase Loan). After such fifth anniversary, level monthly payments of principal and accrued interest with respect to a Purchase Loan shall be required for the remaining term thereof. Unless otherwise determined by the Committee, all outstanding principal and interest on a SARP Participant's Purchase Loan shall be immediately due and payable in full upon termination of the SARP Participant's employment with the Company and its affiliates. All or any portion of the principal and/or interest with respect to a Purchase Loan may, at the election of the SARP Participant, be paid by the delivery to the Company of whole shares of Common Stock, other than (i) shares of Common Stock credited to the SARP Participant's account under any tax qualified employee benefit plan sponsored by the Company, (ii) shares of Common Stock subject to outstanding and as yet unexercised stock options, and (iii) shares of Purchased Common Stock and Designated Common Stock; provided, however, that shares of Purchased Common Stock and Designated Common Stock can be used to pay interest and/or principal with respect to a Purchase Loan if at the time of such payment the SARP Participant is an active employee of the Company or a subsidiary, or the SARP Participant's employment terminated due to death, disability or retirement pursuant to the retirement policy of the Company. For purposes of the immediately preceding sentence, shares of Common Stock shall be valued at the Fair Market Value of such shares on the Business Day immediately preceding the date such shares are delivered to the Company. (d) Other Terms. The promissory notes evidencing the Purchase Loans shall contain such other terms and conditions as the Committee may determine, including, without limitation, any special terms relating to the retirement of a SARP Participant prior to the expiration of the term of one or more Purchase Loans. 7.04 COMMON STOCK CERTIFICATES. As promptly as administratively feasible after each Purchase Date, the Company shall deliver to each SARP Participant one or more stock certificates for the number of shares of Common Stock purchased by such Participant as of such Purchase Date in accordance with this Article VII. The SARP Participant shall then deliver certificates representing a number of shares with a value equal to the principal amount of the Purchase Loan to the Company in pledge for the related Purchase Loan along with an executed security agreement in such form as the Committee shall specify. Upon satisfaction in full of the Purchase Loan, the certificates shall be delivered to the SARP Participant free and clear of any restrictions except for any restrictions that may be imposed by law. ARTICLE VIII. RESTRICTED COMMON STOCK 8.01 RESTRICTED COMMON STOCK AWARDS. As of each Purchase Date, there shall automatically be granted to any SARP Participant who purchases Purchased Common Stock as of such Purchase Date pursuant to Article VII an award of one share of Restricted 14 15 Common Stock for each two shares of Purchased Common Stock. The Purchase Date shall be the Date of Grant of such Restricted Common Stock. As of any date that a SARP Participant delivers a Designation Notice to the Company, in accordance with Section 5.02(b), designating shares of Common Stock as Designated Common Stock, there shall automatically be granted to such Participant an award of one share of Restricted Common Stock for each two shares of Designated Common Stock. The date of delivery of such Designation Notice shall be the Date of Grant of such Restricted Common Stock. The terms of all such Restricted Common Stock awards shall be set forth in an Award Agreement between the Company and the SARP Participant which shall contain such forfeiture periods and conditions, restrictions and other provisions, not inconsistent with these rules, as shall be determined by the Committee. (a) Issuance of Restricted Common Stock. As soon as practicable after the Date of Grant of Restricted Common Stock, the Company shall cause to be transferred on the books of the Company shares of Common Stock, registered on behalf of the SARP Participant, evidencing such Restricted Common Stock, but subject to forfeiture to the Company retroactive to the Date of Grant if an Award Agreement delivered to the SARP Participant by the Company with respect to the Restricted Common Stock is not duly executed by the SARP Participant and timely returned to the Company. Until the lapse or release of all restrictions applicable to an award of Restricted Common Stock, the stock certificates representing such Restricted Common Stock shall be held in custody by the Company or its designee. (b) Common Stockholder Rights. Beginning on the Date of Grant of the Restricted Common Stock and subject to execution of the Award Agreement as provided in Section 8.01(a), the SARP Participant shall become a stockholder of the Company with respect to all Common Stock subject to the Award Agreement and shall have all of the rights of a stockholder, including, but not limited to, the right to vote such Common Stock and the right to receive dividends (or dividend equivalents) paid with respect to such Common Stock; provided, however, that any Common Stock distributed as a dividend or otherwise with respect to any Restricted Common Stock as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Restricted Common Stock and shall be held as prescribed in Section 8.01(a). (c) Restriction on Transferability. None of the Restricted Common Stock may be assigned, transferred (other than by will or the laws of descent and distribution), pledged, sold or otherwise disposed of prior to lapse or release of the restrictions applicable thereto. (d) Delivery of Common Stock Upon Release of Restrictions. Upon expiration or earlier termination of the forfeiture period without a forfeiture, the satisfaction of the Purchase Loan, if any, for the Related Common Stock and the satisfaction of or release from any other conditions prescribed by the Committee, the restrictions applicable to the Restricted Common Stock shall lapse. As promptly as administratively feasible thereafter, subject to the requirements of Section 9.02, the Company shall deliver to the SARP Participant, or, in case of the SARP 15 16 Participant's death, to the SARP Participant's legal representatives, one or more stock certificates for the appropriate number of shares of Common Stock, free of all such restrictions, except for any restrictions that may be imposed by law. 8.02 TERMS OF RESTRICTED COMMON STOCK. (a) Forfeiture of Restricted Common Stock. Subject to Section 8.02(b), all Restricted Common Stock shall be forfeited and returned to the Company and all rights of the SARP Participant with respect to such Restricted Common Stock shall cease and terminate in their entirety if during the forfeiture period (i) the SARP Participant transfers, sells or otherwise disposes of the Related Common Stock other than to a Permitted Transferee or in a transaction constituting a Change in Control or (ii) the employment of the SARP Participant with the Company and its affiliates terminates for any reason or (iii) the SARP Participant defaults on the Purchase Loan, if any, for the Related Common Stock. Unless the Committee, in its sole discretion, provides otherwise in the applicable Award Agreement, the forfeiture period for any shares of Restricted Common Stock shall be five years from the Date of Grant of such Restricted Common Stock. Notwithstanding the foregoing, in the event of the discharge by the Company and its subsidiaries of a SARP Participant without Cause or termination of a SARP Participant's employment by reason of death, Disability or retirement pursuant to the retirement policy of the Company or its applicable subsidiaries, all forfeiture restrictions imposed on Restricted Common Stock shall immediately and fully lapse. In addition, upon the occurrence of a Change in Control, all forfeiture restrictions imposed on Restricted Common Stock shall immediately and fully lapse. (b) Waiver of Forfeiture Period. Notwithstanding anything contained in this Article VIII to the contrary, the Committee may, in its sole discretion, waive the forfeiture conditions set forth in any Award Agreement under appropriate circumstances and subject to such terms and conditions (including forfeiture of a proportionate number of the shares of Restricted Common Stock) as the Committee may deem appropriate, provided that the SARP Participant shall at that time have completed at least one year of employment after the Date of Grant. ARTICLE IX. MISCELLANEOUS 9.01 LIMITATIONS ON TRANSFER. Except as otherwise expressly provided in this Plan, the rights and interest of a Participant under the Plan may not be assigned or transferred other than by will or the laws of descent and distribution. During the lifetime of a Participant, only the Participant personally may exercise rights under the Plan. 9.02 TAXES. The Company shall be entitled to withhold (or secure payment from the SARP Participant in lieu of withholding) the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any Common Stock issuable under the SARP, or with respect to any income recognized upon the lapse of restrictions applicable to Restricted Stock, and the Company may defer issuance of Common Stock hereunder until and unless indemnified to its satisfaction against any 16 17 liability for any such tax. The amount of such withholding or tax payment shall be determined by the Committee or its delegate and shall be payable by the SARP Participant at such time as the Committee determines. The Committee shall prescribe in each Award Agreement one or more methods by which the SARP Participant will be permitted to satisfy his or her tax withholding obligation, which methods may include, without limitation, the payment of cash by the SARP Participant to the Company and the withholding, at the appropriate time, of shares of Common Stock otherwise issuable to the SARP Participant in a number sufficient, based upon the Fair Market Value of such Common Stock, to satisfy such tax withholding requirements. 9.03 LEGENDS. All certificates for Common Stock delivered under the SARP shall be subject to such transfer restrictions set forth in this Plan and such other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed and any applicable federal or state securities law, and the Committee may cause a legend or legends to be endorsed on any such certificates making appropriate references to such restrictions. 9.04 AMENDMENT AND TERMINATION. The Committee shall have complete power and authority to amend or terminate this Plan, including the ESPP or SARP features of the Plan, at any time it is deemed necessary or appropriate. No termination or amendment of the Plan or the SARP feature may, without the consent of the SARP Participant to whom any award shall theretofore have been granted under the SARP, adversely affect the right of such individual under such award; provided, however, that the Committee may, in its sole discretion, make such provision in the Award Agreement for amendments which, in its sole discretion, it deems appropriate. If the Plan or the ESPP feature is terminated, the entire amount of cash allocable to the Share Account of each ESPP Participant hereunder and not theretofore applied to the purchase of shares of Common Stock shall be refunded to each such Participant. 9.05 NO GUARANTEE OF EMPLOYMENT; REGISTRATION REQUIREMENTS; GOVERNING LAW. Nothing in the Plan shall be deemed to give any Participant hereunder any right of continued employment. If at any time the Company determines, in its sole discretion, that any listing registration, or qualification of the Plan not already obtained is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the implementation of continuation of the Plan, the Company may discontinue the operation of the Plan unless such listing, registration, qualification, consent or approval shall be effected or obtained free of any conditions or with such conditions as are acceptable to the Board of Directors. The foregoing shall not be construed to limit in any way the discretion of the Company to discontinue or terminate the Plan under circumstances other than those enumerated above. The Plan shall be governed and construed in accordance with the laws of the State of Delaware, without regard to any provisions with respect to conflict of laws. 9.06 ADJUSTMENTS TO REFLECT CAPITAL CHANGES. The number and kind of shares of Common Stock available for issuance under the Plan shall be appropriately adjusted to 17 18 reflect any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other change in capitalization with a similar substantive effect upon the Plan. The Committee shall have the power and sole discretion to determine the amount of the adjustment to be made in each case. Adopted by Board on 11/12/99. Approved by Shareholder(s) on 11/12/99. Amended on 1/23/01. 18
EX-10.3 4 a72650ex10-3.txt EXHIBIT 10.3 1 Exhibit 10.3 [WATERPIK TECHNOLOGIES, INC. LOGO] PERFORMANCE SHARE PLAN 25 October 2000 PLAN CONCEPT The Performance Share Plan ("PSP") is designed to reward senior executives ("Participants") for the achievement of a pre-specified goal: three-year aggregate earnings per share. ELIGIBILITY AND PARTICIPATION Eligibility for the PSP is intended to be restricted to Participants whose actions most directly affect the long-term success of the Company. Participation will be determined based on nomination by the Chief Executive Officer and approval by the Personnel and Compensation Committee. The three categories of Participants include:
---------------------------------------------------------- Target Opportunity As a Percent Participants Of Salary (Per AIP) ---------------------------------------------------------- President & CEO 60% Other Corporate Officers 40-45% Senior Segment Executives 20-30% ----------------------------------------------------------
CALCULATION OF TARGETED PERFORMANCE SHARE AWARD The awards will be in cash and stock options. The cash award will be equal to the Annual Incentive Plan (AIP) target percentage times the Participant's annual base salary at the end of the three-year performance period. The PSP stock option award will be equal to the annual stock option for each participant grant. The annual stock option award sizes are determined by the CEO for the corporate executives, and derived from salary/job band levels for segment executives. EXAMPLE OF SEGMENT VP MARKETING Base Salary: $150,000 AIP Target: 30% PSP Target Cash Award: $45,000 Annual Stock Option Award: 5,000 PSP Stock Option Award: 5,000
The Committee may expand the positions eligible to participate in the PSP at any time prior to the beginning of the second fiscal quarter of the three-year Performance Period. 1 2 VESTING Stock options will vest ratably at the end of calendar years three, four and five. If the financial target is met, vesting will accelerate on February 15th of the year following the three-year measurement period. PERFORMANCE PERIOD Performance will be measured over three fiscal years of the Company, with a new three-year Performance Period established every three years. PERFORMANCE MEASUREMENT Performance will be measured based on aggregate earnings per share for the three-year period. Shares outstanding as presented in the Strategic Plan 2001-2003 will be adjusted for the actual shares issued in the required equity offering. At the beginning of each Performance Period, a matrix will be established and submitted for approval by the Committee. This matrix will be used to determine the number of options to which the Participants are entitled. The cash award will be calculated in a manner consistent with the Annual Incentive Plan with a maximum incentive equal to 200 percent of the target award. NON-TRANSFERABILITY Performance Share Options are non-transferable. FORM OF PAYMENT Cash payments will be made as soon as practicable following the approval of the award amounts by the Committee. DEFERRAL OF AWARD Participants will have the right to defer up to 100 percent of their cash payout under the Performance Share Plan as per the Deferred Compensation Plan in effect at the time. Deferral elections must be made by the end of the first year of the three-year Performance Period. TERMINATION OF EMPLOYMENT If a Participant terminates employment for any reason, the unvested options and cash award will be forfeited, unless deemed otherwise by the Committee. 2
EX-10.4 5 a72650ex10-4.txt EXHIBIT 10.4 1 Exhibit 10.4 [WATERPIK TECHNOLOGIES, INC. LOGO] WATER PIK TECHNOLOGIES, INC. 2001 ANNUAL INCENTIVE PLAN 1 of 13 2
CONTENT PAGE At a Glance 3 What is the Annual Incentive Plan? 3 Who is Eligible for this Plan? 3 How does the Annual Incentive Plan work? 3 Calculation of the Annual Incentive Plan Award 4 Target Bonus Percentage 4 Performance Goals and the Target Bonus Percentage 4 Financial Performance Goals 4 Individual Performance Goals 5 How the AIP Award is Calculated 5 How the AIP Award is Calculated for Other Achievement Levels 6 Maximums and Minimums 6 Formulas for Weighting Financial & Individual Performance 7 Putting it Together 8 Additional Guidelines for the Annual Incentive Plan 12 Discretionary Adjustments 12 Some Special Circumstances 12 Making Payments 12 Administration Details 13
2 of 13 3 AT A GLANCE WHAT IS THE ANNUAL INCENTIVE PLAN? The Annual Incentive Plan (the "AIP" or the "Plan") provides key managers of Water Pik Technologies, Inc. ("Water Pik") with the opportunity to earn an incentive award when certain pre-established performance goals are met: - at the total company level, - at the segment level, and - at the individual level. WHO IS ELIGIBLE FOR THIS PLAN? Generally, key managers who have a significant impact on the total company's operations will be eligible to participate in the Plan. Individuals eligible (the "Participants") for participation are determined annually, based on recommendations of Water Pik's Chief Executive Officer (the "Chief Executive Officer"), with the approval of the Personnel and Compensation Committee of its Board of Directors (the "Committee"). HOW DOES THE ANNUAL INCENTIVE PLAN WORK? Under the Plan, designated key employees may earn an incentive award equal to a percentage of their base salary, depending on the extent to which pre-established individual, and total company and/or, segment performance goals have been achieved. - For purposes of the Plan, base salary is generally the Participant's annual base salary rate as of the end of the year, excluding any commission or other incentive pay. For some special circumstances affecting the amount of base salary used in the Plan, see this plan document. - A target bonus percentage is used in calculating the incentive award. It is explained on the next page. Each Participant will be given a target bonus percentage. - The actual bonus percentage is determined by adjusting the target bonus percentage upward or downward based on the extent to which certain financial performance goals and individual performance goals are achieved. - The actual bonus percentage determines the amount of the incentive award for the year subject to discretionary adjustments. See page 6 for other factors that may affect the actual award. - Incentive award payments will generally be distributed in cash after the year-end audit is complete and the Committee has granted its approval. 3 of 13 4 CALCULATION OF THE ANNUAL INCENTIVE PLAN AWARD TARGET BONUS PERCENTAGE The Plan provides an incentive opportunity for Participants calculated as a percentage of each Participant's base salary. Each Participant will be provided with an initial percentage, referred to as a "target bonus percentage." The target bonus percentage is the percentage of base salary that is generally earned as an award if 100% of the performance goals are achieved. The performance goals reflect financial and individual performance and are described below. Target bonus percentages, performance goals and performance achievements will be communicated to each eligible Participant. The Committee may change the goals and objectives for the Plan at any time. PERFORMANCE GOALS AND THE TARGET BONUS PERCENTAGE The Plan for 2001 establishes a financial performance goal based on Net Income ("NI") and Return On Average Capital Employed ("RACE"), and individual performance goals based on individual performance objectives. RACE is defined as Adjusted NI divided by Average Capital Employed. Net Income is defined as income after tax. Each performance goal is weighted as a percentage share of the target bonus percentage. For all Participants in the Plan, 80% of the target bonus percentage will be based on the financial performance; the other 20% of the target bonus percentage will be based upon individual performance. Actual performance will be measured and compared to the performance goals. The result achieved will be expressed as a percentage of the performance goal. The adjustment formulas are described further below. FINANCIAL PERFORMANCE GOALS For 2001, the financial performance goal will be weighted 75% NI and 25% RACE, which represents a total of 80% of the target bonus percentage. NI and RACE goals will be set at the total company and segment level based on the applicable business plan. How total company and segment are weighted for a given Participant depends upon the Participant's major area of responsibility at Water Pik and its business segments. For example, some Participants may have 60% of target based on segment financial performance and 20% on total company financial performance. Others may have 80% of target based on total company performance. 4 of 13 5 INDIVIDUAL PERFORMANCE GOALS Each year, managers will establish individual performance goals with Participants. The achievement of individual performance goals will represent 20% of the target bonus percentage. Individual performance goals can be achieved to a maximum of 100%. HOW THE AIP AWARD IS CALCULATED WHEN 100% OF THE PERFORMANCE GOALS ARE ACHIEVED If 100% of all performance goals are achieved, then 100% of the target bonus percentage will generally be used to calculate the Participant's incentive award. For example, if a Participant's target bonus percentage is 20% and if all goals are achieved at 100%, then the target bonus percentage of 20% is multiplied by 100% to produce an incentive award equal to 20% of base salary:
PERCENT OF GOAL TARGET % GOAL TARGET ACHIEVEMENT EARNED ---------------------------------------------------------------------- Financial Performance 80% X 100% = 80% Individual Performance 20% X 100% = 20% --- Total Goals = 100%
In the above example, 100% of the target bonus percentage is earned, and the incentive award will be 20% of the participant's base salary subject to any discretionary adjustments. 5 of 13 6 The following further defines the financial performance goals. Using the above example of a Participant's target bonus percentage of 20%, and weighting the Participant's financial goals of 80% at 60% segment and 20% total company, the following example provides clarification of the NI and RACE components:
PERCENT OF GOAL TARGET % GOAL TARGET ACHIEVEMENT EARNED ----------------------------------------------------------------------- Financial Performance Segment (60%) Net Income (75%) 45% X 100% = 45% RACE (25%) 15% X 100% = 15% Total Company (20%) Net Income (75%) 15% X 100% = 15% RACE (25%) 5% X 100% = 5% --- ---- -- Total Financial Perf. 80% X 100% = 80% Individual Performance 20% X 100% = 20% ---- Total Goals = 100%
The sections below discuss the impact of achieving more or less than 100% of the performance goals and the impact of other potential adjustments. HOW THE AIP AWARD IS CALCULATED FOR OTHER ACHIEVEMENT LEVELS If more or less than 100% of a Participant's financial or individual performance goals are achieved, then the Participant's target bonus percentage will be adjusted. The following section describes adjustments based on maximum and minimum achievement levels, and the formulas used to weight achievements at all levels. MAXIMUMS AND MINIMUMS - Where more than 100% of financial performance goals are achieved, more than 100% will then be earned for that goal's contribution to the overall achievement. However, the maximum percentage earned for any goal's share of the target bonus percentage is 200%, and the overall maximum incentive award that an individual can earn under the weighting formula is 200% of the target bonus percentage. - If financial goals are achieved at above target performance levels, the over-achievement will enhance the individual performance goal attainment. - Where 80% of a financial or individual performance goal is achieved, only 50% of that goal's share (80% or 20% as applicable) of the target bonus percentage will be earned. 6 of 13 7 - If less than 80% of the Company's Business Plan Net Income is achieved, no company, segment or personal awards will be paid regardless of the level of achievement of the financial or individual performance goals. FORMULAS FOR WEIGHTING FINANCIAL AND INDIVIDUAL PERFORMANCE The following formulas will be used to weight the achievement of the financial and individual performance measures under the Plan: Formula A If 80% to 100% of a goal is achieved, the Percent of Target Earned for that goal equals the Percentage of Goal Achieved (i.e. Actual Performance divided by Planned Performance) minus 80% (which is the threshold level of performance) times 2.5, plus 50%. Formula A Example: Assumption: Percentage of Goal Achieved = 90% Percent of Target Earned for the Goal = [(90% - 80%) x 2.5] + 50% = [(10% x 2.5)] + 50% = 25% + 50% = 75%
Formula B If over 100% of goal is achieved, the Percent of Target Earned for that goal equals the Percentage of Goal Achieved (i.e. Actual Performance divided by Planned Performance) minus 100% (which is the target level of performance) times 5, plus 100%. In all cases, the maximum Percent of Target Earned of 200% results when 120% of that goal is achieved. Formula B Examples: 1. Assumption: Percentage of Goal Achieved = 130% Percent of Target Earned for the Goal = (130% - 100%) x 5] + 100% = [30% x 5] + 100% = 150% + 100% = 250%
However the maximum target bonus is capped at 200%. 7 of 13 8 2. Assumption: Percentage of Goal Achieved = 110% Percent of Target Earned for that Goal = [(110% - 100%) x 5] + 100% = [10% x 5] + 100% = 50% + 100% = 150%
The formulas described above are designed to create a greater positive incentive for over-achieving the plan than for under-achieving. As a result of the formulas, actual performance that exceeds 100% of the goal is weighted more than actual performance that exceeds the 80% threshold levels of performance but does not reach 100% of the goal. PUTTING IT TOGETHER Here are two examples of how a Participant might earn an incentive award under the plan. 1. For the first example, assume that the Participant achieves: - 90% of financial performance goal for segment and total company for NI and RACE, and - 80% of individual performance goals. - Assume that the Participant's annual salary is $80,000 and that the Participant's target bonus percentage is 20% of base salary. The first step is to calculate the percent of target earned based upon actual performance. 8 of 13 9 Formula A above would be used for weighting financial and individual performance goals, because less than 100% of those goals were achieved.
(1) (2) (3) (4) FORMULA TARGET % PERCENT OF GOAL WEIGHTING OF EARNED GOAL TARGET ACHIEVEMENT ACHIEVEMENT (1) X (3) -------------------------------------------------------------------------------- Financial Performance Segment (60%) Net Income (75%) 45% 90% 75% 33.8% RACE (25%) 15% 90% 75% 11.3% Total Company (20%) Net Income (75%) 15% 90% 75% 11.3% RACE (25%) 5% 90% 75% 3.8% ---- Total Financial Perf. 80% 90% 75% 60.0% Individual Performance 20% 80% 50% 10.0% ---- Total Goals = 70.0%
With 70% of target achieved, the incentive award would be calculated as 70% of the 20% target bonus percentage, or 14%. The incentive payment would, in turn, be the product of 14% of the Participant's base salary of $80,000, or $11,200. 9 of 13 10 2. For another example, assume that the same Participant achieves: - Financial Performance: Segment NI is 115%, Segment RACE is 110%, Total Company NI is 107% and Total Company RACE is 105%, and - 100% of individual performance goals. Again, the first step is to calculate the percent of target earned for each goal. Formula B would be used, because the goal achievement was greater than or equal to 100%.
(1) (2) (3) (4) FORMULA TARGET % PERCENT OF GOAL WEIGHTING OF EARNED GOAL TARGET ACHIEVEMENT ACHIEVEMENT (1) X (3) -------------------------------------------------------------------------------- Financial Performance Segment (60%) Net Income (75%) 45% 115% 175% 78.8% RACE (25%) 15% 110% 150% 22.5% Total Company (20%) Net Income (75%) 15% 107% 135% 20.3% RACE (25%) 5% 105% 125% 6.3% --- --- --- ----- Total Financial Perf. 80% 112%* 160% 127.9% Individual Performance 20% (100%+12%) = 112%** 160% 32.0% ------ Total Goals = 159.9%
With all goal achievement greater than the target, the incentive award would be calculated as 159.9% of the 20% target bonus percentage, or 32%. The incentive payment would, in turn, be the product of 32% of the Participant's base salary of $80,000 or $25,600. * - Weighted Average. ** - Because the financial performance is >100% of goal achievement, the difference between actual and goal of 12% (112% - 100%) is added to the individual performance goal achievement to arrive at the total individual performance goal achievement. 10 of 13 11 3. For another example, assume that the same Participant achieves: - Financial Performance: Segment NI is 115%, Segment RACE is 110%, Total Company NI is 107% and Total Company RACE is 105%, and - 75% of individual performance goals. Again, the first step is to calculate the percent of target earned for each goal. Formula B would be used for financial performance, because over 100% of that goal was achieved. Formula A would be used for individual performance, because less than 100% of that goal was achieved.
(1) (2) (3) (4) FORMULA TARGET % PERCENT OF GOAL WEIGHTING OF EARNED GOAL TARGET ACHIEVEMENT ACHIEVEMENT (1) X (3) -------------------------------------------------------------------------------- Financial Performance Segment (60%) Net Income (75%) 45% 115% 175% 78.8% RACE (25%) 15% 110% 150% 22.5% Total Company (20%) Net Income (75%) 15% 107% 135% 20.3% RACE (25%) 5% 105% 125% 6.3% --- --- --- ----- Total Financial Perf. 80% 112%* 160% 127.9% Individual Performance 20% (75%+12%) = 87%** 67.5% 13.5% ----- Total Goals = 141.4%
With financial goal achievement greater than the target and personal goal achievement less than the target, the incentive award would be calculated as 141.4% of the 20% target bonus percentage, or 28.3%. The incentive payment would, in turn, be the product of 28.3% of the Participant's base salary of $80,000 or $22,624. * - Weighted Average. * - Because the financial performance is >100% of goal achievement, the difference between actual and goal of 12% (112% - 100%) is added to the individual performance goal achievement to arrive at the total individual performance goal achievement. 11 of 13 12 ADDITIONAL GUIDELINES FOR THE ANNUAL INCENTIVE PLAN A minimum of 80% of the total company Business Plan Net Income must be achieved for annual incentives to be paid regardless of other factors. DISCRETIONARY ADJUSTMENTS The Plan allows for discretionary adjustments of up to +20% or -20% of a Participant's calculated award. However, discretionary adjustments for all eligible Participants cannot exceed +5% of the aggregate calculated incentive awards and must be approved in advance by the Chief Executive Officer, subject to Committee approval. SOME SPECIAL CIRCUMSTANCES The above formulas generally determine the amount of the incentive award for the year. Other factors that may affect the actual award follow: - If a Participant leaves the company prior to the incentive award payment, due to retirement, death, or disability, an award will be prorated based on the actual base salary earned during the year in which the Participant left. The incentive award will be paid at the time all other awards are paid under this Plan. - If a Participant leaves the company voluntarily or involuntarily for any other reason than retirement, death, or disability, prior to the incentive award payment, the Participant will not receive an incentive award under this Plan. - Participants who are hired during the year earn a pro-rated bonus for that year, based on the salary earned during that year. - If a Participant received a promotion or demotion during the year where the eligible target percent changed, then the calculation will be pro-rata for each target percent, ie.: 4 months at 15% and 8 months at 20%. - The base salary for Plan purposes is the final base salary at December 31, 2001. - Making Payments Incentive awards, less applicable withholding taxes are paid after the year-end audit is complete and the Committee approves the awards. Payment is expected to occur no later than March 15, 2002. 12 of 13 13 ADMINISTRATIVE DETAILS This summary relates to the Annual Incentive Plan (AIP) of Water Pik Technologies, Inc. The Plan is administered by the Committee. The Committee has full authority to: - interpret the Plan, - designate eligible Participants and categories of eligible Participants, - set the terms and conditions of incentive awards; and - establish and modify administrative rules for the Plan. Plan Participants may obtain additional information about the plan and the Committee from: Vice President, Human Resources Water Pik Technologies, Inc 23 Corporate Plaza, Suite 246 Newport Beach, Ca 92660 Phone: 949-719-3700 Fax: 949-719-6472 The Plan will remain in effect until terminated by the Committee. The Committee may also amend the plan at its discretion. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and is not "qualified" under Section 401 (a) of the Internal Revenue Code. 13 of 13