WATTS INDUSTRIES, INC.
MANAGEMENT STOCK PURCHASE PLAN
I. INTRODUCTION
The purpose of the Watts Industries, Inc. Management
Stock Purchase Plan (the "Plan") is to provide equity
incentive compensation to selected management employees of
Watts Industries, Inc. (the "Company") and its subsidiaries.
Participants in the Plan may elect to receive restricted
stock units ("RSUs") in lieu of all or a portion of their
annual incentive bonus and, in some circumstances, make
after-tax contributions in exchange for RSUs. Each RSU
represents the right to receive one share of the Company's
Class A Common Stock (the "Stock") upon the terms and
conditions stated herein. RSUs are granted at a discount of
25% from the fair market value of the Stock on the date of
grant. So long as the participant remains employed by the
Company for at least three years after the date of grant,
his or her RSUs will be settled in shares of Stock after a
period of deferral selected by the participant, or upon
termination of employment, if earlier.
II. ADMINISTRATION
The Plan shall be administered by the Stock Option and
Compensation Committee of the Board of Directors of the
Company (the "Committee"). Each member of the Committee
shall be a "disinterested person" within the meaning of Rule
16b-3(c)(2)(i) promulgated under the Securities Exchange Act
of 1934, as amended (the "Act"). The Committee shall have
complete discretion and authority with respect to the Plan
and its application, except as expressly limited herein.
Determinations by the Committee shall be final and binding
on all parties with respect to all matters relating to the
Plan.
III. ELIGIBILITY
Management employees of the Company and its
subsidiaries as designated by the Committee shall be
eligible to participate in the Plan.
IV. PARTICIPATION
A. Restricted Stock Units. Participation in the Plan
shall be based on the award of RSUs. Each RSU awarded to a
participant shall be credited to a bookkeeping account
established and maintained for that participant.
B. Valuation of RSUs; Fair Market Value of Stock.
The value of each RSU, for purposes of the Plan, shall be
determined as follows: The "Cost" of each RSU shall be
equal to 75% of the fair market value of the Stock on the
date the RSU is awarded. The "Value" of each RSU shall be
equal to its Cost plus simple interest per annum on such
amount at the one-year U.S. Treasury Bill rate (as published
in The Wall Street Journal) in effect on the award date and
each anniversary thereof. For all purposes of the Plan, the
"fair market value of the Stock" on any given date shall
mean the last reported sale price at which Stock is traded
on such date or, if no Stock is traded on such date, the
most recent date on which Stock was traded, as reflected on
the New York Stock Exchange.
C. Election to Participate. Each year, each
participant may elect to receive an award of RSUs under the
Plan during the subsequent calendar year by completing a
Bonus Deferral and RSU Subscription Agreement ("Subscription
Agreement"). The Subscription Agreement shall provide that
the participant elects to receive RSUs in lieu of a
specified portion of any annual incentive bonus. Such
portion may be expressed as either (1) a specified
percentage of the participant's actual bonus amount; (2) the
lesser of a specified percentage or a specified dollar
amount of the participant's actual bonus amount; or (3) a
specified dollar amount, up to 100% of the participant's
targeted maximum bonus. Any dollar amount specified must be
at least $1,000; and any percentage specified must be at
least 10% and not more than 100%. Amounts specified
pursuant to methods (1) and (2) are entirely contingent on
the amount of bonus actually awarded. Where the participant
specifies a fixed dollar amount pursuant to method (3),
however, the Subscription Agreement shall provide that, if
the specified dollar amount exceeds the actual bonus amount
awarded, the participant undertakes to pay the excess, in
cash or by check, to the Company within five days after the
date the participant receives notice of the bonus amount.
Each Subscription Agreement, in addition, shall specify a
deferral period for the RSUs to which it pertains. The
deferral period shall be expressed as a number of whole
years, not less than three, beginning on the award date.
Subscription Agreements must be received by the Company no
later than December 31 of the fiscal year for which such
bonus amount will be determined. A participant who is not
subject to the short-swing profits rule of Section 16 of the
Act may revise his or her Subscription Agreement with
respect to the amount of elected RSUs no later than June 1
of the fiscal year for which such bonus amount will be
determined.
D. Award of RSUs. Once each year, on the date that
annual incentive bonuses are paid or would otherwise be
paid, the Company shall award RSUs to each participant as
follows: Each participant's account shall be credited with
a whole number of RSUs determined by dividing the amount
(expressed in dollars) that is determined under his or her
Subscription Agreement by the Cost of each RSU awarded on
such date. No fractional RSU will be credited and the
amount equivalent in value to the fractional RSU will be
paid out to the participant currently in cash.
V. VESTING AND SETTLEMENT OF RSUs
A. Vesting. A participant shall be fully vested in
each RSU three years after the date such RSU was awarded.
B. Settlement After Vesting. With respect to each
vested RSU, the Company shall issue to the participant one
share of Stock at the end of the deferral period specified
in the participant's Subscription Agreement pertaining to
such RSU, or upon the participant's termination of
employment or the termination of the Plan, if sooner.
C. Settlement Prior to Vesting.
1. Voluntary Termination. If a participant
voluntarily terminates his/her employment with the
Company for reasons other than death or permanent
disability, the participant's nonvested RSUs shall be
canceled and he or she shall receive a cash payment
equal to the lesser of (a) the Value of such RSUs or
(b) an amount equal to the number of such RSUs
multiplied by the fair market value of the Stock on the
date of the participant's termination of employment.
2. Involuntary Termination. If a participant's
employment is terminated by the Company, or if the
participant's employment terminates as a result of
death or permanent disability, the participant's
nonvested RSUs shall be canceled and he or she shall
receive payment as follows: The number of nonvested
RSUs awarded on each award date shall be multiplied by
a fraction that is equal to the number of full years
that the participant was employed by the Company after
each such award date divided by three and the
participant shall receive the resulting number of such
RSUs in shares of Stock. With respect to the
participant's remaining nonvested RSUs, the participant
shall receive cash in an amount equal to the lesser of
(a) the Value of such RSUs or (b) an amount equal to
the number of such RSUs multiplied by the fair market
value of the Stock on the date of the participant's
termination of employment.
3. Committee's Discretion. The Committee shall have
complete discretion to determine the circumstances of a
participant's termination of employment, including
whether the same results from voluntary termination,
permanent disability or termination by the Company, and
the Committee's determination shall be final and
binding on all parties and not subject to review or
challenge by any participant or other person.
VI. DIVIDEND EQUIVALENT AMOUNTS
Whenever dividends (other than dividends payable only
in shares of Stock) are paid with respect to Stock, each
participant shall be paid an amount in cash equal to the
number of his or her vested RSUs multiplied by the dividend
value per share. In addition, each participant's account
shall be credited with an amount equal to the number of such
participant's nonvested RSUs multiplied by the dividend
value per share. Amounts credited with respect to each
nonvested RSU shall be paid, without interest, on the date
the participant becomes vested in such RSU, or when the
participant receives payment of his or her nonvested RSUs
pursuant to Subsection V.(C).
VII. DESIGNATION OF BENEFICIARY
A participant may designate one or more beneficiaries
to receive payments or shares of Stock in the event of
his/her death. A designation of beneficiary shall apply to
a specified percentage of a participant's entire interest in
the Plan. Such designation, or any change therein, must be
in writing and shall be effective upon receipt by the
Company. If there is no effective designation of
beneficiary, or if no beneficiary survives the participant,
the participant's estate shall be deemed to be the
beneficiary.
VIII. SHARES ISSUABLE; MAXIMUM NUMBER OF RSUs;
ADJUSTMENTS
A. Shares Issuable. The aggregate maximum number of
shares of Stock reserved and available for issuance under
the Plan shall be 1,000,000. For purposes of this
limitation, the shares of Stock underlying any RSUs that are
canceled shall be added back to the shares of Stock
available for issuance under the Plan. Shares subject to
the Plan are authorized but unissued shares or shares that
were once issued and subsequently re-acquired by the
Company.
B. Adjustments. In the event of a stock dividend,
stock split or similar change in capitalization affecting
the Stock, the Committee shall make appropriate adjustments
in (i) the number and kind of shares of Stock or securities
with respect to which RSUs shall thereafter be granted, (ii)
the number and kind of shares remaining subject to
outstanding RSUs; (iii) the number of RSUs credited to each
participant's account; and (iv) the method of determining
the value of RSUs. In the event of any proposed merger,
consolidation, sale, dissolution or liquidation of the
Company, all non-vested RSUs shall become fully vested upon
the effective date of such merger, consolidation, sale,
dissolution or liquidation and the Committee in its sole
discretion may, as to any outstanding RSUs, make such
substitution or adjustment in the aggregate number of shares
reserved for issuance under the Plan and the number of
shares subject to such RSUs as it may determine on an
equitable basis and as may be permitted by the terms of such
transaction, or terminate such RSUs upon such terms and
conditions as it shall provide. In the case of the
termination of any vested RSU, the Committee shall provide
payment or other consideration which the Committee deems
equitable in the circumstances.
IX. AMENDMENT OR TERMINATION OF PLAN
The Company reserves the right to amend or terminate
the Plan at any time, by action of its Board of Directors,
provided that no such action shall adversely affect a
participant's rights under the Plan with respect to RSUs
awarded and vested before the date of such action, and
provided, further, that Plan amendments shall be subject to
approval by the Company's shareholders to the extent
required by the Act to ensure that awards are exempt under
Rule 16b-3 promulgated under the Act.
X. MISCELLANEOUS PROVISIONS
A. No Distribution; Compliance with Legal
Requirements. The Committee may require each person
acquiring shares of Stock under the Plan to represent to and
agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued until all applicable
securities law and other legal and stock exchange
requirements have been satisfied. The Committee may require
the placing of such stop-orders and restrictive legends on
certificates for Stock as it deems appropriate.
B. Withholding. Participation in the Plan is subject
to any required tax withholding on wages or other income of
the participant in connection with the Plan. Each
participant agrees, by entering the Plan, that the Company
shall have the right to deduct any such taxes, in its sole
discretion, from any amount payable to the participant under
the Plan or from any payment of any kind otherwise due to
the participant. Participants who wish to avoid the
withholding of shares of Stock otherwise issuable to them
under the Plan should arrange with the Company to pay the
amount of taxes required to be withheld in advance of the
settlement date.
C. Notices; Delivery of Stock Certificates. Any
notice required or permitted to be given by the Company or
the Committee pursuant to the Plan shall be deemed given
when personally delivered or deposited in the United States
mail, registered or certified, postage prepaid, addressed to
the participant at the last address shown for the
participant on the records of the Company. Delivery of
stock certificates to persons entitled to receive them under
the Plan shall be deemed effected for all purposes when the
Company or a share transfer agent of the Company shall have
deposited such certificates in the United States mail,
addressed to such person at his/her last known address on
file with the Company.
D. Nontransferability of Rights. During a
participant's lifetime, any payment or issuance of shares
under the Plan shall be made only to him/her. No RSU or
other interest under the Plan shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt by a
participant or any beneficiary under the Plan to do so shall
be void. No interest under the Plan shall in any manner be
liable for or subject to the debts, contracts, liabilities,
engagements or torts of a participant or beneficiary
entitled thereto.
E. Company's Obligations to Be Unfunded and
Unsecured. The Plan shall at all times be entirely
unfunded, and no provision shall at any time be made with
respect to segregating assets of the Company (including
Stock) for payment of any amounts or issuance of any shares
of Stock hereunder. No participant or other person shall
have any interest in any particular assets of the Company
(including Stock) by reason of the right to receive payment
under the Plan, and any participant or other person shall
have only the rights of a general unsecured creditor of the
Company with respect to any rights under the Plan.
F. Governing Law. The terms of the Plan shall be
governed, construed, administered and regulated in
accordance with the laws of the Commonwealth of
Massachusetts. In the event any provision of this Plan
shall be determined to be illegal or invalid for any reason,
the other provisions shall continue in full force and effect
as if such illegal or invalid provision had never been
included herein.
G. Effective Date of Plan. The Plan shall become
effective as of the date of its approval by the holders of a
majority of the shares of the Company's Class A Common Stock
and Class B Common Stock, voting as a single class, present
or represented and entitled to vote at a meeting of the
shareholders.
119535.b5