Exhibit 10.1

 

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WATER PIK TECHNOLOGIES, INC.

2005 ANNUAL INCENTIVE PLAN (AIP)

 

 

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CONTENT

 

 

Page

At a Glance

3

 

 

Changes from 2004

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 at 100% Goal Achievement

4

 

 

Target Bonus Percentage

4

Performance Goals and the Target Bonus Percentage

4

Financial Performance Goals

4

Individual Performance Goals

4

How the AIP Award is Calculated

5

 

 

 

 

How the AIP Award is Calculated for Various Other Achievement Levels

6

 

 

Maximums and Minimums

6

Formulas for Weighting Financial & Individual Performance

6

Putting it Together

7

 

 

Additional Guidelines for the Annual Incentive Plan

10

 

 

Discretionary Adjustments

10

Some Special Circumstances

10

Payments

10

 

 

Plan Administration

11

 

2

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At a Glance

 

Changes from last year

There are no material changes in the Plan document for 2005.  However, in the
calculation of the 2005 payout, based on the transition to an October through
September fiscal year, the 2005 AIP will be paid out at 75% of the annual target
award based on the full 12-month FY 2005 plan.

 

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,” the “Company”) 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

 

•      Incentive award payments will generally be distributed in cash after the
year-end audit is complete and the Committee has granted its approval.

 

3

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Calculation of the Annual Incentive Plan Award at 100% Goal Achievement

 

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 against
goal should be communicated to each eligible Participant.  The Committee may
change the goals, objectives and targets for the Plan at any time.

 

Performance Goals and the Target Bonus Percentages

The Plan for 2005 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 goals; the other 20% of
the target bonus percentage will be based upon individual performance goals.

 

Actual performance will be measured and compared to the performance goals.  The
actual result achieved will be expressed as a percentage of the performance
goal.  The adjustment formulas are described further below.

 

Financial Performance Goals

For 2005, 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.

 

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%.

 

4

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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:

 

Goal

 

Percent of
Target

 

 

 

Goal
Achievement

 

 

 

Target %
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.

 

The following example further defines the financial performance goals typical
for a segment Participant at 100% achievement of financial and personal 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:

 

Goal

 

Percent of
Target (20%)

 

 

 

Goal
Achievement

 

 

 

Target %
Earned

 

Financial Performance (80%)

 

 

 

 

 

 

 

 

 

 

 

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 Performance

 

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.

 

5

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How the AIP Award is Calculated for Various 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, up to a maximum of 125%, 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 225%, and
therefore the overall maximum incentive award that an individual can earn under
the weighting formula is 225% 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 75% of a financial or individual performance goal is
achieved, only 25% of that goal’s share (80% or 20% as applicable) of the target
bonus percentage will be earned.

 

•                  If less than 75% 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 75% 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 75% (which is the threshold level of performance)
times 3.0, plus 25%.

 

Formula A Example:

 

Assumption: Percentage of Goal Achieved

 

=

 

90%

Percent of Target Earned for the Goal

 

=

 

[(90% - 75%) x 3.0] + 25%

 

 

=

 

[(15% x 3.0)] + 25%

 

 

=

 

45% + 25%

 

 

=

 

70%

 

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*  Historical maximum was 200%.

 

6

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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 225%
results when 125% of that goal is achieved.

 

Formula B Examples:

 

1. Assumption: Percentage of Goal Achieved

 

=

 

140%

Percent of Target Earned for the Goal

 

=

 

(140% - 100%) x 5] + 100%

 

 

=

 

[40% x 5] + 100%

 

 

 

 

=   200% + 100%

 

 

 

 

=   300%

 

 

 

 

 

However, the maximum target bonus is capped at 225% of target.

 

 

 

 

 

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 75% 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 the financial performance goals 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.

 

Formula A above would be used for weighting financial and individual performance
goals, because less than 100% of those goals were achieved.

 

7

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Goal

 

(1)
Percent
of
Target

 

(2)
Goal
Achievement

 

(3)
Formula
Weighting
Achievement

 

(4)
Target % of
Earned
(1) x (3)

 

Financial Performance (80%)

 

 

 

 

 

 

 

 

 

Segment (60%)

 

 

 

 

 

 

 

 

 

Net Income (75%)

 

45

%

90

%

70

%

31.5

%

RACE (25%)

 

15

%

90

%

70

%

10.5

 

Total Company (20%)

 

 

 

 

 

 

 

 

 

Net Income (75%)

 

15

%

90

%

70

%

10.5

%

RACE (25%)

 

5

%

90

%

70

%

3.5

%

 

 

 

 

 

 

 

 

 

 

Total Financial Performance

 

80

%

90

%

70

%

56.0

%

Individual Performance

 

20

%

80

%

40

%

8.0

%

Total Goals

 

 

 

 

 

=

 

64.0

%

 

With 64% of target achieved, the incentive award would be calculated as 64% of
the 20% target bonus percentage, or 12.8%.  The incentive payment would, in
turn, be the product of 12.8% of the Participant’s base salary of $80,000, or
$10,240.

 

2.               For another example, assume that the same segment 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%.

 

Goal

 

(1)
Percent
of
Target

 

(2)
Goal
Achievement

 

(3)
Formula
Weighting
Achievement

 

(4)
Target % of
Earned
(1) x (3)

 

Financial Performance (80%)

 

 

 

 

 

 

 

 

 

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 Performance

 

80

%

112

%*

160

%

127.9

%

Individual Performance

 

20

%

112

%**

160

%

32.0

%

Total Goals

 

 

 

 

 

=

 

159.9

%

 

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* - 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.

 

8

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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.

 

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.

 

Goal

 

(1)
Percent
of
Target

 

(2)
Goal
Achievement

 

(3)
Formula
Weighting
Achievement

 

(4)
Target %
of Earned
(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 Performance

 

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.

 

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* - 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.

 

9

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ADDITIONAL GUIDELINES FOR THE ANNUAL INCENTIVE PLAN

 

A minimum of 75% 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, i.e.: 4 months at 15% and 8 months at 20%.

 

•                  The base salary for Plan purposes is the final base salary at
September 30, 2005.

 

•                  The Committee may, in its discretion, amend or change the
Plan or the goals, objectives or targets for the Plan at any time.

 

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 December 15, 2005.  Repayment by participant of bonuses paid
will comply with appropriate legislation.

 

10

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Plan Administration

 

THIS SUMMARY RELATES TO THE ANNUAL INCENTIVE PLAN (AIP) OF WATER PIK
TECHNOLOGIES, INC.  THE PLAN IS ADMINISTERED BY THE COMMITTEE.  AT ITS
DISCRETION AND AT ANY TIME, THE COMMITTEE HAS FULL AUTHORITY TO:

 

•                  interpret the Plan,

 

•                  designate eligible Participants and categories of eligible
Participants,

 

•                  set and modify the terms and conditions of incentive awards,

 

•                  establish and modify administrative rules for the Plan, and

 

•                  amend 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 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.

 

11

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