EXHIBIT 10.2

 

2014 PERFORMANCE STOCK UNIT AWARD AGREEMENT

UNDER THE WATTS WATER TECHNOLOGIES, INC.

SECOND AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN

 

This award of performance stock units (“Performance Stock Units”) of Watts Water
Technologies, Inc. (the “Company”) made to Robert J. Pagano, Jr. (the
“Grantee”), as set forth in the Performance Stock Unit award notification
provided through the Grantee’s stock plan account on the E*TRADE website, is
subject to the provisions of the Company’s Second Amended and Restated 2004
Stock Incentive Plan (the “Plan”) and the terms and conditions contained in this
2014 Performance Stock Unit Award Agreement (the “Agreement”) and shall
constitute Deferred Stock (as defined in the Plan) which is earned based on
performance as provided herein.  By accepting the award of Performance Stock
Units on the E*TRADE website, the Grantee agrees to the terms and conditions of
this Agreement.

 

1.                                      Nature and Acceptance of Award.  This
Performance Stock Unit award entitles the Grantee to receive a share of Class A
Common Stock of the Company (“Stock”) for each Performance Stock Unit that is
earned and vested as determined pursuant to Sections 3 and 5 below. The target
number of Performance Stock Units the Grantee shall be eligible to earn and
become vested in with respect to this Agreement is set forth on the E*TRADE
website (the “Target Award”). The Grantee shall have no rights to the
Performance Stock Units or to receive the Stock upon settlement of the
Performance Stock Units under this Agreement unless he or she shall have
accepted the Performance Stock Unit award through the E*TRADE website.  Unless
and until the shares of Stock are actually issued to the Grantee upon settlement
of the Performance Stock Units in accordance with this Agreement, the Grantee
shall not by reason of being granted the Performance Stock Units be deemed to be
a shareholder of the Company or to have any other right to the Stock, except as
otherwise provided in this Agreement.

 

2.                                      Restrictions and Conditions.

 

(a)                                 The Performance Stock Units granted herein
may not be sold, assigned, transferred, pledged or otherwise encumbered or
disposed of by the Grantee.

 

(b)                                 If the Grantee’s employment with the Company
and its Subsidiaries is voluntarily terminated or involuntarily terminated for
Cause prior to the last day of the Performance Period, all Performance Stock
Units shall be immediately and automatically forfeited to the Company upon
termination of employment, without payment of any consideration to the Grantee. 
The Grantee shall have no further rights with respect to the Performance Stock
Units or to receive shares of Stock with respect thereto.

 

(c)                                  If the Grantee’s employment or service is
terminated by reason of death or disability (as determined by the
Administrator):

 

(i)                                     if the date of termination of service is
within the last twelve months of the Performance Period, then the determination
of number of Performance Stock Units earned and vested will be conducted as if
the Participant had not terminated employment; and

 

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(ii)                                  if the date of termination of service is
within the first twenty-four months of the Performance Period, then the number
of Performance Stock Units earned and vested shall be determined by multiplying
the Target Award by a fraction, the numerator of which is the number of days
from the start of the Performance Period to and including the date of
termination of service, and the denominator of which is the number of days in
the Performance Period.

 

(d)                                 If the Grantee’s employment or service is
involuntarily terminated without Cause prior to the last day of the Performance
Period, then the Grantee shall earn and be vested in a number of Performance
Stock Units equal to the Target Award.

 

3.                                      Determination of Number of Performance
Stock Units Earned.

 

(a)                                 No Performance Stock Units shall be earned
or vested unless the Company’s ROIC (as defined below) equals or exceeds 9% (the
“Minimum Performance Goal”).

 

(b)                                 If the Minimum Performance Goal is obtained,
then the number of Performance Stock Units that will be earned and vested, if
any, for the Performance Period shall be determined as follows:

 

Earned Performance Stock Units = Payout Percentage x Target Award

 

The “Payout Percentage” is based on the Company’s achievement with respect to
(i) “ROIC” (as defined below) and “Revenue CAGR” (as defined below) (the
“Performance Goals”), as determined at the end of the Performance Period in
accordance with the following table:

 

 

 

ROIC

 

3 Year
Revenue
CAGR

 

Below
Threshold
< 11%

 

Threshold
11.0%

 

Target
16.2%

 

Maximum
19.0%

 

 

 

Payout Percentage

 

Below Threshold
<3.0%

 

0

%

60

%

75

%

100

%

Threshold
3.0%

 

60

%

60

%

75

%

125

%

Target
4.4%

 

80

%

80

%

100

%

150

%

Maximum
7.0%

 

100

%

100

%

150

%

200

%

 

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Achievement between (i) below threshold and threshold, (ii) threshold and target
and (iii) target and maximum will be interpolated linearly.  All Performance
Stock Units that are not earned at the end of the Performance Period shall be
forfeited.

 

(c)                                  Defined Terms.

 

(i)                                     “Revenue CAGR” shall mean the 3-year
compound annual growth rate in the Company’s revenue during the Performance
Period.

 

(ii)                                  “Invested Capital” shall mean the sum of
the Company’s long-term debt plus the current portion of long-term debt, less
cash, cash equivalents and investments, plus stockholder equity, as of the last
day of the Performance Period.

 

(iii)                               “Performance Period” shall mean January 1,
2014 through and including December 31, 2016.

 

(iv)                              “ROIC” shall mean the Company’s return on
Invested Capital calculated as a percentage for the twelve month period ending
on the last day of the Performance Period by dividing net operating profit after
tax by Invested Capital.  For the purposes of calculating ROIC under this
Agreement, “net operating profit” shall be adjusted to exclude the impact of all
restructuring, foreign exchange, impairments, legal settlements, employee
separation costs, product liability charges, pension plan and SERP terminations
and retroactive tax law changes to the extent such items were not contemplated
and included in the Company’s 2013-2018 Strategic Plan, upon which the ROIC
goals were based.

 

(v)                                 “Cause” shall mean: (a) an act by the
Grantee constituting a felony or a misdemeanor involving moral turpitude;
(b) fraud or dishonesty on the Grantee’s part that results in or is likely to
result in economic damage to the Company; (c) gross negligence or misconduct in
the performance of the Grantee’s duties; or (d) refusal to attempt in good faith
to implement a reasonable directive of the Company or failure to perform the
Grantee’s assigned duties.

 

(d)                                 The Revenue CAGR and ROIC goals shall be
adjusted to reflect the impact of any acquisition or disposition of an entity,
business or business segment during the Performance Period.

 

4.                                      Settlement and Payment of Performance
Stock Units.

 

(a)                                 Except as otherwise provided for payment
upon a Sale Event or under Section 2(c)(ii), any earned Performance Stock Units
shall be settled and shares of Stock issued to the Grantee as soon as
administratively practicable following the Administrator’s certification of the
achievement of the Performance Goals at the end of the Performance Period (such
date of settlement being the “Payment Date”); provided, that the Payment Date
shall occur no later than March 15 of the year following the end of the
Performance Period.  Performance Stock Units earned under Section 2(c)(ii) shall
be settled and shares of Stock issued to the Grantee or the Grantee’s
beneficiary as soon as administratively practicable following the Grantee’s
termination

 

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of service, but no later than March 15 of the year following the year of
Grantee’s termination of service.

 

(b)                                 Notwithstanding anything herein to the
contrary, the Company may postpone the issuance of the shares of Stock until it
is satisfied that the issuance of such Stock will not violate any applicable
law. The actual issuance of the shares of Stock shall be subject to such terms
and conditions as the Company may establish from time to time in order to comply
with applicable law.

 

(c)                                  Notwithstanding anything herein to the
contrary, the Administrator may reduce or eliminate the number of Performance
Stock Units earned if, in its sole judgment, such reduction or elimination is
appropriate.

 

5.                                      Sale Event.  In the event of a Sale
Event during the Performance Period, the Performance Stock Units will be deemed
to have been earned at the greater of (a) the Target Award, or (b) the number of
Performance Stock Units that would be earned based on the actual performance of
the Company determined as if the Company’s last quarter end prior to the date of
the Sale Event was the last day of the Performance Period.  The Performance
Stock Units will become payable in shares of Stock or cash, as the Administrator
may determine, within sixty (60) days following the Sale Event.

 

6.                                      Dividend Equivalent Rights.  If the
Company pays a cash dividend on its Stock during the Performance Period, then
the Grantee has the right to receive a cash payment at the time the earned and
vested Performance Stock Units are settled determined by (a) multiplying the
value of the dividends paid on a share of Stock during the Performance Period by
the number of Performance Stock Units actually earned and vested at the end of
the Performance Period (“Dividend Equivalents”). The right to Dividend
Equivalents will cease and be forfeited upon the forfeiture and cancellation of
the Performance Stock Units under this Agreement.

 

7.                                      Incorporation of Plan.  Notwithstanding
anything herein to the contrary, this Agreement shall be subject to and governed
by all the terms and conditions of the Plan, including the powers of the
Administrator set forth in Section 2(b) of the Plan.  Capitalized terms in this
Agreement shall have the meaning specified in the Plan, unless a different
meaning is specified herein.

 

8.                                      Limitations on Transferability.  This
Agreement is personal to the Grantee, is non-assignable and is not transferable
in any manner, by operation of law or otherwise, other than by will or the laws
of descent and distribution.

 

9.                                      Tax Withholding.  The Grantee
acknowledges and agrees that the Company has the right to deduct from payments
of any kind otherwise due to the Grantee any federal, state, local or other
taxes of any kind required by law to be withheld with respect to the grant,
settlement or payment of the Performance Stock Units.  The Grantee shall satisfy
such tax withholding obligations on the Performance Stock Units by transferring
to the Company, on each date on which such tax liability shall arise, such
number of shares of Stock as have a Fair Market Value equal to the amount of the
Company’s minimum required tax withholding obligation.  Such delivery of Stock
to the Company shall be deemed to happen automatically, without any

 

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action required on the part of the Grantee, and the Company is hereby authorized
to take such actions as are necessary to effect such delivery.

 

10.                               Compensation Recovery Policy.  Notwithstanding
anything contained in this Agreement to the contrary, all Performance Stock
Units awarded under this Agreement, and any shares of Stock issued upon
settlement hereunder shall be subject to forfeiture or repayment pursuant to the
terms of the Company’s Compensation Recovery Policy as in effect from time to
time, including any amendments necessary for compliance with the requirements of
the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

11.                               Miscellaneous.

 

(a)                                 Notice hereunder shall be given to the
Company at its principal place of business, and shall be given to the Grantee at
the address on file with the Company, or in either case at such other address as
one party may subsequently furnish to the other party in writing.

 

(b)                                 This Agreement does not confer upon the
Grantee any rights with respect to continuation of employment by the Company or
any Subsidiary.

 

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