<PAGE> 1
FILE NO. 1-15297
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10/A-3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
WATER PIK TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1843384
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
660 NEWPORT CENTER DRIVE, SUITE 470
NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 719-3700
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
--------------------------------------- ------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
(TITLE OF CLASS)
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<PAGE> 2
WATER PIK TECHNOLOGIES, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------------ ---------------------------------
<C> <S> <C>
1 Business........................................... "Summary," "Management's Discussion and
Analysis of Financial Condition and
Results of Operations" and "Our Business"
2 Financial Information.............................. "Management's Discussion and Analysis of
Financial Condition and Results of
Operations," "Our Historical Selected
Financial Data," "Our Unaudited Pro Forma
Consolidated Financial Information," and
"Index to Our Financial Statements"
3 Properties......................................... "Our Business"
4 Security Ownership of Certain Beneficial Owners and
Management......................................... "Security Ownership"
5 Directors and Officers............................. "Management" and "Liability and
Indemnification of Our Officers and
Directors"
6 Executive Compensation............................. "Management"
7 Certain Relationships and Related Transactions..... "Arrangements with ATI Relating to the
Spin-Off"
8 Legal Proceedings.................................. "Our Business"
9 Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters...... "The Spin-Off -- Listing and Trading of
our Common Stock", "Arrangements with ATI
Relating to the Spin-Off" and "Index to
Our Financial Statements"
10 Recent Sales of Unregistered Securities............ Not Applicable
11 Description of Registrant's Securities to be
Registered......................................... "Description of Our Capital Stock"
12 Indemnification of Officers and Directors.......... "Liability and Indemnification of Our
Officers and Directors"
13 Financial Statements and Supplementary Data........ "Management's Discussion and Analysis of
Financial Condition and Results of
Operations," "Our Historical Selected
Financial Data," "Our Unaudited Pro Forma
Consolidated Financial Information," and
"Index to Our Financial Statements"
14 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Not Applicable
15 Financial Statements and Exhibits.................. "Index to Our Financial Statements" and
"Exhibit Index"
</TABLE>
<PAGE> 3
ALLEGHENY TELEDYNE LOGO
November 12, 1999
To Our Stockholders:
These are exciting times at your company. In January we announced our plans
to effect a major transformation of Allegheny Teledyne that included the
spin-offs of certain businesses in two of our business segments into
independent, publicly-traded companies. This transformation is now being
implemented. The businesses formerly comprising our Consumer segment will be a
separate company known as Water Pik Technologies, Inc. Certain businesses
formerly comprising our Aerospace and Electronics segment will now be a separate
company known as Teledyne Technologies Incorporated. The common stock of these
companies will be traded on the New York Stock Exchange under the symbols "PIK"
and "TDY," respectively.
Concurrently with the spin-offs, we will change our name to "Allegheny
Technologies Incorporated." After the spin-offs, our common stock will be traded
on the New York Stock Exchange under the symbol "ATI." We also intend to effect
a one-for-two reverse split of our common stock immediately after the spin-offs.
The spin-offs will allow Allegheny Technologies to focus exclusively on its
strategic growth objectives as one of the largest and most diversified specialty
metals companies in the world. ATI's strong base of companies provides an
excellent foundation for enhanced operating synergies and for adding
strategically complementary acquisitions. At the same time, the spin-offs
provide each new company with a sharper focus, more efficient access to the
capital markets, and substantial growth opportunities in its respective areas of
expertise. By creating these new companies, we believe that we will unlock
greater value for their respective businesses and enhance their ability to
thrive in today's competitive marketplace.
Both of the spin-offs, which will be tax-free to U.S. stockholders and
which do not require any action on your part, will be completed on November 29,
1999. For every 20 shares of ATI common stock that you own as of the close of
business on November 22, 1999, you will receive one share of Water Pik
Technologies common stock. For every seven shares of ATI common stock that you
own as of the close of business on that date, you will receive one share of
Teledyne Technologies common stock.
The enclosed Information Statement contains information about the spin-off
of Water Pik Technologies and about Water Pik Technologies' business, management
and financial performance. Information about the Teledyne Technologies spin-off
is being provided to you in a separate document. We encourage you to read all of
these materials carefully.
Very truly yours,
/s/ R. P. Simmons
Richard P. Simmons
Chairman
<PAGE> 4
Water Pik Technologies Logo
November 12, 1999
To Our Future Stockholders:
Welcome to Water Pik Technologies, Inc. On November 29, 1999 you will
become a stockholder of our company. We hope that you share our enthusiasm about
our new company and its future.
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. We believe that our Water Pik(R), Laars(R) and
Jandy(R) products have strong brand name recognition and a reputation for
quality and innovation among consumers.
For over 35 years, we have manufactured personal health care products, such
as The Original Shower Massage(R) product line, that are sold primarily under
our Water Pik(R) brand name. Our swimming pool and spa heaters, controls, valves
and accessories, many of which we have manufactured for over 40 years, are sold
primarily under our Laars(R) and Jandy(R) brand names. Our residential and
commercial water-heating systems, which we have manufactured for over 50 years,
are sold primarily under our Laars(R) brand name.
Our vision is to create a growth oriented consumer products company which
capitalizes on our well recognized brand names and develops innovative products
that provide outstanding value to our customers. I am excited to be working with
a management team that will provide high caliber, experienced leadership and
that is committed to achieving our business strategy.
Please read the enclosed material for more information about our company.
We look forward to your support and are pleased to have you share in this
exciting opportunity.
Very truly yours,
/s/ Michael P. Hoopis
President and Chief Executive Officer
<PAGE> 5
INFORMATION STATEMENT
-------------------------
ALLEGHENY TELEDYNE INCORPORATED'S SPIN-OFF
OF
WATER PIK TECHNOLOGIES, INC.
-------------------------
We are furnishing you with this Information Statement in connection with
the spin-off by Allegheny Teledyne Incorporated ("ATI") of all of the
outstanding common stock of Water Pik Technologies, Inc. to stockholders of ATI.
We will own and operate the businesses formerly comprising the Consumer segment
of ATI.
ATI will accomplish the spin-off by distributing all issued and outstanding
shares of our common stock to holders of record of ATI common stock. ATI will
distribute one share of our common stock for every 20 ATI shares held as of the
close of business on November 22, 1999. The actual number of our shares to be
distributed will depend on the number of ATI shares outstanding on that date.
Our common stock will be traded on the New York Stock Exchange under the symbol
"PIK."
Concurrently with the spin-off, ATI will change its name to "Allegheny
Technologies Incorporated." After the spin-off, ATI's common stock will be
traded on the New York Stock Exchange under the symbol "ATI."
OWNING SHARES OF OUR COMMON STOCK WILL ENTAIL RISKS. PLEASE READ "RISK
FACTORS" BEGINNING ON PAGE 15.
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED TO SEND US A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is November 12, 1999.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 5
Risk Factors................................................ 15
Cautionary Statement as to Forward-Looking Statements....... 21
The Spin-Off................................................ 22
Reasons for the Spin-Off.................................. 22
Manner of Effecting the Spin-Off.......................... 23
Results of the Spin-Off................................... 24
Material Federal Income Tax Consequences of the
Spin-Off............................................... 24
Listing and Trading of Our Common Stock................... 26
Our Historical Selected Financial Data...................... 28
Our Unaudited Pro Forma Consolidated Financial
Information............................................... 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
Our Business................................................ 47
Overview.................................................. 47
Industry Overview......................................... 47
Competitive Strengths..................................... 48
Our Business Strategy..................................... 49
Our Products.............................................. 51
Sales, Marketing and Distribution......................... 55
Competition............................................... 56
Research and Product Development.......................... 56
Manufacturing and Facilities.............................. 57
Patents and Trademarks.................................... 58
Seasonality............................................... 58
Legal Proceedings......................................... 58
Employees................................................. 59
Arrangements with ATI Relating to the Spin-Off.............. 60
Separation and Distribution Agreement..................... 60
Employee Benefits Agreement............................... 61
Tax Sharing and Indemnification Agreement................. 62
Interim Services Agreement................................ 63
Management.................................................. 64
Directors................................................. 64
Committees of Our Board of Directors...................... 66
Compensation of Our Directors............................. 67
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Executive Officers and Senior Management.................... 68
Historical Compensation of Executive Officers............. 69
Employment Agreements..................................... 70
Benefit Plans Following the Spin-Off...................... 72
Security Ownership.......................................... 74
Description of Our Capital Stock............................ 75
Common Stock.............................................. 75
Preferred Stock........................................... 76
Rights Plan............................................... 76
Certain Provisions of Our Governing Documents............. 78
Anti-takeover Legislation................................. 80
Transfer Agent and Registrar.............................. 81
Liability and Indemnification of Our Officers and
Directors................................................. 81
Elimination of Liability.................................. 81
Indemnification of Officers and Directors................. 82
Available Information....................................... 82
Index to Our Financial Statements........................... F-1
</TABLE>
4
<PAGE> 8
SUMMARY
This summary highlights material information from this Information
Statement, but does not contain all the details concerning the spin-off,
including information that may be important to you. To better understand us and
the spin-off, you should carefully review this entire document. References to
"we," "us," "our", "Water Pik Technologies" or "the Company" mean Water Pik
Technologies, Inc. and our subsidiaries and divisions. References to "ATI" mean
Allegheny Teledyne Incorporated and its subsidiaries and divisions.
WHO WE ARE
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, which include the following:
PERSONAL HEALTH CARE PRODUCTS
- Water Pik(R) shower heads, including The Original Shower Massage(R)
shower head and innovations such as The Flexible Shower Massage(TM) and
the Misting Massage(TM) shower heads
- Water Pik(R) oral health products such as the Water Pik(R) Oral
Irrigator, Water Pik(R) Dental Systems and the SenSonic(R) Plaque Removal
Instrument and a broad range of professional dental products
- Water Pik(R) water filtration products such as our Water Pik(R) and
Instapure(R) filtration systems
POOL AND WATER-HEATING PRODUCTS
- Laars(R) swimming pool and spa heaters, such as the Laars(R) LX
- Jandy(R) pool and spa digital controls
- Jandy(R) RayVac automatic pool cleaners
- Jandy(R) pool and spa plumbing products, such as valves, actuators, pumps
and filters
- Jandy(R) water features such as the Sheer Descent(R) Waterfall and the
Jandy(R) Fountain
- Jandy(R) Sheer Radiance(TM)fiber optic lighting for underwater perimeter
and landscaping uses
- Water Pik(TM) and Jandy(TM) pool and spa accessories, including cleaning
and maintenance supplies, white goods, ladders, solar reels, floating
lounges, pool toys and games
- Laars(R) residential and commercial water-heating systems, such as the
Laars(R) Endurance(TM) modulating boiler and the Mighty Max(R) series of
commercial boilers and water heaters
5
<PAGE> 9
We believe our Water Pik(R), Laars(R) and Jandy(R) products have strong
brand name recognition and a reputation for quality and innovation among
consumers. Through our extensive distribution network, our products are
distributed through more than 45,000 retail and wholesale outlets in North
America. Fiscal year sales in 1998 were $235.8 million and sales for the first
nine months of 1999 were $176.5 million.
OUR COMPETITIVE STRENGTHS AND BUSINESS STRATEGY
Our vision is to create a growth oriented consumer products company which
capitalizes on our well recognized brand names and develops innovative products
that provide outstanding value to our customers.
COMPETITIVE STRENGTHS
We believe we are a strong competitor for the following reasons:
- Strong Brand Names
- Reputation for Innovative Products
- Extensive Distribution Network
- Proven Manufacturing Capabilities
- Experienced Management Team
OUR BUSINESS STRATEGY
To achieve our vision, we intend to pursue the following strategies:
- Accelerate Introduction of Innovative New Products
- Broaden Product Offerings
- Leverage Our Strong Brand Name Recognition
- Capitalize Upon Our Existing Distribution Channels
- Utilize Our Manufacturing Capabilities to Become a Lower Cost Producer
- Expand Our International Presence
- Leverage Our Customer Services Capabilities
- Pursue Selected Acquisitions and Strategic Alliances
QUESTIONS AND ANSWERS ABOUT US AND THE SPIN-OFF
Why are we being spun-off by
ATI? - After a strategic review completed in
1998, ATI concluded that its Consumer
segment, which will comprise our Company,
would be able to grow faster and more
effectively as a separate, independent
public company. As a separate company, we
will be better able to focus on our own
strategic priorities and to have more
effi-
6
<PAGE> 10
cient access to the capital markets than we could as part of ATI. We believe
that the spin-off will enable our business to expand and grow more quickly and
efficiently in the following ways:
- Our business has different
fundamentals, growth characteristics
and strategic priorities than the
specialty metals businesses conducted
by ATI. The separation of our
business from those of ATI will
enable us to focus on our own
strategic priorities, which should
increase our ability to capitalize on
growth opportunities for our business
and enhance our ability to respond
more quickly to changes in the
markets that we serve.
- The spin-off will enable us to have
direct access to the capital markets.
We intend to raise our own equity
capital that we will use to expand
our business by further developing
high quality, lower cost
manufacturing capabilities; pursuing
product line extensions for existing
categories; expanding into new
channels of distribution with
existing products; developing a
self-sustaining product development
process; and seeking complementary
acquisitions and alliances to enhance
our market presence.
- The spin-off will enable us to
recruit, retain and motivate key
employees by providing them with
stock-based compensation incentives
directly tied to the success of our
separated business.
What will I receive in the
spin-off? - ATI will distribute one share of our
common stock for every 20 shares of ATI
stock you owned as of November 22, 1999.
For example, if you own 100 shares of ATI
common stock, you will receive five shares
of our common stock. You will continue to
own your ATI common stock. ATI intends to
effect a one-for-two reverse split of its
common stock immediately after the
spin-off. The ATI reverse split will have
no effect on Water Pik Technologies common
stock or the distribution ratio for the
spin-off.
What do I have to do to
participate
in the spin-off? - Nothing. No stockholder vote is required
for the spin-off.
7
<PAGE> 11
How will ATI distribute Water
Pik
Technologies common stock to
me? - Prior to the spin-off, ATI will deliver
all outstanding shares of Water Pik
Technologies common stock to the
distribution agent for distribution. As
promptly as practicable after the spin-
off, the distribution agent will mail
certificates for whole shares of Water Pik
Technologies common stock to ATI
stockholders of record on November 22,
1999.
What is the record date? - The record date is November 22, 1999.
What if I hold my shares of ATI
stock through my stockbroker,
bank or other nominee? - If you hold your shares of ATI stock
through your stockbroker, bank or other
nominee, you are probably not a
stockholder of record and your receipt of
Water Pik Technologies common stock
depends on your arrangements with the
nominee that holds your shares of ATI
stock for you. We anticipate that
stockbrokers, banks and other nominees
generally will credit their customers'
accounts with Water Pik Technologies
common stock on or about November 29,
1999, but you should check with your
stockbroker, bank or other nominee.
Following the spin-off you may instruct
your stockbroker, bank or other nominee to
transfer your shares of Water Pik
Technologies common stock into your own
name to be held in book-entry form through
the direct registration system operated by
the distribution agent.
How will you treat fractional
shares? - If you are otherwise entitled to receive a
fractional share of Water Pik Technologies
common stock you will receive cash instead
of the fractional share. Fractional shares
will be aggregated and sold by the
distribution agent, which will distribute
to you your portion of the cash proceeds
promptly after the spin-off. No interest
will be paid on any cash distributed
instead of fractional shares.
What is Water Pik Technologies'
dividend policy? - We currently anticipate that no cash
dividends will be paid on Water Pik
Technologies common stock in order to
conserve cash for use in our business,
including possible future acquisitions.
Also, the terms of our credit facility
will prohibit us from paying dividends.
Our board of directors will periodically
re-evaluate this dividend policy taking
into account our operating results,
capital needs, the terms of our credit
facilities and other factors.
8
<PAGE> 12
How does Water Pik Technologies
common stock differ from ATI
common stock? - Water Pik Technologies common stock and
ATI common stock will be different
securities and will not trade or be valued
alike. Water Pik Technologies and ATI will
be separate companies, with different
management, fundamentals, growth
characteristics and strategic priorities.
However, as with ATI common stock, Water
Pik Technologies common stock will have
the following characteristics:
- be fully paid and nonassessable;
- have one vote per share, with no
right to cumulate votes;
- carry no preemptive rights; and
- be accompanied by Preferred Share
Purchase Rights.
How will Water Pik Technologies
common stock trade? - Water Pik Technologies common stock will
be listed on the New York Stock Exchange
under the symbol "PIK." We expect that
regular trading of our common stock will
begin on November 30, 1999. A temporary
form of interim trading called
"when-issued trading" may occur for our
common stock on or about November 22, 1999
and continue through November 29, 1999. If
when-issued trading occurs, the listing
for Water Pik Technologies common stock
will be accompanied by the "wi" letters on
the New York Stock Exchange. If
when-issued trading develops, you will be
able to buy Water Pik Technologies common
stock in advance of the November 29, 1999
spin-off and you may sell Water Pik
Technologies common stock in advance of
such date on a when-issued basis.
How will ATI common stock trade? - ATI stock will continue to trade on a
"regular way" basis and may also trade on
a when-issued or ex-distribution basis,
reflecting an assumed value for ATI common
stock after giving effect to the spin-offs
of Water Pik Technologies and Teledyne
Technologies Incorporated. When-issued or
ex-distribution trading in ATI common
stock, if available, could last from or
before November 22, 1999 through November
29, 1999.
Is the spin-off taxable for
United
States federal income tax
purposes? - No. ATI has received a tax ruling from the
Internal Revenue Service (or IRS) stating
that the spin-off will be tax-free to ATI
and to ATI's
9
<PAGE> 13
stockholders. The continuing validity of
the IRS tax ruling is subject to various
factual representations and assumptions,
including the completion of a public
offering of our common stock within
approximately one year of the spin-off.
See "Risk Factors" and "The
Spin-Off -- Material Federal Income Tax
Consequences of the Spin-Off."
Will we be related to ATI in any
way
after the spin-off? - ATI will not own any of our common stock
after the spin-off.
- Until the third annual meeting of our
stockholders held after the spin-off, at
least a majority of the members of our
board of directors will also be members of
the board of directors of ATI. See
"Management."
- We will enter into the following
agreements with ATI prior to the spin-off:
- A Separation and Distribution
Agreement, which provides for the
various corporate transactions
required to separate our business
from other businesses of ATI and
governs various relationships and
circumstances that may arise between
us after the spin-off;
- An Employee Benefits Agreement, which
contains various agreements between
ATI and us concerning employees,
pension and employee benefit plans
and other compensation arrangements
for current and former employees of
our business;
- A Tax Sharing and Indemnification
Agreement allocating certain federal,
state, local and foreign tax
responsibilities and liabilities
between ATI and us; and
- An Interim Services Agreement under
which ATI will provide various
services to us for limited periods of
time following the spin-off.
See "Arrangements with ATI Relating to the
Spin-Off."
Are there any risks entailed in
owning our stock? - Yes. Stockholders should consider
carefully the matters discussed in the
section of this Information Statement
called "Risk Factors."
10
<PAGE> 14
How can I obtain information
about
the separate spin-off of ATI's
Aerospace and Electronics
segment? - You will be provided with a separate
Information Statement describing the
spin-off of Teledyne Technologies
Incorporated.
WHAT WE HAVE ALREADY DONE IN PREPARATION FOR THE SPIN-OFF
Board Appointments - As of the date of the spin-off, the board
of directors will consist of at least six
members, including Michael P. Hoopis, who
is our President and Chief Executive
Officer, and Robert P. Bozzone (Chairman),
W. Craig McClelland, William G. Ouchi,
Charles J. Queenan, Jr. and James E. Rohr,
who are directors of ATI. Until the third
annual meeting of our stockholders held
after the spin-off, at least a majority of
our directors will also be members of the
board of directors of ATI. See
"Management."
Senior Management Appointments - Michael P. Hoopis is our President and
Chief Executive Officer. He has been the
President and Chief Executive Officer of
ATI's Consumer segment since October 1998.
Mr. Hoopis has over 25 years experience in
the manufacturing, distribution and
marketing of a wide variety of consumer
products. Robert A. Shortt will be our
Executive Vice President -- Sales,
Marketing and Business Development, Victor
C. Streufert will be our Vice
President -- Finance and Chief Financial
Officer, Richard P. Bisson will be our
Vice President -- Operations, and Robert
J. Rasp will be our General
Manager -- Pool Products and Heating
Systems. These executives collectively
have a broad range of experience in
marketing and merchandising, financial
management and acquisitions, and
multi-national production and
distribution.
New Credit Facility - Prior to the spin-off, ATI will establish
a five-year, $60 million secured term loan
and revolving credit facility. Prior to
the spin-off, ATI will use $34 million of
borrowings under this credit facility to
repay certain of its debt obligations. In
connection with the spin-off, we will
assume the repayment obligations for those
borrowings. Following the spin-off, we
will have up to $26 million of borrowing
availability remaining under the credit
facility, subject to the borrowing base
limitations under the facility.
11
<PAGE> 15
WHO CAN HELP ANSWER YOUR QUESTIONS
Stockholders of ATI with questions relating to the spin-off should contact:
Richard J. Harshman
Vice President, Investor Relations
and Corporate Communications
Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
412-394-2861
The distribution agent for our common stock in the spin-off and the
transfer agent and registrar for our common stock after the spin-off is:
ChaseMellon Shareholder Services L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
1-888-540-9877
12
<PAGE> 16
OUR HISTORICAL SELECTED FINANCIAL DATA
The following table summarizes certain selected combined financial data for
Water Pik Technologies. The income statement data for each of the three years
ended December 31, 1998, 1997 and 1996 and the balance sheet data at December
31, 1998 and 1997 set forth below are derived from audited combined financial
statements of Water Pik Technologies. The income statement data for the nine
months ended September 30, 1999 and 1998 and the years ended December 31, 1995
and 1994 and the balance sheet data at September 30, 1999 and 1998 and December
31, 1996, 1995 and 1994 set forth below are derived from unaudited combined
financial statements of Water Pik Technologies.
The historical selected combined financial data are not necessarily
indicative of the results of operations or financial position that would have
occurred if Water Pik Technologies had been a separate, independent public
company during the periods presented, nor are they indicative of our future
performance. Such historical data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our combined financial statements and the related notes included
in this Information Statement. Per share data has not been presented because
Water Pik Technologies was not a publicly held company during the periods
presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.................... $176,488 $162,018 $235,788 $241,167 $215,675 $205,794 $194,213
Net income............... $ 6,089 $ 6,396 $ 11,495 $ 17,552 $ 7,353 $ 5,231 $ 6,556
Working capital.......... $ 26,819 $ 31,242 $ 35,778 $ 39,057 $ 41,914 $ 42,870 $ 40,314
Total assets............. $128,286 $116,884 $127,794 $119,974 $118,375 $ 97,348 $ 91,966
Long-term debt........... $ 6,864 $ -- $ -- $ -- $ -- $ -- $ --
Stockholder's equity..... $ 78,845 $ 80,312 $ 88,822 $ 80,653 $ 85,335 $ 72,238 $ 71,127
</TABLE>
13
<PAGE> 17
PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
The pro forma selected financial data set forth below are derived from the
unaudited pro forma consolidated financial information included in this
Information Statement. The pro forma data do not represent what our financial
condition or results of operations would have been had we operated as a
separate, independent public company, nor does it give effect to any events
other than those discussed in the related notes. The pro forma data also does
not project Water Pik Technologies' financial position or results of operations
as of any future date or for any future period.
The capital structure that existed when our business operated as a part of
ATI is not relevant because it does not reflect the expected future capital
structure of Water Pik Technologies as a separate, independent public company.
The basic weighted average shares outstanding were calculated by applying the
distribution ratio (one share of Water Pik Technologies common stock for every
20 shares of ATI common stock) to ATI's basic weighted average shares
outstanding during each period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Sales...................................... $176,488 $235,788
Net income................................. $ 4,886 $ 9,891
Basic earnings per share................... $ 0.51 $ 1.01
Weighted average shares
outstanding -- basic..................... 9,618 9,838
Diluted earnings per share................. $ 0.51 $ 1.01
Weighted average shares
outstanding -- diluted................... 9,620 9,838
Working capital............................ $ 26,819
Total assets............................... $131,144
Long-term debt............................. $ 40,864
Stockholders' equity....................... $ 38,442
</TABLE>
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<PAGE> 18
RISK FACTORS
You should carefully consider all the information we have included in this
Information Statement. In particular, you should carefully consider the risk
factors described below. In addition, please read "Cautionary Statement as to
Forward-Looking Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," where we describe additional
uncertainties associated with our business and certain forward-looking
statements included in this Information Statement.
WE MAY BE UNABLE TO SUCCESSFULLY ENHANCE OUR EXISTING PRODUCTS AND DEVELOP AND
MARKET ENHANCED OR NEW PRODUCTS IN A TIMELY AND COST-EFFECTIVE MANNER.
Our growth and future success will depend upon our ability to enhance our
existing products and to develop and market enhanced or new products in a timely
and cost effective manner. We may not be successful in developing or marketing
enhanced or new products, and our products may not be accepted by the market.
The resulting level of sales of any of our enhanced or new products may not
justify the costs associated with their development and marketing.
WE MAY NOT HAVE SUFFICIENT CAPITAL RESOURCES TO FUND PLANNED PRODUCT LINE
EXTENSIONS, NEW PRODUCT DEVELOPMENT, CAPITAL EXPENDITURES AND POSSIBLE
ACQUISITIONS.
We cannot satisfy all of our planned product line extensions, new product
development plans, capital expenditure programs and possible acquisitions
without additional capital. We believe that our working capital and general
financing requirements for our existing business can be satisfied from the
anticipated cash flow from operations and available borrowings under our credit
facility. We plan to raise additional capital through a public offering of our
common stock. In addition, we are required to complete a public offering of our
common stock in order for the representations underlying the IRS tax ruling to
remain valid.
Our ability to raise additional capital will depend on a variety of
factors, some of which will not be within our control, including investor
perceptions of us, our business and the industries in which we operate, and
general economic and market conditions. We may be unable to successfully raise
needed capital and the amount of net proceeds that will be available to us may
not be sufficient to meet our needs. Failure to successfully raise needed
capital on a timely basis or to obtain any needed additional financing could
have a material adverse effect on our business, results of operations and
financial condition.
THE FAILURE OF OUR GROWTH STRATEGY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
As part of our growth strategy, we plan to:
- develop high quality, lower cost manufacturing capabilities;
- pursue product line extensions for existing categories;
- expand into new channels of distribution with existing products;
- develop a self-sustaining product development process; and
- seek complementary acquisitions and alliances to enhance our market
presence.
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<PAGE> 19
We cannot assure you that our strategic objectives will be realized or, if
realized, will result in increased revenue, profitability or market presence.
Executing our strategy may also place a strain on our production,
information systems and other resources. To manage growth effectively, we must
maintain a high level of manufacturing quality and efficiency, continue to
enhance our operational, financial and management systems, including our
database management, inventory control and distribution systems, and expand,
train and manage our employee base. We cannot assure you that we will be able to
effectively manage our expansion in any one or more of these areas, and any
failure to do so could have a material adverse effect on our business, results
of operations and financial condition.
INCREASING COMPETITION COULD REDUCE THE DEMAND FOR OUR PRODUCTS.
The markets in which we operate are highly competitive. We compete with
domestic and international companies. Among our most significant competitors are
larger companies which have greater financial and technical resources than we
do, including in personal health care products, companies such as The Gillette
Company, which manufactures Braun(R) products, The Clorox Company, which
manufactures Brita(R) products, and Procter & Gamble Co., after its pending
acquisition of the manufacturer of PUR(R) products; and, in pool and
water-heating products, companies such as Essef Corporation, which includes
PacFab, Inc./East and United Dominion Industries, Ltd., whose subsidiary
Weil-McLain manufactures boiler products. Because these companies have greater
financial and technical resources than we do, they may be willing to commit
significant resources to protect their own market shares or to capture market
share from us. As a result, we may need to incur greater costs than previously
incurred for trade and consumer promotions and advertising to preserve or
improve market share and to introduce and establish new products and line
extensions. At the same time, we may need to undertake additional production
related cost-cutting measures to enable us to respond to competitors' price
reductions and marketing efforts without reducing our margins. We cannot assure
you that we will be able to make such additional expenditures or implement such
cost-cutting measures or that, if made or implemented, they will be effective.
IF WE FAIL TO UNDERTAKE A PUBLIC OFFERING OF OUR COMMON STOCK WITHIN ONE YEAR
FOLLOWING THE SPIN-OFF, WE WILL BE IN BREACH OF OUR AGREEMENTS WITH ATI.
ATI has received a tax ruling from the IRS stating that the spin-off will
be tax-free to ATI and to ATI's stockholders. One of the assumptions underlying
the tax ruling is that we will undertake a public offering of our common stock
within one year following the spin-off and use the anticipated gross proceeds of
approximately $50 million (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 and the Tax Sharing and
Indemnification Agreement, we have also agreed with ATI to undertake such a
public offering. Our failure to do so would be a breach of those agreements and
subject us to substantial liabilities.
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<PAGE> 20
WE ARE DEPENDENT ON CERTAIN KEY CUSTOMERS AND THE GENERAL RETAIL ENVIRONMENT.
Our top ten customers accounted for 33% of our net sales in 1998. South
Central Pool and Wal-Mart Stores Inc. were our largest customers, accounting for
9.1% and 7.4%, respectively, of our net sales in 1998.
We face pricing pressures from our trade customers. Because of the highly
competitive retail environment, retailers have increasingly sought to reduce
inventory levels and obtain pricing concessions from vendors. From time to time,
we may need to reduce the prices for some of our products to respond to
competitive and consumer pressures. We are also subject to the risk that
high-volume customers could seek alternative pricing concessions or better trade
terms. The loss of, or a substantial decrease in the volume of purchases by,
South Central Pool or Wal-Mart Stores Inc. or any of our other top customers
could have a material adverse effect on our business, results of operations and
financial condition.
Our performance also is dependent upon the general health of the retail
environment. Changes in that environment and the financial difficulties of
retailers could have a material adverse effect on our business, results of
operations and financial condition.
ACQUISITIONS INVOLVE INHERENT RISKS THAT MAY ADVERSELY AFFECT OUR OPERATING
RESULTS AND FINANCIAL CONDITION.
Our growth strategy includes possible acquisitions. Acquisitions involve
various inherent risks, such as:
- our ability to assess accurately the value, strengths, weaknesses,
contingent and other liabilities and potential profitability of
acquisition candidates;
- the potential loss of key personnel of an acquired business;
- our ability to integrate acquired businesses and to achieve identified
financial and operating synergies anticipated to result from an
acquisition; and
- unanticipated changes in business and economic conditions affecting an
acquired business.
We recently completed the acquisition of substantially all the assets of
Les Agences Claude Marchand Inc., doing business in Canada as Olympic Pool
Accessories, a manufacturer and distributor of pool accessories located in
Montreal, Quebec. We may be unable to successfully complete the integration of
Olympic Pool Accessories into our operations.
OUR BUSINESS IS HIGHLY SEASONAL WHICH MAY ADVERSELY AFFECT OUR OPERATING RESULTS
AND FINANCIAL CONDITION.
Our business is highly seasonal, with operating results varying from
quarter to quarter. Both our personal health care products and our water-heating
products have historically experienced higher sales in the third and fourth
quarters of each year due to the holiday season and cooler weather. Our swimming
pool and spa equipment products have historically experienced higher sales in
the second and fourth quarters of each year as consumers purchase such products
in anticipation of and during the warmer spring and summer months. In addition,
as a result of the seasonality of our product lines, we offer
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<PAGE> 21
extended payments terms which permit customers to purchase pool products during
the winter months, with no required payments until spring.
HAVING NO OPERATING HISTORY AS AN INDEPENDENT COMPANY MAKES IT DIFFICULT TO
PREDICT OUR PROFITABILITY AS A STAND-ALONE COMPANY.
We do not have an operating history as an independent company. Our business
has historically relied on ATI for various financial, managerial and
administrative services and has been able to benefit from the earnings,
financial resources, assets and cash flows of ATI's other businesses. After the
spin-off, ATI will only be obligated to provide us with the assistance and
services set forth in the Interim Services Agreement. See "Arrangements with ATI
Relating to the Spin-Off."
Following the spin-off, we will incur costs and expenses associated with
the management of a public company that we expect will be greater than the
amounts reflected in our historical financial statements. We will also incur
interest expense and be subject to the other requirements associated with our
credit facility. While we have been profitable as part of ATI, we cannot assure
you that, as a stand-alone company, our future profits will be comparable to
historical operating results before the spin-off.
We also will need to dedicate significant managerial and other resources at
the corporate level to establish the infrastructure and systems necessary for us
to operate as an independent public company. While we believe that we have
sufficient management resources, we cannot assure you that this will be the case
or that we will successfully implement our operating and growth initiatives.
Failure to implement these initiatives successfully could have a material
adverse effect on our business, results of operations and financial condition.
WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH INTERNATIONAL SALES.
During 1998, international sales accounted for approximately 16% of our
total sales, of which approximately 7% were sales made in Canada. We anticipate
that future international sales will increase and account for a more significant
percentage of our sales. Risks associated with such increased international
sales include:
- political and economic instability;
- export controls;
- changes in legal and regulatory requirements;
- U.S. and foreign government policy changes affecting the markets for our
products;
- changes in tax laws and tariffs;
- the impact of the transition to a common European currency;
- convertibility and transferability of international currencies; and
- exchange rate fluctuations (which may affect sales to international
customers and the value of and profits earned on international sales when
converted into dollars).
Any of these factors could have a material adverse effect on our business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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<PAGE> 22
OUR INABILITY TO RETAIN EXECUTIVE OFFICERS AND SENIOR MANAGEMENT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR FUTURE SUCCESS.
Our future success depends to a significant extent upon the continued
service of our executive officers, many of whom recently joined us, and other
senior management, and on our ability to continue to attract, retain and
motivate qualified personnel. The loss of the services of one or more of our
executive officers or senior management or our failure to attract, retain and
motivate qualified personnel could have a material adverse effect on our
business, results of operations and financial condition. In particular, the loss
of the services of Michael P. Hoopis, our President and Chief Executive Officer,
Robert A. Shortt, our Executive Vice President -- Sales, Marketing and Business
Development, Victor C. Streufert, our Vice President -- Finance and Chief
Financial Officer, Richard P. Bisson, Vice President -- Operations, or Robert J.
Rasp, General Manager, Pool Products and Heating Systems, could materially and
adversely affect us. We have entered into employment agreements with each of
Messrs. Hoopis, Shortt, Streufert and Bisson.
PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
As a manufacturer and distributor of consumer products, our results of
operations are susceptible to adverse publicity regarding the quality or safety
of our products. In particular, product liability claims challenging the safety
of our products may result in a decline in sales for a particular product, which
could adversely affect our results of operations. This could be true even if the
claims themselves are ultimately settled for immaterial amounts. We cannot
assure you that this type of adverse publicity will not occur or that product
liability claims will not be made in the future.
In addition, we are subject to the Consumer Products Safety Act which
empowers the Consumer Products Safety Commission to exclude from the market
products that are found to be unsafe or hazardous. Under certain circumstances,
the Consumer Products Safety Commission could require us to repurchase or recall
one or more of our products. Laws regulating certain consumer products exist in
some cities and states, as well as in other countries in which we sell our
products, and more restrictive laws and regulations may be adopted in the
future.
If the Consumer Products Safety Commission would require us to recall or
repurchase our products, or if we would institute a voluntary recall of our
products, the repurchase or recall could be costly to us financially and could
damage our reputation. If we were required to remove, or we voluntarily removed,
our products from the market, our reputation could be tarnished and we might
have large quantities of finished products that could not be sold. This could
have a material adverse effect on our business, results of operations and
financial condition.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY COULD REDUCE OUR COMPETITIVENESS.
Our intellectual property rights are important to our business. We rely
primarily upon a combination of trademark, copyright, know-how, trade secrets,
proprietary information, patent and contractual restrictions to protect our
intellectual property rights. We believe that such measures afford only limited
protection and, accordingly, we cannot assure you that the steps taken by us to
protect these intellectual property rights will be adequate to prevent
misappropriation of our technology or the independent development of similar
technology by others. The costs associated with protecting our intellectual
property rights,
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<PAGE> 23
including litigation costs, may be material. We also cannot be sure that we will
be able to successfully assert our intellectual property rights or that these
rights will not be invalidated, circumvented or challenged. In addition, the
laws of some foreign countries in which our products are sold do not protect our
intellectual property rights to the same extent as the laws of the United
States. A failure by us or our inability to protect our intellectual property
rights, and a successful intellectual property challenge or infringement
proceeding against us, could make us less competitive and have a material
adverse effect on our business, operating results and financial condition.
SINCE THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK IT IS IMPOSSIBLE TO
PREDICT THE PRICES AT WHICH OUR COMMON STOCK WILL TRADE IN THE OPEN MARKET.
There has been no prior trading market for our common stock, and we cannot
predict the prices at which trading in our common stock will occur after the
spin-off. The trading prices for our common stock could fluctuate significantly.
SUBSTANTIAL SALES OF OUR COMMON STOCK FOLLOWING THE SPIN-OFF OR THE PROSPECT OF
THE REQUIRED PUBLIC OFFERING COULD CAUSE A DECREASE IN THE MARKET PRICE OF OUR
COMMON STOCK.
Substantially all of the shares of our common stock distributed in the
spin-off will be eligible for immediate resale in the public market. In
transactions similar to the spin-off, it is not unusual for a significant
redistribution of shares to occur during the first few weeks or even months
following completion of the transaction because of the differing objectives and
strategies of investors, including mutual funds, who acquire shares of common
stock in the transaction. In addition, the prospect of our being required to
undertake a public offering of our common stock within one year following the
spin-off may adversely affect the market price of our common stock.
We are not able to predict what the market price for our common stock will
be following the spin-off. Sales of substantial amounts of our common stock in
the public market during this period, the perception that any redistribution has
not been completed, or the prospect of our having to undertake a public offering
of our common stock following the spin-off, could materially adversely affect
the market price of our common stock.
FAILURE OF REPRESENTATIONS AND ASSUMPTIONS UNDERLYING THE IRS TAX RULING COULD
CAUSE THE SPIN-OFF NOT TO BE TAX-FREE TO ATI OR TO ATI'S STOCKHOLDERS AND MAY
REQUIRE US TO INDEMNIFY ATI.
While the tax ruling relating to the qualification of the spin-off as a
tax-free distribution within the meaning of Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"), generally is binding on the IRS, the
continuing validity of the tax ruling is subject to certain factual
representations and assumptions, including the assumption that we will complete
a required public offering of our common stock within one year following the
spin-off, and use the anticipated gross proceeds of approximately $50 million
(less associated costs) to further develop high quality, lower cost
manufacturing capabilities, extend our existing product lines, expand our
channels of distribution, develop a self-sustaining product development process,
and for acquisitions and/or joint ventures. ATI and Water Pik Technologies are
not aware of any facts or circumstances that would cause such representations
and assumptions to become untrue.
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<PAGE> 24
If the spin-off were not to qualify as a tax-free distribution within the
meaning of Section 355 of the Code, ATI would recognize taxable gain generally
equal to the amount by which the fair market value of the Water Pik Technologies
common stock distributed to ATI's stockholders exceeded the tax basis in our
assets. In addition, the distribution of our common stock to each ATI
stockholder would generally be treated as taxable in an amount equal to the fair
market value of the Water Pik Technologies common stock they receive.
If the spin-off qualified as a distribution under Section 355 of the Code
but was disqualified as tax-free to ATI because of certain post-spin-off
circumstances (such as an acquisition of Water Pik Technologies), ATI would
recognize taxable gain as described above, but the distribution of our common
stock in the spin-off would generally be tax-free to each ATI stockholder.
The Tax Sharing and Indemnification Agreement also provides that we will be
responsible for any taxes imposed on and other amounts paid by ATI, its agents
and representatives and its stockholders as a result of the failure of the
spin-off to qualify as a tax-free distribution within the meaning of Section 355
of the Code if the failure or disqualification is caused by certain
post-spin-off actions by or with respect to us (including our subsidiaries) or
our stockholders. For example, the acquisition of Water Pik Technologies by a
third party during the two-year period following the spin-off could cause such a
failure or disqualification. If any of the taxes or other amounts described
above were to become payable by us, the payment could have a material adverse
effect on our business, results of operations, financial position, and cash flow
and could exceed our net worth by a substantial amount. See "Arrangements with
ATI Relating to the Spin-Off -- Tax Sharing and Indemnification Agreement."
PROVISIONS OF OUR GOVERNING DOCUMENTS, APPLICABLE LAW AND THE TAX SHARING AND
INDEMNIFICATION AGREEMENT COULD HAVE THE EFFECT OF DELAYING OR PREVENTING OUR
CHANGE IN CONTROL, WHICH MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR
COMMON STOCK.
Our Certificate of Incorporation, Bylaws and Rights Agreement, and the
General Corporation Law of the State of Delaware contain several provisions that
could make the acquisition of control of Water Pik Technologies more difficult
if our board of directors has not approved the transaction. See "Description of
Our Capital Stock -- Rights Plan," "-- Certain Provisions of Our Governing
Documents," and "-- Anti-takeover Legislation." Certain tax aspects of the
spin-off could also discourage an acquisition of control of Water Pik
Technologies for some period of time. For example, the acquisition of Water Pik
Technologies by a third party during the two-year period following the spin-off
could result in the spin-off not qualifying as a tax-free distribution within
the meaning of Section 355 of the Code and trigger indemnification obligations
of Water Pik Technologies under the Tax Sharing and Indemnification Agreement.
See "Arrangements with ATI Relating to the Spin-Off -- Tax Sharing and
Indemnification Agreement."
CAUTIONARY STATEMENT AS TO FORWARD-LOOKING STATEMENTS
We caution you that this document contains disclosures that are
forward-looking statements. All statements regarding ATI's or Water Pik
Technologies' expected future financial condition, results of operations, cash
flows, dividends, financing plans, business
21
<PAGE> 25
strategy, budgets, projected costs or cost savings, capital expenditures,
competitive positions, growth opportunities for existing products or products
under development, benefits from new technology, plans and objectives of
management for future operations and markets for stock are forward-looking
statements. In addition, forward-looking statements include statements in which
we use words such as "expect," "believe," "anticipate," "intend," or similar
expressions. Although we believe the expectations reflected in such
forward-looking statements are based on reasonable assumptions, we cannot assure
you that such expectations will prove to have been correct, and actual results
may differ materially from those reflected in the forward-looking statements.
Factors that could cause our actual results to differ from the expectations
reflected in the forward-looking statements in this document include those set
forth in "Risk Factors."
Neither Water Pik Technologies nor ATI has any intention of or obligation
to update forward-looking statements, even if new information, future events or
other circumstances make them incorrect or misleading.
THE SPIN-OFF
REASONS FOR THE SPIN-OFF
After a strategic review completed in 1998, ATI concluded that its Consumer
segment, which will comprise our Company, would be able to grow faster and more
effectively as a separate, independent public company. As a separate company, we
will be better able to focus exclusively on our own strategic priorities and
have more efficient access to the capital markets than we could as part of ATI.
This Information Statement relates only to distribution of the common stock
of Water Pik Technologies. A separate Information Statement will be provided to
you regarding the spin-off of Teledyne Technologies Incorporated.
We believe that the spin-off will enable our business to expand and grow
more quickly and efficiently in the following ways:
- Our business has different fundamentals, growth characteristics and
strategic priorities than the specialty metals businesses conducted by
ATI. The separation of our business from those of ATI will allow us to
focus on our own strategic priorities, which should increase our ability
to capitalize on growth opportunities for our business and enhance our
ability to respond more quickly to changes in the markets that we serve.
- The spin-off will enable us to have direct access to the capital markets
to finance the expansion of our business and support our future growth.
More specifically, we intend to raise our own equity capital to:
- further develop high quality, lower cost manufacturing capabilities;
- pursue product line extensions for existing categories;
- expand into new channels of distribution with existing products;
- develop a self-sustaining product development process; and
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<PAGE> 26
- seek acquisitions and/or joint ventures, and acquire product lines
and/or businesses that complement our existing business to attain
critical mass.
- The spin-off will enable us to recruit, retain and motivate key employees
by providing them with stock-based compensation incentives directly tied
to the success of our business.
MANNER OF EFFECTING THE SPIN-OFF
ATI will effect the spin-off by distributing all issued and outstanding
shares of our common stock to holders of record of ATI common stock as of the
close of business on November 22, 1999. The spin-off will be made on the basis
of one share of our common stock for every 20 shares of ATI common stock held.
Prior to the spin-off, ATI will deliver all outstanding shares of Water Pik
Technologies common stock to the distribution agent for distribution. As
promptly as practicable after the spin-off, the distribution agent will mail
certificates for whole shares of Water Pik Technologies common stock to ATI
stockholders of record on November 22, 1999.
If a stockholder is otherwise entitled to receive a fractional share of
Water Pik Technologies common stock, that stockholder will instead receive cash.
The distribution agent will, promptly after the date of the spin-off, aggregate
all fractional share interests in Water Pik Technologies common stock with those
of other similarly situated stockholders and sell such fractional share
interests in Water Pik Technologies common stock in open market transactions at
then-prevailing prices. The distribution agent will have sole discretion
regarding when, how, through which broker (which will not be affiliated with ATI
or Water Pik Technologies) and at what prices to make such sales. The
distribution agent will distribute the cash proceeds to stockholders entitled to
such proceeds pro rata based upon their fractional interests in Water Pik
Technologies common stock. No interest will be paid on any cash distributed
instead of fractional shares. The distribution agent is not affiliated with ATI
or Water Pik Technologies.
No owner of ATI common stock will be required to pay any cash or other
consideration for shares of Water Pik Technologies common stock received in the
spin-off or to surrender or exchange any shares of ATI common stock to receive
shares of Water Pik Technologies common stock. The actual total number of shares
of Water Pik Technologies common stock to be distributed will depend on the
number of shares of ATI common stock outstanding on November 22, 1999.
Participants in the ATI Investor Services Program will be credited with the
number of whole shares of Water Pik Technologies common stock distributed in the
spin-off in respect of the ATI common stock held in their accounts. Since an
Investor Services Program will not be established for our stockholders,
participants in the ATI program will receive certificates for the whole shares
of Water Pik Technologies common stock distributed to them in the spin-off and
cash instead of any fractional shares.
NO CONSIDERATION WILL BE PAID BY STOCKHOLDERS OF ATI FOR THE SHARES OF OUR
COMMON STOCK TO BE RECEIVED BY THEM IN THE SPIN-OFF, AND ATI STOCKHOLDERS WILL
NOT BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF ATI COMMON STOCK OR TAKE ANY
OTHER ACTION IN ORDER TO RECEIVE OUR COMMON STOCK.
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RESULTS OF THE SPIN-OFF
After the spin-off, we will be a separate, independent public company. Our
management, fundamentals, growth characteristics and strategic priorities will
be different from those of ATI. ATI will have no interest in Water Pik
Technologies after the spin-off.
Concurrently with the spin-off, ATI will change its name to "Allegheny
Technologies Incorporated."
The number and identity of our stockholders immediately after the spin-off
will be the same as the number and identity of ATI's stockholders at the close
of business on November 22, 1999. Immediately after the spin-off, we expect to
have approximately 9,200 holders of record of our common stock and approximately
9,452,994 shares of our common stock outstanding, based on the number of record
stockholders and issued and outstanding shares of ATI common stock as of the
close of business on September 30, 1999, and on the distribution ratio of one
share of our common stock for every 20 shares of ATI common stock owned by ATI
stockholders at that time.
As with ATI common stock, the shares of Water Pik Technologies common stock
will:
- be fully paid and nonassessable;
- have one vote per share, with no right to cumulate votes;
- carry no preemptive rights; and
- be accompanied by Preferred Share Purchase Rights.
Water Pik Technologies common stock and ATI common stock, however, will be
different securities and will not trade or be valued alike. See "Description of
Our Capital Stock."
Our common stock will be listed on the New York Stock Exchange under the
trading symbol "PIK."
The spin-off will not, in and of itself, affect the number of outstanding
shares of ATI common stock or the rights associated with these shares. ATI
intends to effect a one-for-two reverse split of its common stock immediately
following the spin-off. The ATI reverse stock split will have no effect on Water
Pik Technologies common stock or the distribution ratio for the spin-off.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
The following is a summary of the material United States federal income tax
consequences of the spin-off. It is not intended to address the tax consequences
applicable to every stockholder. In particular, this summary does not cover
state, local, or international income and other tax consequences. Accordingly,
stockholders are strongly encouraged to consult their individual tax advisors
for information on the tax consequences applicable to their individual
situations.
ATI has received a tax ruling from the IRS that states that the spin-off
will qualify as a tax-free distribution under Section 355 of the Code. In
accordance with this tax ruling:
- No gain or loss will be recognized by ATI upon the distribution of Water
Pik Technologies common stock to ATI's stockholders.
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- No gain or loss will be recognized by ATI's stockholders as a result of
your receipt of our common stock in the spin-off except to the extent
that you receive cash instead of a fractional share.
- If you receive cash instead of a fractional share of our common stock in
the spin-off, you will be treated as having received the fractional share
in the spin-off and then having sold the fractional share. Accordingly,
you will recognize gain or loss equal to the difference between the cash
you receive and the amount of tax basis allocable (as described below) to
the fractional share. The gain or loss will be capital gain or loss if
you would have held the fractional share as a capital asset.
- Your tax basis in your ATI common stock will be apportioned among the ATI
common stock, the common stock of Water Pik Technologies and the common
stock of Teledyne Technologies you receive in the spin-offs on the basis
of the relative fair market values of the shares at the time of the
spin-offs. Promptly following the spin-off, ATI will send a letter to the
holders of ATI common stock who receive our common stock in the spin-off
that will explain the allocation of tax basis among ATI common stock,
Water Pik Technologies common stock and Teledyne Technologies common
stock you receive in the spin-offs.
- The holding period of Water Pik Technologies common stock that you
receive in the spin-off will be the same as the holding period of ATI
common stock with respect to which you received our common stock so long
as you hold the ATI common stock as a capital asset on the date of the
spin-off.
The tax ruling relating to the qualification of the spin-off as a tax-free
distribution within the meaning of Section 355 of the Code generally is binding
on the IRS. However, the continuing validity of the tax ruling is subject to
certain factual representations and assumptions, including our completion of the
required public offering of our common stock within one year of the spin-off,
and the use of the anticipated gross proceeds of approximately $50 million (less
associated costs) to further develop high quality, lower cost manufacturing
capabilities, extend our existing product lines, expand our channels of
distribution, develop a self-sustaining development process, and for
acquisitions and/or joint ventures, as well as the lack of a plan or intention
on the part of ATI or Water Pik Technologies to merge with any other corporation
or to sell assets otherwise than in the ordinary course of business, or (subject
to certain exceptions) to purchase shares of its outstanding stock.
If the spin-off were not to qualify as a tax-free distribution within the
meaning of Section 355 of the Code, ATI would recognize taxable gain generally
equal to the amount by which the fair market value of our common stock
distributed to ATI's stockholders exceeds the tax basis in our assets. In
addition, each ATI stockholder who receives our common stock in the spin-off
would generally be treated as having received a taxable distribution in an
amount equal to the fair market value of our common stock. If the spin-off
qualified under Section 355 of the Code but was disqualified as tax-free to ATI
because of certain post-spin-off circumstances, ATI would recognize taxable gain
as described above but the spin-off would generally be tax-free to each ATI
stockholder as described in the preceding paragraph. See "Risk Factors."
THE FOREGOING SUMMARIZES THE MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW. YOU SHOULD CONSULT YOUR TAX
ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE SPIN-OFF TO YOU, INCLUDING THE
APPLICATION OF STATE, LOCAL
25
<PAGE> 29
AND INTERNATIONAL TAX LAWS, AND AS TO POSSIBLE CHANGES IN TAX LAW THAT MAY
AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
The Tax Sharing and Indemnification Agreement provides that we are not to
take any action inconsistent with, or fail to take any action required by, the
request for the tax ruling or the tax ruling unless ATI has given its prior
written consent or, in certain circumstances, a supplemental ruling that permits
such action is obtained. The Tax Sharing and Indemnification Agreement also
provides that we will be responsible for any taxes imposed on, or other amounts
paid by, ATI, its agents and representatives and its stockholders as a result of
the failure of the spin-off to qualify as a tax-free distribution within the
meaning of Section 355 of the Code if the failure or disqualification is
attributable to certain post-spin-off actions or failures to act by or with
respect to us (including our subsidiaries) or our stockholders, such as the
acquisition of Water Pik Technologies by a third party at a time and in a manner
that would cause such a failure or disqualification. See "Arrangements with ATI
Relating to the Spin-Off -- Tax Sharing and Indemnification Agreement."
LISTING AND TRADING OF OUR COMMON STOCK
Currently, there is no public market for our common stock. Our common stock
will be listed on the New York Stock Exchange under the trading symbol "PIK."
A temporary form of interim trading called "when-issued trading" may occur
for our common stock on or about November 22, 1999 and continue through November
29, 1999. If when-issued trading occurs, the listing for Water Pik Technologies
common stock will be accompanied by the letters "wi" on the New York Stock
Exchange. If when-issued trading develops, you will be able to buy Water Pik
Technologies common stock in advance of the November 29, 1999 spin-off and you
may sell Water Pik Technologies common stock in advance of such date on a
when-issued basis.
ATI common stock will continue to trade on a "regular way" basis and may
also trade on a when-issued or ex-distribution basis, reflecting an assumed
value for ATI common stock after giving effect to the spin-offs of Water Pik
Technologies and Teledyne Technologies Incorporated. When-issued or
ex-distribution trading in ATI common stock, if available, could last from on or
before November 22, 1999 through November 29, 1999.
Beginning on the first New York Stock Exchange trading day after the date
of the spin-off, we expect that ATI common stock will trade "regular way" only,
entitling the buyer to receive only ATI common stock.
Until our common stock is fully distributed and an orderly market develops,
the prices at which trading in our common stock occurs may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully-distributed issue. The prices at which our common stock will trade
following the spin-off will be determined by the marketplace and may be
influenced by many factors, including:
- the depth and liquidity of the market for our common stock;
- investor perceptions of us, our business and the markets in which we
operate;
- our dividend policy;
- our financial results; and
26
<PAGE> 30
- general economic and market conditions.
Substantially all of the shares of our common stock that are distributed in
the spin-off will be eligible for immediate resale. In transactions similar to
the spin-off, it is not unusual for a significant redistribution of shares to
occur during the first few weeks or even months following completion of the
transaction because of the differing objectives and strategies of investors who
acquire shares of our common stock in the transaction. We are not able to
predict whether substantial amounts of our common stock will be sold in the open
market following the spin-off or what effect these sales may have on prices at
which our common stock may trade. Sales of substantial amounts of our common
stock in the public market during this period, or the perception that any
redistribution has not been completed, or the prospect of our having to
undertake a public offering of our common stock following the spin-off could
materially adversely affect the market price of our common stock.
Generally, the shares of our common stock that are distributed in the
spin-off will be freely transferable, except for securities received by persons
deemed to be our "affiliates" under the Securities Act of 1933, as amended
("Securities Act"). Persons who may be deemed to be our affiliates after the
spin-off generally include individuals or entities that control, are controlled
by, or are in common control with, us, including our directors. Persons who are
our affiliates will be permitted to sell shares of our common stock they receive
in the spin-off only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such as in accordance with the requirements of Rule 144 under
the Securities Act. Under Rule 144, an affiliate is entitled to sell a number of
shares within any three-month period that does not exceed the greater of 1% of
the then outstanding shares of common stock (approximately 94,530 shares
immediately after the spin-off based on the number of shares of ATI common stock
outstanding on September 30, 1999) or the average weekly trading volume of the
common stock on the New York Stock Exchange during the four calendar weeks
preceding the sale. Our directors and executive officers will hold 302,612
shares of our common stock after the spin-off. The holder may only sell such
shares through unsolicited brokers' transactions. Sales under Rule 144 are also
subject to certain requirements pertaining to the manner of such sales, notices
of such sales and the availability of current public information concerning
Water Pik Technologies.
The Employee Benefits Agreement will also provide for the treatment of
outstanding options to acquire ATI common stock issued under ATI benefit plans.
At the time of the spin-off, ATI stock options held by our employees will be
converted into options to purchase shares of Water Pik Technologies common
stock. The number of shares the option holder would be able to purchase and the
exercise price of the options would be adjusted in the conversion based on the
relationship of the ATI stock price and the stock price of Water Pik
Technologies, so that the "intrinsic value" of the options (that is, the
difference between the market value of the stock acquired on the exercise and
the exercise price of the options) before the spin-off would be equivalent to
the intrinsic value of the options immediately after the spin-off. The
determination of that value cannot be made until after the spin-off. The options
would otherwise continue to be and become exercisable on the terms and
conditions set forth in the original ATI benefit plans.
27
<PAGE> 31
OUR HISTORICAL SELECTED FINANCIAL DATA
The following table summarizes certain selected combined financial data for
Water Pik Technologies. The income statement data for each of the three years
ended December 31, 1998, 1997 and 1996 and the balance sheet data at December
31, 1998 and 1997 set forth below are derived from audited combined financial
statements of Water Pik Technologies. The income statement data for the nine
months ended September 30, 1999 and 1998 and the years ended December 31, 1995
and 1994 and the balance sheet data at September 30, 1999 and 1998 and December
31, 1996, 1995 and 1994 set forth below are derived from unaudited combined
financial statements of Water Pik Technologies.
The historical selected combined financial data are not necessarily
indicative of the results of operations or financial position that would have
occurred if Water Pik Technologies had been a separate, independent public
company during the periods presented, nor are they indicative of our future
performance. Such historical data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our combined financial statements and the related notes included
in this Information Statement. Per share data has not been presented because
Water Pik Technologies was not a publicly held company during the periods
presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.................... $176,488 $162,018 $235,788 $241,167 $215,675 $205,794 $194,213
Net income............... $ 6,089 $ 6,396 $ 11,495 $ 17,552 $ 7,353 $ 5,231 $ 6,556
Working capital.......... $ 26,819 $ 31,242 $ 35,778 $ 39,057 $ 41,914 $ 42,870 $ 40,314
Total assets............. $128,286 $116,884 $127,794 $119,974 $118,375 $ 97,348 $ 91,966
Long-term debt........... $ 6,864 $ -- $ -- $ -- $ -- $ -- $ --
Stockholder's equity..... $ 78,845 $ 80,312 $ 88,822 $ 80,653 $ 85,335 $ 72,238 $ 71,127
</TABLE>
28
<PAGE> 32
OUR UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated income statements for the
nine months ended September 30, 1999 and for the year ended December 31, 1998
and the unaudited pro forma consolidated balance sheet at September 30, 1999
present the combined results of operations and financial position of Water Pik
Technologies assuming that the transactions contemplated by the spin-off had
been completed as of the beginning of 1998 with respect to the pro forma
consolidated income statements for the nine months ended September 30, 1999 and
for the year ended December 31, 1998 and as of September 30, 1999 with respect
to the pro forma consolidated balance sheet. In the opinion of management, they
include all material adjustments necessary to reflect, on a pro forma basis, the
impact of transactions contemplated by the spin-off on the historical financial
information of Water Pik Technologies. The adjustments are described in the
notes to the pro forma consolidated financial information and are set forth in
the "Pro Forma Adjustments" column.
The unaudited pro forma consolidated financial information of Water Pik
Technologies should be read in conjunction with the historical financial
statements of Water Pik Technologies and the related notes. The pro forma
financial information has been presented for informational purposes only and
does not reflect the results of operations or financial position of Water Pik
Technologies that would have occurred had Water Pik Technologies operated as a
separate, independent public company for the periods presented. Actual results
might have differed from pro forma results if Water Pik Technologies had
operated independently. The pro forma financial information should not be relied
upon as being indicative of results Water Pik Technologies would have had or of
future results after the spin-off.
29
<PAGE> 33
WATER PIK TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
WATER PIK PRO FORMA WATER PIK
TECHNOLOGIES, INC. ADJUSTMENTS TECHNOLOGIES, INC.
------------------ ----------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash...................................... $ -- $ -- $ --
Accounts receivable....................... 33,735 -- 33,735
Inventories............................... 26,366 -- 26,366
Deferred income taxes..................... 7,166 -- 7,166
Prepaid expenses and other current
assets.................................. 967 -- 967
-------- -------- --------
TOTAL CURRENT ASSETS................. 68,234 -- 68,234
Property, plant and equipment............. 35,746 -- 35,746
Cost in excess of net assets acquired..... 22,370 -- 22,370
Deferred income taxes..................... -- 2,858 2,858
Other assets.............................. 1,936 -- 1,936
-------- -------- --------
TOTAL ASSETS......................... $128,286 $ 2,858 $131,144
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.......................... $ 20,481 $ -- $ 20,481
Accrued liabilities....................... 20,691 -- 20,691
Current portion of long-term debt......... 243 -- 243
-------- -------- --------
TOTAL CURRENT LIABILITIES............ 41,415 -- 41,415
Long-term debt............................ 6,864 34,000 40,864
Deferred income taxes..................... 1,162 (1,162) --
Other long-term liabilities............... -- 10,423 10,423
-------- -------- --------
TOTAL LIABILITIES.................... 49,441 43,261 92,702
-------- -------- --------
Stockholders' Equity:
Preferred stock, par value $0.01:
authorized -- 5,000,000 shares;
issued and outstanding -- none....... -- -- --
Common stock, par value $0.01:
authorized -- 50,000,000 shares;
issued and outstanding -- 9,452,994
shares............................... -- 95 95
Additional paid-in capital.............. -- 38,519 38,519
Net advances (to) from Allegheny
Teledyne............................. 79,017 (79,017) --
Foreign currency translation losses..... (172) -- (172)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY........... 78,845 (40,403) 38,442
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................. $128,286 $ 2,858 $131,144
======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
30
<PAGE> 34
WATER PIK TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
WATER PIK PRO FORMA WATER PIK
TECHNOLOGIES, INC. ADJUSTMENTS TECHNOLOGIES, INC.
------------------ ----------- ------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
SALES............................ $176,488 $ -- $176,488
Costs and expenses:
Cost of sales.................. 108,616 -- 108,616
Selling expenses............... 35,444 -- 35,444
General and administrative
expenses.................... 22,326 -- 22,326
Interest expense............... -- 2,005 2,005
-------- ------- --------
166,386 2,005 168,391
-------- ------- --------
Earnings before other income..... 10,102 (2,005) 8,097
Other income..................... 47 -- 47
-------- ------- --------
INCOME BEFORE INCOME TAXES....... 10,149 (2,005) 8,144
Provision for income taxes....... 4,060 (802) 3,258
-------- ------- --------
NET INCOME....................... $ 6,089 $(1,203) $ 4,886
======== ======= ========
BASIC NET INCOME PER COMMON
SHARE.......................... $ 0.51
========
DILUTED NET INCOME PER COMMON
SHARE.......................... $ 0.51
========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
31
<PAGE> 35
WATER PIK TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
WATER PIK PRO FORMA WATER PIK
TECHNOLOGIES, INC. ADJUSTMENTS TECHNOLOGIES, INC.
------------------ ----------- ------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
SALES............................ $235,788 $ -- $235,788
Costs and expenses:
Cost of sales.................. 139,544 -- 139,544
Selling expenses............... 49,830 -- 49,830
General and administrative
expenses.................... 27,382 -- 27,382
Interest expense............... -- 2,673 2,673
-------- ------- --------
216,756 2,673 219,429
-------- ------- --------
Earnings before other income..... 19,032 (2,673) 16,359
Other income..................... 126 -- 126
-------- ------- --------
INCOME BEFORE INCOME TAXES....... 19,158 (2,673) 16,485
Provision for income taxes....... 7,663 (1,069) 6,594
-------- ------- --------
NET INCOME....................... $ 11,495 $(1,604) $ 9,891
======== ======= ========
BASIC NET INCOME PER COMMON
SHARE.......................... $ 1.01
========
DILUTED NET INCOME PER COMMON
SHARE.......................... $ 1.01
========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
32
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
NOTE 1.
The historical financial statements of Water Pik Technologies reflect
periods during which Water Pik Technologies did not operate as a separate,
independent public company. Certain estimates, assumptions and allocations were
made in preparing such financial statements. Therefore, the historical financial
statements do not necessarily reflect the results of operations or financial
position that would have occurred had Water Pik Technologies been a separate,
independent public company during the periods presented, nor are they indicative
of future performance.
Management believes that the estimates, assumptions and allocations made in
preparing the historical financial statements are reasonable.
NOTE 2.
The pro forma unaudited consolidated balance sheet was prepared assuming
the distribution occurred on September 30, 1999 and includes "Pro Forma
Adjustments" for transactions which occurred subsequent to September 30, 1999 as
follows:
(a) To record debt of $34,000,000 to be assumed by Water Pik Technologies
at the date of the spin-off.
(b) To record the transfer of insurance and product liability reserves of
$10,423,000 and related deferred taxes of $4,020,000. The effect on
income from the balance sheet transfer of insurance reserves is
reflected in the historical financial statements. See Note 6 of Notes
to Combined Financial Statements.
Water Pik Technologies participates in the general liability, product
liability, and workers' compensation insurance programs sponsored by ATI.
Insurance coverage under these programs are subject to policy deductibles
for which we are at risk for losses. In connection with the spin-off, we
have agreed to indemnify ATI for losses attributable to our 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 will transfer to Water Pik Technologies
reserves for estimated losses under these insurance programs totaling
$10,423,000. 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 our
financial condition or liquidity, although the timing of the adjustments to
estimated insurance reserves could have a material adverse effect on our
results of operations for the periods in which the adjustments are made.
(c) To record the planned liquidation of ATI's investment of $79,017,000
and the issuance of 9,452,994 shares of Water Pik Technologies common
stock. ATI will not have any remaining interest in Water Pik
Technologies after the spin-off.
NOTE 3.
Pro forma net income was adjusted to include interest expense on ATI debt
that we will assume in connection with the spin-off in the amount of $2,005,000
before tax, or $1,203,000 after tax, for the nine months ended September 30,
1999, and $2,673,000
33
<PAGE> 37
before tax, or $1,604,000 after tax, for the year ended December 31, 1998.
Interest expense was calculated assuming the $34,000,000 of assumed debt had
been outstanding for the entire period with an average interest rate of 7.48%
based upon LIBOR plus 2.0% to 2.25% and commitment fees of 0.50% on the unused
portion of the facility. A 0.125% increase in the assumed interest rate on the
assumed debt would increase interest expense by $32,000 ($19,000 after tax) for
the nine months ended September 30, 1999 and by $43,000 ($26,000 after tax) for
the year ended December 31, 1998.
NOTE 4.
The average number of shares of Water Pik Technologies common stock used in
the computation of basic net income per share was 9,618,480 and 9,837,534 for
the nine months ended September 30, 1999 and the year ended December 31, 1998,
respectively, based on a distribution ratio of one share of Water Pik
Technologies common stock for every 20 shares of ATI common stock. The average
number of shares of Water Pik Technologies common stock used in the computation
of diluted net income per share was 9,619,589 and 9,838,465 for the nine months
ended September 30, 1999 and the year ended December 31, 1998, respectively. A
distribution ratio of one share of Water Pik Technologies common stock for every
20 shares of ATI common stock was used to adjust the stock options. The actual
stock option adjustment will be based upon the relation of the market price of
ATI common stock prior to the spin-off to the market price of Water Pik
Technologies common stock after the spin-off and therefore cannot be determined
at the present time.
NOTE 5.
At the spin-off date, Mr. Hoopis will receive options to purchase 3% of the
shares of common stock of Water Pik Technologies. The options will have a ten
year term and will be exercisable at a price equal to the average of the high
and low sales price of a share of Water Pik Technologies common stock on the
date of grant. Options to purchase 10% of the shares will become exercisable on
or before one year after the grant date, options to purchase an additional 20%
of the shares will become exercisable two years after the grant date, and
options to purchase the remaining 70% of the shares will become exercisable
three years after the grant date.
Pursuant to the employment agreements with Messrs. Shortt, Streufert and
Bisson, each will receive options to purchase an aggregate of 62,500, 50,000 and
37,500 shares, respectively, of Water Pik Technologies common stock at the
spin-off date. The options will have a ten year term and will be exercisable at
a price equal to the average of the high and low sales price of a share of Water
Pik Technologies common stock on the date of grant. Options to purchase 20% of
the shares will become exercisable one year after the grant date, options to
purchase an additional 30% of the shares will become exercisable two years after
the grant date, and options to purchase the remaining 50% of shares will become
exercisable three years after the grant date.
These options will be accounted for in accordance with APB Opinion 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
34
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion is based upon and should be read in conjunction
with the audited combined financial statements, including the related notes,
included in this Information Statement. Some of the statements in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements. Actual results could differ
materially from the expectations reflected in these forward-looking statements
as a result of various factors, some of which are described below.
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 Products and Pool and Water-Heating Products. The Company's
products include: shower heads; oral health products; water filtration products;
pool and spa heaters, controls, valves and water features; and residential and
commercial water-heating systems.
Total sales of our two segments for the nine months ended September 30,
1999 and for the years ended December 31, 1998, 1997 and 1996 are summarized
below:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
SEGMENT 1999 1998 1997 1996
- ------------------------ --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personal health
care products........... $ 86,610 49.1% $125,763 53.3% $141,792 58.8% $141,133 65.4%
Pool and water-heating
products.............. 89,878 50.9% 110,025 46.7% 99,375 41.2% 74,542 34.6%
-------- -------- -------- --------
Total sales............. $176,488 100% $235,788 100% $241,167 100% $215,675 100%
======== ======== ======== ========
</TABLE>
The financial information in these financial statements is not necessarily
indicative of results of operations, financial condition and cash flows that
would have occurred if Water Pik Technologies had been a separate, independent
public company during the periods presented nor is it indicative of our future
results. On an historical basis, the capital for our business was provided by
ATI's net investment in our business. In addition, no debt was allocated to us.
Accordingly, our historical financial statements reflect no interest income or
interest expense. Prior to the spin-off, ATI will establish a five-year
$60,000,000 secured term loan and revolving credit facility, and $34,000,000 of
borrowings under the facility will be used by ATI prior to the spin-off to repay
certain of ATI's debt obligations. In connection with the spin-off, we will
assume this term loan and credit facility, including the repayment obligations
for ATI's $34,000,000 of borrowings. Following the spin-off, we will have up to
$26,000,000 of borrowing availability remaining under the credit facility,
subject to the borrowing base limitations under the facility. The amount of ATI
indebtedness to be assumed by Water Pik Technologies under the new credit
agreement was determined by reference to (i) historical levels of ATI
consolidated indebtedness relative to the expected market capitalizations of
ATI, Water Pik Technologies and Teledyne Technologies and (ii) the level of debt
and debt service capacity of Water Pik Technologies, as well as its ability to
finance working capital requirements through a
35
<PAGE> 39
combination of operating cash flow and revolving credit borrowings. The
historical combined financial statements included herein do not reflect any
changes that may occur in the capitalization or results of operations of Water
Pik Technologies as a result of, or after, the spin-off.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
COMBINED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 % CHANGE 1998
(DOLLARS IN THOUSANDS) ------------------- -------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Sales......................... $176,488 9% $162,018
Operating profit.............. $ 10,102 (4)% $ 10,562
Operating profit as a
percentage of sales......... 5.7% 6.5%
International sales as a
percentage of sales......... 14.1% 15.8%
</TABLE>
Our total sales for the nine months ended September 30, 1999 were 9%
greater than total sales for the nine months ended September 30, 1998 due to
increased sales of pool and water-heating products. Gross profit as a percentage
of sales decreased from 40.9% for the nine months ended September 30, 1998 to
38.5% for the same period in 1999. Variable contribution margin by product line
remained consistent from period to period; however, a less profitable product
mix accounted for most of the decrease in total gross profit percentage. Gross
profit was also reduced due to increased tooling amortization associated with
higher levels of new product development and costs associated with the closure
of three manufacturing facilities.
Operating profit decreased 4% in the first nine months of 1999 as compared
to the same period in the prior year. The decrease was attributable primarily to
lower gross margins, seasonal losses of $403,000 incurred in building inventory
for Les Agences Claude Marchand, Inc. ("Olympic"), which was acquired August 6,
1999, unusual general and administrative expenses of $930,000 associated with
bad debts of several major retail customers and $1,576,000 of expenses related
to the closing of three manufacturing facilities, work force reductions and
non-recurring spin-off costs.
36
<PAGE> 40
Sales and operating profit for the Company's two segments are presented
separately below and in Note 3 of the Notes to the Interim Combined Financial
Statements.
PERSONAL HEALTH CARE PRODUCTS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 % CHANGE 1998
(DOLLARS IN THOUSANDS) ------------------- -------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Sales........................... $86,610 (1)% $87,843
Operating profit................ $ 3,377 (37)% $ 5,367
Operating profit as a percentage
of sales...................... 3.9% 6.1%
International sales as a
percentage of sales........... 19.1% 20.4%
</TABLE>
Sales of our personal health care products were 1% less for the nine months
ended September 30, 1999 than for the nine months ended September 30, 1998 due
to lower prices for oral health and water treatment products in response to
competitive pressures, which were partially offset by increased sales in new
shower products. Additionally, sales were negatively impacted across all
categories by inventory reduction efforts by a major retail customer and
financial difficulties of certain retail customers.
Operating profit decreased $1,990,000 in the first nine months of 1999 when
compared to the same period in the prior year. Operating profit was impacted by
higher tooling amortization associated with increased new product development
initiatives. Operating profit in 1999 was impacted by unusual expenses of
$930,000 associated with bad debts of several major retail customers, and
$1,075,000 of expenses related to the closure of a manufacturing facility, work
force reductions and non-recurring spin-off costs. These unusual expenses were
offset by lower selling and marketing expenses of $2,363,000 compared to the
same period in the prior year. Selling and marketing expenses for the nine
months ended September 30, 1999 declined compared to the same period in the
prior year due to the reorganization and streamlining of operations during this
period.
The Personal Health Care Products segment incurred costs of $258,000
related to the closure of a small manufacturing facility in San Antonio, Texas
in July 1999. The production capabilities of this facility were consolidated
into existing operations in order to achieve cost savings and improve
manufacturing efficiencies. The primary components of these charges were
$135,000 for equipment relocation and start-up costs, and $103,000 for severance
costs. Additionally, charges of $532,000 were incurred relating to workforce
reductions in various administrative and engineering departments throughout the
organization. The plant rationalization and reorganization costs were classified
in the income statement as follows: $373,000 in cost of sales, $60,000 in
selling expenses and $357,000 in general and administrative expenses. All costs
related to these charges have been paid out; therefore, no reserves remain on
the balance sheet for these items at September 30, 1999. In addition, spin-off
costs of $285,000 were incurred for activities related to the spin-off,
primarily for consulting fees and increased travel expenses.
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<PAGE> 41
POOL AND WATER-HEATING PRODUCTS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 % CHANGE 1998
(DOLLARS IN THOUSANDS) ------------------- -------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Sales........................... $89,878 21% $74,175
Operating profit................ $ 6,725 29% $ 5,195
Operating profit as a percentage
of sales...................... 7.5% 7.0%
International sales as a
percentage of sales........... 9.3% 15.8%
</TABLE>
Sales of our pool and water-heating products increased 21% in the nine
months ended September 30, 1999 as compared to the same period in 1998. Pool
products sales increased 19% due to strong pool equipment and heater sales.
Sales of the newly acquired pool products manufacturer, Olympic, were nominal
due to normal seasonal fluctuations. Water-heating products sales increased 25%
due mainly to the acquisition of Trianco Heatmaker, Inc. ("Trianco") in August
1998. Sales of water-heating products, excluding Trianco products, increased 3%
due to improved sales of both commercial and residential water-heating products.
Operating profit increased 29% in the 1999 nine months as compared to the
same period in 1998. The increase in our operating profit was primarily due to
increased sales volume, offset by expenses of $501,000 related to the closing of
two manufacturing facilities and seasonal losses of $403,000 incurred in
building inventory for Olympic.
The Pool and Water-Heating Products segment incurred plant rationalization
costs of $501,000, all of which were recorded in general and administrative
expenses on the income statement. These costs relate to the closure of the
Randolph, Massachusetts facility and the Novato, California facility. These
plants are expected to be completely closed by March 2000. The production
capabilities of these two facilities are being relocated to other facilities in
order to achieve cost savings and improve manufacturing efficiencies. The plant
rationalization costs consisted of severance costs of $305,000 and plant
clean-up costs of $196,000. At September 30, 1999, there was a reserve of
$240,000 for the unpaid portion of these expenses.
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<PAGE> 42
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
COMBINED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
(DOLLARS IN THOUSANDS) ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Sales................ $235,788 (2)% $241,167 12% $215,675
Operating profit..... $ 19,032 (33)% $ 28,384 131% $ 12,310
Operating profit as a
percentage of
sales.............. 8.1% 11.8% 5.7%
International sales as
a percentage of
sales.............. 15.8% 17.0% 17.5%
</TABLE>
1998 COMPARED TO 1997
Our total sales decreased by 2% in 1998 compared to 1997. Sales of personal
health care products decreased due to a decline in international sales as a
result of weak economic conditions in Canada, Brazil and Russia. In 1997, sales
of personal health care products were higher due to the initial retail stocking
of newly introduced products. Sales declines in 1998 were partially offset by
sales increases for water-heating products resulting from the acquisition of
Trianco in August 1998 and the growth in existing pool products lines.
Gross profit as a percentage of sales decreased from 42.4% in 1997 to 40.8%
in 1998. This decrease is due to a less profitable product mix. In addition,
cost of sales were reduced in 1997 as a result of a one-time benefit from the
discontinued production of the consumer formulated product line.
Operating profit in 1998 declined to $19,032,000, or 8.1% of sales, due to
the decrease in sales and change in product mix, costs associated with launching
new personal health care products and expenses associated with settling a legal
matter.
1997 COMPARED TO 1996
Our total sales increased by 12% in 1997 compared to 1996. The increase in
1997 sales was primarily due to successful product introductions of a new shower
massage and pool heater, the inclusion of a full year of sales from Jandy
Industries, Inc. ("Jandy"), a pool products manufacturer acquired in May 1996,
and improved sales of water-heating products. The increase in 1997 sales was
partially offset by the lower sales related to discontinuing certain water
filtration products.
Gross profit as a percentage of sales increased from 37.8% in 1996 to 42.4%
in 1997. The increase in gross profit was primarily due to higher sales volume
and a more profitable product mix. A significant factor affecting the improved
product mix was the elimination of our low margin consumer formulations
business. A one-time favorable adjustment to cost of sales of $1,029,000 as a
result of a LIFO liquidation due to the discontinued production of the consumer
formulated product line in 1997 also contributed to gross profit improvement.
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<PAGE> 43
Operating profit in 1997 increased to $28,384,000 or 11.8% of sales, as a
result of the increase in overall sales and higher gross margins resulting from
operating efficiencies and cost savings. Operating profit for 1996 was adversely
effected by charges of approximately $5,000,000 associated with the settlement
of a patent infringement claim and the costs incurred to exit the consumer
formulations business.
Sales and operating profit for the Company's two segments are presented
separately below and in Note 9 of the Notes to the Combined Financial
Statements.
PERSONAL HEALTH CARE PRODUCTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
(DOLLARS IN THOUSANDS) ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Sales.................. $125,763 (11)% $141,792 --% $141,133
Operating profit....... $ 9,426 (52)% $ 19,552 103% $ 9,646
Operating profit as a
percentage of
sales................ 7.5% 13.8% 6.8%
International sales as
a percentage of
sales................ 20.2% 21.4% 21.1%
</TABLE>
1998 COMPARED TO 1997
Sales of our personal heath care products decreased by 11% in 1998 compared
to 1997. Sales decreased due to a decline in international sales as result of
weak economic conditions in Canada, Brazil and Russia and two discontinued
product lines. In 1997, sales were higher due to the initial retail stocking of
newly introduced products.
Operating profit decreased by 52% due to the lower sales volume and
additional advertising expenses associated with the launch of new products. In
1997, cost of sales was favorably impacted by discontinued production of certain
products.
1997 COMPARED TO 1996
Sales of personal health care products were consistent from 1996 to 1997.
Increased sales of new shower head models in 1997 were offset by the lower sales
of discontinued water filtration and consumer formulated products.
Operating profit increased by 103% in 1997 compared to 1996 due to the
change in product mix, discontinuing low margin consumer formulated products,
and a one-time favorable adjustment to cost of sales of $1,029,000 as a result
of a LIFO liquidation due to the decision to discontinue production of the
consumer formulated product line. In addition, the operating profit for 1996
included a $5,000,000 expense which consisted principally of $3,106,000 in costs
associated with settling a legal matter, $1,639,000 for the cost of exiting the
consumer formulated product line and a reserve of $213,000 to reorganize the
international sales organization.
40
<PAGE> 44
POOL AND WATER-HEATING PRODUCTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 % CHANGE 1997 % CHANGE 1996
(DOLLARS IN THOUSANDS) ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Sales.................. $110,025 11% $99,375 33% $74,542
Operating profit....... 9,606 9% 8,832 232% 2,664
Operating profit as a
percentage of
sales................ 8.7% 8.9% 3.6%
International sales as
a percentage of
sales................ 10.8% 10.9% 10.8%
</TABLE>
1998 COMPARED TO 1997
Sales of pool and water-heating products increased 11% or $10,650,000 in
1998 compared to 1997. The acquisition of Trianco in August 1998 accounted for
$5,368,000 of the increase in sales. Sales increased in all pool and
water-heating product categories.
Operating profit for 1998 increased 9% or $774,000 compared to 1997. This
increase is primarily due to the increased sales volume for pool products and
the acquisition of Trianco, which was partially offset by a $1,007,000
non-recurring expense to settle a breach of contract claim alleging rights to
distribute a LaarsH pool heater.
1997 COMPARED TO 1996
Sales of pool and water-heating products increased 33% or $24,833,000 in
1997 compared to 1996. Sales of pool products increased by $21,952,000. This was
mainly due to the inclusion of a full year of sales from Jandy, acquired in May
1996, which accounted for $12,300,000 of the increase. Sales of water-heating
products increased by 12% or $2,881,000, due to increased sales of commercial
water-heating products.
Operating profit increased 232% or $6,168,000 in 1997 compared to 1996.
Increased sales volume accounted primarily for the increase in operating profit.
In addition, improvements related to discontinuing low margin water treatment
pool products contributed to the increase in operating profit.
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
facility 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.
In the nine months ended September 30, 1999, cash generated from operations
of $23,120,000 was used to fund the cash portion of the purchase price of
Olympic of $2,500,000, to make $4,340,000 in capital expenditures and to advance
$16,196,000 to ATI. In 1998, cash generated from operations of $22,325,000 was
used to purchase
41
<PAGE> 45
Trianco for $10,647,000, to make $8,650,000 in capital expenditures and to
advance $3,223,000 to ATI.
Our working capital decreased to $26,819,000 at September 30, 1999 from
$35,778,000 at December 31, 1998. Our current ratio decreased to 1.6 at
September 30, 1999 from 1.9 at December 31, 1998. The decrease in our working
capital was primarily due to lower accounts receivable balances slightly offset
by higher inventory balances at September 30, 1999. Our accounts receivable
balances are generally higher at year-end due to the seasonality of our business
and the extension of deferred payment terms to pool product customers consistent
with industry practices.
Our working capital decreased to $35,778,000 at December 31, 1998 from
$39,057,000 at the end of 1997. The current ratio decreased to 1.9 in 1998 from
2.0 in 1997. The decrease in working capital was primarily due to lower accounts
receivable and inventory balances at December 31, 1998, even after taking into
account the working capital acquired in our purchase of Trianco.
On a historical basis, most of our capital was provided by ATI's net
investment in our business, for which no interest was charged. We were not
allocated any amount of ATI's debt on a historical basis. Prior to the spin-off,
ATI will establish a five-year $60,000,000 secured term loan and revolving
credit facility, and $34,000,000 of borrowings under the facility will be used
by ATI to repay certain of ATI's debt obligations. We will assume this term loan
and revolving credit facility, including the repayment obligations for ATI's
$34,000,000 of borrowings, in connection with the spin-off. As a result of the
spin-off, we will have $26,000,000 of borrowing availability remaining under the
credit facility subject to borrowing base limitations determined with reference
to our receivables, inventory and real property. Borrowings under the credit
facility will bear interest at variable rates at, or at margins above,
prevailing prime, LIBOR, federal funds or certificate of deposit rates and will
depend on the ratio of our consolidated total indebtedness to our earnings
before interest, taxes, depreciation and amortization from time to time. The
credit facility will require us 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 our total consolidated indebtedness to our earnings
before interest, taxes, depreciation and amortization. The credit agreement will
prohibit us from declaring dividends or making other specified payments. We will
grant to the lenders under the credit agreement a security interest in
substantially all of our assets as collateral to secure our obligations under
the credit agreement.
In order to expand our business and implement our strategic objectives, we
will aggressively develop high quality, lower cost manufacturing capabilities;
pursue product line extensions for existing categories; expand into new channels
of distribution with existing products; develop a self-sustaining product
development process; and seek acquisitions and alliances to more quickly attain
the critical mass required to successfully compete in all of our chosen product
categories.
In August 1999, we acquired substantially all of the assets of Olympic, a
pool accessories manufacturer and distributor, doing business in Canada as
Olympic Pool Accessories, for $2,500,000 in cash and a $6,597,000 promissory
note. Olympic is located in Montreal, Quebec, and produces a full line of pool
accessories ranging from cleaning and maintenance supplies to white goods,
ladders, solar reels, floating lounges, and pool toys and games. Olympic
distributes its products in Canada, Europe and the United States.
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<PAGE> 46
We expect to distribute these pool accessories in the U.S. and Europe under our
Water Pik(]) and Jandy(]) brand names. This acquisition will be accounted for as
a purchase transaction.
Total capital expenditures for 1999, excluding the purchase of Olympic, are
expected to approximate $9,800,000, of which $4,340,000 has been spent through
September 30, 1999. At September 30, 1999, Water Pik Technologies has capital
project purchase order commitments of approximately $3,300,000. Remaining
budgeted capital expenditures of $2,200,000 will be used for property
improvements and equipment purchases.
We currently anticipate that no cash dividends will be paid on Water Pik
Technologies common stock in order to conserve cash for use in our business,
including possible future acquisitions. In addition, the terms of our credit
facility will prohibit us from paying dividends. Our board of directors will
periodically re-evaluate our dividend policy taking into account operating
results, capital needs, the terms of our credit facility and other factors.
Water Pik Technologies participates in the general liability, product
liability, and workers' compensation insurance programs sponsored by ATI.
Insurance coverage under these programs are subject to policy deductibles for
which we are at risk for losses. In connection with the spin-off, we have agreed
to indemnify ATI for losses attributable to our 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 will transfer to Water Pik Technologies reserves for estimated
losses under these insurance programs totaling $10,423,000. 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 our financial condition or liquidity, although the timing of
the adjustments to estimated insurance reserves could have a material adverse
effect on our results of operations for the periods in which the adjustments are
made.
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 is subject to
certain factual representations and assumptions, including our completion of a
required public offering of our common stock within one year following the
spin-off and use of the anticipated gross proceeds of approximately $50,000,000
(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 will sign prior to the spin-off, we will
also agree with ATI to undertake such a public offering.
The Tax Sharing and Indemnification Agreement between ATI and Water Pik
Technologies provides that we will indemnify ATI and its agents and
representatives for taxes imposed on, and other amounts paid by, them or ATI's
stockholders if we take actions or fail to take actions (such as completing the
public offering) 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 us,
the payment could have a material adverse effect on our business, results of
operations, financial condition and cash flow and the amount we could be
required to pay could exceed our net worth by a substantial amount.
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<PAGE> 47
We believe that our internally generated funds and borrowings from our
credit facility described above will be adequate to meet our needs for at least
the next 12 months. We may choose, however, to issue additional stock and debt
depending on market conditions.
OTHER MATTERS
INCOME TAXES
The Company's effective income tax rate was 40.0% for the nine months ended
September 30, 1999 and 1998, 40.0% in 1998, 39.3% in 1997 and 40.3% in 1996. The
Company has determined, based on its history of operating earnings, expectations
of future operating earnings and potential tax planning strategies, that it is
more likely than not that the deferred income tax assets at September 30, 1999
will be realized.
INFLATION
Inflation has not had a material impact upon the Company's results of
operations for the periods discussed above.
LEGAL MATTERS
From time to time, a number of lawsuits, claims and proceedings have been
or may be asserted against us relating to the conduct of our business, including
those pertaining to product liability, 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 us, we do not believe that the disposition of any
such pending matters is likely to have a material adverse effect on our
financial condition or liquidity, although the resolution in any reporting
period or one or more of these matters could have a material adverse effect on
our results of operations for that period.
YEAR 2000 READINESS DISCLOSURE
YEAR 2000 TASK FORCES. Over the past several years, ATI has put in place
management task forces at its operating companies, including in ATI's Consumer
segment, to identify whether its computer systems, which include business
computers, mill equipment and process control computers and other devices using
microprocessors, as well as telecommunication and payroll and employee benefit
processing systems, would function properly with respect to dates in the Year
2000 and thereafter. These task forces have reported to ATI's Executive Resource
Information Committee, a senior management committee charged with reviewing and
establishing priorities for information technology-related matters, including
Year 2000 issues, and which reports to the Audit and Finance Committee of ATI's
board of directors. Through these efforts, Year 2000 identification, solution
development, testing and implementation initiatives, and contingency planning
initiatives have proceeded at Water Pik Technologies.
TARGETED COMPLETION OF INTERNAL SOLUTIONS. In part as a result of ATI's
Year 2000 initiatives, but mostly due to evolving business needs and continuing
technological advancements, we have been modifying and replacing portions of our
computer software and hardware systems. We estimate that, based on dollars
expended, installation of solutions to identified Year 2000 issues relating to
our information technology systems is approximately 95% complete. We also
estimate that based on dollars expended, about 90%
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<PAGE> 48
of solutions have been implemented for our non-information technology systems.
Substantially all internal solutions relating to Year 2000 functionality of our
computer systems were developed and implemented by September 1, 1999.
OTHER YEAR 2000 AREAS OF FOCUS. We have provided those customers and
suppliers who we believe to be material to our business with Year 2000
questionnaires, including our suppliers for water, gas, electric and raw
materials. All critical customers and suppliers have not identified any material
Year 2000 issues. Efforts continue to be made to identify and resolve other
customer- and supplier-based Year 2000 issues that could affect us and our
operating and support systems. We have also identified certain Laars(R) and
Jandy(R) electronic controls that contain embedded microprocessors. We believe
that these products present no significant product-related Year 2000 issues.
Neither Water Pik Technologies nor ATI have conducted any extensive review of
discontinued products or products manufactured and sold by discontinued or
divested businesses.
YEAR 2000 EXPENDITURES. Excluding expenditures necessitated by ordinary
business needs and continuing technological advancements in the computer
industry, we anticipate spending an aggregate of $1,300,000 to address Year 2000
issues, of which approximately $1,000,000 was spent in 1998 and of which
approximately $300,000 will be spent in 1999. These expenditures do not include
expenditures which we have incurred to analyze our products which contain
embedded microprocessors for Year 2000 compliance. Substantially all costs
related to our Year 2000 initiatives are expensed as incurred and funded through
operating cash flows. Although we currently do not have any plans for additional
expenditures in excess of $1,300,000, additional amounts may be spent in later
years.
OVERALL ASSESSMENT; WORST CASE SCENARIO. Based upon internal assessments,
formal communications with suppliers and customers with which we exchange
electronic data, and work completed to date, we believe that Year 2000 issues
should not pose significant operational problems or have a material impact on
our consolidated financial condition, results of operations or cash flow. A
failure of third party vendors or customers to be Year 2000 ready, however,
could adversely affect these beliefs and is not quantifiable at the present
time. Such failure could have a material adverse effect on our business,
consolidated financial condition, results of operations or cash flow in a given
period, but probably not over the long-term. The most reasonably likely worst
case scenario of our failure (or the failure of our suppliers or customers) to
resolve Year 2000 problems would be a temporary slowdown or cessation of
manufacturing operations at one or more of our facilities and our temporary
inability to timely process orders and to deliver finished products to
customers. Alternative suppliers are available and would be used if necessary to
deliver finished products to customers. Delays in meeting customers' orders
would affect the timing of billings to and payments received from customers with
respect to orders and could result in other liabilities. Customers' Year 2000
problems could also delay the timing of payments to us for orders. Efforts are
underway to establish contingency plans should unplanned situations arise on or
after January 1, 2000.
CONTINGENCY PLANS. We have been working to establish contingency plans
with respect to our critical business and operating systems should unplanned
situations arise on or after January 1, 2000, and expect such contingency plans
to be in place prior to December 31, 1999. Most of our current contingency plans
contemplate the use of current personnel to make certain manual adjustments to
systems or to perform various tasks manually. In addition, systems production
lines and supporting equipment will be backed up and shut down on December 31,
1999 and restarted on January 2, 2000. We will also have information technology
professionals and other relevant personnel available toward the
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<PAGE> 49
end of December 1999 and the early part of 2000 to assist in avoiding and
responding to adverse scenarios.
FACTORS THAT MAY AFFECT YEAR 2000 ESTIMATES. While we have been conducting
a comprehensive Year 2000 review of our computer systems and products, there may
be Year 2000-related matters that have not been identified. Actual dollar
amounts spent by us to address Year 2000 issues could materially differ from the
estimates for a number of reasons, including:
- changes in the availability or costs of personnel trained in this area;
- changes made to our remediation plans;
- the ability of our significant suppliers, customers and others with which
we conduct business, including governmental agencies, to identify and
resolve their own Year 2000 issues; or
- identification of other Year 2000-related matters.
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<PAGE> 50
OUR BUSINESS
OVERVIEW
Our vision is to create a growth oriented consumer products company which
capitalizes on our well recognized brand names and develops innovative products
that provide outstanding value to our customers.
We are 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. We believe our Water Pik(R), Laars(R) and Jandy(R) products have
strong brand name recognition and a reputation for quality and innovation among
consumers.
We compete in several distinct product categories, including:
- Water Pik(R) shower heads
- Water Pik(R) oral health products
- Water Pik(R) and Instapure(R) water filtration products
- Laars(R) and Jandy(R) pool and spa heaters, controls, valves and water
features
- Water Pik(TM) and Jandy(TM) pool and spa accessories, including cleaning
and maintenance supplies, white goods, ladders, solar reels, floating
lounges, pool toys and games
- Laars(R) residential and commercial water-heating systems
We have manufactured personal health care products for over 35 years under
our Water Pik(R) brand name. Our swimming pool and spa heaters, controls, valves
and water features, many of which we have manufactured for over 40 years, are
sold primarily under our Laars(R) and Jandy(R) brand names. Our residential and
commercial water-heating systems, which we have manufactured for over 50 years,
are sold primarily under our Laars(R) brand name.
Our extensive distribution network allows us to distribute our products
across various distribution channels to reach a greater number of consumers and
distributors. We manufacture and distribute our products principally through
eight facilities located in the United States and Canada. Fiscal year sales in
1998 were $235.8 million and sales for the first nine months of 1999 were $176.5
million.
INDUSTRY OVERVIEW
We estimate that the total market for personal health care products, pool
and spa equipment and water-heating systems in those product categories in which
we participate was approximately $5.8 billion in 1997, consisting of over $4.0
billion for personal health care products, approximately $1.0 billion for pool
and spa equipment and approximately $780.0 million for water-heating systems.
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<PAGE> 51
We believe we can take advantage of favorable current market and industry
trends for personal health care products and pool and water-heating products,
such as:
- demographic trends reflecting the aging of the U.S. population;
- an increased emphasis on a personal health care lifestyle;
- an increased emphasis on spending time at home or "cocooning"; and
- an increased use of the backyard for outdoor living, recreation and
relaxation.
The U.S. population consists of approximately 77 million "baby boomers,"
the first of whom have turned 50. These consumers wish to remain active and seek
personal health care products to maintain a high quality of life. Moreover,
"baby boomers" typically have more discretionary income which they are more
likely to spend on home remodeling projects, including projects to improve their
backyards, pools and spas. In addition, many consumers now view the backyard as
an extension of their indoor living environment and are improving backyards as
they would the interiors of their homes. The U.S. Census Bureau reports that an
estimated $115 billion was spent on home improvements and repairs in 1996.
We believe our products complement these existing trends and provide us
with the opportunity to expand our product offerings to satisfy consumers'
current and emerging preferences. We also believe that these trends will
continue, and that Water Pik Technologies, with our strong brand name
recognition and extensive product offerings, is well-positioned to be a market
leader in this evolving marketplace.
COMPETITIVE STRENGTHS
We believe we are a strong competitor for the following reasons:
- STRONG BRAND NAMES. Over many years, we have developed an extensive
portfolio of company owned brand names. These strong brand names include
our Water Pik(R) personal health care products, our Laars(R) pool and spa
heaters and our Jandy(R) electronic controls, valves and water features.
As consumers turn more and more to brand name merchandise to validate
their product purchase decisions, we believe that our strong brand names
will provide the platform for future growth and will enable us to expand
our product offerings into new and existing product categories and
channels of distribution.
- REPUTATION FOR INNOVATIVE PRODUCTS. We have a strong history of
innovative product development with both our Water Pik(R) personal health
care products and our Laars(R) and Jandy(R) pool and water-heating
products. We have developed and introduced many products which are
considered the first of their kind and which resulted in the creation of
new markets, such as: the Water Pik(R) Oral Irrigator; The Original
Shower Massage(R) shower head; the Instapure(R) end-of-faucet water
filter; the Laars(R) swimming pool heater; the Jandy(R) automatic
swimming pool cleaner and the Jandy(R) AquaLink(R) electronic swimming
pool control system. In response to changing consumer preferences, we
continue to develop and introduce new and innovative products such as The
Flexible Shower Massage(TM) and the Misting Massage(TM) shower heads, the
Laars(R) (Hi-E) high efficiency swimming pool heater and the
Endurance(TM) modulating residential boiler. We have received numerous
awards for our product design, innovation and quality.
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<PAGE> 52
- EXTENSIVE DISTRIBUTION NETWORK. We distribute our products through more
than 45,000 retail and wholesale outlets in North America which allows us
to reach a greater number of consumers and distributors than many of our
competitors. We distribute our personal health care products directly to
consumers through mass merchandisers, home centers, drug stores and
co-operative hardware chains. We distribute our pool and water-heating
equipment through various channels of distribution, including pool
wholesalers, pool builders and a network of plumbing and heating,
ventilation and air conditioning (or HVAC) wholesalers, as well as
retailers and service companies. We believe that this distribution
network will allow us to quickly realize desired sales volumes for new
products as they are brought to market.
- PROVEN MANUFACTURING CAPABILITIES. We have proven skills in
transitioning the product development process into high quality, lower
cost manufacturing. We are skilled in production manufacturing processes,
including design for assembly; plastic injection molding; metal
processing; KANBAN production; final assembly and testing and logistics.
We also have begun to use lean production techniques in our manufacturing
processes. Our Moorpark, California and Rochester, New Hampshire
facilities are ISO 9002 certified and our Fort Collins and Loveland,
Colorado facilities are ISO 9001 certified. We believe that ISO
certifications are recognized indicators of quality manufacturing
capabilities. Many of our customers require evidence of ISO
certifications prior to placing an order.
- EXPERIENCED MANAGEMENT TEAM. We have an experienced management team with
expertise in a variety of disciplines. Our President and Chief Executive
Officer has over 25 years experience in the manufacturing, distribution
and marketing of a wide variety of consumer products. Our Executive Vice
President -- Sales, Marketing and Business Development, our Vice
President -- Finance and Chief Financial Officer, our Vice
President -- Operations, and our General Manager, Pool Products and
Heating Systems collectively have a broad range of experience in
marketing and merchandising, financial management and acquisitions, and
multi-national production and distribution.
OUR BUSINESS STRATEGY
Our vision is to create a growth oriented consumer products company which
capitalizes on our well recognized brand names and develops innovative products
that provide outstanding value to our customers:
- ACCELERATE INTRODUCTION OF INNOVATIVE NEW PRODUCTS. We intend to
accelerate the development and introduction of new and innovative
products to achieve our growth objectives. Our success in product
development will continue to be driven by consumer needs, market trends
and the vulnerability of our competitors. We intend to sharpen our focus
on the regular development of new products and extensions to existing
product lines. These developments may range from significant new product
functions or features to innovative design changes to satisfy changing
consumer preferences. We intend to increase the flexibility of our design
and manufacturing processes to enhance our ability to be responsive to
consumer preferences and to enable us to introduce new products and
product extensions with shorter development cycles than our competitors.
- BROADEN PRODUCT OFFERINGS. We also intend to increase served markets by
offering related new products and product extensions. The variety of our
personal health
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care and pool and water-heating products enables us to offer our
customers and our distributors a single source for a wide range of
products. We have continually increased the number of our product
offerings and intend to continue to regularly introduce new products. Our
wide array of products allows us to provide category management for our
retail customers and one-stop shopping capability for our wholesale and
contractor customers.
- LEVERAGE OUR STRONG BRAND NAME RECOGNITION. We believe that our strong
Water Pik(R), Laars(R) and Jandy(R) brand names will allow us to more
rapidly market and sell new products. We believe that the strength of
these brand names provides new products with consumer credibility and
acceptance. Our research indicates that 85% of consumers recognize the
Water Pik(R) brand name. By building on our brand names, we expect to
increase market share, expand our product offerings, enhance consumer
brand loyalty and expand our distribution channels.
- CAPITALIZE UPON OUR EXISTING DISTRIBUTION CHANNELS. As we accelerate the
introduction of innovative new products and broaden our product
offerings, we believe that we will be able to rapidly offer these
products to existing retail and wholesale distribution channels through
our well established distribution network. We believe we can utilize all
of our distribution channels to effectively distribute more of our
product lines to allow us to reach a greater number of consumers and
distributors. We believe we also have an opportunity to capitalize on our
distribution strengths in specific product segments by cross-selling
other products into those channels of distribution. For example, some
Water Pik(R) products have the potential to be sold through wholesale and
construction distribution channels that currently sell Laars(R) products.
- UTILIZE OUR PROVEN MANUFACTURING CAPABILITIES TO BECOME A LOWER COST
PRODUCER. We believe we can more fully utilize our proven manufacturing
capabilities to add more value to our customers through continuous
improvements in product quality, cost reductions and product delivery. We
are in the process of fully integrating state-of-the art production
techniques across business functions to reduce our total product cycle
time and reduce our total product cost, using a "quality first"
discipline in everything we do.
We also are in the process of integrating and streamlining our
manufacturing capabilities and facilities when and where appropriate to
lower our costs and improve delivery performance. In 1999, we initiated an
ongoing facility reduction plan. We anticipate that by the first quarter
of 2000, we will have reduced our domestic manufacturing facilities from
eight to four, and relocated or outsourced the manufacturing operations of
these facilities to existing, complementary facilities. We expect that
these facility reductions will result in annual cost savings of
approximately $2.3 million. We intend to continue to look for innovative
ways to become a lower cost manufacturer. We believe that achieving
world-class capabilities will provide us with a dynamic structure of high
product quality, lower product cost and an efficient product delivery
system as we strive to continuously exceed our customers' requirements.
- EXPAND OUR INTERNATIONAL PRESENCE. Our international sales accounted for
16% of total sales in 1998, of which 7% were in Canada. We believe that
there is significant additional demand for our products outside the U.S.,
and we intend to expand the international market penetration of our
products. In August 1999, we acquired
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<PAGE> 54
substantially all the assets of Olympic, which markets pool accessories
in Canada, Europe and the United States. We believe this acquisition will
help us to expand our international presence for our other products.
- LEVERAGE OUR CUSTOMER SERVICE CAPABILITIES. We believe we can satisfy
our customers' expectations and enhance our sales and profitability by
leveraging our customer service capabilities in product delivery and
after-sales service. We intend to continue to improve our on-time product
delivery shipments with our state-of-the-art production initiatives;
establish a one-stop, closed loop communication and response system for
technical after-sales service; and regularly update our customers' sales
and technical service representatives with training programs and new
tools, hardware and software.
- PURSUE SELECTED ACQUISITIONS AND STRATEGIC ALLIANCES. We intend to
pursue selected acquisitions and strategic alliances that complement and
expand our existing product lines and business. Specifically, we expect
to target acquisitions that will provide us with:
- broader product offerings;
- access to product innovation and unique product design capabilities;
- access to advanced manufacturing processes;
- new and efficient distribution channels; and
- increased access to product categories, markets and industries that
are experiencing rapid consolidation.
We have no current or pending arrangements, understandings or agreements
with respect to any potential acquisitions.
OUR PRODUCTS
PERSONAL HEALTH CARE PRODUCTS
We design, manufacture and market shower heads, oral health products and
water filtration products, which are sold primarily under the Water Pik(R) brand
name.
SHOWER HEADS. Through our development and production of pulsating shower
heads, we became recognized as an industry leader for personal health care
products. We developed The Original Shower Massage(R) product line, the first
massaging shower head. We have redesigned and refined The Original Shower
Massage(R) shower head as consumer preferences have changed. In 1997, we
introduced the award winning Flexible Shower Massage(TM) shower head that
adjusts to a wide variety of positions and height settings. The Flexible Shower
Massage(TM) shower head received Good Housekeeping magazine's "Good Buy" award
for 1998; was named one of Today's Homeowner magazine's "Best New Products" for
1998; and received the "Excellence in Design Award" from Appliance Manufacturer
magazine in the "Personal Care/Portable Appliances" category.
Our shower head products are marketed under the following product names:
SuperSaver(R) Showerheads
The Original Shower Massage(R) Showerhead
The Adjustable Shower Massage Showerhead
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The Flexible Shower Massage(TM) Showerhead
Misting Massage(TM) Showerhead
Water Massage Showerhead
We continue to refine and develop innovations to The Original Shower
Massage(R) product line, including the Misting Massage(TM) shower head, which
was introduced in June 1999, as well as the Water Massage pulsating shower and
extensions such as the adjustable handle shower massage, which is ergonomically
designed and easier to hold than other models.
ORAL HEALTH PRODUCTS. We manufacture a complete line of consumer oral
health care devices. In 1962, we developed and introduced the original Water
Pik(R) Oral Irrigator. Our oral health products are designed to reduce plaque,
stains and gingivitis and many of our products are accepted by the American
Dental Association. Our products include personal and family Water Pik(R) Dental
Systems, and the SenSonic(R) Plaque Removal Instrument, an electronic toothbrush
that generates 30,000 sonic brush strokes per minute. In early 2000, we also
plan to introduce the Water Pik(TM) Flosser, an automated dental product
designed to make flossing easier and more convenient.
Our oral health care products are marketed under the following product
names:
Professional Oral Irrigator
Personal Oral Irrigator
Family Oral Irrigator
PlaqueControl 3000(R)
Travel Oral Irrigator
Water Pik Plus(R) Plaque Control System
SenSonic(R) Plaque Removal Instrument
SenSonic(R) ADVANCED Plaque Removal Instrument
SenSonic Plus(R) Plaque Control System
We also manufacture and market a broad range of professional dental
products. We currently market over 600 products that are distributed in over 60
countries for use by dental professionals. Our professional dental products
include articulators and accessories, prophy cups and angles, radiographic
positioning devices, condylar recording systems and laboratory products.
WATER FILTRATION PRODUCTS. We manufacture a full line of point-of-use
water filtration products for consumers. We developed the first end-of-faucet
water filter in the mid-1970's. Our water filtration products range from a
convenient faucet-mount product to a high performance in-line product. In 1998,
we introduced the Electronic Faucet Filter, Model F-7, one of the most advanced
faucet-mount filters available to consumers. The F-7 filter contains an
electronic monitor to let the consumer know that the filter is working and to
alert the consumer when the filter needs to be replaced. Our high performance
water filtration products are designed to reduce lead, chlorine, pesticides,
cryptosporidium and giardia cysts, asbestos, sediment, bad taste and odors to
provide consumers with healthier, better tasting water.
Our water filtration products are marketed under the following product
names:
Water Pik(R) Electronic Faucet Filter
Water Pik(R) Faucet Filter
Water Pik(R) Undersink Water Filter
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Water Pik(R) Wholehouse Water Filter
Water Pik(R) Compact Water Filter
Water Pik(R) Dual Process Undersink Water Filter
Water Pik(R) Water Filter Canister Kit
Water Pik(R) Instapure(R) Filtration Systems
POOL AND WATER-HEATING PRODUCTS
POOL AND SPA PRODUCTS. We are a leader in the design and manufacture of
swimming pool and spa equipment which we sell primarily under the Laars(R) and
Jandy(R) brand names. Our products include:
- an extensive line of swimming pool and spa heaters;
- technologically advanced digital controls to automate all functions of a
consumer's pool, spa, backyard, lighting and water effects;
- automatic pool cleaners;
- state-of-the-art swimming pool and spa plumbing products, such as valves
and actuators;
- water features such as waterfalls, rockfalls and fountains;
- fiber optic lighting for underwater, perimeter and landscaping uses; and
- an extensive line of pumps and filters.
- pool and spa accessories, including cleaning and maintenance supplies,
white goods, ladders, solar reels, floating lounges, pool toys and games.
These products are marketed under the following brand names:
<TABLE>
<CAPTION>
PRODUCT CATEGORY BRAND NAME
- ---------------- ----------------------
<S> <C>
Pool Heater Laars(R) Lite
Laars(R) LX
High-Efficiency Pool Heater Laars(R) Hi-E2
Oil Pool Heater Laars(R) DP
Commercial Pool Heater Laars(R) AP
Electronic Controls Jandy(R) RS
Fiber Optic Lighting Jandy(R) Sheer
Radiance(TM)
Control Valves Jandy(R) Valve
Valve Actuator Jandy(R) JVA
Automatic Pool Cleaner Jandy(R) RayVac
Water Features Jandy(R) Sheer
Descent(R)
Pumps and Filters Jandy(R) Pump
Jandy(R) Filter
Maintenance Equipment and Accessories Olympic (in Canada)
Water Pik(TM)
Jandy(TM)
</TABLE>
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We are a leading manufacturer of swimming pool and spa heaters, including
natural gas, propane and oil fired residential and commercial pool heaters. We
manufacture both standard efficiency (82%) and high efficiency (95%) heaters. In
late 1998, we introduced the Laars(R) LX heater with advanced technology polymer
headers, graphic user interface controls with an alphanumeric display,
fan-assisted combustion and modern European appliance styling. The Laars(R) LX
heater is designed to enable the consumer to perform complete diagnostics, set
precise pool and spa temperatures and easily switch from pool to spa mode.
In 1996, we acquired Jandy, one of the leading producers of electronic
control systems, automatic valves, automatic cleaners and other water features
for the swimming pool and spa industries. Jandy(R) electronic pool and spa
controls are recognized as being one of the most technologically advanced,
innovative and quality products in the pool and spa industry. Jandy(R) produces
a wide array of electronic control systems ranging from basic systems which
adjust only one or two functions to sophisticated systems that completely
automate a pool, spa, lighting, water features and landscape features.
Jandy developed the first automatic pool cleaner, which is hydrodynamically
propelled to quietly vacuum pools. In addition, we manufacture valves and valve
actuators which automate pool and spa plumbing to switch water circulation from
pool to spa, control spa overflow, drain water and control fountains, waterfalls
and other water features. Jandy(R) valves and valve actuators also are used by
original equipment manufacturers for many automation applications.
We also offer fiber optic lighting to the pool and spa industries under our
exclusive arrangement with Lumenyte International Corporation. Our fiber optic
lighting is marketed under the Sheer Radiance(TM) name, a patented system that
lights pools and provides multiple color options to create unique lighting
designs. We also offer design features for pools, including the Sheer
Descent(TM) Waterfall, which produces a range of water effects, and the
Jandy(R)Fountain.
In August 1999, we acquired substantially all the assets of Olympic, which
does business in Canada as Olympic Pool Accessories. Olympic manufactures and
distributes cleaning and maintenance supplies, white goods, ladders, solar
reels, floating lounges and pool toys and games. The acquisition of Olympic
complements our existing pool and spa products. We expect that we will
distribute these pool accessories in the U.S. and Europe under our Water Pik(TM)
and Jandy(TM) brand names.
WATER-HEATING SYSTEMS. We produce a comprehensive line of water-heating
systems for commercial, residential and industrial applications. In August 1998,
we acquired substantially all the assets of Trianco, a manufacturer of high
efficiency, sealed combustion gas and oil fuel boilers and water-heating
products, to enhance our capabilities in
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commercial and residential heating systems. These products are marketed under
the following brand names:
<TABLE>
<CAPTION>
PRODUCT CATEGORY BRAND NAME
- ---------------- --------------------
<S> <C>
Commercial Boilers and Water Heaters Laars(R) Mighty Therm(R)
Laars(R) Mighty Max
Laars(R) Mighty Stack(R)
Residential Boiler Laars(R) Mini-Therm
Residential Combination Boiler Laars(R) Mini-Combo(TM)
High-Efficiency Boiler Laars(R) CB(TM)
Modulating Boiler Laars(R) Endurance(TM)
Oil Boiler Laars(R) Max(TM)
Laars(R) Newport(TM)
</TABLE>
We have manufactured gas heating products for over 50 years, and we have
expanded our product line to include residential oil boilers and high efficiency
boilers and water heaters for residential, commercial and industrial heating
applications. Our products include:
- the Mighty Therm(R) series of commercial boilers and water heaters which
are natural draft appliances for propane or natural gas fuels;
- the Mighty Max(R) series of commercial boilers and water heaters which
are forced draft separated combustion appliances with efficiencies of 85%
for propane or natural gas fuels;
- the Mini Therm(R) induced draft series of residential boilers;
- the Mini Combo(TM) induced draft combination hydronic boiler and domestic
water heater;
- the Mighty Stack(R) automatic circulating water heater;
- the Newport(TM) oil boiler ; and
- the MAX(TM) oil boiler.
In January 1999, we introduced an innovative residential gas boiler, the
Laars(R) Endurance(TM) boiler, which is fully modulating to match a home's
changing heat load and is designed to provide homeowners with precise
temperature control throughout the home while reducing energy consumption. The
Endurance(TM) boiler is the first modulating residential boiler manufactured and
distributed in North America.
SALES, MARKETING AND DISTRIBUTION
We have a broad distribution network which allows us to efficiently
distribute our products across a number of distribution channels to reach a
greater number of consumers and distributors than many of our competitors.
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PERSONAL HEALTH CARE PRODUCTS
The Original Shower Massage(R) product line is marketed to consumers
through mass merchandisers and home centers such as Wal-Mart, K-Mart and The
Home Depot.
Our Water Pik(R) and other consumer oral health products are marketed to
consumers through mass merchandisers such as Wal-Mart, K-Mart and Target.
Professional dental products are marketed under the DENAR(R), Getz(R) and
HANAU(TM) brands through professional dental supply dealers.
Professional dental products and select consumer oral health products, as
well as replacement parts, also may be purchased on-line at www.waterpik.com.
The website also offers product information literature, including instructions
for product use and service advice and the locations of retail outlets carrying
Water Pik(R) products.
Water filtration products are marketed under the Water Pik(R) and
Instapure(R) brand names and are sold to consumers through mass merchandisers,
home centers, drug stores and co-operative hardware chains.
POOL AND WATER-HEATING PRODUCTS
Our Laars(R) and Jandy(R) swimming pool and spa equipment products are sold
through an international network of wholesale distributors, contractors,
retailers and service companies. Laars(R) water-heating systems are sold through
a network of sales representatives and plumbing and HVAC wholesalers in the
United States, Canada and internationally.
COMPETITION
We compete with domestic and international companies. Competition is based
on price, quality, service, product features, product innovation, marketing and
distribution.
We believe that our success depends on our ability to introduce innovative
products before our competitors, and to design, manufacture and market a broad
range of reliable products which incorporate technological innovations and
satisfy current consumer trends. Among our most significant competitors are
larger companies which have greater financial and technical resources than we
do, including in personal health care products, companies such as The Gillette
Company, which manufactures Braun(R)products; The Clorox Company, which
manufactures Brita(R) products; and Procter & Gamble Co., after its pending
acquisition of the manufacturer of PUR(R) products; and, in pool and
water-heating products, companies such as Essef Corporation, which includes
PacFab, Inc./East and United Dominion Industries, Ltd., whose subsidiary
Weil-McLain manufactures boiler products.
RESEARCH AND PRODUCT DEVELOPMENT
We support research and product development through both our marketing and
engineering departments. Our marketing team, together with outside consultants,
research both demographics and lifestyle trends to identify product concepts
related to unmet consumer needs. Product concepts are then expressed in
engineering prototypes in the first stage of new product development. Research
continues as product concepts evolve through interaction with consumer focus
groups. At any point in time, we generally have products
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in various stages of development. Our research and product development
expenditures were approximately $5.9 million, $7.7 million, $8.9 million and
$7.6 million in the first nine months of 1999 and in 1998, 1997 and 1996,
respectively.
We develop and introduce new products and categories targeted toward
capitalizing on emerging consumer trends, such as the Misting Massage(TM) shower
head and Laars(R) LX heater. Our research and product development efforts also
focus on continuing to develop improved and innovative products that meet
increasing energy efficiency performance requirements and stricter environmental
regulations. We also regularly conduct clinical research to validate the safety
and effectiveness of our consumer and professional oral health products. Our
research and development efforts have resulted in numerous awards for design and
innovation.
MANUFACTURING AND FACILITIES
Our principal manufacturing facilities as of September 30, 1999 are listed
below. Five of the eight facilities are owned and, of those owned, none are
subject to mortgages or similar encumbrances. Although the facilities vary in
terms of age and condition, our management believes that these facilities have
been well maintained. Each of our facilities conducts manufacturing operations
in a relatively autonomous manner, supported by its own manufacturing and
assembly area, quality assurance department, and other support functions. We
have instituted quality assurance programs to provide that our products comply
with the Consumer Products Safety Act and other similar laws. Our Moorpark,
California and Rochester, New Hampshire facilities are ISO 9002 certified and
our Fort Collins and Loveland, Colorado facilities are ISO 9001 certified.
<TABLE>
<CAPTION>
FACILITY SQUARE FOOTAGE
LOCATION PRINCIPAL USE (OWNED/LEASED)
- -------- ------------------------------------ ---------------
<S> <C> <C>
Fort Collins, Colorado............ Manufacturing of shower heads, water 250,000 (owned)
filtration products, and oral health
products.
Loveland, Colorado................ Manufacturing of shower heads, water 136,000 (owned)
filtration products, and oral health
products.
Montreal, Canada.................. Manufacturing and distribution of 55,000 (leased)
(2 buildings) pool and spa accessories, including 47,000 (leased)
cleaning and maintenance supplies,
white goods, ladders, solar reels,
floating lounges, pool toys and
games.
Moorpark, California.............. Manufacturing of pool and spa 200,000 (owned)
heaters, pool pumps and filters,
fiber optic lighting, boilers and
water heaters.
Novato, California................ Manufacturing of valves, actuators, 40,000 (leased)
electronic controls and automatic
cleaners
Oakville, Canada.................. Distribution of Laars(R) products 40,000 (owned)
</TABLE>
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<TABLE>
<CAPTION>
FACILITY SQUARE FOOTAGE
LOCATION PRINCIPAL USE (OWNED/LEASED)
- -------- ------------------------------------ ---------------
<S> <C> <C>
Rochester, New Hampshire.......... Manufacturing of commercial boilers, 80,000 (owned)
water heaters, pool heaters and
Trianco products
Scarborough, Canada............... Sales, marketing, customer service, 30,000 (leased)
warehousing and distribution of
Water Pik(R) products
</TABLE>
Our executive offices, located in Newport Beach, California are leased from
third parties. Our facilities are modern and sufficient for use to carry on our
current activities.
PATENTS AND TRADEMARKS
Water Pik Technologies holds a number of patents registered in the U.S.,
Canada and other countries. We also hold the exclusive rights with respect to
certain technology included in our products. We rely primarily upon a
combination of trademark, copyright, know-how, trade secrets, proprietary
information, patents and contractual restrictions to protect our intellectual
property rights. We believe that such measures afford only limited protection
and, accordingly, there can be no assurance that the steps taken by us to
protect our intellectual property rights will be adequate to prevent
misappropriation of our technology or the independent development of similar
technology by others. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or obtain and
use information that we regard as proprietary. See "Risk Factors."
SEASONALITY
Our business is highly seasonal, with operating results varying from
quarter to quarter. Both our personal health care products and water-heating
systems products have historically experienced higher sales in the third and
fourth quarters of each year due to the holiday season and cooler weather. Our
swimming pool and spa equipment products have historically experienced higher
sales in the second and fourth quarters of each year as consumers purchase such
products in anticipation of and during the warmer spring and summer months. In
addition, as a result of the seasonality of our product lines, we offer extended
payment terms which permit customers to purchase pool products during the winter
months, with no required payments until spring. See "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LEGAL PROCEEDINGS
From time to time, a number of lawsuits, claims and proceedings have been
or may be asserted against us relating to the conduct of our business, including
those pertaining to product liability, 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 us, we do not believe that the disposition of any
such pending matters is likely to have a material adverse effect on our
financial condition or liquidity, although the resolution in any reporting
period or one or more of these matters could have a material adverse effect on
our results of operations for that period.
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EMPLOYEES
Our work force consists of approximately 1,600 employees. We are not party
to a collective bargaining agreement with respect to any of our employees. We
consider our relations with our employees to be good.
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ARRANGEMENTS WITH ATI RELATING TO THE SPIN-OFF
For the purpose of governing certain of the relationships between ATI and
Water Pik Technologies relating to the spin-off, to provide for an orderly
transition and for other matters, ATI and Water Pik Technologies will enter into
the agreements described below, copies of which have been filed as exhibits to
the Registration Statement of which this Information Statement is a part. The
following summaries of the material terms of these agreements are qualified by
reference to the agreements as so filed.
SEPARATION AND DISTRIBUTION AGREEMENT
ATI and Water Pik Technologies and certain other companies affiliated with
ATI will enter into a Separation and Distribution Agreement that will provide
for the principal corporate transactions required to effect the separation of
our businesses from those of ATI, the spin-off and certain other matters
governing the relationship among us after the spin-off.
To separate our business from other businesses of ATI, the subsidiary of
ATI that has historically held most of the assets used in our business will
transfer those assets to us, without representation or warranty and on an "as
is," "where is" basis and "with all faults". We will assume all liabilities
associated with our business, including those arising from the operation of our
business both before and after the spin-off.
Each of ATI and Water Pik Technologies will release the other from all
other obligations and liabilities owed to such party existing on the date of the
spin-off, other than liabilities and obligations arising under the Separation
and Distribution Agreement and the other agreements entered into in connection
with the spin-off. Likewise, each of ATI and Water Pik Technologies will
indemnify the other for liabilities arising from a breach of these agreements or
the failure to pay or discharge the liabilities assumed by such party under the
Separation and Distribution Agreement.
The Separation and Distribution Agreement requires that we initiate a
public offering of our common stock within eight months following the spin-off,
and complete the public offering within one year following the spin-off. It also
requires that we use proceeds of the offering as contemplated by the tax ruling
request. It was represented in the tax ruling request that we anticipate that
gross proceeds of the required public offering would be approximately $50
million and that we intend to use the net proceeds of the offering to further
develop high quality, lower cost manufacturing capabilities, extend our existing
product lines, expand our channels of distribution, develop a self-sustaining
product development process, and for acquisitions and/or joint ventures.
We are currently an additional named insured under various ATI insurance
policies. Under the Separation and Distribution Agreement, we will be entitled
to the benefit of pre-spin-off historical coverage under ATI's property,
liability and certain other insurance policies to the extent coverage is
applicable or potentially available and where limits of liability have not been
exhausted, either on a per occurrence or aggregate basis. The terms and
conditions of these policies, including limits of liability, will not be amended
as a consequence of the spin-off. Going forward, we will be responsible to the
full extent of the deductible or self-insured retention for each claim made
against us under the general liability policies and we will continue to be
responsible for our allocable share of the deductibles and retentions under the
automobile and workers' compensation policies based on the same allocation
formulas that applied prior to the spin-off.
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The Separation and Distribution Agreement provides that until the third
annual meeting of our stockholders held following the spin-off, at least a
majority of our directors will also be members of the board of directors of ATI.
The initial members of our board of directors will be Charles J. Queenan, Jr.
and James E. Rohr (Class I), Michael P. Hoopis and William G. Ouchi (Class II),
and Robert P. Bozzone (Chairman) and W. Craig McClelland (Class III). The
Separation and Distribution Agreement also provides that we will nominate
Messrs. Queenan and Rohr (or, if either is unable or unwilling to serve, such
other candidates as Messrs. Bozzone, McClelland and Ouchi or the survivor of
them shall designate) for re-election as Class I directors at the first annual
meeting of our stockholders following the spin-off.
EMPLOYEE BENEFITS AGREEMENT
Prior to the date of the spin-off, ATI and Water Pik Technologies will
enter into an Employee Benefits Agreement to set forth the manner in which
assets and liabilities under employee benefit plans and other employment-related
liabilities will be divided between them, and to help ensure a smooth transition
for employees' benefits in the spin-off. In general, we will be responsible for
compensation and employee benefits relating to our employees.
The Employee Benefits Agreement provides that we will establish our own
qualified and nonqualified pension and other employee benefit plans and
arrangements, which generally will be the same as ATI's plans as in effect at
the time of the spin-off, except that we anticipate that we will establish an
enhanced defined contribution plan to replace ATI's defined benefit pension
plan. Benefits accrued by our employees under the ATI pension plan will be
frozen and we will have no liability, and ATI will have no obligation to
transfer assets, with respect to those benefits. In addition, ATI will retain
all liabilities for pension benefits in excess of qualified plan limits under
the Teledyne, Inc. Pension Equalization Plan.
After the spin-off, all of the account balances of our employees under the
Teledyne, Inc. 401(k) plan will be transferred from the Teledyne, Inc. 401(k)
plan to our 401(k) plan.
In addition to the tax-qualified retirement plans discussed above, we will
establish certain nonqualified stock and deferred compensation plans and
arrangements for key employees that mirror plans and arrangements offered by
ATI, except that we may not establish a performance share program similar to the
ATI Performance Share Program. These plans and arrangements include an employee
stock purchase plan, an omnibus stock incentive plan providing for awards of
stock options, stock appreciation rights and restricted stock and the
establishment of a stock acquisition and retention program ("SARP") similar to
ATI's SARP, and supplemental pension benefits. In addition, we will establish
plans and arrangements for non-employee directors of the Company that are
similar to plans and arrangements offered to ATI's non-employee directors.
The Employee Benefits Agreement will also provide for the treatment of
outstanding options to acquire ATI common stock issued under ATI benefit plans.
At the time of the spin-off, ATI stock options held by our employees will be
converted into options to purchase shares of Water Pik Technologies common
stock. The number of shares the option holder would be able to purchase and the
exercise price of the options would be adjusted in the conversion based on the
relationship of the ATI stock price and the stock price of Water Pik
Technologies, so that the "intrinsic value" of the options (that is, the
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difference between the market value of the stock acquired on the exercise and
the exercise price of the options) before the spin-off would be equivalent to
the intrinsic value of the options immediately after the spin-off. The
determination of that value cannot be made until after the spin-off. The options
would otherwise continue to be and become exercisable on the terms and
conditions set forth in the original ATI benefit plans.
Under the Employee Benefit Agreement, the current award period under the
ATI Performance Share Program would be terminated when the spin-off occurs.
ATI's compensation committee will determine the amount of the awards, if any,
that have been earned, based on the achievement of plan goals through the
spin-off date, and will make awards pro-rated for the shortened Program term.
Pursuant to the Program, payments will be made in cash and stock. Stock payments
to our employees will be paid in Water Pik Technologies common stock. Pursuant
to the Program, we will make the payments in three annual installments, with the
first payment expected to be made early in the year 2000.
The Employee Benefits Agreement also provides for the treatment of
purchased, designated and restricted shares issued under the ATI Stock
Acquisition and Retention Program prior to the spin-off. Under the Agreement,
participants who have purchased or designated ATI shares will receive
distributions of the common stock of Teledyne Technologies and Water Pik
Technologies in the spin-offs on the purchased or designated ATI shares. The
shares they receive in the spin-off, as well as the original ATI shares, will
continue to be held as collateral for the loans for the purchased shares, all of
which will be retained by ATI, until the loans are fully paid. Restricted shares
issued under the Program to our employees will be converted into shares of Water
Pik Technologies common stock. The new Water Pik Technologies shares will also
be restricted shares until the restriction lapse on the terms and conditions set
forth in the original ATI Program.
The Employee Benefits Agreement provides, in general, that we will receive
no assets with which to fund liabilities under non-qualified plans. An exception
applies with respect to the Allegheny Teledyne Executive Deferred Compensation
Plan under which employees with total annual compensation in excess of $100,000
may elect to defer a portion or all of their salary and/or bonus; it is
anticipated that we will receive company-owned life insurance policies or other
assets with a cash value equal to the amount of deferred compensation
liabilities at the time of the spin-off.
TAX SHARING AND INDEMNIFICATION AGREEMENT
On or prior to the date of the spin-off, ATI and Water Pik Technologies
will enter into a Tax Sharing and Indemnification Agreement that will set forth
each party's rights and obligations regarding payment and refunds, if any, with
respect to taxes for periods before and after the spin-off and related matters
such as the filing of tax returns and the conduct of audits or other proceedings
involving claims made by taxing authorities.
In general, ATI will be responsible for filing consolidated U.S. federal
and consolidated, combined or unified state income tax returns for periods
through the date of the spin-off, and for paying the taxes relating to such
returns including any subsequent adjustments resulting from the redetermination
of such tax liability by the applicable taxing authorities. We will be
responsible for other taxes attributable to our operations.
The Tax Sharing and Indemnification Agreement provides that we will
indemnify ATI and its directors, officers, employees, agents and representatives
for any taxes imposed on, or other amounts paid by them, or ATI's stockholders,
if we take actions or fail to take
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actions such as completing the required public offering, that result in the
spin-off not qualifying as a tax-free distribution. For example, pursuant to the
Tax Sharing and Indemnification Agreement, Water Pik Technologies will agree
that for a two-year period following the date of the spin-off: (i) we will
continue to engage in the Water Pik Technologies business; (ii) we will continue
to own and manage at least 50% of the assets which we own directly or indirectly
immediately after the spin-off; and (iii) we will not, unless we obtain the
written consent of ATI, engage in a number of specified transactions.
Transactions subject to these restrictions will include issuance of Water Pik
Technologies common stock (or certain derivatives of our stock) in amounts which
represent 40% or more of the outstanding Water Pik Technologies common stock,
issuance of instruments other than Water Pik Technologies common stock (or
derivatives of our stock) constituting equity for U.S. federal tax purposes,
certain redemptions and other acquisitions of capital stock or equity securities
of Water Pik Technologies, or the merger, dissolution or liquidation of Water
Pik Technologies.
If our obligations under the Tax Sharing and Indemnification Agreement were
breached and the spin-off were to fail to continue to qualify as tax-free for
U.S. federal income tax purposes as a result of such breach, we would be
required to satisfy the indemnification obligations described above. This
indemnification obligation could exceed our net worth at that time.
Though valid as between the parties thereto, the Tax Sharing and
Indemnification Agreement is not binding on the IRS and does not affect the
several liability of ATI, Water Pik Technologies and their respective
subsidiaries to the IRS for all U.S. federal taxes of the consolidated group
relating to periods prior to the spin-off.
INTERIM SERVICES AGREEMENT
On or prior to the date of the spin-off, ATI and Water Pik Technologies
will enter into an Interim Services Agreement pursuant to which ATI will provide
us with transitional administrative and support services for a period of time
not expected to exceed 12 months. The Interim Services Agreement will provide
that we will pay a fee to ATI intended to approximate ATI's cost for such
services plus 10%.
The Interim Services Agreement will provide that we will indemnify ATI for
all claims, losses, damages, liabilities and costs incurred by ATI to a third
party arising in connection with the provisions of a service under the
agreement, other than those costs resulting from ATI's willful misconduct or
gross negligence. In general, we can terminate an interim service after an
agreed notice period.
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MANAGEMENT
DIRECTORS
Our board of directors is expected initially to consist of the individuals
named below. Until the third annual meeting of our stockholders following the
spin-off, at least a majority of the members of our board of directors will also
be directors of ATI. See "Arrangements with ATI Relating to the
Spin-Off -- Separation and Distribution Agreement" and "Description of Our
Capital Stock."
Our Certificate of Incorporation provides that we will have three classes
of directors, the initial terms of office of which will expire, respectively, at
the annual meeting of our stockholders in 2000, 2001 and 2002. Successors to any
directors whose terms are expiring are elected to three-year terms and hold
office until their successors are elected and qualified.
Also set forth below with respect to each director is the class of which
such director will be a member. Unless otherwise indicated, the business address
for each person listed below is 660 Newport Center Drive, Suite 470, Newport
Beach, California 92660. Each individual listed below is a citizen of the United
States.
Our Bylaws contain provisions designed to ensure that at least a majority
of our directors are also directors of ATI until the third annual meeting of our
stockholders held after the spin-off. The Bylaws also provide that no quorum of
the board will be deemed present unless at least a majority of the directors
present are also members of the board of directors of ATI.
CLASS I DIRECTORS
Class I directors will serve until the 2000 annual meeting of our
stockholders and until their respective successors are elected and qualified.
Our Class I Directors will be:
<TABLE>
<S> <C>
CHARLES J. QUEENAN, JR. Charles J. Queenan, Jr. is Senior
Senior Counsel, Counsel to Kirkpatrick & Lockhart LLP,
Kirkpatrick & Lockhart LLP attorneys-at-law. Prior to January 1996,
Age 69 he was a partner of that firm. Mr.
Queenan is also a director of ATI and
Crane Co. Kirkpatrick & Lockhart LLP
performs legal services for ATI,
including in connection with the
spin-off, and may in the future perform
services for us.
JAMES E. ROHR James E. Rohr has been President of PNC
President and Chief Operating Officer, Bank Corp. since 1992 and assumed the
PNC Bank Corp. additional title of Chief Operating
Age 51 Officer in 1998. He is also a director
of ATI, PNC Bank Corp. and Equitable
Resources, Inc.
</TABLE>
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CLASS II DIRECTORS
Class II directors will serve until the 2001 annual meeting of our
stockholders and until their respective successors are elected and qualified.
Our Class II Directors will be:
<TABLE>
<S> <C>
MICHAEL P. HOOPIS, Michael P. Hoopis has been our President
President and Chief Executive Officer, and Chief Executive Officer since
Water Pik Technologies October 1998. Prior to that time, Mr.
Age 48 Hoopis was affiliated with The Black &
Decker Corporation, in various executive
positions, including as President,
Worldwide Household Products and as
Executive Vice President from 1996 to
1998; President, Price Pfister, Inc.
from 1992 to 1996; President, Kwikset
Corporation from 1991 to 1992; and Vice
President of Manufacturing, U.S.
Household Products from 1989 to 1991.
Mr. Hoopis was President of the Stiffel
Company from 1986 to 1989, and he has
held various marketing, manufacturing
and engineering positions with other
corporations. Mr. Hoopis is a director
of Doskocil Manufacturing Company, Inc.,
a manufacturer of a broad range of
plastic and pet products.
WILLIAM G. OUCHI William G. Ouchi became the Sanford and
Sanford and Betty Sigoloff Professor Betty Sigoloff Professor in Corporate
in Corporate Renewal, Anderson Renewal at the Anderson Graduate School
Graduate School of Management, of Management, University of California
University of California at at Los Angeles in 1998, where he
Los Angeles previously had been a professor of
Age 56 management. He is also a director of
ATI, FirstFed Financial Corp. and Sempra
Energy.
</TABLE>
CLASS III DIRECTORS
Class III directors will serve until the 2002 annual meeting of our
stockholders and until their respective successors are elected and qualified.
Our Class III Directors will be:
<TABLE>
<S> <C>
ROBERT P. BOZZONE Robert P. Bozzone has been Vice Chairman
Vice Chairman of the Board of the board of directors of ATI since
of ATI August 1996. He had served as Vice
Age 66 Chairman of Allegheny Ludlum Corporation
since August 1994, and previously was
President and Chief Executive Officer of
Allegheny Ludlum Corporation. He is a
director of ATI and DQE, Inc., whose
principal subsidiary is Duquesne Light
Company. Mr. Bozzone will serve as the
non-executive Chairman of our board of
directors.
</TABLE>
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<TABLE>
<S> <C>
W. CRAIG MCCLELLAND W. Craig McClelland served as Chairman and Chief
Retired Chairman and Chief Executive Officer of Union Camp Corporation, a
Executive Officer, manufacturer of paper products, from July 1994
Union Camp Corporation until his retirement in June 1999. Prior to that
Age 65 time, he served as President and Chief Operating
Officer of Union Camp. He is also a director of
ATI, International Paper Corporation and PNC Bank
Corp.
</TABLE>
COMMITTEES OF OUR BOARD OF DIRECTORS
In addition to other committees established by our board of directors from
time to time, our board will establish an Audit and Finance Committee, a
Governance Committee and a Personnel and Compensation Committee.
AUDIT AND FINANCE COMMITTEE. The principal audit functions of the Audit
and Finance Committee will include:
- Making recommendations to the board of directors regarding the
appointment of the independent accountants for the coming year.
- Reviewing the scope and general extent of and proposed fees for the
annual audit plan and other activities of the independent accountants and
the audit plan of the internal auditors.
- Reviewing with management and the independent accountants, upon
completion of the annual audit, the financial statements and related
reports for their adequacy and compliance with generally accepted
accounting, reporting and disclosure standards.
- Evaluating the effectiveness of our internal and external audit efforts,
accounting and financial controls, policies and procedures and business
ethics policies and practices through a review of reports by, and at
regular meetings with, the internal and external auditors and with
management, as appropriate.
The principal finance functions of the Audit and Finance Committee include:
- Reviewing and evaluating proposed bank credit agreements and other major
financial proposals.
- Reviewing and evaluating our relationships with banks and other financial
institutions.
- Reviewing and making recommendations to the board of directors concerning
policies with respect to dividends and capital structure.
- Meeting with the independent auditors and the internal auditors, with and
without management being present, to discuss all appropriate matters.
GOVERNANCE COMMITTEE. The Governance Committee will:
- Make recommendations to the board of directors with respect to candidates
for nomination as new board members and with respect to incumbent
directors for nomination as continuing board members.
- Make recommendations to the board of directors concerning the memberships
of committees of the board and the chairpersons of the respective
committees.
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- Make recommendations to the board of directors with respect to the
remuneration paid and benefits provided to members of the board in
connection with their service on the board and its committees.
- Administer our formal compensation programs for directors, including the
Water Pik Technologies, Inc. 1999 Non-Employee Director Stock
Compensation Plan.
- Make recommendations to the board of directors concerning the
composition, organization and operations of the board of directors,
including the orientation of new members and the flow of information.
- Evaluate board tenure policies as well as policies covering the
retirement or resignation of incumbent directors.
PERSONNEL AND COMPENSATION COMMITTEE. The Personnel and Compensation
Committee will:
- Make recommendations to the board of directors concerning general
executive management organization matters.
- Make recommendations to the board of directors concerning compensation
and benefits for employees who are also our directors, consult with our
Chief Executive Officer on compensation and benefit matters relating to
other executive officers who are required to file reports under Section
16 of the Securities Exchange Act of 1934, as amended ("statutory
insiders") and make recommendations to the board of directors concerning
compensation policies and procedures relating to officers who are
statutory insiders.
- Make recommendations to the board of directors concerning policy matters
relating to employee benefits and employee benefit plans.
- Make awards of stock-based compensation to officers who are our statutory
insiders.
- Administer our formal incentive compensation plans.
COMPENSATION OF OUR DIRECTORS
Directors who are not our employees will be paid an annual retainer fee of
$20,000. The non-executive Chairman of our board of directors will be paid an
additional annual retainer fee of $10,000. Directors will also be paid $1,000
for each board meeting and $1,000 for each committee meeting attended. Each
non-employee chair of a committee will be paid an annual fee of $1,500.
Directors who are our employees will not receive any compensation for their
services on our board or its committees.
The non-employee directors will also participate in the 1999 Non-Employee
Director Stock Compensation Plan (the "Director Stock Plan"). The purpose of the
Director Stock Plan is to provide non-employee directors with an increased
personal interest in our performance.
Under the Director Stock Plan, options to purchase 1,000 shares of our
common stock will be granted to non-employee directors on the date of the
distribution of our common stock to ATI stockholders and at the conclusion of
each annual meeting of our stockholders. If, after the spin-off, a non-employee
director first becomes a director on a date other than an annual meeting date,
an option covering 1,000 shares of our common stock will be granted to such
non-employee director on his or her first day of board service. The purchase
price of the common stock covered by these options will be the fair market value
of our common stock on the date the option is granted.
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The Director Stock Plan also provides that each non-employee director will
receive at least 25% of the annual retainer fee in the form of our common stock
and/or options to acquire our common stock. Each director may elect a greater
percentage. Options granted under this part of the Director Stock Plan are
intended to provide each electing director with options having an exercise value
on the date of grant equal to the foregone fees; that is, the difference between
the exercise price and the market price of the underlying shares of common stock
on the date of grant is intended to be equal to the foregone fees.
In order to continue to attract and retain non-employee directors of
exceptional ability and experience, we will also maintain a Fee Continuation
Plan for Non-Employee Directors. Under the plan, benefits will be payable to a
person who serves as a non-employee director for at least five years. The annual
benefit will equal the retainer fee in effect when the director retires from the
board. Benefits will be paid for each year of the participant's credited service
as a director up to a maximum of ten years.
EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
Set forth below are the name, age, position and office to be held with us,
and principal occupations and employment during the past five years, of those
individuals who are expected to serve as our executive officers and as our
senior management immediately following the spin-off. Those individuals named
below who are currently officers or employees of ATI will resign from all such
positions prior to the spin-off. Our executive officers will be elected to serve
until they resign or are removed, or are otherwise disqualified to serve, or
until their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION AGE
- ------------------------- ---
<S> <C>
EXECUTIVE OFFICERS
Michael P. Hoopis, President and Chief Executive Officer.... 48
Robert A. Shortt, Executive Vice President -- Sales,
Marketing and Business Development........................ 39
Victor C. Streufert, Vice President -- Finance and Chief
Financial Officer......................................... 42
Richard P. Bisson, Vice President -- Operations............. 40
SENIOR MANAGEMENT
Robert J. Rasp, General Manager, Pool Products and Heating
Systems................................................... 41
</TABLE>
Mr. Hoopis' employment history is described above under "Directors."
Robert A. Shortt has been Executive Vice President -- Sales, Marketing and
Business Development of Water Pik Technologies since July 1999. From 1996 to
1999, Mr. Shortt was Vice President, Marketing and Merchandising of CSK Auto
Corp., an automotive parts and accessories retailer. From 1995 to 1996, Mr.
Shortt was Vice President, Marketing of Price Pfister, Inc., a division of The
Black & Decker Corporation, and from 1990 to 1995, Mr. Shortt was Vice President
of Kwikset Corporation, a division of The Black & Decker Corporation.
Victor C. Streufert has been Vice President -- Finance and Chief Financial
Officer of Water Pik Technologies since July 1999. Prior to that time, from 1996
to 1998, Mr. Streufert was Senior Vice President, Finance and Administration and
Chief Financial Officer of National Telephone Communications, Inc. From 1995 to
1996, Mr. Streufert was Vice President, Finance and Chief Financial Officer of
Pyxis Corporation, a health
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care technology and service company, and from 1989 to 1995, Mr. Streufert was
Executive Vice President, Chief Financial Officer of American Health Properties
Inc.
Richard P. Bisson has been Vice President -- Operations of Water Pik
Technologies since July 1999. From January 1999 to July 1999, Mr. Bisson was a
Consultant to the Chairman and Chief Executive Officer of Eldor Corporation, a
producer of transformers for consumer and automotive markets. From 1996 to
January 1999, Mr. Bisson was Managing Director of Gilardoni S.p.A., a supplier
of products, components and services in medical, security and non-destructive
testing industries. From 1990 to 1996, Mr. Bisson held a variety of positions
with Price Pfister, Inc., a division of The Black & Decker Corporation,
including Director, Manufacturing and Director, Engineering Services.
Robert J. Rasp has been General Manager, Pool Products and Heating Systems
of Water Pik Technologies since October 1999. Previously, he was President of
Laars since 1996 and Vice President, Heating Systems of Laars from 1993 to 1996.
From 1990 to 1993, he was a general manager of Carrier Corporation.
HISTORICAL COMPENSATION OF EXECUTIVE OFFICERS
Shown below is information concerning the annual and long-term compensation
for services rendered in all capacities to ATI and its subsidiaries for the
years ended December 31, 1998 of the individual who will serve as our Chief
Executive Officer and who was the only executive officer employed, by ATI or an
affiliate of ATI at December 31, 1998 (the "Named Executive Officer"). The
compensation described in this table was paid by ATI or an affiliate of ATI. The
table does not reflect the compensation to be paid to our executive officers in
the future.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ---------------------
RESTRICTED OPTIONS
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK (SHARES) ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS (1) COMPENSATION
- ------------------ ---------- -------- -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael P. Hoopis,
President and Chief
Executive
Officer............ 1998 $100,000 -- -- -- 40,000 $42,949(2)
(3 months)
</TABLE>
- -------------------------
(1) Reflects options granted under ATI's Incentive Plan.
(2) Includes $40,774 for relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants to Mr. Hoopis of options to purchase
shares of ATI common stock pursuant to the ATI Incentive Plan during the year
ended December 31, 1998, which are reflected in the Summary Compensation Table
above.
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<PAGE> 73
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED RATES
OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS OPTION TERM(1)
UNDERLYING GRANTED TO EXERCISE OR -----------------------
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION 0% 5% 10%
NAME GRANTED (1) FISCAL YEAR ($/SHARE) DATE $ $ $
- ---- ----------- ------------ ----------- ---------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael P. Hoopis.... 20,000 * $17.40625 10/05/08 0 218,875 554,875
20,000 * $ 20.375 12/17/08 0 256,300 649,500
</TABLE>
- -------------------------
* Less than 1%.
(1) Reflects options granted under ATI's Incentive Plan.
(2) No gain to the optionee is possible without stock price appreciation, which
will benefit all stockholders commensurately. The assumed "potential
realizable values" are mathematically derived from certain prescribed rates
of stock price appreciation. The actual value of these option grants depends
on the future performance of ATI common stock and overall stock market
condition. There is no assurance that the values reflected in this table
will be realized.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT FISCAL
ACQUIRED ON VALUE FISCAL YEAR END(#) YEAR END($)(1)
NAME AND PRINCIPAL POSITION EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- ------------- ----------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael P. Hoopis............ 0 0 0/40,000 0/56,250
</TABLE>
- -------------------------
(1) The "value of unexercised in-the-money options" is calculated by subtracting
the exercise price per share from $20.21875 which was the average of the
high and low sales prices of a share of ATI common stock on the New York
Stock Exchange on December 31, 1998. Of the options held by Mr. Hoopis,
options to purchase 20,000 shares were not in-the-money at December 31,
1998.
Under the Employee Benefits Agreement, options to purchase shares of ATI
common stock that are held by our employees, including Mr. Hoopis, will be
converted into options to purchase shares of Water Pik Technologies common
stock. The number of our shares that our employees will be able to purchase and
the exercise price of the options will be adjusted in the conversion based on
the relationship of the ATI stock price and the stock price of Water Pik
Technologies over a fixed period of time.
EMPLOYMENT AGREEMENTS
On September 15, 1998, ATI entered into an employment agreement with Mr.
Hoopis which provides for an initial term of employment expiring on December 31,
2002. In connection with the spin-off, we will assume all the obligations of
ATI, as employer, under that agreement. Under the agreement, Mr. Hoopis is
entitled to an annual base salary of $400,000 and annual payments of $80,000
each on the first three anniversaries of the agreement. In addition, at the
spin-off date, Mr. Hoopis will receive options to purchase 3% of the shares of
common stock of Water Pik Technologies. The options will have a ten year term
and will be exercisable at a price equal to the average of
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the high and low sales price of a share of Water Pik Technologies common stock
on the date of grant. Options to purchase 10% of the shares will become
exercisable on or before one year after the grant date, options to purchase an
additional 20% of the shares will become exercisable two years after the grant
date, and options to purchase the remaining 70% of the shares will become
exercisable three years after the grant date.
ATI has entered into an employment agreement with Robert A. Shortt as our
Executive Vice President -- Sales, Marketing and Business Development. The
agreement provides for an annual base salary of $245,000 and annual payments of
$60,000 each for three years, and provides for an initial term of employment
expiring on June 28, 2000, which will be automatically extended unless written
notice is given by either party. ATI has entered into an employment agreement
with Victor C. Streufert as our Vice President -- Finance and Chief Financial
Officer. The agreement provides for annual base salary of $225,000 and annual
payments of $25,000 each for two years, and provides for an initial term of
employment expiring on July 6, 2000, which will be automatically extended unless
written notice is given by either party. ATI has entered into an employment
agreement with Richard Bisson as our Vice President -- Operations. The agreement
provides for an annual base salary of $190,000 and annual payments of $10,000
each for two years, and provides for an initial term of employment expiring on
July 1, 2000, which will be automatically extended unless written notice is
given by either party. In connection with the spin-off, we will assume all the
obligations of ATI, as employer, under these agreements. After the spin-off,
Messrs. Shortt, Streufert and Bisson will be entitled to participate in the
Water Pik Technologies annual incentive bonus plan, under the terms and
conditions applicable to all participants.
Pursuant to the employment agreements with Messrs. Shortt, Streufert and
Bisson, each will receive options to purchase an aggregate of 62,500, 50,000 and
37,500 shares, respectively, of Water Pik Technologies common stock at the
spin-off date. The options will have a ten year term and will be exercisable at
a price equal to the average of the high and low sales price of a share of Water
Pik Technologies common stock on the date of grant. Options to purchase 20% of
the shares will become exercisable one year after the grant date, options to
purchase an additional 30% of the shares will become exercisable two years after
the grant date, and options to purchase the remaining 50% of shares will become
exercisable three years after the grant date.
The employment agreements for each of Messrs. Hoopis, Shortt, Streufert and
Bisson will automatically terminate upon the death of the executive, and may be
terminated at our option if the executive becomes disabled or at any time
without cause. In these events, we would be required to make certain severance
payments, in the case of Mr. Hoopis, in an amount equal to the greater of his
base salary and performance bonus for the remaining term of his agreement or two
years, and in the case of Messrs. Shortt, Streufert and Bisson, in an amount
equal to the executive's base salary and performance bonus for one year and,
except in the case of death, to continue certain benefits for the benefit of,
the executive or his estate. We may also terminate each executive at any time
for "cause," in which case the executive would be entitled to no severance
payments or other benefits. Each executive may terminate his respective
agreement at any time by providing prior written notice pursuant to the terms of
the agreement. If an executive terminates the agreement without "good reason,"
he would be entitled to no severance payments or other benefits. If an executive
terminates the agreement with "good reason," including upon the occurrence of
"Change in Control," as defined in the agreement, he would be entitled to
receive severance payments and benefits.
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BENEFIT PLANS FOLLOWING THE SPIN-OFF
OUR INCENTIVE PLANS
On or prior to the date of the spin-off, our board of directors will adopt,
and ATI as our sole stockholder will approve, the following incentive
compensation plans.
LONG-TERM INCENTIVE PLAN. Our long-term incentive plan is expected to
provide for the grant of various types of long-term incentive awards to selected
employees, consistent with the objectives and restrictions of the plan. Although
these awards may include non-qualified stock options, incentive stock options
under the Internal Revenue Code of 1986, as amended (the "Code"), stock
appreciation rights, and restricted and unrestricted share awards, it is
expected that only stock options and restricted stock awards under a stock
acquisition and retention program will be granted under the plan initially. The
total number of shares of our common stock authorized to be issued under the
incentive plan equals 10% of the issued and outstanding shares of common stock
immediately following the effective date of the incentive plan. If the number of
issued and outstanding shares of our common stock is increased after the
effective date, the total number of shares available under the incentive plan
will be increased by 10% of such increase. No more than 945,000 shares of our
common stock may be issued under the incentive plan as incentive stock options.
The plan will vest broad powers in the Personnel and Compensation Committee
of our board of directors to administer and interpret the plan. This power will
include the authority to select the persons to be granted awards, to determine
the terms, goals and conditions of awards, and to determine whether such goals
and conditions have been met.
While the precise number of shares is yet to be determined, it is
anticipated that we will grant options for up to 433,590 shares of our common
stock to our senior management following the spin-off in addition to those
options granted in connection with the conversion of options to purchase ATI
common stock under the Employee Benefits Agreement. We also expect to establish
a stock acquisition and retention program ("SARP") under our incentive plan with
terms that are similar to the SARP established by ATI. Under this program, each
year, key executives will be given the opportunity to purchase shares of our
stock, or designate shares of our stock previously acquired by them, with a
value equal to their base salary at the beginning of the year. Under the SARP,
executives who purchase shares can deliver a promissory note, payable to the
Company, as payment of the purchase price. Executives will receive an award of
one restricted share of our common stock for each two shares they purchase or
designate. In general, the restricted shares will vest only if the participant
retains the shares purchased or designated by the participant as subject to the
SARP for a period of five years.
ANNUAL INCENTIVE PLAN. Our annual incentive plan is expected to give the
Personnel and Compensation Committee of our board of directors the discretion to
determine the aggregate amount of money to be used for awards based upon
competitive compensation practices and such measures of our performance as the
committee selects from time to time. Individual awards will be determined
annually by the Personnel and Compensation Committee in accordance with
performance goals established by the committee at the beginning of the year.
DEFERRED COMPENSATION PLAN. It is anticipated that we will implement a
deferred compensation plan that will allow certain of our executives to defer
all or a portion of their annual salary and annual incentive plan awards, as
well as amounts due under certain of our other compensation programs. A
participant's deferred benefit will be credited with
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earnings based on or more hypothetical investments available under the plan. The
plan is not funded. We expect, however, to hold insurance policies on the lives
of participants in the plan, to the extent insurance is reasonably available, to
provide a possible source of cash for payments that become due under the plan.
OTHER PLANS
SAVINGS PLAN. We plan to establish an enhanced defined contribution 401(k)
program for our employees prior to April 1, 2000 and transfer account balances
of affected employees under the Teledyne, Inc. 401(k) Plan directly to our new
plan. Until we establish our new plan, our employees will continue to
participate in a part of the Teledyne, Inc. 401(k) Plan that is maintained for
the benefit of our employees. After the spin-off and until we establish our new
savings plan, our part of the Teledyne, Inc. 401(k) Plan will offer along with
other funds, three common stock funds as investment alternatives: (i) our common
stock fund, (ii) a Teledyne Technologies common stock fund, and (iii) an ATI
common stock fund. Our plan participants will be able to increase their holdings
in our stock fund. They will not, however, be able to increase their holdings in
the Teledyne Technologies or ATI stock funds. To the extent that the plan
fiduciaries have not already done so, on December 31, 2002, all remaining
investments in the Teledyne Technologies and ATI stock funds under our part of
the Teledyne, Inc. 401(k) Plan or our new savings plan will be liquidated and
the proceeds transferred to the Water Pik Technologies common stock fund under
the applicable plan. Similar investment restrictions and automatic liquidations
will apply to the Water Pik Technologies stock fund available under the ATI and
Teledyne Technologies savings plans.
EMPLOYEE STOCK PURCHASE PLAN. We expect to adopt an employee stock
purchase plan similar to ATI's Stock Advantage Plan, under which our employees
will be permitted to purchase shares of our common stock through payroll
deductions supplemented by Company contributions.
OTHER BENEFIT PLANS. It is expected that we will adopt a number of plans
to provide certain employee welfare benefits to our active employees as well as
our retirees after the spin-off, including medical, short and long-term
disability, life insurance, severance and other benefits, and our board of
directors will reserve the right to amend, suspend or terminate any of these
welfare plans.
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SECURITY OWNERSHIP
The following table sets forth the number of shares of our common stock
expected to be beneficially owned following the spin-off, directly or
indirectly, by each person known to us who is expected to own beneficially more
than five percent of our outstanding common stock, each director, our Named
Executive Officer and such persons as a group, in each case based upon the
beneficial ownership of such persons of ATI common stock reported to ATI as of
October 15, 1999, and the distribution ratio of one share of our common stock
for every 20 shares of ATI common stock owned by the named persons, including
shares as to which a right to acquire ownership exists within 60 days of October
15, 1999 (for example, through the exercise of stock options) within the meaning
of Rule 13d-3(d)(1) under the Securities Exchange Act of 1934. Each person has
sole voting and investment power with respect to the shares listed unless
otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIAL OWNER SHARES PERCENT OF CLASS
- ---------------- --------- ----------------
<S> <C> <C>
J. P. Morgan & Co. Incorporated(1).................. 1,078,210 11.5%
60 Wall Street
New York, NY 10260
Richard P. Simmons (2).............................. 823,690 8.7%
1000 Six PPG Place
Pittsburgh, PA 15222
Caroline W. Singleton(3)............................ 699,966 7.4%
Sole Trustee of the Singleton Family Trust
335 North Maple Drive, Suite 177
Beverly Hills, CA 90210
Scudder Kemper Investments, Inc.(4)................. 551,359 5.9%
345 Park Avenue
New York, NY 10154
Capital Research and Management Company(5).......... 507,520 5.4%
333 South Hope Street
Los Angeles, CA 90071
Michael P. Hoopis................................... 333 *
Robert P. Bozzone(6)................................ 265,574 2.8%
W. Craig McClelland................................. 397 *
William G. Ouchi.................................... 296 *
Charles J. Queenan, Jr.(6).......................... 35,481 *
James E. Rohr....................................... 531 *
All directors and Named Executive Officer as a group
(6 persons)....................................... 302,612 3.2%
</TABLE>
- -------------------------
* Less than one percent of the outstanding shares.
(1) J.P. Morgan & Co. Incorporated filed a Form 13F under the Securities
Exchange Act of 1934 indicating that as of June 30, 1999, it beneficially
owned 21,564,205 shares of ATI common stock, including 15,924,890 shares as
to which it had sole voting power and 158,369 shares as to which it had
shared voting power.
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(2) Mr. Simmons will have the sole power to direct the voting of all 823,690
shares, and sole power to direct the disposition of 419,626 of these shares.
Mrs. Richard P. Simmons will have the sole power to direct the disposition
of 404,064 of these shares. The amount shown reflects shares held for Mr.
Simmons as of September 30, 1999 under the ATI Retirement Savings Plan. Mr.
Simmons disclaims beneficial ownership of 11,895 shares shown in the table
that will be owned by R. P. Simmons Family Foundation, a private charitable
foundation with respect to which Mr. Simmons serves as trustee.
(3) Caroline W. Singleton filed a Schedule 13D dated August 25, 1999, indicating
that as of July 26, 1999, she beneficially owned 13,999,320 shares of ATI
common stock, which had been held by Dr. Henry E. Singleton. The shares had
been subsequently transferred to the Singleton Family Trust, of which she is
the sole trustee.
(4) Scudder Kemper Investments, Inc. filed a Schedule 13G dated February 12,
1999 indicating that as of December 31, 1998, it beneficially owned ATI
common stock as follows: 2,326,862 sole voting power; 7,974,265 shared
voting power; 10,928,613 sole dispositive power; and 98,569 shared
dispositive power.
(5) Capital Research and Management Company filed a Schedule 13G dated February
8, 1999 indicating that as of December 31, 1998, it held sole dispositive
power, and no voting power, with respect to 10,150,400 shares of ATI common
stock as a result of acting as investment adviser to various registered
investment companies.
(6) The amounts include shares for which beneficial ownership is disclaimed, as
follows: 12,000 shares that will be owned by Mr. Bozzone's wife; and 2,705
shares that will be owned by Mr. Queenan's wife.
DESCRIPTION OF OUR CAPITAL STOCK
Our Certificate of Incorporation ("Certificate") provides that our
authorized capital consists of (i) 50,000,000 shares of common stock, $.01 par
value, of which (based on the number of shares of ATI common stock outstanding
as of September 30, 1999) approximately 9,452,994 shares of our common stock
will be issued to stockholders of ATI in the spin-off, and (ii) 5,000,000 shares
of preferred stock, par value $.01 per share, of which 500,000 shares have been
designated as Series A Junior Participating Preferred Stock for issuance in
connection with the exercise of Water Pik Technologies Rights (as described
below). See "-- Rights Plan."
COMMON STOCK
Each share of our common stock will entitle its holder of record to one
vote for the election of directors and all other matters to be voted on by the
stockholders. Holders of our common stock will not have cumulative voting
rights. As a result, the holders of a majority of the shares of our common stock
voting for the election of directors may elect all nominees standing for
election as our directors.
Subject to the rights of holders of preferred stock, holders of our common
stock will be entitled to receive such dividends, if any, as may be declared
from time to time by our board of directors in its discretion from funds legally
available for that use. Subject to the rights of holders of preferred stock,
holders of our common stock will be entitled to share on a pro rata basis in any
distribution to stockholders upon our liquidation, dissolution or
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winding up. No holder of our common stock will have any preemptive right to
subscribe for any of our stock or other security.
PREFERRED STOCK
Our board of directors, without further action by the stockholders, may
from time to time authorize the issuance of shares of our preferred stock in one
or more series and, within certain limitations, fix the powers, preferences and
rights and the qualifications, limitations or restrictions thereof and the
number of shares constituting any series or designations of such series.
Satisfaction of any dividend preferences of our outstanding preferred stock
would reduce the amount of funds available for the payment of dividends on our
common stock. Holders of our preferred stock would normally be entitled to
receive a preference payment in the event of our liquidation, dissolution or
winding up before any payment is made to the holders of our common stock.
Under certain circumstances, the issuance of our preferred stock may render
more difficult or tend to discourage our change in control. Although we
currently have no plans to issue shares of our preferred stock, our board of
directors, without stockholder approval, may issue our preferred stock with
voting and conversion rights which could adversely affect the rights of holders
of shares of our common stock. For a description of the terms of our Series A
Junior Participating Preferred Stock. See "-- Rights Plan."
RIGHTS PLAN
Our board of directors has, subject to completion of the spin-off, declared
a dividend of one preferred share purchase right (each, a "Right") for each
outstanding share of our common stock. Each Right entitles the registered holder
to purchase from us one one-hundredth of a share of Series A Junior
Participating Preferred Stock (the "Preferred Shares") of Water Pik Technologies
at a price of $60 per one one-hundredth of a Preferred Share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are set
forth in a Rights Agreement between us and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
Until the earlier to occur of:
- a public announcement that a person or group of affiliated or associated
persons (an "Acquiring Person"), has acquired beneficial ownership of 15%
or more of our outstanding shares of common stock; or
- 10 business days (or such later date as may be determined by our board of
directors) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would
result in the beneficial ownership by a person or group of 15% or more of
our outstanding common stock (the earlier of such dates being the
"Distribution Date"), the Rights will be evidenced by the common stock
certificate with a copy of the Summary of Rights attached to it.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with our common stock. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new certificates of our common stock issued upon
transfer or new issuance of our common stock will contain a notation
incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for our common stock,
even without such notation
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or a copy of the Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with our common stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
Rights Certificates will be mailed to holders of record of our common stock as
of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The final
expiration date for the Rights will occur at the close of business on the tenth
anniversary of the date of the Rights Agreement, unless this date is extended or
unless the Rights are earlier redeemed or exchanged by us, in each case, as
described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares;
- upon the grant to holders of the Preferred Shares of certain rights or
warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares; or
- upon the distribution to holders of the Preferred Shares of evidence of
indebtedness or assets (excluding regular periodic cash dividends paid
out of earnings or retained earnings or dividends payable in Preferred
Shares) or of subscription rights or warrants (other than those referred
to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of our common stock or a stock dividend
on our common stock payable in shares of our common stock or subdivisions,
consolidations or combinations of our common stock occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of our common
stock. If we are liquidated, the holders of the Preferred Shares will be
entitled to a minimum preferential liquidation payment of $100 per share but
will be entitled to an aggregate payment of 100 times the payment made per share
of our common stock. Each Preferred Share will have 100 votes, voting together
with our common stock. Finally, if we engage in a merger, consolidation, or any
other transaction in which shares of our common stock are exchanged, each
Preferred Share will be entitled to receive 100 times the amount received per
share of our common stock. These rights are protected by customary antidilution
provisions.
The dividend, liquidation and voting rights attendant to one one-hundredth
of a Preferred Share purchasable upon exercise of each Right are designed to be
the approximate economic equivalent to one share of our common stock.
In the event that we are acquired in a merger or other business combination
transaction or 50% or more of our consolidated assets or earning power are sold
after a person or group has become an Acquiring Person, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of
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the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right. If any person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of shares of our common
stock having a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of our common stock, our board of directors may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one share of our common stock, or
one one-hundredth of a Preferred Share, per Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at our election, be evidenced by depository receipts) and, in
lieu thereof, an adjustment in cash will be made based on the market price of
the Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
shares of our common stock, our board of directors may redeem the Rights in
whole, but not in part, at a price of $.01 per Right. The redemption of the
Rights may be made effective at such time on such basis with such conditions as
our board of directors in its sole discretion may establish. Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the redemption
price.
The terms of the Rights may be amended by our board of directors without
the consent of the holders of the Rights, except that from and after such time
as any person or group of affiliated or associated persons becomes an Acquiring
Person, no such amendment may adversely affect the interests of the holders of
the Rights.
Until a Right is exercised, the holder of the Right will have no rights as
our stockholder, including, without limitation, the right to vote or to receive
dividends.
CERTAIN PROVISIONS OF OUR GOVERNING DOCUMENTS
The following is a description of certain provisions of our Certificate and
Bylaws. The description is qualified in its entirety by reference to the full
texts of the Certificate and Bylaws. Certain provisions of our Certificate and
Bylaws could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
us, without the approval of our board of directors.
CHARTER PROVISIONS AFFECTING CONTROL AND OTHER TRANSACTIONS. Our
Certificate requires the affirmative vote of the holders of at least two-thirds
of the outstanding shares of our common stock to approve certain fundamental
changes such as a merger, consolidation, sale of substantially all of our
assets, dissolution, certain purchases by us or one of our subsidiaries of
shares of our common stock or other assets from a "significant shareholder," any
merger of a "significant shareholder" into us or one of our subsidiaries, or any
reclassification or recapitalization of us consummated within five years after a
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"significant shareholder" becomes such, if the result of such reclassification
or recapitalization is to reduce the number of outstanding shares of our common
stock or convert any such shares into cash or other securities. This
supermajority voting requirement is not applicable if the fundamental change has
been approved at a meeting of our board of directors by the vote of more than
two-thirds of the incumbent directors. A "significant shareholder" is defined as
any person who owns beneficially a number of shares of our common stock that is
greater than 10% of the outstanding shares of our common stock, and any and all
associates and affiliates of such person.
CLASSIFICATION OF DIRECTORS. Our Certificate provides that our board of
directors will consist of three classes of directors. The initial members of our
board of directors will be divided into three classes to serve as follows: the
Class I director will initially hold office for a term to expire at the first
annual meeting of stockholders after his initial election; the Class II director
will initially hold office for a term to expire at the second annual meeting of
stockholders after his initial election; and the Class III directors will
initially hold office for a term to expire at the third annual meeting of
stockholders after their initial election. At each annual meeting of our
stockholders, only the election of directors of the class whose term is expiring
will be voted upon, and upon election each director will serve a three-year
term. See "Management -- Directors."
RIGHT TO CALL A SPECIAL MEETING. Our Certificate provides that special
meetings of the stockholders may only be called by the Chairman of our board of
directors or the Chief Executive Officer or by our board of directors pursuant
to a resolution passed by a majority of the directors then in office.
Accordingly, our stockholders will not have the right to call a special meeting
of the stockholders. Our Certificate further provides that only such business
will be conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to our notice of the special meeting.
Nominations of persons for election to our board of directors may be made
at a special meeting of stockholders at which directors are to be elected
pursuant to our notice of meeting (i) by or at the direction of our board of
directors or (ii) by any stockholder of record at the time of the giving of
notice of such meeting. Nominations by a stockholder of persons for election to
our board of directors may be made if the stockholder's notice is delivered to
our Secretary not earlier than the 90th day prior to the special meeting and not
later than the 75th day prior to the special meeting or the 10th day following
the day on which a public announcement is first made of the special meeting and
of the nominees proposed by the board of directors to be elected at the meeting.
PROCEDURES TO BRING BUSINESS BEFORE A MEETING; NO ACTION BY CONSENT. Our
Certificate provides that in order for nominations or other business to be
properly brought before an annual meeting by a stockholder, the stockholder must
give timely notice thereof in writing to our Secretary. To be timely, a
stockholder's notice must be delivered to our Secretary not less than 60 days
nor more than 90 days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
the anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and not
later than the 60th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is first made.
Our Certificate also provides that any action required to be taken by our
stockholders must be effected at a duly called annual or special meeting of our
stockholders and may not be effected by the written consent of our stockholders.
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FIDUCIARY DUTIES OF DIRECTORS. Our Certificate provides that our directors
may take into account the effects of their actions on our employees, suppliers,
distributors and customers and the effect upon communities in which our offices
or facilities are located or any other factors considered pertinent.
As permitted by the General Corporation Law of the State of Delaware (the
"DGCL"), our Certificate includes a provision eliminating the personal liability
of a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for unlawful payment of a dividend or an unlawful stock purchase or
redemption; and
- for any transaction from which the director derives an improper personal
benefit.
Our Certificate further provides that, if the DGCL is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of our directors shall be eliminated or limited to
the fullest extent so permitted. Our Certificate also specifies that no
amendment to or repeal of the provision shall apply to or have any effect on the
liability or alleged liability of any of our directors for or with respect to
any acts or omissions of such director occurring prior to the amendment or
repeal.
CHARTER AMENDMENTS. Our Certificate provides that the affirmative vote of
the holders of at least 75% of the combined voting power of the outstanding
shares of our capital stock is required to amend or rescind, or adopt any
provision inconsistent with the purpose or intent of the provisions of our
Certificate relating to the adoption, amendment and repeal of our Bylaws,
limitations of certain liabilities of directors, actions of stockholders,
classification of directors, certain factors permitted to be considered by the
directors, approval of certain fundamental changes, and amendments to our
Certificate.
BYLAW PROVISIONS REGARDING ATI DIRECTORS. Our Bylaws contain provisions
designed to ensure that at least a majority of our directors are also directors
of ATI until the third annual meeting of our stockholders held after the
spin-off. The Bylaws also provide that no quorum of the board will be deemed
present unless at least a majority of the directors present are also members of
the board of directors of ATI.
BYLAW AMENDMENTS. Our Certificate authorizes our board of directors to
adopt, amend or repeal our Bylaws. Our Certificate also provides that our
stockholders may not adopt, amend or repeal our Bylaws other than by the same
affirmative vote that is required to amend certain provisions of our Certificate
(See "-- Charter Amendments").
ANTI-TAKEOVER LEGISLATION
Since neither our Certificate nor our Bylaws contain a provision expressly
electing not to be governed by Section 203 of the DGCL, we are subject to this
statutory anti-takeover provision. Section 203 provides that any person who
acquires 15% or more of a corporation's voting stock (thereby becoming an
"interested stockholder") may not engage
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in a "business combination" with the corporation for a period of three years
following the time the person became an interested stockholder, unless:
- the board of directors of the corporation approved, prior to such time,
either the business combination or the transaction that resulted in the
person becoming an interested stockholder;
- upon consummation of the transaction that resulted in that person
becoming an interested stockholder, that person owns at least 85% of the
corporation's voting stock outstanding at the time the transaction
commenced (excluding shares owned by persons who are directors and
officers of that corporation and shares owned by employee stock plans in
which participants do not have the right to determine confidentially
whether shares will be tendered in a tender or exchange offer);
- the business combination is approved by the board of directors and
authorized by the affirmative vote (at an annual or special meeting and
not by written consent) of at least 66 2/3% of the outstanding shares of
voting stock not owned by the interested stockholder.
In determining whether a stockholder is the "owner" of 15% or more of a
corporation's voting stock for purposes of Section 203, ownership is defined to
include the right, directly or indirectly, to acquire stock or to control the
voting or disposition of stock. A "business combination" is defined to include:
- mergers or consolidations of a corporation with an interested
stockholder;
- sales or other dispositions of ten percent or more of the assets of a
corporation with or to an interested stockholder;
- certain transactions resulting in the issuance or transfer to an
interested stockholder of any stock of a corporation or its subsidiaries;
- certain transactions which would result in increasing the proportionate
share of the stock of a corporation or its subsidiaries owned by an
interested stockholder; and
- receipt by an interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges or other financial benefits from, by or to a corporation or any
of its majority-owned subsidiaries.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
LIABILITY AND INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS
ELIMINATION OF LIABILITY
As permitted by the DGCL, our Certificate eliminates, subject to certain
statutory limitations, the liability of directors to Water Pik Technologies or
its stockholders for monetary damages for breaches of fiduciary duty, except for
liability
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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- under Section 174 of the DGCL; or
- for any transaction from which the director derived an improper personal
benefit.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and, subject to
certain limitations, against certain costs and expenses, including attorney's
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his or her being a director or officer of
the corporation if it is determined that he or she acted in accordance with the
applicable standard of conduct set forth in such statutory provision.
Our Certificate provides that we will indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he or she is or
was one of our directors or officers, or is or was serving at our request as a
director, officer, employee or agent of another entity, against certain
liabilities, costs and expenses.
We are also authorized to maintain, and do maintain, insurance on behalf of
any person who is or was one of our directors or officers, or is or was serving
at our request as a director, officer, employee or agent of another entity
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of his or her status as such, whether or not
we would have the power to indemnify such person against such liability under
the DGCL.
AVAILABLE INFORMATION
We have filed a Registration Statement on Form 10 with the Securities and
Exchange Commission with respect to our common stock. The Registration Statement
and the exhibits to it contain some information not appearing in this
Information Statement. This Information Statement provides a summary of some of
the agreements and contracts appearing as exhibits to the Registration
Statement. You are encouraged to see the exhibits to the Registration Statement
for a more complete description of the contracts and agreements summarized in
this Information Statement.
You may access and read the Registration Statement and all of the exhibits
to it through the SEC's Internet site at www.sec.gov. This site contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. You may also read and copy any
document we file at the SEC's public reference room located at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room.
After the spin-off, we will be required to file annual, quarterly and
special reports and other information with the SEC. We will also be subject to
proxy solicitation requirements. Once filed, you can access this information
from the SEC in the manner set forth in the preceding paragraph. Following the
spin-off, our filings will also be available at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
82
<PAGE> 86
INDEX TO OUR FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Combined Statements of Income for the years ended December
31, 1998, 1997 and 1996..................................... F-3
Combined Balance Sheets for December 31, 1998 and 1997...... F-4
Combined Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-5
Combined Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996.................... F-6
Notes to Combined Financial Statements...................... F-7
Combined Statements of Income (unaudited) for the nine
months ended September 30, 1999 and 1998.................. F-20
Combined Balance Sheets for September 30, 1999 (unaudited)
and December 31, 1998 (audited)........................... F-21
Combined Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1999 and 1998.................. F-22
Combined Statements of Stockholder's Equity (unaudited) for
the nine months ended September 30, 1999 and 1998......... F-23
Notes to Interim Combined Financial Statements
(unaudited)............................................... F-24
</TABLE>
F-1
<PAGE> 87
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Water Pik Technologies, Inc.
We have audited the accompanying combined balance sheets of Water Pik
Technologies, Inc. as of December 31, 1998 and 1997 and the related combined
statements of income, stockholder's equity, and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Water Pik
Technologies, Inc. at December 31, 1998 and 1997, and the combined results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
April 13, 1999, except for Note 12 as to which the date is August 6, 1999
F-2
<PAGE> 88
WATER PIK TECHNOLOGIES, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SALES......................................... $235,788 $241,167 $215,675
Cost and expenses:
Cost of sales............................... 139,544 138,792 134,134
Selling expenses............................ 49,830 44,740 43,112
General and administrative expenses......... 27,382 29,251 26,119
-------- -------- --------
216,756 212,783 203,365
-------- -------- --------
Earnings before other income.................. 19,032 28,384 12,310
Other income.................................. 126 532 7
-------- -------- --------
INCOME BEFORE TAXES........................... 19,158 28,916 12,317
Provision for income taxes.................... 7,663 11,364 4,964
-------- -------- --------
NET INCOME.................................... $ 11,495 $ 17,552 $ 7,353
======== ======== ========
BASIC NET INCOME PER COMMON SHARE............. $ 1.17 $ 1.79 $ 0.77
======== ======== ========
DILUTED NET INCOME PER COMMON SHARE........... $ 1.17 $ 1.79 $ 0.77
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 89
WATER PIK TECHNOLOGIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash................................................ $ -- $ --
Accounts receivable, net............................ 46,335 48,270
Inventories......................................... 18,760 22,001
Deferred income taxes............................... 7,218 6,598
Prepared expenses and other current assets.......... 1,228 1,509
-------- --------
TOTAL CURRENT ASSETS........................... 73,541 78,378
Property, plant and equipment....................... 33,131 29,459
Cost in excess of net assets acquired............... 19,072 11,592
Deferred income taxes............................... -- 52
Other assets........................................ 2,050 493
-------- --------
TOTAL ASSETS................................... $127,794 $119,974
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable.................................... $ 18,880 $ 19,715
Accrued liabilities................................. 18,883 19,606
-------- --------
TOTAL CURRENT LIABILITIES...................... 37,763 39,321
Deferred income taxes............................... 1,209 --
-------- --------
TOTAL LIABILITIES.............................. 38,972 39,321
-------- --------
Stockholder's Equity:
Net advances from Allegheny Teledyne.............. 89,124 80,852
Foreign currency translation losses............... (302) (199)
-------- --------
TOTAL STOCKHOLDER'S EQUITY..................... 88,822 80,653
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..... $127,794 $119,974
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 90
WATER PIK TECHNOLOGIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................... $ 11,495 $ 17,552 $ 7,353
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 6,324 6,388 5,582
Deferred income taxes.................... 641 759 (348)
Gain or loss on sale of property, plant
and equipment.......................... (13) (446) 106
Change in operating assets and liabilities:
Inventories.............................. 4,955 4,422 1,506
Accounts receivable...................... 3,284 (8,497) 2,887
Accounts payable......................... (2,120) 6,849 (208)
Accrued liabilities...................... (1,520) (568) (2,208)
Other assets............................. (948) 834 (628)
Other....................................... 227 (263) (148)
-------- -------- --------
CASH PROVIDED BY OPERATING ACTIVITIES.... 22,325 27,030 13,894
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of business....................... (10,647) -- (13,480)
Purchases of property, plant and
equipment................................ (8,650) (6,480) (6,010)
Disposals of property, plant and
equipment................................ 155 1,312 --
Other....................................... 40 31 (112)
-------- -------- --------
CASH USED IN INVESTING ACTIVITIES........ (19,102) (5,137) (19,602)
-------- -------- --------
FINANCING ACTIVITIES:
Net advances (to) from Allegheny Teledyne... (3,223) (22,006) 5,821
-------- -------- --------
CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES............................. (3,223) (22,006) 5,821
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. -- (113) 113
Cash and cash equivalents at beginning of
year........................................ -- 113 --
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR...... $ -- $ -- $ 113
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 91
WATER PIK TECHNOLOGIES, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADVANCES ACCUMULATED
(TO) FROM OTHER
ALLEGHENY COMPREHENSIVE STOCKHOLDER'S
TELEDYNE INCOME EQUITY
--------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.............. $72,132 $ 106 $ 72,238
======= ===== ========
Net income.............................. 7,353 -- 7,353
Other comprehensive income, net of tax:
Foreign currency translation losses... -- (77) (77)
------- ----- --------
Comprehensive income.................... 7,353 (77) 7,276
Net transactions with Allegheny
Teledyne.............................. 5,821 -- 5,821
------- ----- --------
BALANCE, DECEMBER 31, 1996.............. 85,306 29 85,335
======= ===== ========
Net income.............................. 17,552 -- 17,552
Other comprehensive income, net of tax:
Foreign currency translation losses... -- (228) (228)
------- ----- --------
Comprehensive income.................... 17,552 (228) 17,324
Net transactions with Allegheny
Teledyne.............................. (22,006) -- (22,006)
------- ----- --------
BALANCE, DECEMBER 31, 1997.............. 80,852 (199) 80,653
======= ===== ========
Net income.............................. 11,495 -- 11,495
Other comprehensive income, net of tax:
Foreign currency translation losses... -- (103) (103)
------- ----- --------
Comprehensive income.................... 11,495 (103) 11,392
Net transactions with Allegheny
Teledyne.............................. (3,223) -- (3,223)
------- ----- --------
BALANCE, DECEMBER 31, 1998.............. $89,124 $(302) $ 88,822
======= ===== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 92
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. ALLEGHENY TELEDYNE INCORPORATED SPIN-OFF OF WATER PIK TECHNOLOGIES,
INC.
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 and water-heating products.
The Company's products include: shower heads; 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 Products and Pool and
Water-Heating Products.
In 1998, Allegheny Teledyne Incorporated ("Allegheny Teledyne") announced
that it would pursue a course of action that would result in the spin-off of
Water Pik Technologies to Allegheny Teledyne stockholders as an independent,
publicly-traded company (the "spin-off"). In August 1999, Allegheny Teledyne
received a favorable ruling from the Internal Revenue Service that the proposed
spin-off of Water Pik Technologies into a freestanding public company would be
treated as a tax-free distribution for federal income tax purposes. In September
1999, Allegheny Teledyne's Board of Directors approved the various transactions
pertaining to the spin-off and delegated to its Executive Committee the
authority to set the record date and distribution date for the spin-off.
Immediately following the spin-off, Allegheny Teledyne will no longer have a
financial investment in Water Pik Technologies.
Water Pik Technologies consists of the Consumer segment of Allegheny
Teledyne which includes the operations of the Teledyne Water Pik division with
operations in the U.S., Canada and Japan and the Teledyne Laars division with
operations in the U.S. and Canada.
A five-year $60,000,000 secured term loan and revolving credit facility
will be established by Allegheny Teledyne, and $34,000,000 of borrowings under
the facility will be used by Allegheny Teledyne prior to the spin-off to repay
certain of Allegheny Teledyne's debt obligations. Water Pik Technologies will
assume this term loan and credit facility, including the repayment obligations
for Allegheny Teledyne's $34,000,000 of borrowings, in connection with the
spin-off. Following the spin-off, Water Pik Technologies will have up to
$26,000,000 of borrowing availability remaining under the credit facility,
subject to the terms of the facility. In addition, prior to and in connection
with the spin-off, Water Pik Technologies and Allegheny Teledyne will enter into
agreements providing for the separation of the companies and governing various
relationships for separating employee benefits, tax obligations, indemnification
and transition services.
The financial statements of Water Pik Technologies include the combined
financial position, results of operations and cash flows of the businesses
described above. Allegheny Teledyne's historical cost basis of assets and
liabilities has been reflected in the Water Pik Technologies financial
statements. The financial information in these financial statements is not
necessarily indicative of results of operations, financial position and cash
flows that would have occurred if Water Pik Technologies had been a separate
stand-alone entity during the periods presented or of future results. The
combined financial statements included herein do not reflect any changes that
may occur in the capitalization and operations of Water Pik Technologies as a
result of, or after, the spin-off.
F-7
<PAGE> 93
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The combined financial statements of Water Pik Technologies include the
accounts of the businesses distributed by Allegheny Teledyne and its
subsidiaries as described in Note 1. These businesses were combined as they will
be wholly-owned subsidiaries under the common control of Water Pik Technologies.
Significant intercompany accounts and transactions have been eliminated.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates. Management believes that the estimates are
reasonable.
REVENUE RECOGNITION
Revenues are recorded upon shipment of product to customers and are net of
estimated returns and allowances. Sales returns and allowances are recognized
when the product has been received from the customer, has been inspected by the
Company and has been determined to be a valid claim. Sales returns and
allowances of $16,239,000, $16,193,000 and $17,690,000 in 1998, 1997 and 1996,
respectively, are reflected in net sales amounts on the income statements.
INTERNATIONAL SALES
Total international sales were $37,185,000 in 1998, $41,099,000 in 1997 and
$37,780,000 in 1996. Of these amounts, sales by operations in the United States
to customers in other countries were $28,468,000 in 1998, $31,499,000 in 1997
and $29,338,000 in 1996. There were no sales to individual countries outside of
the United States in excess of 10 percent of the Company's net sales.
PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT COSTS
Product development and research and development costs ($7,734,000 in 1998,
$8,879,000 in 1997 and $7,592,000 in 1996) are expensed as incurred.
ADVERTISING COSTS
Advertising costs ($24,664,000 in 1998, $20,250,000 in 1997 and $17,939,000
in 1996) are expensed in the year incurred.
WARRANTY COSTS AND RESERVES
The Company's return policy is to replace, repair or issue credit for
product under warranty. The Company has established an accrual for these
anticipated future warranty costs. Amounts expensed for warranty costs were
$4,924,000, $5,673,000 and $4,098,000 in 1998, 1997 and 1996, respectively.
F-8
<PAGE> 94
INCOME TAXES
Provision for income taxes includes deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method.
Such temporary differences result primarily from differences in the carrying
value of assets and liabilities.
NET INCOME PER COMMON SHARE
The average number of shares of Water Pik Technologies common stock used in
the computation of basic net income per common share was 9,837,534, 9,830,038
and 9,561,061 for the years ended December 31, 1998, 1997 and 1996,
respectively, based on a distribution ratio of one share of Water Pik
Technologies common stock for every 20 shares of Allegheny Teledyne common
stock. The average number of shares of Water Pik Technologies common stock used
in the computation of diluted net income per common share was 9,838,465,
9,831,222 and 9,561,754 for the years ended December 31, 1998, 1997 and 1996,
respectively. A distribution ratio of one share of Water Pik Technologies common
stock for every 20 shares of Allegheny Teledyne common stock was used to adjust
the stock options. The actual stock option adjustment will be based upon the
relation of the market price of Allegheny Teledyne common stock prior to the
spin-off to the market price of Water Pik Technologies after the spin-off and
therefore cannot be determined at the present time.
ACCOUNTS RECEIVABLE
Receivables are presented net of a reserve for doubtful accounts of
$1,756,000 at December 31, 1998 and $1,952,000 at December 31, 1997. The Company
markets its products to a diverse customer base, principally throughout the
United States and Canada. Trade credit is extended based upon evaluations of
each customer's ability to perform its obligations, which are updated
periodically.
INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out and
first-in, first-out cost methods) or market.
PROPERTY AND EQUIPMENT
Property, plant and equipment are carried at cost. The method of
depreciation adopted for all property placed into service after July 1, 1996 is
the straight-line method. For buildings and equipment acquired prior to July 1,
1996, depreciation is computed using a combination of accelerated and
straight-line methods. The Company believes the straight-line method more
appropriately reflects its financial results by better allocating costs of new
property over the useful lives of these assets. The effect of this change on net
income in 1996 was not material.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired related to businesses purchased after
November 1970 are being amortized on a straight-line basis over periods not
exceeding 15 years. Goodwill amortization expense was $1,096,000, $894,000 and
$546,000 in 1998, 1997 and
F-9
<PAGE> 95
1996, respectively. Accumulated amortization was $2,611,000 and $1,515,000 at
December 31, 1998 and 1997, respectively.
FOREIGN CURRENCY TRANSLATION
The Company's foreign entities' accounts are measured using local currency
as the functional currency. Assets and liabilities are translated at the
exchange rate in effect at year-end. Revenues and expenses are translated at the
rates of exchange prevailing during the year. Translation adjustments arising
from differences in exchange rates from period to period are included in the
cumulative foreign currency translation account in stockholder's equity.
NOTE 3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................. $11,616 $13,955
Work-in-process............................. 3,406 3,896
Finished goods.............................. 8,795 8,783
------- -------
Total inventories at current cost........... 23,817 26,634
Less allowances to reduce current cost
values to LIFO basis...................... (5,057) (4,633)
------- -------
Total inventories........................... $18,760 $22,001
======= =======
</TABLE>
Inventories determined on the last-in, first-out method were $9,748,000 at
December 31, 1998 and $13,660,000 at December 31, 1997. The remainder of the
inventory was determined using the first-in, first-out method. These inventory
values do not differ materially from current cost.
During 1997, the discontinuation of a product line resulted in a
liquidation of last-in, first-out inventory quantities. This inventory was
carried at the lower costs prevailing in prior years as compared with the cost
of current purchases. The effect of this last-in, first-out liquidation was to
increase net income by $625,000 in 1997.
F-10
<PAGE> 96
NOTE 4. SUPPLEMENTAL BALANCE SHEET INFORMATION
Property, plant and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land........................................ $ 4,694 $ 4,699
Buildings................................... 19,576 19,243
Equipment and leasehold improvements........ 49,868 43,421
-------- --------
74,138 67,363
Accumulated depreciation and amortization... (41,007) (37,904)
-------- --------
Total property, plant and equipment......... $ 33,131 $ 29,459
======== ========
</TABLE>
Accrued liabilities included salaries and wages of $6,269,000 and
$7,725,000 at December 31, 1998 and 1997, respectively. Accrued warranty
reserves were $3,165,000 and $3,047,000 at December 31, 1998 and 1997,
respectively.
NOTE 5. STOCKHOLDER'S EQUITY
Allegheny Teledyne sponsors an incentive plan that provides for stock
option awards to officers and key employees. Water Pik Technologies has officers
and key employees who have participated in this plan. Water Pik Technologies
accounts for its stock option plans in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. Under
APB Opinion No. 25, no compensation expense is recognized because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock at the date of the grant.
If compensation cost for these options had been determined using the
fair-value method prescribed by FASB Statement No. 123, "Accounting for
Stock-based Compensation," net income would have been reduced by $164,000,
$23,000, and $20,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Under FASB Statement No. 123, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions (there were no option grants in
1997):
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- -----
<S> <C> <C> <C>
Expected dividend yield................................. 2.9% --% 3.9%
Expected volatility..................................... 31% --% 31%
Risk-free interest rate................................. 4.9% --% 6.3%
Expected lives.......................................... 8.0 -- 8.0
Weighted-average fair value of options granted during $6.94 $-- $4.25
year..................................................
</TABLE>
The pro forma amounts above are not necessarily representative of the
effects of awards on future pro forma earnings because future grants of employee
stock options by Water Pik Technologies management may not be comparable to
awards made to employees while Water Pik Technologies was part of Allegheny
Teledyne and the assumptions used to compute the fair value of any stock option
awards will be specific to
F-11
<PAGE> 97
Water Pik Technologies and therefore may not be comparable to the Allegheny
Teledyne assumptions used.
Stock option transactions in Allegheny Teledyne common stock under
Allegheny Teledyne's incentive plan for Water Pik Technologies employees are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- -------------------- --------------------
WEIGHTED- WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
year.................. 45,200 $12.94 46,200 $12.94 25,025 $11.52
Granted................. 211,500 $22.28 -- $ -- 21,175 $14.61
Exercised............... -- $ -- (1,000) $12.86 -- $ --
------- ------ ------ ------ ------ ------
Outstanding end of
year.................. 256,700 $20.64 45,200 $12.94 46,200 $12.94
======= ====== ====== ====== ====== ======
Exercisable at end
of year............... 30,531 $12.37 21,156 $11.72 10,106 $10.37
======= ====== ====== ====== ====== ======
</TABLE>
Exercise prices for outstanding options to purchase Allegheny Teledyne
common stock as of December 31, 1998 ranged from $8.51 to $25.88. The
weighted-average remaining contractual life of those options is 9.3 years.
In connection with the spin-off of Water Pik Technologies, outstanding
stock options held by Water Pik Technologies employees will be converted into
options to purchase Water Pik Technologies common stock. The number of shares
and the exercise price of each Allegheny Teledyne option that is converted to a
Water Pik Technologies option will be converted based upon a formula that
preserves the inherent economic value, vesting and term provisions of such
Allegheny Teledyne options. The exchange ratio and fair market value of the
Water Pik Technologies common stock, upon active trading, will also impact the
number of options issued to Water Pik Technologies employees. The ultimate
number of stock options to be held by Water Pik Technologies employees and the
number and exercise price of the Water Pik Technologies stock options to be
issued, subject to the above calculation, cannot be determined until after the
spin-off.
Water Pik Technologies intends to establish its own long-term incentive
plan which will provide its Board of Directors the flexibility to grant
restricted stock, incentive stock options, stock appreciation rights and
non-qualified stock options to officers and employees of Water Pik Technologies.
F-12
<PAGE> 98
NOTE 6. RELATED PARTY TRANSACTIONS
The accompanying financial statements include transactions with Allegheny
Teledyne as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net advances from Allegheny Teledyne, beginning
of the year.................................... $80,852 $85,306 $72,132
Net cash transactions with Allegheny Teledyne:
Current provision for income taxes............. 7,022 10,605 5,312
Insurance expense.............................. 3,948 4,263 4,069
Corporate general and administrative expense... 2,358 2,412 2,157
Pension expense................................ 1,483 1,591 1,591
Other net cash to Allegheny Teledyne........... (18,034) (40,877) (7,308)
------- ------- -------
Net cash transactions with Allegheny
Teledyne.................................... (3,223) (22,006) 5,821
Net income....................................... 11,495 17,552 7,353
------- ------- -------
Net advances from Allegheny Teledyne, end of
the year....................................... $89,124 $80,852 $85,306
======= ======= =======
</TABLE>
The average net advances from Allegheny Teledyne were $84,988,000,
$83,079,000 and $78,719,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
Water Pik Technologies participates in Allegheny Teledyne's centralized
cash management system. Cash receipts in excess of cash requirements are
transferred to Allegheny Teledyne. These transactions with Allegheny Teledyne
are non-interest bearing and the net advances fluctuate on a daily basis.
Corporate general and administrative expenses represent allocations for
expenses incurred by Allegheny Teledyne on the Company's behalf including costs
for finance, legal, tax and human resources functions. Amounts above were
allocated based on net sales, which management believes to be reasonable. Water
Pik Technologies also participates in casualty, medical and life insurance
programs sponsored by Allegheny Teledyne. Insurance expense was allocated to
Water Pik Technologies based upon actual losses incurred plus a share of pooled
catastrophic losses under the Allegheny Teledyne self-insurance program. In the
opinion of management, the allocations of these expenses are reasonable. The
expenses allocated for these services and programs are not necessarily
indicative of the expenses that would have been incurred if Water Pik
Technologies had been a separate, independent public entity and had managed
these functions. The Company may incur additional general and administrative
expenses, pension and insurance costs and other costs as a result of operating
independently of Allegheny Teledyne.
In addition, prior to and in connection with the spin-off, Water Pik
Technologies and Allegheny Teledyne will enter into agreements providing for the
separation of the companies and governing various relationships for separating
employee benefits, tax obligations, indemnification and transition services.
There was a payable of $136,000 at December 31, 1998 and $218,000 at
December 31, 1997 to other Allegheny Teledyne subsidiaries.
F-13
<PAGE> 99
NOTE 7. INCOME TAXES
Water Pik Technologies is included in the consolidated federal and certain
state income tax returns of Allegheny Teledyne. Any required tax payments were
made by Allegheny Teledyne as part of its consolidated returns. Provision for
income taxes was calculated as if Water Pik Technologies had filed separate
income tax returns. Provision for income taxes was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ --------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $6,070 $ 9,115 $4,566
State.......................................... 952 1,490 746
------ --------- ------
Total....................................... 7,022 10,605 5,312
------ --------- ------
Deferred:
Federal........................................ 599 701 (299)
State.......................................... 42 58 (49)
------ --------- ------
Total....................................... 641 759 (348)
------ --------- ------
Provision for income taxes....................... $7,663 $ 11,364 $4,964
====== ========= ======
</TABLE>
The following is a reconciliation of the statutory federal income tax rate
to the actual effective income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal tax rate.......................................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax
benefit................................................... 3.5 3.4 4.0
Other..................................................... 1.5 0.9 1.3
---- ---- ----
Effective income tax rate................................. 40.0% 39.3% 40.3%
==== ==== ====
</TABLE>
Deferred income taxes result from temporary differences in the recognition
of income and expense for financial and income tax reporting purposes, and
differences between the fair value of assets acquired in business combinations
accounted for as purchases for financial reporting purposes and their
corresponding tax bases. Deferred income taxes represent future tax benefits or
costs to be recognized when those temporary differences
F-14
<PAGE> 100
reverse. The categories of assets and liabilities that have resulted in
differences in the timing of the recognition of income and expense were as
follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred Income Tax Assets:
Reserves.................................................... $3,587 $4,081
Inventory valuation....................................... 1,496 1,497
Vacation pay accrual...................................... 883 925
Deferred compensation and other benefit plans............. 133 26
Intangible assets......................................... 8 333
Other items............................................... 16 69
------ ------
Total deferred income tax assets............................ 6,123 6,931
------ ------
Deferred Income Tax Liabilities:
Bases of property, plant and equipment.................... 114 281
------ ------
Total deferred income tax liabilities....................... 114 281
------ ------
Net deferred income tax asset............................... $6,009 $6,650
====== ======
</TABLE>
NOTE 8. PENSION PLAN AND RETIREMENT BENEFITS
Certain Water Pik Technologies employees participate in the noncontributory
defined benefit plan sponsored by Allegheny Teledyne. Benefits under the defined
benefit plan are generally based on years of service and/or final average pay.
Allegheny Teledyne funds the pension plan in accordance with the requirements of
the Employee Retirement Income Security Act of 1974, as amended, and the
Internal Revenue Code. Subsequent to the spin-off of Water Pik Technologies,
Allegheny Teledyne will retain the obligation associated with the Water Pik
Technologies employees that participate in this plan.
Net periodic pension expense associated with the Allegheny Teledyne defined
benefit plan allocated to Water Pik Technologies was $1,483,000 in the year
ended December 31, 1998 and $1,591,000 in both the years ended December 31, 1997
and 1996.
Water Pik Technologies participates in a defined contribution plan
sponsored by Allegheny Teledyne maintained for substantially all of its
employees. The costs associated with this plan were $616,000, $279,000 and
$286,000 in 1998, 1997 and 1996, respectively. Subsequent to the distribution,
Water Pik Technologies intends to establish its own enhanced defined
contribution plan to replace the former defined benefit plan.
NOTE 9. BUSINESS SEGMENTS
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 competes in several product
categories including: shower heads; oral health products; water filtration
products; pool and spa heaters, controls, valves and water features; and
residential and commercial water-heating systems.
F-15
<PAGE> 101
Water Pik Technologies operates in two business segments: Personal Health
Care Products and Pool and Water-Heating Products.
Information on the Company's business segments was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales:
Personal Health Care Products................... $125,763 $141,792 $141,133
Pool and Water-Heating Products............... 110,025 99,375 74,542
-------- -------- --------
Total sales..................................... $235,788 $241,167 $215,675
======== ======== ========
Operating profit:
Personal Health Care Products................. $ 9,426 $ 19,552 $ 9,646
Pool and Water-Heating Products............... 9,606 8,832 2,664
-------- -------- --------
Total operating profit.......................... 19,032 28,384 12,310
Other income.................................... 126 532 7
-------- -------- --------
Income before income taxes...................... $ 19,158 $ 28,916 $ 12,317
======== ======== ========
Depreciation and amortization:
Personal Health Care Products................. $ 3,234 $ 3,706 $ 3,233
Pool and Water-Heating Products............... 3,090 2,682 2,349
-------- -------- --------
$ 6,324 $ 6,388 $ 5,582
======== ======== ========
Capital expenditures:
Personal Health Care Products................. $ 5,194 $ 4,390 $ 4,405
Pool and Water-Heating Products............... 3,456 2,090 1,605
-------- -------- --------
$ 8,650 $ 6,480 $ 6,010
======== ======== ========
Identifiable assets:
Personal Health Care Products................. $ 43,890 $ 50,559 $ 53,760
Pool and Water-Heating Products............... 76,686 62,765 57,206
Corporate..................................... 7,218 6,650 7,409
-------- -------- --------
$127,794 $119,974 $118,375
======== ======== ========
</TABLE>
NOTE 10. ACQUISITIONS
In August 1998, Water Pik Technologies acquired the assets of Trianco
Heatmaker, Inc. ("Trianco"), a manufacturer of high efficiency gas and oil
boiler and water-heating products based in Randolph, Massachusetts for
$10,647,000 in cash. In connection with the purchase, the Company acquired
working capital of $1,030,000, property, plant and equipment of $255,000 and
intangibles of $786,000. The goodwill recorded as part of this transaction was
$8,576,000. Had Trianco been purchased at the beginning of 1998, pro
F-16
<PAGE> 102
forma sales, net income, basic and diluted net income per common share would
have been approximately $240,000,000, $11,000,000, $1.12 and $1.12,
respectively. Had Trianco been purchased at the beginning of 1997, pro forma
sales, net income, basic and diluted net income per common share would have been
approximately $252,000,000, $17,000,000, $1.73 and $1.73, respectively.
In May 1996, Water Pik Technologies acquired Jandy Industries,
Inc.("Jandy"), a United States producer of water flow control valves and
electronic control systems for the swimming pool industry. The business was
purchased for $13,480,000 in cash, excluding payments for contingent
consideration. In connection with the purchase, the Company acquired current
assets of $10,099,000, property, plant and equipment of $902,000 and current
liabilities of $10,346,000. The goodwill recorded as part of this transaction
was $12,825,000. In addition, as part of this transaction, there was contingent
consideration based on minimum sales volume achieved over the three years ended
December 31, 1998, 1997 and 1996. The contingent consideration was accounted for
as a purchase price adjustment. All minimum sales levels were achieved, and
Water Pik Technologies paid $500,000 to the seller in each of these three years.
Had Jandy been purchased at the beginning of 1996, pro forma sales, net income,
basic and diluted net income per common share would have been approximately
$225,000,000, $5,000,000, $0.52 and $0.52, respectively.
Both of these acquisitions were accounted for as purchase transactions and
their operations are included in the financial statements from the date of
acquisition.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Rental expense under operating leases was $1,699,000 in 1998, $1,520,000 in
1997 and $1,454,000 in 1996. Future minimum rental commitments under operating
leases with non-cancelable terms of more than one year as of December 31, 1998,
were as follows: $731,000 in 1999, $578,000 in 2000, $311,000 in 2001, $180,000
in 2002 and $85,000 in 2003.
In connection with the spin-off, Allegheny Teledyne received a tax ruling
from the Internal Revenue Service stating that the spin-off will be tax-free to
Allegheny Teledyne and to Allegheny Teledyne's stockholders. The continuing
validity of the Internal Revenue Service tax ruling is subject to certain
factual representations and assumptions, including completion of the required
public offering of the Company's common stock within approximately one year
following the spin-off and use of the anticipated gross proceeds of $50,000,000
(less associated costs) for further development of high quality, lower cost
manufacturing capabilities, for product line extensions, to expand channels of
distribution, and for acquisitions and/or joint ventures. Pursuant to the
Separation and Distribution Agreement that the Company will sign prior to the
spin-off, Water Pik Technologies will agree with Allegheny Teledyne to undertake
such a public offering.
The Tax Sharing and Indemnification Agreement between Allegheny Teledyne
and Water Pik Technologies provides that the Company will indemnify Allegheny
Teledyne and its representatives and agents for taxes imposed on, and other
amounts paid by, them or Allegheny Teledyne stockholders if the Company takes
actions or fails to take actions (such as completing the public offering) that
result in the spin-off not qualifying as a tax-free distribution. If the Company
were required to so indemnify Allegheny Teledyne, such an obligation would have
a material adverse effect on the Company's business, results of
F-17
<PAGE> 103
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.
Water Pik Technologies participates in the general liability, product
liability, and workers' compensation insurance programs sponsored by Allegheny
Teledyne. 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 Allegheny Teledyne for losses
attributable to the Company's 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, Allegheny
Teledyne will transfer to the Company reserves for estimated losses under these
insurance programs totaling $10,423,000. 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 or liquidity, although the timing of the adjustments to estimated
insurance reserves could have a material adverse effect on the Company's results
of operations for the periods in which the adjustments are made.
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, 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 or one or more of these matters could have a material adverse
effect on the Company's results of operations for that period.
NOTE 12. SUBSEQUENT EVENTS
In August 1999, Water Pik Technologies acquired substantially all of the
assets of Les Agencies Claude Marchand, Inc. ("Olympic"), a pool accessories
manufacturer and distributor, doing business in Canada as Olympic Pool
Accessories, for $2,500,000 in cash and a $6,597,000 promissory note. In
connection with the purchase, the Company acquired $2,053,000 of working
capital, $3,175,000 of property, plant and equipment and $541,000 of debt. The
goodwill recorded as part of this transaction was $4,410,000. Olympic is located
in Montreal, Quebec, and produces a full line of pool accessories ranging from
cleaning and maintenance equipment supplies to white goods, ladders, solar
reels, floating lounges, pool toys and games. Olympic's products are distributed
in Canada, Europe and the United States. Water Pik Technologies expects to
distribute these pool accessories in the U.S. and Europe under its Water Pik(TM)
and Jandy(TM) brand names.
This acquisition will be accounted for as a purchase transaction.
F-18
<PAGE> 104
NOTE 13. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998 --
Sales................................ $48,613 $56,864 $56,541 $73,770
Gross profit......................... $19,114 $23,391 $23,801 $29,938
Net income........................... $ 555 $ 2,826 $ 3,015 $ 5,099
1997 --
Sales................................ $50,503 $63,832 $57,346 $69,486
Gross profit......................... $19,363 $27,964 $24,513 $30,535
Net income........................... $ 988 $ 6,224 $ 4,047 $ 6,293
</TABLE>
F-19
<PAGE> 105
WATER PIK TECHNOLOGIES, INC.
COMBINED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SALES.................................................... $176,488 $162,018
Costs and expenses:
Cost of sales.......................................... 108,616 95,712
Selling expenses....................................... 35,444 35,993
General and administrative expenses.................... 22,326 19,751
-------- --------
166,386 151,456
-------- --------
Earnings before other income............................. 10,102 10,562
Other income............................................. 47 98
-------- --------
INCOME BEFORE INCOME TAXES............................... 10,149 10,660
Provision for income taxes............................... 4,060 4,264
-------- --------
NET INCOME............................................... $ 6,089 $ 6,396
======== ========
BASIC NET INCOME PER COMMON SHARE........................ $ 0.63 $ 0.65
======== ========
DILUTED NET INCOME PER COMMON SHARE...................... $ 0.63 $ 0.65
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 106
WATER PIK TECHNOLOGIES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash................................................ $ -- $ --
Accounts receivable, net............................ 33,735 46,335
Inventories......................................... 26,366 18,760
Deferred income taxes............................... 7,166 7,218
Prepaid expenses and other current assets........... 967 1,228
-------- --------
TOTAL CURRENT ASSETS........................... 68,234 73,541
Property, plant and equipment....................... 35,746 33,131
Cost in excess of net assets acquired............... 22,370 19,072
Other assets........................................ 1,936 2,050
-------- --------
TOTAL ASSETS................................... $128,286 $127,794
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable.................................... $ 20,481 $ 18,880
Accrued liabilities................................. 20,691 18,883
Current portion of long-term debt................... 243 --
-------- --------
TOTAL CURRENT LIABILITIES...................... 41,415 37,763
Long-term debt...................................... 6,864 --
Deferred income taxes............................... 1,162 1,209
-------- --------
TOTAL LIABILITIES.............................. 49,441 38,972
-------- --------
Stockholder's Equity:
Net advances from Allegheny Teledyne.............. 79,017 89,124
Foreign currency translation losses............... (172) (302)
-------- --------
TOTAL STOCKHOLDER'S EQUITY..................... 78,845 88,822
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..... $128,286 $127,794
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE> 107
WATER PIK TECHNOLOGIES, INC.
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income................................................ $ 6,089 $ 6,396
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 6,364 4,702
Gain on sale of property, plant and equipment........ (11) (8)
Deferred income taxes................................ 5 1,057
Change in operating assets and liabilities:
Accounts receivable.................................. 14,379 15,273
Inventories.......................................... (5,034) (619)
Accrued liabilities.................................. 886 (780)
Accounts payable..................................... 181 (5,124)
Other assets......................................... (174) (849)
Other................................................... 435 (173)
-------- -------
CASH PROVIDED BY OPERATING ACTIVITIES................ 23,120 19,875
-------- -------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment............... (4,340) (3,445)
Purchases of businesses................................. (2,500) (10,200)
Disposals of property, plant and equipment.............. 31 18
Other................................................... (84) 199
-------- -------
CASH USED IN INVESTING ACTIVITIES.................... (6,893) (13,428)
-------- -------
FINANCING ACTIVITIES:
Net advances to Allegheny Teledyne...................... (16,196) (6,447)
Other................................................... (31) --
-------- -------
CASH USED IN FINANCING ACTIVITIES.................... (16,227) (6,447)
-------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... -- --
Cash and cash equivalents at beginning of year............ -- --
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ -- $ --
======== =======
NON-CASH TRANSACTIONS:
Net assets acquired under promissory note............... $ 6,597 $ --
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 108
WATER PIK TECHNOLOGIES, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
ADVANCES ACCUMULATED
(TO) FROM OTHER
ALLEGHENY COMPREHENSIVE STOCKHOLDER'S
TELEDYNE INCOME EQUITY
--------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997.............. $ 80,852 $(199) $ 80,653
======== ===== ========
Net income.............................. 6,396 -- 6,396
Other comprehensive income, net of tax:
Foreign currency translation losses... -- (290) (290)
-------- ----- --------
Comprehensive income.................... 6,396 (290) 6,106
Net transactions with Allegheny
Teledyne.............................. (6,447) -- (6,447)
-------- ----- --------
BALANCE, SEPTEMBER 30, 1998............. $ 80,801 $(489) $ 80,312
======== ===== ========
BALANCE, DECEMBER 31, 1998.............. $ 89,124 $(302) $ 88,822
======== ===== ========
Net income.............................. 6,089 -- 6,089
Other comprehensive income, net of tax:
Foreign currency translation gains.... -- 130 130
-------- ----- --------
Comprehensive income.................... 6,089 130 6,219
Net transactions with Allegheny
Teledyne.............................. (16,196) -- (16,196)
-------- ----- --------
BALANCE, SEPTEMBER 30, 1999............. $ 79,017 $(172) $ 78,845
======== ===== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE> 109
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
These interim combined financial statements include the accounts of Water
Pik Technologies, Inc. ("Water Pik Technologies" or the "Company"). These
unaudited combined financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and note disclosures
required by generally accepted accounting principles for complete financial
statements. In the opinion of the Company, all adjustments (which include only
normal recurring adjustments) considered necessary for a fair presentation have
been included. These unaudited combined financial statements should be read in
conjunction with the annual combined financial statements and related notes
included in this Information Statement. The results of operations for these
interim periods are not necessarily indicative of the operating results for a
full year.
The average number of shares of Water Pik Technologies common stock used in
the computation of basic net income per common share was 9,618,480 and 9,844,109
for the nine months ended September 30, 1999 and 1998, respectively, based on a
distribution ratio of one share of Water Pik Technologies common stock for every
20 shares of Allegheny Teledyne common stock. The average number of shares of
Water Pik Technologies common stock used in the computation of diluted net
income per common share was 9,619,589 and 9,845,085 for the nine months ended
September 30, 1999 and 1998, respectively. A distribution ratio of one share of
Water Pik Technologies common stock for every 20 shares of Allegheny Teledyne
common stock was used to adjust the stock options. The actual stock option
adjustment will be based upon the relation of the market price of Allegheny
Teledyne common stock prior to the spin-off to the market price of Water Pik
Technologies after the spin-off and therefore cannot be determined at the
present time.
NOTE 2. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................. $13,758 $11,616
Work-in-process............................. 4,638 3,406
Finished goods.............................. 12,505 8,795
------- -------
Total inventories at current cost........... 30,901 23,817
Less allowances to reduce current cost
values to LIFO basis...................... (4,535) (5,057)
------- -------
Total inventories........................... $26,366 $18,760
======= =======
</TABLE>
F-24
<PAGE> 110
NOTE 3. BUSINESS SEGMENTS
Information on the Company's business segments for the nine months ended
September 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Sales:
Personal Health Care Products.................... $ 86,610 $ 87,843
Pool and Water-Heating Products................ 89,878 74,175
-------- --------
Total sales.................................... $176,488 $162,018
======== ========
Operating profit:
Personal Health Care Products.................. $ 3,377 $ 5,367
Pool and Water-Heating Products................ 6,725 5,195
-------- --------
Total operating profit........................... 10,102 10,562
Other income..................................... 47 98
-------- --------
Income before income taxes....................... $ 10,149 $ 10,660
======== ========
</TABLE>
NOTE 4. COMMITMENTS AND CONTINGENCIES
In connection with the spin-off, Allegheny Teledyne received a tax ruling
from the Internal Revenue Service stating that the spin-off will be tax-free to
Allegheny Teledyne and to Allegheny Teledyne's stockholders. The continuing
validity of the Internal Revenue Service tax ruling is subject to certain
factual representations and assumptions, including completion of the required
public offering of the Company's common stock within approximately one year
following the spin-off and use of the anticipated gross proceeds of $50,000,000
(less associated costs) for further development of high quality, lower cost
manufacturing capabilities, for product line extensions, to expand channels of
distribution, and for acquisitions and/or joint ventures. Pursuant to the
Separation and Distribution Agreement that the Company will sign prior to the
spin-off, Water Pik Technologies will agree with Allegheny Teledyne to undertake
such a public offering.
The Tax Sharing and Indemnification Agreement between Allegheny Teledyne
and Water Pik Technologies provides that the Company will indemnify Allegheny
Teledyne and its representatives and agents for taxes imposed on, and other
amounts paid by, them or its stockholders if the Company takes actions or fails
to take actions (such as completing the public offering) that result in the
spin-off not qualifying as a tax-free distribution. If the Company were required
to so indemnify Allegheny Teledyne, such an obligation 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.
Water Pik Technologies participates in the general liability, product
liability, and workers' compensation insurance programs sponsored by Allegheny
Teledyne. 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 Allegheny Teledyne for losses
attributable to the Company's operations prior to the
F-25
<PAGE> 111
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, Allegheny Teledyne will transfer to the Company reserves for estimated
losses under these insurance programs totaling $10,423,000. 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 or liquidity, although the
timing of the adjustments to estimated insurance reserves could have a material
adverse effect on the Company's results of operations for the periods in which
the adjustments are made.
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, 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 or one or more of these matters could have a material adverse
effect on the Company's results of operations for that period.
NOTE 5. ACQUISITION
In August 1999, Water Pik Technologies acquired substantially all of the
assets of Les Agencies Claude Marchand, Inc. ("Olympic"), a pool accessories
manufacturer and distributor, doing business in Canada as Olympic Pool
Accessories, for $2,500,000 in cash and a $6,597,000 promissory note. In
connection with the purchase, the Company acquired $2,053,000 of working
capital, $3,175,000 of property, plant and equipment and $541,000 of debt. The
goodwill recorded as part of this transaction was $4,410,000. Olympic is located
in Montreal, Quebec, and produces a full line of pool accessories ranging from
cleaning and maintenance equipment supplies to white goods, ladders, solar
reels, floating lounges, pool toys and games. Olympic's products are distributed
in Canada, Europe and the United States. Water Pik Technologies expects to
distribute these pool accessories in the U.S. and Europe under its Water Pik(TM)
and Jandy(TM) brand names.
Had Olympic been purchased at the beginning of 1999, pro forma sales, net
income, basic and diluted net income per common share would have been
approximately $191,000,000, $7,000,000, $0.73 and $0.73, respectively, for the
nine months ended September 30, 1999. Had Olympic been purchased at the
beginning of 1998, pro forma sales, net income, basic and diluted net income per
common share would have been approximately $248,000,000, $11,000,000, $1.12 and
$1.12, respectively, for the year ended December 31, 1998.
This acquisition was accounted for as a purchase transaction and its
operations are included in the financial statements from the date of
acquisition.
F-26
<PAGE> 112
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Form of Separation and Distribution Agreement between
Allegheny Teledyne Incorporated, TII Holdings, LLC, Teledyne
Industries, Inc. and Water Pik Technologies, Inc.
3.1 Form of Restated Certificate of Incorporation of Water Pik
Technologies, Inc.*
3.2 Form of Amended and Restated Bylaws of Water Pik
Technologies, Inc.*
4.1 Specimen Certificate for Common Stock of Water Pik
Technologies, Inc.*
4.2 Form of Rights Agreement between Water Pik Technologies,
Inc. and ChaseMellon Shareholder Services, L.L.C.*
10.1 Form of Tax Sharing and Indemnification Agreement between
Allegheny Teledyne Incorporated and Water Pik Technologies,
Inc.*
10.2 Form of Interim Services Agreement between Allegheny
Teledyne Incorporated and Water Pik Technologies, Inc.*
10.3 Form of Employee Benefits Agreement between Allegheny
Teledyne Incorporated and Water Pik Technologies, Inc.
10.4 Amended and Restated Employment Agreement of Michael P.
Hoopis*
10.5 Form of Employment Agreement entered into with certain
executives of Water Pik Technologies, Inc., together with
Schedule*
10.6 Form of Water Pik Technologies, Inc. 1999 Non-Employee
Director Stock Compensation Plan
10.7 Form of Water Pik Technologies, Inc. 1999 Incentive Plan
10.8 Form of Water Pik Technologies, Inc. Fee Continuation Plan
for Non-Employee Directors*
21.1 Significant Subsidiaries of Water Pik Technologies, Inc.*
27.1 Financial Data Schedule*
</TABLE>
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* Previously filed.
<PAGE> 113
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
WATER PIK TECHNOLOGIES, INC.
(Registrant)
By: /s/ MICHAEL P. HOOPIS
-----------------------------------
Name: Michael P. Hoopis
Title: President and Chief Executive
Officer
Date: November 12, 1999
<PAGE> 1
Exhibit 2.1
SEPARATION AND DISTRIBUTION AGREEMENT
BY AND AMONG
ALLEGHENY TELEDYNE INCORPORATED,
TDY HOLDINGS, LLC,
TELEDYNE INDUSTRIES, INC.
AND
WATER PIK TECHNOLOGIES, INC.
DATED AS OF NOVEMBER __, 1999
<PAGE> 2
Table of Contents
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ARTICLE I DEFINITIONS............................................................................................2
ARTICLE II THE SEPARATION.......................................................................................12
2.01. Transfer of Assets and Assumption of Liabilities.................................................13
2.02. Water Pik Assets.................................................................................13
2.03. Water Pik Liabilities............................................................................14
2.04. Termination of Agreements........................................................................15
2.05. Documents Relating to Transfer of Real Property Interests
and Tangible Property Located Thereon............................................................16
2.06. Documents Further Evidencing Transfers of Assets and
Assumption of Liabilities........................................................................16
2.07. Other Ancillary Agreements.......................................................................16
2.08. Disclaimer of Representations and Warranties.....................................................16
2.09. Financing Arrangements...........................................................................17
2.10. Governmental Approvals and Consents..............................................................17
2.11. Novation of Assumed Water Pik Liabilities........................................................18
2.12. Transfer of Subsidiary Assets and Assumption of Subsidiary Liabilities...........................19
2.13. Consummation of Purchase and Sale Agreement......................................................19
2.14. TI Contribution and Liquidation..................................................................19
2.15. Interim Distributions............................................................................19
ARTICLE III THE DISTRIBUTION....................................................................................20
3.01. The Distribution.................................................................................20
3.02. Actions Prior to the Distribution................................................................20
3.03. Fractional Shares................................................................................21
ARTICLE IV THE PUBLIC OFFERING..................................................................................21
4.01. The Public Offering..............................................................................21
4.02. Proceeds of the Public Offering..................................................................22
4.03. Remedies........................................................................................ 22
ARTICLE V MUTUAL RELEASES; INDEMNIFICATION......................................................................22
5.01. Release of Pre-Distribution Claims...............................................................22
5.02. Indemnification by Water Pik.....................................................................25
5.03. Indemnification by ATI...........................................................................26
5.04. Indemnification Obligations Net of Insurance Proceeds and other Amounts..........................26
5.05. Procedures for Indemnification of Third Party Claims.............................................26
5.06. Additional Matters...............................................................................27
5.07. Remedies Cumulative..............................................................................29
5.08. Survival of Indemnities..........................................................................29
ARTICLE VI CERTAIN OTHER MATTERS................................................................................29
6.01. Insurance Matters................................................................................29
6.02. Certain Business Matters.........................................................................31
6.03. Late Payments....................................................................................31
</TABLE>
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6.04. Certain Governance Matters.......................................................................32
ARTICLE VIII EXCHANGE OF INFORMATION; CONFIDENTIALITY...........................................................32
7.01. Agreement for Exchange of Information; Archives..................................................32
7.02. Ownership of Information.........................................................................33
7.03. Compensation for Providing Information...........................................................33
7.04. Record Retention.................................................................................33
7.05. Other Agreements Providing For Exchange of Information...........................................33
7.06. Production of Witnesses; Records; Cooperation....................................................33
7.07. Confidentiality..................................................................................34
7.08. Protective Arrangements..........................................................................35
ARTICLE VIII FURTHER ASSURANCES.................................................................................35
8.01. Further Assurances...............................................................................35
ARTICLE X TERMINATION...........................................................................................36
9.01. Termination......................................................................................36
9.02. Effect of Termination............................................................................36
ARTICLE X MISCELLANEOUS.........................................................................................36
10.01. Counterparts; Entire Agreement; Corporate Power..................................................36
10.02. Governing Law; Consent to Jurisdiction...........................................................37
10.03. Assignability....................................................................................38
10.04. Third Party Beneficiaries........................................................................38
10.05. Notices..........................................................................................38
10.06. Severability.....................................................................................39
10.07. Force Majeure....................................................................................39
10.08. Headings.........................................................................................39
10.09. Survival of Covenants............................................................................39
10.10. Waivers of Default...............................................................................39
10.11. Specific Performance.............................................................................39
10.12. Amendments.......................................................................................40
10.13. Interpretation...................................................................................40
10.14. Disputes.........................................................................................40
10.15. Exclusivity of Tax Sharing Agreement.............................................................41
</TABLE>
<PAGE> 4
SEPARATION AND DISTRIBUTION AGREEMENT
THIS SEPARATION AND DISTRIBUTION AGREEMENT, dated as of
November __, 1999, is by and among Allegheny Teledyne Incorporated, a Delaware
corporation ("ATI"), TDY Holdings, LLC, a Delaware limited liability company the
sole member of which is ATI ("Holdings"), Teledyne Industries, Inc., a
California corporation and an indirect wholly owned subsidiary of ATI ("TII"),
and Water Pik Technologies, Inc., a Delaware corporation and wholly owned
subsidiary of TII ("Water Pik"). Capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned to them in Article I hereof.
WHEREAS, the Board of Directors of ATI has determined that it
is in the best interests of ATI and its stockholders to separate ATI's existing
businesses into three independent businesses; and
WHEREAS, in furtherance of the foregoing, it is appropriate
and desirable to transfer the Water Pik Assets to Water Pik and to cause Water
Pik to assume the Water Pik Liabilities, all as more fully described in this
Agreement and the Ancillary Agreements; and
WHEREAS, ATI intends, subject to completion of the
transactions contemplated hereby (including the foregoing transfer of Water Pik
Assets and assumption of Water Pik Liabilities) and to the other terms of this
Agreement and to further action by its Board of Directors, to effect the
Distribution; and
WHEREAS, the Form 10 Registration Statement has become
effective under the Exchange Act; and
WHEREAS, ATI has received a private letter ruling from the
Internal Revenue Service to the effect that, among other things, the
Distribution will qualify as a tax-free distribution for federal income tax
purposes under Section 355 of the Code; and
WHEREAS, the Distribution is to be followed by the Public
Offering; and
WHEREAS, it is expected that, following certain transfers of
other Assets and assignments and assumptions of other Liabilities, ATI will
distribute to its stockholders all of the capital stock of Teledyne Technologies
Incorporated ("Teledyne Technologies") held directly or indirectly by ATI and
that, in connection therewith, ATI and Teledyne Technologies have entered into
agreements, including the Teledyne Technologies Separation and Distribution
Agreement, to address matters relating to the Teledyne Technologies
Distribution; and
WHEREAS, it is appropriate and desirable to set forth the
principal corporate transactions required to effect the Separation, the
Distribution and the Public Offering and certain other agreements that will
govern certain matters relating to the Separation, the Distribution and the
Public Offering and the relationships of ATI and Water Pik and their respective
Subsidiaries following the Separation and the Distribution;
NOW, THEREFORE, the parties, intending to be legally bound,
agree as follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall
have the following meanings:
1.01. ACTION means any demand, action, suit, countersuit,
arbitration, inquiry, proceeding or investigation by or before any federal,
state, local, foreign or international Governmental Authority or any arbitration
or mediation tribunal.
1.02. AFFILIATE of any Person means a Person that controls, is
controlled by, or is under common control with such Person. As used herein,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such entity, whether
through ownership of voting securities or other interests, by contract or
otherwise.
1.03. AGENT means the distribution agent to be appointed by
ATI to distribute to the stockholders of ATI the shares of Water Pik Common
Stock held by ATI pursuant to the Distribution.
1.04. AGREEMENT means this Separation and Distribution
Agreement, including all of the Schedules hereto.
1.05. ANCILLARY AGREEMENTS means the deeds, lease assignments
and assumptions, leases, subleases and sub-subleases, subscription or
contribution agreements, stock powers, and the supplemental and other agreements
and instruments related thereto contemplated by Article II, including the Laars
Inc. Transfer and Assumption Agreement, the Water Pik Inc. Transfer and
Assumption Agreement, the Purchase and Sale Agreement, the Employee Benefits
Agreement, the Interim Services Agreement, the Patent Assignments and related
powers of attorney and the Tax Sharing Agreement.
1.06. ASSETS means assets, properties and rights (including
goodwill), wherever located (including in the possession of vendors or other
third parties or elsewhere), whether real, personal or mixed, tangible,
intangible or contingent, in each case whether or not recorded or reflected or
required to be recorded or reflected on the books and records or financial
statements of any Person, including the following:
(a) all accounting and other books, records and files whether
in paper, microfilm, microfiche, computer tape or disc, magnetic tape
or any other form;
(b) all apparatus, computers and other electronic data
processing equipment, fixtures, machinery, equipment, furniture, office
equipment, automobiles, trucks, rolling stock, vessels, motor vehicles
and other transportation equipment, special and general tools, test
devices, prototypes and models and other tangible personal property;
(c) all inventories of materials, parts, raw materials,
supplies, work-in-process and finished goods and products;
2
<PAGE> 6
(d) all interests in real property of whatever nature,
including easements, whether as owner, lessor, sublessor, lessee,
sublessee or otherwise;
(e) all interests in any capital stock or other equity
interests of any Subsidiary or any other Person, all bonds, notes,
debentures or other securities issued by any Subsidiary or any other
Person, all loans, advances or other extensions of credit or capital
contributions to any Subsidiary or any other Person and all other
investments in securities of any Person;
(f) all license agreements, leases of personal property, open
purchase orders for raw materials, supplies, parts or services,
unfilled orders for the manufacture and sale of products and other
contracts, agreements or commitments;
(g) all deposits, letters of credit and performance and surety
bonds;
(h) Information, including that prepared by consultants and
other third parties;
(i) all domestic and foreign patents, copyrights, trade names,
domain names, trademarks, service marks and registrations and
applications for any of the foregoing, mask works, trade secrets,
inventions, other proprietary information and licenses from third
Persons granting the right to use any of the foregoing ("Intellectual
Property");
(j) all computer applications, programs and other software,
including operating software, network software, firmware, middleware,
internet web pages, design software, design tools, systems
documentation and instructions;
(k) all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists, customer
and vendor data, correspondence and lists, product literature, artwork,
design, development and manufacturing files, vendor and customer
drawings, formulations and specifications, quality records and reports
and other books, records, studies, surveys, reports, plans and
documents;
(l) all prepaid expenses, trade accounts and other accounts
and notes receivables;
(m) all rights under contracts or agreements, all claims or
rights against any Person arising from the ownership of any Asset, all
rights in connection with any bids or offers and all related claims,
choses in action or similar rights, whether accrued or contingent,
including any claims of infringement of Intellectual Property against
third parties;
(n) all rights as a named insured under insurance policies and
all rights in the nature of insurance, indemnification or contribution;
(o) all licenses, permits, approvals and authorizations which
have been issued by any Governmental Authority;
3
<PAGE> 7
(p) cash or cash equivalents, bank accounts, lock boxes and
other deposit agreements; and
(q) interest rate, currency, commodity or other swap, collar,
cap or other hedging or similar agreements or arrangements.
1.07. ATI AUTOMOBILE POLICIES means those ATI Policies that
(i) insure Water Pik or any other member of the Water Pik Group, and (ii)
provide automobile insurance.
1.08. ATI COMMON STOCK means the Common Stock, par value $0.10
per share, of ATI.
1.09. ATI GENERAL LIABILITY POLICIES means those ATI Policies
that (i) insure Water Pik or any other member of the Water Pik Group, and (ii)
provide general liability, public liability, or comprehensive general liability
insurance.
1.10. ATI GROUP means ATI and each Person (other than any
member of the Water Pik Group or the Water Pik Group) that is an Affiliate of
ATI immediately after the Effective Time.
1.11. ATI INDEMNITEES has the meaning set forth in Section
5.02.
1.12. ATI LIABILITIES means all Liabilities of ATI other than
Water Pik Liabilities and Teledyne Technologies Liabilities.
1.13. ATI POLICIES means policies of insurance that have been
issued to, or in favor of, ATI or Subsidiaries of ATI.
1.14. ATI PRODUCT LIABILITY POLICIES means those insurance ATI
Policies that (i) insure Water Pik or any other member of the Water Pik Group,
and (ii) provide product liability insurance.
1.15. ATI WORKERS COMPENSATION POLICIES means those ATI
Policies that (i) insure Water Pik or any other member of the Water Pik Group,
and (ii) provide workers compensation insurance.
1.16. CODE means the Internal Revenue Code of 1986, as
amended.
1.17. COMMISSION means the Securities and Exchange Commission.
1.18. CONSENTS means any consents, waivers or approvals from,
or notification requirements to, any third parties.
1.19. DESIGNATED OFFICERS means, (i) in the case of ATI, the
Senior Vice President, General Counsel and Secretary of ATI or his successor,
and (ii) in the case of Water Pik, the President of Water Pik or his successor.
1.20. DGCL means the Delaware General Corporation Law, as
amended.
4
<PAGE> 8
1.21. DISPUTES has the meaning set forth in Section 10.14.
1.22. DISTRIBUTION means the distribution by ATI on a pro rata
basis to holders of ATI Common Stock of all of the outstanding shares of Water
Pik Common Stock.
1.23. DISTRIBUTION DATE means the date on which the
Distribution occurs.
1.24. EFFECTIVE TIME means 5:00 p.m., Eastern Standard Time or
Eastern Daylight Time (whichever shall be then in effect), on the Distribution
Date.
1.25. EMPLOYEE BENEFITS AGREEMENT means the Employee Benefits
Agreement, dated as of the date hereof, by and between ATI and Water Pik.
1.26. ENVIRONMENTAL LAW means any federal, state, local,
foreign or international statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, common law (including tort and
environmental nuisance law), legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any Governmental Authority, now or
hereafter in effect relating to health, safety, pollution or the environment
(including ambient air, surface water, groundwater, land surface or subsurface
strata) or to emissions, discharges, releases or threatened releases of any
substance currently or at any time hereafter listed, defined, designated or
classified as hazardous, toxic, waste, radioactive or dangerous, or otherwise
regulated, under any of the foregoing, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of any such substances, including the Comprehensive Environmental
Response, Compensation and Liability Act, the Superfund Amendments and
Reauthorization Act and the Resource Conservation and Recovery Act and
comparable provisions in state, local, foreign or international law.
1.27. ENVIRONMENTAL LIABILITIES means all Liabilities relating
to, arising out of or resulting from any Environmental Law or contract or
agreement relating to environmental, health or safety matters (including all
removal, remediation or cleanup costs, investigatory costs, governmental
response costs, natural resources damages, property damages, personal injury
damages, costs of compliance with any settlement, judgment or other
determination of Liability and indemnity, contribution or similar obligations)
and all costs and expenses (including allocated costs of in-house counsel and
other personnel), interest, fines, penalties or other monetary sanctions in
connection therewith.
1.28. EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended, together with the rules and regulations promulgated thereunder.
1.29. EXCLUDED ASSETS has the meaning set forth in Section
2.02(b).
1.30. EXPENSE FACTORS means expense factors or similar factors
or multipliers set forth in policies of insurance or related agreements
applicable to liabilities, losses or defense costs insured thereunder that are
subject to a Self-Insurance Obligation.
1.31. FINANCING FACILITY means the credit facilities entered
into by Water Pik on or prior to the Distribution and any substitute or
successor credit facility.
5
<PAGE> 9
1.32. FORM 10 REGISTRATION STATEMENT means the registration
statement on Form 10 filed under the Exchange Act, pursuant to which Water Pik
Common Stock will be registered under the Exchange Act following the
Distribution, together with all amendments thereto.
1.33. GOVERNMENTAL APPROVALS means any notices, reports or
other filings to be made, or any consents, registrations, approvals, permits or
authorizations to be obtained from, any Governmental Authority.
1.34. GOVERNMENTAL AUTHORITY shall mean any federal, state,
local, foreign or international court, government, department, commission,
board, bureau, agency, official or other regulatory, administrative or
governmental authority.
1.35. GROUP means the ATI Group, the Water Pik Group or the
Teledyne Technologies Group, as the context requires.
1.36. INCURRED LOSSES means the sum of paid losses (indemnity
and loss adjustment expenses) and reserves for unpaid losses.
1.37. INDEMNIFYING PARTY has the meaning set forth in Section
5.04(a).
1.38. INDEMNITEE has the meaning set forth in Section 5.04(a).
1.39. INDEMNITY PAYMENT has the meaning set forth in Section
5.04(a).
1.40. INFORMATION means information, whether or not patentable
or copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
analyses, techniques, designs, specifications, drawings, blueprints, diagrams,
models, operating and maintenance manuals, prototypes, samples, flow charts,
data, computer data, disks, diskettes, tapes, computer programs or other
software, marketing plans, customer names, communications by or to attorneys
(including attorney-client privileged communications), memos and other materials
prepared by attorneys or under their direction (including attorney work
product), and other technical, financial, employee or business information or
data, whether prepared by or for any affected party.
1.41. INFORMATION STATEMENT means the Information Statement
forming a part of the Form 10 Registration Statement to be mailed to holders of
ATI Common Stock in connection with the Distribution.
1.42. INITIAL MEDIATION PERIOD has the meaning set forth in
Section 10.14.
1.43. INSURANCE POLICIES means the insurance policies written
by insurance carriers unaffiliated with ATI pursuant to which Water Pik or one
or more of its Subsidiaries (or their respective officers or directors) will be
insured parties after the Effective Time.
6
<PAGE> 10
1.44. INSURANCE PROCEEDS means those monies:
(a) received by an insured from an insurance carrier;
(b) paid by an insurance carrier on behalf of the insured; or
(c) received (including by way of set off) from any third
party in the nature of insurance, contribution or indemnification in
respect of any Liability;
in any such case net of any applicable premium adjustments (including reserves
and retrospectively rated premium adjustments) and net of any costs or expenses
(including allocated costs of in-house counsel and other personnel) incurred in
the collection thereof.
1.45. INTERIM SERVICES AGREEMENT means the Interim Services
Agreement, dated as of the date hereof, by and between ATI and Water Pik.
1.46. LAARS INC. means Laars Inc., a Delaware corporation.
1.47. LAARS INC. ASSETS means those Water Pik Assets described
in the Laars Inc. Transfer and Assumption Agreement.
1.48. LAARS INC. LIABILITIES means those Water Pik Liabilities
described in the Laars Inc. Transfer and Assumption Agreement.
1.49. LAARS INC. TRANSFER AND ASSUMPTION AGREEMENT means the
Asset Transfer and Liabilities Assumption Agreement, dated as of the date
hereof, between Water Pik and Laars Inc.
1.50. LIABILITIES means any and all losses, claims, charges,
debts, demands, actions, causes of action, suits, damages, obligations,
payments, costs and expenses, sums of money, accounts, reckonings, bonds,
specialties, indemnities and similar obligations, exonerations, covenants,
contracts, controversies, agreements, promises, doings, omissions, variances,
guarantees, make whole agreements and similar obligations, and other
liabilities, including all contractual obligations, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising under
any law, rule, regulation, Action, threatened or contemplated Action (including
the costs and expenses of demands, assessments, judgments, settlements and
compromises relating thereto and reasonable attorneys' fees and any and all
costs and expenses (including allocated costs of in-house counsel and other
personnel), whatsoever incurred in investigating, preparing or defending against
any such Actions or threatened or contemplated Actions), order or consent decree
of any Governmental Authority or any award of any arbitrator or mediator of any
kind, and those arising under any contract, commitment or undertaking, including
those arising under this Agreement or any Ancillary Agreement, in each case,
whether or not recorded or reflected or required to be recorded or reflected on
the books and records or financial statements of any Person.
1.51. NYSE means The New York Stock Exchange, Inc.
7
<PAGE> 11
1.52. NON-WATER PIK ASSETS means any Assets of ATI or any of
its Affiliates (including any member of the Water Pik Group) other than the
Water Pik Assets.
1.53. PATENT ASSIGNMENTS means the Patent Assignments,
effective as of the Distribution, executed and delivered by TII to Water Pik.
1.54 PER CASE MAXIMUM means (i) with respect to any single
occurrence covered under ATI Automobile Policies, $100,000 (inclusive of
indemnity and loss adjustment expenses multiplied by applicable Expense Factors)
and (ii) with respect to any single occurrence covered by ATI Workers
Compensation policies, $150,000 (inclusive of indemnity and loss adjustment
expenses multiplied by applicable Expense Factors).
1.55. PERSON means an individual, a general or limited
partnership, a corporation, a trust, a joint venture, an unincorporated
organization, a limited liability entity, any other entity and any Governmental
Authority.
1.56 POOLED LOSS COSTS ALLOCABLE TO WATER PIK means the share
allocated to Water Pik by virtue of its participation in a pooling arrangement
among ATI divisions applicable to claims that (i) are covered under ATI
Automobile Policies and ATI Workers Compensation Policies; (ii) exceed the Per
Case Maximum; and (iii) are within a policy's deductible or other form of
self-insurance, which allocation to Water Pik will be based upon the same or
substantially similar to those factors as have been applied immediately before
the Distribution Date.
1.57. PRIME RATE means the rate which PNC Bank, N.A.,
Pittsburgh, Pennsylvania (or any successor thereto or other commercial bank
agreed to by the parties hereto) announces from time to time as its prime
lending rate, as in effect from time to time.
1.58. PUBLIC OFFERING means the underwritten public offering
by Water Pik of shares of Water Pik Common Stock pursuant to the Public Offering
Registration Statement and as contemplated by the Tax Sharing Agreement.
1.59. PUBLIC OFFERING REGISTRATION STATEMENT means the
registration statement to be filed by Water Pik under the Securities Act of
1933, as amended, pursuant to which the offering and sale of shares of Water Pik
Common Stock to be issued in the Public Offering will be registered, together
with all amendments thereto.
1.60. PURCHASE AND SALE AGREEMENT means the Purchase and Sale
Agreement, dated as of the date hereof, between TICL Newco and TICL.
1.61. RECORD DATE means the close of business on the date
determined by the ATI Board of Directors as the record date for determining
stockholders of ATI entitled to receive shares of Water Pik Common Stock in the
Distribution.
1.62. RIGHTS means the Rights to be distributed by Water Pik
in respect of Water Pik Common Stock in accordance with Section 3.02 hereof and
pursuant to the Rights Agreement between Water Pik and ChaseMellon Shareholder
Services, L.L.C.
8
<PAGE> 12
1.63. RULING REQUEST means the request for ruling (including
all exhibits), as amended and supplemented, under Section 355 and other
provisions of the Code, originally filed on behalf of ATI on April 6, 1999 in
respect of the Distribution.
1.64. SECURITY INTEREST means any mortgage, security interest,
pledge, lien, charge, claim, option, right to acquire, voting or other
restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever.
1.65. SELF INSURANCE obligation means an obligation by one or
more insureds to pay or reimburse to the issuers of an insurance policy (whether
by way of deductible, retrospective premium, premium adjustment, self-insured
retention or other form of self-insurance), indemnity, allocated loss expense,
and other proceeds multiplied by Expense Factors, if any.
1.66. SEPARATION means the transfer of the Water Pik Assets to
Water Pik and its Subsidiaries and the assumption by Water Pik and its
Subsidiaries of the Water Pik Liabilities, all as more fully described in this
Agreement and the Ancillary Agreements.
1.67. SUBSIDIARY of any Person means any corporation or other
organization whether incorporated or unincorporated of which at least a majority
of the securities or interests having by the terms thereof ordinary voting power
to elect at least a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person or by any one or more
of its Subsidiaries, or by such Person and one or more of its Subsidiaries;
provided, however that no Person that is not directly or indirectly wholly owned
by any other Person shall be a Subsidiary of such other Person unless such other
Person controls, or has the right, power or ability to control, that Person.
1.68. TAX SHARING AGREEMENT means the Tax Sharing and
Indemnification Agreement, dated as of the date hereof, as the same may be
amended, by and between ATI and Water Pik.
1.69. TAXES has the meaning set forth in the Tax Sharing
Agreement.
1.70. TELEDYNE TECHNOLOGIES COMMON STOCK means the Common
Stock, par value $.01 per share, of Teledyne Technologies.
1.71. TELEDYNE TECHNOLOGIES DISTRIBUTION means the
distribution by ATI on a pro rata basis to holders of ATI Common Stock of all of
the outstanding shares of Teledyne Technologies Common Stock owned by ATI.
9
<PAGE> 13
1.72. TELEDYNE TECHNOLOGIES GROUP means Teledyne Technologies,
each Subsidiary of Teledyne Technologies and each other Person that is
contemplated to be controlled directly or indirectly by Teledyne Technologies at
the time of the Teledyne Technologies Distribution.
1.73. TELEDYNE TECHNOLOGIES LIABILITIES has the meaning
assigned to that term in the Teledyne Technologies Separation and Distribution
Agreement.
1.74. TELEDYNE TECHNOLOGIES SEPARATION AND DISTRIBUTION
AGREEMENT means the Separation and Distribution Agreement, dated the date
hereof, among ATI, Holdings, TII and Teledyne Technologies.
1.75. THIRD PARTY CLAIM has the meaning set forth in Section
5.05(a).
1.76. TI means Teledyne, Inc., a Delaware corporation.
1.77. TICL means Teledyne Industries Canada Limited, an
Ontario corporation.
1.78. TICL ASSETS means those certain assets of TICL
described in the Purchase and Sale Agreement.
1.79. TICL LIABILITIES means those liabilities of TICL
described in the Purchase and Sale Agreement.
1.80. TICL NEWCO means Water Pik Canada, Ltd., an Ontario
corporation wholly owned by Water Pik.
1.81. TI LIQUIDATION means the dissolution and liquidation of
TI in accordance with applicable provisions of the DGCL and Section 332 of the
Code, as a result of which Holdings will own all of the outstanding capital
stock of TII.
1.82. UNDERWRITERS means the managing underwriters for the
Public Offering.
1.83. UNDERWRITING AGREEMENT means an underwriting agreement
in customary form to be entered into among Water Pik and the Underwriters with
respect to the Public Offering.
1.84. UNPAID LOSSES means liabilities and losses, including
indemnity payments and allocated loss expenses, that are subject to a Self
Insurance Obligation and that, as of the Distribution Date have not been paid by
Water Pik or a member of Water Pik Group and that do not appear on Schedule
1.84.
1.85. WATER PIK ASSETS has the meaning set forth in Section
2.02(a).
1.86. WATER PIK BALANCE SHEET means the audited consolidated
balance sheet of Water Pik, including the notes thereto, as of September 30,
1999.
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1.87. WATER PIK BUSINESS means the business and operations of
the divisions and Subsidiaries of TI or TII comprising Teledyne Water Pik, Jandy
and Teledyne Laars and any business or operation conducted by Water Pik or any
Affiliate of Water Pik at any time on or after the Distribution Date.
1.88. WATER PIK COMMON STOCK means the Common Stock, $.01 par
value per share, of Water Pik and, after the distribution of Rights referred to
in Section 3.02, shall include the associated Rights.
1.89. WATER PIK CONTRACTS means the following contracts and
agreements to which TII or any of its Affiliates is a party or by it or any of
its Affiliates or any of their respective Assets is bound, whether as of the
date hereof or prior to or at the Effective Time, and whether or not in writing,
except for any such contract or agreement that is expressly contemplated to be
retained by any member of the ATI Group pursuant to any provision of this
Agreement or any Ancillary Agreement:
(a) any contract or agreement entered into in the name of, or
expressly on behalf of, any division, business unit or member of the
Water Pik Group;
(b) any contract or agreement that relates exclusively to the
Water Pik Business;
(c) federal, state and local government and other contracts
and agreements that relate exclusively to the Water Pik Business;
(d) any contract or agreement representing capital or
operating equipment lease obligations reflected on the Water Pik
Balance Sheet, including obligations as lessee under those contracts or
agreements listed on Schedule 1.89(d) (as such Schedule may be
supplemented after the date hereof and prior to the Effective Time to
assign capital and operating equipment lease obligations that relate
exclusively to the Water Pik Business and that were, are or may be
executed and delivered after the date of the Water Pik Balance Sheet);
(e) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement or any of the Ancillary
Agreements to be assigned to Water Pik or any member of the Water Pik
Group;
(f) any guarantee, indemnity, representation, warranty or
other Liability of any member of the Water Pik Group or the ATI Group
in respect of any other Water Pik Contract, any Water Pik Liability or
the Water Pik Business (including guarantees of financing incurred by
customers or other third parties in connection with purchases of
products or services from the Water Pik Business); and
(g) the contracts, agreements and other documents listed or
described on Schedule 1.89(g)).
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1.90. WATER PIK GROUP means Water Pik, each Subsidiary of
Water Pik and each other Person that is contemplated to be controlled directly
or indirectly by Water Pik as of the Effective Time.
1.91. WATER PIK INC. means Water Pik, Inc., a Delaware
corporation.
1.92. WATER PIK INC. ASSETS means those Water Pik Assets
described in the Water Pik Inc. Transfer and Assumption Agreement.
1.93. WATER PIK INC. LIABILITIES means those Water Pik
Liabilities described in the Water Pik Inc. Transfer and Assumption Agreement.
1.94. WATER PIK INC. TRANSFER AND ASSUMPTION AGREEMENT means
the Asset and Transfer and Liabilities Assumption Agreement, dated as of the
date hereof, between Water Pik and Water Pik Inc.
1.95. WATER PIK INDEMNITEES has the meaning set forth in
Section 5.03(a).
1.96. WATER PIK LIABILITIES has the meaning set forth in
Section 2.03.
1.97. YEAR 2000 COMPLIANT means, with respect to an Asset,
that such Asset will (i) accurately process date/time data (including, but not
limited to, calculating, comparing, sorting, sequencing and calendar
generation), including single century formulas and multi-century formulas, from,
into and between the twentieth and twenty-first centuries and the years 1999 and
2000, including leap year calculations, and will not malfunction or generate
incorrect values or invalid results involving such dates/times; (ii) accurately
interface with other systems, as appropriate, in order to supply, receive or
process dates/times and other data, to the extent that other information
technology properly exchanges data with it; (iii) provide that date/time-related
functionalities, date/time fields and any user input interfaces include a four
digit year format and/or other indication of century, as applicable; and (iv)
not cause any other Asset that is otherwise Year 2000 Compliant to fail to be
Year 2000 Compliant.
ARTICLE II
THE SEPARATION
2.01. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. (a)
TII hereby assigns, transfers, conveys and delivers to Water Pik, and agrees to
cause its applicable Subsidiaries to assign, transfer, convey and deliver to
Water Pik, and Water Pik hereby accepts from TII and its Subsidiaries, in each
case effective immediately prior to the transactions contemplated by Section
2.15 and on the Distribution Date, all of TII's and its applicable Subsidiaries'
respective right, title and interest in all Water Pik Assets.
(b) Effective immediately prior to the transactions
contemplated by Section 2.15 and on the Distribution Date, Water Pik hereby
assumes and agrees faithfully to perform, satisfy, discharge and fulfill all the
Water Pik Liabilities in accordance with their respective terms. Water Pik shall
be responsible for all Water Pik Liabilities, regardless of when or where such
Liabilities
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arose or arise or whether the facts on which they are based occurred prior to or
subsequent to the date hereof, regardless of where or against whom such
Liabilities are asserted or determined or whether asserted or determined prior
to the date hereof, and regardless of whether arising from or alleged to arise
from negligence, recklessness, violation of law, fraud or misrepresentation
(whether based on tort, contract, statute or otherwise) by any member of the ATI
Group or the Water Pik Group or any of their respective directors, officers,
employees, agents, Subsidiaries or Affiliates.
(c) In the event that at any time or from time to time after
the Distribution Date any party hereto (or any member of such party's respective
Group), shall receive or otherwise possess any Asset that is allocated to any
other Person pursuant to this Agreement or any Ancillary Agreement, such party
or member shall promptly transfer, or cause to be transferred, such Asset to the
Person so entitled thereto. Prior to any such transfer, the Person receiving or
possessing such Asset shall hold such Asset in trust for any such other Person.
2.02. WATER PIK ASSETS. (a) For purposes of this Agreement,
"Water Pik Assets" shall mean (without duplication):
(i) all Assets reflected in the Water Pik Balance Sheet as
Assets of Water Pik and its Subsidiaries, subject to any dispositions
of any such Assets subsequent to the date of the Water Pik Balance
Sheet;
(ii) all Assets acquired by or for the exclusive benefit of
Water Pik subsequent to the date of the Water Pik Balance Sheet and
prior to the Effective Time that would have been reflected in the Water
Pik Balance Sheet as Assets of Water Pik had they been owned on the
date of the Water Pik Balance Sheet;
(iii)subject to Section 6.01, any rights of any member of the
Water Pik Group under any of the Insurance Policies, including any
rights thereunder arising after the Distribution Date in respect of any
Insurance Policies that are occurrence policies; and
(iv) (A) any Assets that any Ancillary Agreement contemplates
will be transferred to any member of the Water Pik Group, (B) any Water
Pik Contracts and (C) all issued and outstanding capital stock of the
Subsidiaries, the partnership interests and other Assets of TII listed
on Schedule 2.02(a)(iv).
Notwithstanding the foregoing, the Water Pik Assets shall not in any event
include the Excluded Assets referred to in Section 2.02(b) below.
(b) For the purposes of this Agreement, "Excluded Assets"
shall mean:
(i) the Assets listed or described on Schedule 2.02(b)(i); and
(ii) any and all Assets that are expressly contemplated by
this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Assets to be retained by ATI or any other member of the ATI
Group (including the Teledyne Technologies Group).
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(c) Water Pik acknowledges and agrees that the Assets
reflected as Water Pik Assets in the Water Pik Balance Sheet are so reflected
based on the books and records maintained, and other information supplied, by
Water Pik personnel, and that the Water Pik Assets constitute all of the Assets
necessary to operate the Water Pik Business as presently conducted.
2.03. WATER PIK LIABILITIES. For the purposes of this
Agreement, "Water Pik Liabilities" shall mean (without duplication):
(a) any and all Liabilities that are expressly contemplated by
this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Liabilities to be assumed by Water Pik or any member of the
Water Pik Group, and all agreements, obligations and Liabilities of any
member of the Water Pik Group under this Agreement or any of the
Ancillary Agreements;
(b) all Liabilities, including any employee-related
Liabilities and Environmental Liabilities, relating to, arising out of
or resulting from:
(i) the operation of the Water Pik Business as
conducted at any time prior to, at or after the Effective Time
(including any Liability relating to, arising out of or
resulting from the design, manufacture and sale of products or
services of the Water Pik Business or from any act or failure
to act by any director, officer, employee, agent or
representative of any Person (whether or not such act or
failure to act is or was within such Person's authority));
(ii) the operation of any business conducted by any
member of the Water Pik Group at any time after the Effective
Time (including any Liability relating to, arising out of or
resulting from any act or failure to act by any director,
officer, employee, agent or representative of any Person
(whether or not such act or failure to act is or was within
such Person's authority)); or
(iii) any Water Pik Assets (including any Water Pik
Contracts and any real property and leasehold interests) or
ownership of any Water Pik Assets at any time prior to, at or
after the Effective Time;
in any such case whether arising before, on or after the Effective
Time;
(c) all Liabilities relating to, arising out of or resulting
from the Financing Facility;
(d) all Liabilities relating to, arising out of or resulting
from any of the terminated, divested or discontinued businesses and
operations listed or described on Schedule 2.03(d);
(e) all Liabilities reflected as liabilities or obligations of
Water Pik in the Water Pik Balance Sheet, subject to any discharge of
such Liabilities subsequent to the date of the Water Pik Balance Sheet,
and all liabilities or obligations of Water Pik incurred
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subsequent to the date of the Water Pik Balance Sheet that would have
been reflected in the Water Pik Balance Sheet had they been incurred as
of the date of the Water Pik Balance Sheet;
(f) any Liabilities relating to, arising out of or resulting
from any infringement of any Intellectual Property of any third party,
including but not limited to patent rights, trademark and service mark
rights (registered and common law), trade dress rights, copyrights,
misappropriation of trade secret, based upon or resulting from the
operation of the Water Pik Business and regardless of whether said
infringement occurred prior to, on or after the Distribution Date;
(g) any and all guarantees by ATI or any member of the ATI
Group of obligations to assure payment or performance by or other
Liabilities of the Water Pik Group or the Water Pik Business; and
(h) any Liabilities relating to, arising out of, or resulting
from any of the Water Pik Assets and any products manufactured by the
Water Pik Business that are not Year 2000 Compliant.
2.04. TERMINATION OF AGREEMENTS. (a) Except as set forth in
Section 2.04(b), in furtherance of the releases and other provisions of Section
5.01 hereof, effective as of the Distribution Date, Water Pik and each member of
the Water Pik Group, on the one hand, and each of ATI and the respective members
of the ATI Group, on the other hand, hereby terminate any and all agreements,
arrangements, commitments or understandings, whether or not in writing, between
or among Water Pik and/or any member of the Water Pik Group, on the one hand,
and ATI or any member of the ATI Group, on the other hand, effective as of the
Effective Time, including (except as set forth in Schedule 2.04(a)) any
intercompany accounts payable or accounts receivable accrued as of the Effective
Time that are reflected in the books and records of the parties or otherwise
documented in writing in accordance with past practices; provided, however, to
the extent that the termination of any such agreement, arrangement, commitment
or understanding is inconsistent with any Ancillary Agreement, such termination
shall be effective as of the date of effectiveness of the applicable Ancillary
Agreement. No such terminated agreement, arrangement, commitment or
understanding (including any provision thereof which purports to survive
termination) shall be of any further force or effect after the Effective Time
(or, to the extent contemplated by the proviso to the immediately preceding
sentence, after the effective time of the applicable Ancillary Agreement). Each
party shall, at the reasonable request of any other party, take, or cause to be
taken, such other actions as may be necessary to effect the foregoing.
(b) The provisions of Section 2.04(a) shall not apply to any
of the following agreements, arrangements, commitments or understandings (or to
any of the provisions thereof): (i) this Agreement and the Ancillary Agreements
(and each other agreement or instrument expressly contemplated by this Agreement
or any Ancillary Agreement to be entered into by any of the parties hereto or
any of the members of their respective Groups); (ii) any agreements,
arrangements, commitments or understandings listed or described on Schedule
2.04(b)(ii); (iii) any agreements, arrangements, commitments or understandings
to which any Person other than the parties hereto and their respective
Affiliates is a party (it being understood that to the extent
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that the rights and obligations of the parties and the members of their
respective Groups under any such agreements, arrangements, commitments or
understandings constitute Water Pik Assets or Water Pik Liabilities, they shall
be assigned and assumed pursuant to Section 2.01); and (iv) any other
agreements, arrangements, commitments or understandings that this Agreement or
any Ancillary Agreement expressly contemplates will survive the Effective Time.
2.05. DOCUMENTS RELATING TO TRANSFER OF REAL PROPERTY
INTERESTS AND TANGIBLE PROPERTY LOCATED THEREON. In furtherance of the
assignment, transfer and conveyance of Water Pik Assets and the assumption of
Water Pik Liabilities set forth in Section 2.01(a) and (b), simultaneously with
the execution and delivery hereof or as promptly as practicable thereafter, each
of TII and Water Pik or their applicable Subsidiaries is executing and
delivering or will execute and deliver such deeds, lease assignments and
assumptions, leases, subleases and sub-subleases as may be necessary to
effectively transfer any real property and leasehold interests forming part of
the Water Pik Assets and conform to any laws, regulations or usage applicable in
the jurisdiction in which the relevant real property is located.
2.06. DOCUMENTS FURTHER EVIDENCING TRANSFERS OF ASSETS AND
ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and
conveyance of Water Pik Assets and the assumption of Water Pik Liabilities set
forth in Section 2.01(a) and (b), (i) TII shall execute and deliver, and shall
cause its Subsidiaries to execute and deliver, such further bills of sale, stock
powers, certificates of title, assignments of contracts and other instruments of
transfer, conveyance and assignment as and to the extent necessary to fully
evidence the transfer, conveyance and assignment of all of TII's and its
respective Subsidiaries' right, title and interest in and to the Water Pik
Assets to Water Pik and (ii) Water Pik shall execute and deliver to TII and its
Subsidiaries such further bills of sale, stock powers, certificates of title,
assumptions of contracts and other instruments of assumption as and to the
extent necessary to fully evidence the valid and effective assumption of the
Water Pik Liabilities by Water Pik.
2.07. OTHER ANCILLARY AGREEMENTS. Effective as of the date
hereof each of ATI, TII and Water Pik will execute and deliver, and cause any of
their respective Subsidiaries that are parties thereto to execute and deliver
all Ancillary Agreements to which it is a party.
2.08. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. Each of
ATI (on behalf of itself and each member of ATI, including TII) and Water Pik
(on behalf of itself and each member of the Water Pik Group) understands and
agrees that, except as expressly set forth herein or in any Ancillary Agreement,
no party to this Agreement, any Ancillary Agreement or any other agreement or
document contemplated by this Agreement, any Ancillary Agreement or otherwise,
is representing or warranting in any way as to the Assets, businesses or
Liabilities transferred or assumed as contemplated hereby or thereby (including
whether an asset is Year 2000 Compliant), as to any consents or approvals
required in connection therewith, as to the value or freedom from any Security
Interests of, or any other matter concerning, any Assets of such party, or as to
the absence of any defenses or rights of setoff or freedom from counterclaims
with respect to any claim or other Asset, including any accounts receivable, of
any party, or as to
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the legal sufficiency of any assignment, document or instrument delivered
hereunder to convey title to any Asset or thing of value upon the execution,
delivery and filing hereof or thereof. Without limiting the scope of the
foregoing, no party makes any representations or warranties as to the
Intellectual Property sought to be transferred herein, including, without
limitation, whether such Intellectual Property or any portion thereof is valid,
enforceable, freely transferable, free and clear of liens (except permitted
liens) or sufficient and complete in order to conduct the Water Pik Business,
whether any party herein owns, has the exclusive right to use or has the ability
to practice such Intellectual Property or any portion thereof, or whether such
Intellectual Property or the operation of any aspect of the Water Pik Business
infringes or conflicts in any way with any Intellectual Property right of any
third party. Except as may expressly be set forth herein or in any Ancillary
Agreement, all such Assets are being transferred on an "as is," "where is,"
"with all faults" basis (and, in the case of any real property, by means of a
quitclaim or similar form deed or conveyance) and the respective transferees
shall bear the economic and legal risks that any conveyance shall prove to be
insufficient to vest in the transferee good and marketable title, free and clear
of any Security Interest. Without limiting the foregoing, neither ATI nor any
other party hereto (excluding Water Pik), or to any Ancillary Agreement, is
making any representation or warranty to Water Pik or any other Person in
respect of the Water Pik Balance Sheet, including in respect of the accuracy or
presentation thereof, or the adequacy of accruals, reserves and other amounts
reflected thereon.
2.09. FINANCING ARRANGEMENTS. Each of the parties hereto
acknowledges that (a) ATI has arranged availability for up to $60 million in
senior secured financing pursuant to the Financing Facility, (b) that ATI has,
prior to the date hereof, incurred $34 million in indebtedness pursuant to
such Financing Facility; and (c) that ATI has used, or will use prior to the
Distribution Date, such indebtedness to refinance other outstanding indebtedness
of ATI. Water Pik agrees that, following the Distribution Date, Water Pik will
indemnify ATI (and all the other members of the ATI Group) and defend and hold
such parties harmless from and against all the obligations of ATI (or Water Pik)
arising under the Financing Facility (including the obligation to repay such
$34 million in outstanding borrowings), with the effect that ATI (and all
other members of the ATI Group) shall have no further liability or obligation
under the Financing Facility.
2.10. GOVERNMENTAL APPROVALS AND CONSENTS. (a) To the extent
that the Separation requires any Governmental Approvals or Consents, the parties
will use all reasonable efforts to obtain any such Governmental Approvals and
Consents.
(b) If and to the extent that the valid, complete and
perfected transfer or assignment (or novation of any federal government
contract) to the Water Pik Group of any Water Pik Assets (or from the Water Pik
Group of any Non-Water Pik Assets) would be a violation of applicable laws or
require any Consent or Governmental Approval in connection with the Separation,
then, unless ATI shall otherwise determine, the transfer or assignment to or
from the Water Pik Group, as the case may be, of such Water Pik Assets or
Non-Water Pik Assets, respectively, shall be automatically deemed deferred and
any such purported transfer or assignment shall be null and void until such time
as all legal impediments are removed and/or such Consents or Governmental
Approvals have been obtained. Notwithstanding the foregoing,
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such Asset shall be deemed a Water Pik Asset for purposes of determining whether
any Liability is a Water Pik Liability.
(c) If the transfer or assignment of any Assets intended to be
transferred or assigned hereunder is not consummated prior to or at the
Effective Time, whether as a result of the provisions of Section 2.10(b) or for
any other reason, then the Person retaining such Asset shall thereafter hold
such Asset for the use and benefit, insofar as reasonably possible, of the
Person entitled thereto (at the expense of the Person entitled thereto). In
addition, the Person retaining such Asset shall take such other actions as may
be reasonably requested by the Person to whom such Asset is to be transferred in
order to place such Person, insofar as reasonably possible, in the same position
as if such Asset had been transferred as contemplated hereby and so that all the
benefits and burdens relating to such Water Pik Assets (or such Non-Water Pik
Assets, as the case may be), including possession, use, risk of loss, potential
for gain, and dominion, control and command over such Assets, are to inure from
and after the Effective Time to the Water Pik Group (or the ATI Group, as the
case may be).
(d) If and when the Consents and/or Governmental Approvals,
the absence of which caused the deferral of transfer of any Asset pursuant to
Section 2.10(b), are obtained, the transfer of the applicable Asset shall be
effected in accordance with the terms of this Agreement and/or the applicable
Ancillary Agreement.
(e) The Person retaining an Asset due to the deferral of the
transfer of such Asset shall not be obligated, in connection with the foregoing,
to expend any money unless the necessary funds are advanced by the Person
entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys'
fees and recording or similar fees, all of which shall be promptly reimbursed by
the Person entitled to such Asset.
2.11. NOVATION OF ASSUMED WATER PIK LIABILITIES. (a) Each of
ATI, TII and Water Pik at the request of any of the others, shall use all
reasonable efforts to obtain, or to cause to be obtained, any consent,
substitution, approval or amendment required to novate (including with respect
to any federal government contract) or assign all obligations under agreements,
leases, licenses and other obligations or Liabilities, or to obtain in writing
the unconditional release of all parties to such arrangements other than any
member of the Water Pik Group, so that, in any such case, Water Pik and its
Subsidiaries will be solely responsible for such Liabilities; provided, however,
that no member of the ATI Group shall be obligated to pay any consideration
therefor to any third party from whom such consents, approvals, substitutions
and amendments are requested.
(b) If ATI, TII or Water Pik is unable to obtain, or to cause
to be obtained, any such required consent, approval, release, substitution or
amendment, the applicable member of the ATI Group shall continue to be bound by
such agreements, leases, licenses and other obligations and, unless not
permitted by law or the terms thereof, Water Pik shall, as agent or
subcontractor for ATI, TII or such other Person, as the case may be, pay,
perform and discharge fully all the obligations or other Liabilities of ATI, TII
or such other Person, as the case may be, thereunder from and after the date
hereof. Water Pik shall indemnify and defend each ATI Indemnitee and hold each
of them harmless against any Liabilities arising in connection
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therewith. Each of ATI and TII, as the case may be, shall, without further
consideration, pay and remit, or cause to be paid or remitted, to Water Pik
promptly all money, rights and other consideration received by it or any member
of its respective Group in respect of such performance (unless any such
consideration is an Excluded Asset). If and when any such consent, approval,
release, substitution or amendment shall be obtained or such agreement, lease,
license or other rights or obligations shall otherwise become assignable or able
to be novated, each of ATI and TII, as the case may be, shall thereafter assign,
or cause to be assigned, all its rights, obligations and other Liabilities
thereunder or any rights or obligations of any member of its respective Group to
Water Pik without payment of further consideration and Water Pik shall, without
the payment of any further consideration, assume such rights and obligations.
2.12. TRANSFER OF SUBSIDIARY ASSETS AND ASSUMPTION OF
SUBSIDIARY LIABILITIES. Immediately following the transfer of Water Pik Assets
and assumption of Water Pik Liabilities contemplated by Section 2.01, Water Pik
shall contribute to Water Pik Inc. the Water Pik Inc. Assets and cause Water Pik
Inc. to assume the Water Pik Inc. Liabilities in accordance with the Water Pik
Inc. Transfer and Assumption Agreement, and shall contribute to Laars Inc. the
Laars Inc. Assets and cause Laars Inc. to assume the Laars Inc. Liabilities in
accordance with the Laars Inc. Transfer and Assumption Agreement.
2.13. CONSUMMATION OF PURCHASE AND SALE AGREEMENT. Immediately
following the transfer of Assets and assumption of Liabilities contemplated by
Section 2.12, the parties hereto will cause the transactions contemplated by the
Purchase and Sale Agreement to be consummated, pursuant to which TICL Newco will
purchase the TICL Assets from TICL for approximately $5,600,000 in cash.
2.14. TI CONTRIBUTION AND LIQUIDATION. Prior to consummation
of the transactions contemplated by Section 2.15, ATI will contribute to
Holdings all of the outstanding capital stock of TI and the TI Liquidation will
be effected.
2.15. INTERIM DISTRIBUTIONS. Following the TI Liquidation, TII
will distribute to Holdings and Holdings will distribute to ATI all of the
outstanding Water Pik Common Stock.
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ARTICLE III
THE DISTRIBUTION
3.01. THE DISTRIBUTION. The ATI Board shall have the sole and
absolute discretion to determine whether and when to effect the Distribution. If
the ATI Board declares the Distribution, on or prior to the Distribution Date,
ATI will deliver to the Agent for the benefit of holders of record of ATI Common
Stock on the Record Date, a single stock certificate, endorsed by ATI in blank,
representing all of the outstanding shares of Water Pik Common Stock then owned
by ATI or any member of the ATI Group, and will instruct the Agent to
distribute, or make book-entry credits for, one share of Water Pik Common Stock
in respect of every twenty shares of ATI Common Stock held by holders of record
of ATI Common Stock on the Record Date, subject to Section 3.03.
3.02. ACTIONS PRIOR TO THE DISTRIBUTION. Prior to the
Distribution:
(a) On such date as ATI shall determine, Water Pik shall mail
to the holders of ATI Common Stock the Information Statement.
(b) ATI and Water Pik shall cooperate in preparing, filing
with the Commission under the Securities Act and causing to become effective any
registration statements or amendments thereto that are appropriate to reflect
the establishment of or amendments to any employee benefit plan contemplated by
the Employee Benefits Agreement.
(c) ATI and Water Pik shall by means of a reclassification,
stock split or stock distribution or other means cause the number of outstanding
shares of Water Pik Common Stock held by ATI to be equal to the number of shares
to be distributed in the Distribution (as determined by ATI).
(d) ATI and Water Pik shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement or any Ancillary Agreement.
(e) Water Pik shall use all efforts to have approved an
application to permit listing of the Water Pik Common Stock on the NYSE or
another mutually agreeable stock exchange or quotation system.
(f) ATI and Water Pik shall take all actions which may be
required to elect or otherwise appoint as directors of Water Pik, on or prior to
the Distribution Date, the persons named in the Form 10 Registration Statement
to constitute the Board of Directors of Water Pik on the Distribution Date.
(g) ATI shall cause a Certificate of Amendment and Restatement
of the Water Pik Certificate of Incorporation substantially in the form filed
with the Form 10 Registration Statement, to be filed for record with the
Secretary of State of Delaware and to be in effect on the Distribution Date, and
the Board of Directors of Water Pik shall amend the Bylaws of Water Pik
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so that the Water Pik Bylaws are substantially in the form filed with the
Form 10 Registration Statement.
(h) Water Pik shall declare a distribution of, and distribute,
one Right with respect to each share of Water Pik Common Stock to be distributed
in the Distribution.
(i) ATI and Water Pik shall take all actions as may be
necessary to approve the stock-based employee benefit plans of Water Pik in
order to satisfy the requirements of Section 162(m) and other applicable
provisions of the Code and any requirements of the NYSE (or any other stock
exchange or quotations system on which Water Pik Common Stock is to be listed or
traded).
3.03. FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Water Pik Common Stock will be distributed to holders of
ATI Common Stock in the Distribution. The Agent will, as soon as practicable
after the Distribution Date, (a) determine the number of whole shares and
fractional shares of Water Pik Common Stock allocable to each holder of record
of ATI Common Stock as of the Record Date, (b) aggregate all fractional shares
held by such holders, and (c) sell the whole shares attributable to the
aggregate of such fractional shares, in open market transactions, in each case
at the then prevailing trading prices, and to cause to be distributed to each
such holder, in lieu of any fractional share, without interest, such holder's
ratable share of the proceeds of such sale, after making appropriate deductions
of the amount required, if any, to be withheld for U.S. federal income tax
purposes.
ARTICLE IV
THE PUBLIC OFFERING
4.01. THE PUBLIC OFFERING. (a) Water Pik shall consummate the
Public Offering not later than one year following the Distribution Date. Actions
required in order to so consummate the Public Offering shall include, but not
necessarily be limited to, those specified in this Section 4.01.
(b) Water Pik shall file the Public Offering Registration
Statement not later than at the end of the eighth month following the month in
which the Distribution Date occurs, and shall file such amendments or
supplements thereto, as may be necessary in order to cause the same to become
and remain effective as required by law or by the Underwriters, including, but
not limited to, filing such amendments to the Public Offering Registration
Statement as may be required by the Underwriting Agreement, the Commission or
federal, state or foreign securities laws.
(c) Water Pik shall enter into the Underwriting Agreement and
shall comply with its obligations thereunder.
(d) Water Pik shall take all such action as may be necessary
or appropriate under state securities and blue sky laws of the United States
(and any comparable laws under any foreign jurisdictions) in connection with the
Public Offering.
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(e) Water Pik shall prepare, file and take all actions
necessary to make effective an application for listing of the Water Pik Common
Stock issued in the Public Offering on the NYSE, subject to official notice of
issuance.
(f) Water Pik shall participate in the preparation of
materials and presentations as the Underwriters shall deem necessary or
desirable.
(g) Water Pik shall pay all third party costs, fees and
expenses relating to the Public Offering, all of the reimbursable expenses of
the Underwriters pursuant to the Underwriting Agreement, all of the costs of
producing, printing, mailing and otherwise distributing the Prospectus, as well
as the Underwriters' discount as provided in the Underwriting Agreement.
4.02. PROCEEDS OF THE PUBLIC OFFERING. The Public Offering
will be a primary offering of Water Pik Common Stock and the net proceeds of the
Public Offering will be retained by Water Pik. Water Pik will use such net
proceeds as provided in the Tax Sharing Agreement and the Ruling Request.
4.03. REMEDIES. Water Pik acknowledges that its agreements in
this Article IV are of a special, unique, unusual and extraordinary character.
Because the failure of Water Pik to perform its obligations set forth in the
provisions of this Article IV could cause unique and extraordinary injury to
ATI, ATI shall, notwithstanding anything to the contrary herein, have the right
in addition to any other remedies available, at law or in equity, to seek an
injunction in a court of equity to compel Water Pik to perform such obligations.
Water Pik hereby waives any and all defenses it may have on the ground of lack
of jurisdiction or competence of the court to grant an injunction or other
equitable relief, or otherwise, and agrees that it will not assert any such
defense or any defense to a request by ATI for injunctive relief based on the
alleged existence of an adequate remedy at law or for money damages. Without
limiting the foregoing, Water Pik hereby waives the right to require ATI to post
any bond or other security with respect to any proceeding to enforce the
provisions of this Article IV. The existence of the rights of ATI set forth in
this Section 4.03 shall not preclude any other rights and remedies at law or in
equity which ATI may have.
ARTICLE V
MUTUAL RELEASES; INDEMNIFICATION
5.01. RELEASE OF PRE-DISTRIBUTION CLAIMS. (a) Except as
provided in Section 5.01(c), effective as of the Effective Time, Water Pik does
hereby, for itself and each other member of the Water Pik Group, their
respective Affiliates (other than any member of the ATI Group), successors and
assigns, and all Persons who at any time prior to the Effective Time have been
stockholders, directors, officers, agents or employees of any member of the
Water Pik Group (in each case, in their respective capacities as such), remise,
release and forever discharge each of ATI and Teledyne Technologies, the
respective members of the ATI Group and the Teledyne Technologies Group, their
respective Affiliates (other than any member of the Water Pik Group), successors
and assigns, and all Persons who at any time prior to the Effective Time
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have been stockholders, directors, officers, agents or employees of any member
of ATI or the Teledyne Technologies Group (in each case, in their respective
capacities as such), and their respective heirs, executors, administrators,
successors and assigns, from any and all Liabilities whatsoever, whether at law
or in equity (including any right of contribution), whether arising under any
contract or agreement, by operation of law or otherwise, existing or arising
from any acts or events occurring or failing to occur or alleged to have
occurred or to have failed to occur or any conditions existing or alleged to
have existed on or before the Effective Time, including in connection with the
transactions and all other activities undertaken to implement the Separation or
the Distribution.
(b) Except as provided in Section 5.01(c), effective as of the
Effective Time, ATI does hereby, for itself and each other member of the ATI
Group and its Affiliates (other than any member of the Water Pik Group),
successors and assigns, and all Persons who at any time prior to the Effective
Time have been stockholders, directors, officers, agents or employees of any
member of the ATI Group (in each case, in their respective capacities as such),
remise, release and forever discharge Water Pik, the respective members of the
Water Pik Group, their respective Affiliates (other than any member of the ATI
Group), successors and assigns, and all Persons who at any time prior to the
Effective Time have been stockholders, directors, officers, agents or employees
of any member of the Water Pik Group (in each case, in their respective
capacities as such), and their respective heirs, executors, administrators,
successors and assigns, from any and all Liabilities whatsoever, whether at law
or in equity (including any right of contribution), whether arising under any
contract or agreement, by operation of law or otherwise, existing or arising
from any acts or events occurring or failing to occur or alleged to have
occurred or to have failed to occur or any conditions existing or alleged to
have existed on or before the Effective Time, including in connection with the
transactions and all other activities undertaken to implement the Separation or
the Distribution.
(c) Nothing contained in Section 5.01(a) or (b) shall impair
any right of any Person to enforce this Agreement, any Ancillary Agreement or
any agreements, arrangements, commitments or understandings that are specified
in Section 2.04(b) or the applicable Schedules thereto not to terminate as of
the Effective Time, in each case in accordance with its terms. Nothing contained
in Section 5.01(a) or (b) shall release any Person from:
(i) any Liability provided in or resulting from any agreement
among any members of the ATI Group or the Water Pik Group that is
specified in Section 2.04(b) or the applicable Schedules thereto as not
to terminate as of the Effective Time, or any other Liability specified
in such Section 2.04(b) as not to terminate as of the Effective Time;
(ii) any Liability, contingent or otherwise, assumed,
transferred, assigned or allocated to the Group of which such Person is
a member in accordance with, or any other Liability of any member of
any Group under, this Agreement or any Ancillary Agreement;
(iii) any Liability for the sale, lease, construction or
receipt of goods, property or services purchased, obtained or used in
the ordinary course of business by a member of one Group from a member
of any other Group prior to the Effective Time;
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(iv) any Liability for unpaid amounts for products or services
or refunds owing on products or services due on a value-received basis
for work done by a member of one Group at the request or on behalf of a
member of another Group;
(v) any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims
brought against the parties by third Persons, which Liability shall be
governed by the provisions of this Article V and, if applicable, the
appropriate provisions of the Ancillary Agreements; or
(vi) any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this
Section 5.01; provided that the parties agree not to bring suit or
permit any of their Subsidiaries to bring suit against any Person with
respect to any Liability to the extent that such Person would be
released with respect to such Liability by this Section 5.01 but for
the provisions of this clause (vi).
(d) Water Pik shall not make, and shall not permit any member
of the Water Pik Group to make, any claim or demand, or commence any Action
asserting any claim or demand, including any claim of contribution or
indemnification, against ATI, Teledyne Technologies or any member of the ATI
Group or Teledyne Technologies Group, or any other Person released pursuant to
Section 5.01(a), with respect to any Liabilities released pursuant to Section
5.01(a). Without limiting the generality of the foregoing, Water Pik shall not
make, and shall not permit any other member of the Water Pik Group to make, any
claim or demand, or commence any Action asserting any claim or demand, including
any claim of contribution or indemnification, against ATI, Teledyne Technologies
or any member of the ATI Group or the Teledyne Technologies Group, or any other
Person released pursuant to Section 5.01(a), with respect to whether any Asset
should or should not have been classified as a Water Pik Asset or whether any
Liability should or should not have been classified as a Water Pik Liability or
with respect to the Water Pik Balance Sheet, including in respect of the
accuracy or presentation thereof, or the adequacy of accruals, reserves and
other amounts reflected thereon. ATI shall not, and shall not permit any member
of the ATI Group, to make any claim or demand, or commence any Action asserting
any claim or demand, including any claim of contribution or any indemnification,
against Water Pik or any member of the Water Pik Group, or any other Person
released pursuant to Section 5.01(b), with respect to any Liabilities released
pursuant to Section 5.01(b).
(e) It is the intent of each of ATI and Water Pik by virtue of
the provisions of this Section 5.01 to provide for a full and complete release
and discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Effective Time, between or among Water Pik or any member of the Water Pik Group,
on the one hand, and ATI, Water Pik or any member of the ATI Group or the
Teledyne Technologies Group, on the other hand (including any contractual
agreements or arrangements existing or alleged to exist between or among any
such members on or before the Effective Time), except as expressly set forth in
Section 5.01(c) or otherwise in this Agreement. At any time, at the request of
any other party, each party shall cause each member of its respective Group to
execute and deliver releases reflecting the provisions hereof.
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5.02. INDEMNIFICATION BY WATER PIK. Except as provided in
Section 5.04, Water Pik shall indemnify, defend and hold harmless ATI, each
member of the ATI Group and each of their respective directors, officers,
employees, agents and representatives, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "ATI
Indemnitees"), and Teledyne Technologies, each member of the Teledyne
Technologies Group and each of their respective directors, officers and
employees, and each of the heirs, executors, successors and assigns of any of
the foregoing (collectively, the "Teledyne Technologies Indemnitees"), from and
against any and all Liabilities of the ATI Indemnitees and the Teledyne
Technologies Indemnitees, respectively, relating to, arising out of or resulting
from any of the following items (without duplication):
(a) the failure of Water Pik or any other member of the Water
Pik Group or any other Person to pay, perform or otherwise promptly discharge
any Water Pik Liabilities or Water Pik Contract in accordance with their
respective terms, whether prior to or after the Effective Time or the date
hereof;
(b) the Water Pik Business, any Water Pik Liability or any
Water Pik Contract;
(c) any breach by Water Pik or any member of the Water Pik
Group of this Agreement or any of the Ancillary Agreements;
(d) the operation of the Water Pik Business, as conducted at
any time prior to, on or after the Distribution Date (including any Liability
relating to, arising out of or resulting from any act or failure to act by any
director, officer, employee, agent or representative (whether or not such act or
failure to act is or was within such Person's authority));
(e) any infringement of any Intellectual Property right of any
third party, including, but not limited to, patent rights, trademark and service
mark rights (registered and common law), trade dress rights, copyrights,
misappropriation of trade secret, based upon or resulting from the operation of
the Water Pik Business and regardless of whether said alleged infringement
occurred prior to, on or after the Distribution Date or any claim based on the
actual or alleged invalidity, unenforceability or transferability or ownership
of Intellectual Property to be transferred hereby or pursuant to any Ancillary
Agreement;
(f) Liabilities assumed by any member of the Water Pik Group
under any Ancillary Agreement;
(g) any guarantee, indemnity, representation, warranty or
other Liability of or made by any member of the ATI Group in respect of any
Liability or alleged Liability of any member of the Water Pik Group; and.
(h) any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
with respect to all information contained in the Form 10 Registration Statement
or the Information Statement.
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5.03. INDEMNIFICATION BY ATI. (a) ATI shall indemnify, defend
and hold harmless Water Pik, each member of the Water Pik Group and each of
their respective directors, officers, employees, agents and representatives, and
each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Water Pik Indemnitees"), from and against any and all
Liabilities of the Water Pik Indemnitees relating to, arising out of or
resulting from any of the following items (without duplication):
(a) the failure of ATI or any other member of the ATI Group to
pay, perform or otherwise promptly discharge any ATI Liabilities; and
(b) any breach by ATI of this Agreement or any of the
Ancillary Agreements.
5.04. INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS
AND OTHER AMOUNTS. (a) The parties intend that any Liability subject to
indemnification or reimbursement pursuant to this Article V will be net of
Insurance Proceeds that actually reduce the amount of the Liability.
Accordingly, the amount which any party (an "Indemnifying Party") is required to
pay to any Person entitled to indemnification hereunder (an "Indemnitee") will
be reduced by any Insurance Proceeds theretofore actually recovered by or on
behalf of the Indemnitee in reduction of the related Liability. If an Indemnitee
receives a payment (an "Indemnity Payment") required by this Agreement from an
Indemnifying Party in respect of any Liability and subsequently receives
Insurance Proceeds, then the Indemnitee will pay to the Indemnifying Party an
amount equal to the excess of the Indemnity Payment received over the amount of
the Indemnity Payment that would have been due if the Insurance Proceeds had
been received, realized or recovered before the Indemnity Payment was made.
(b) An insurer who would otherwise be obligated to pay any
claim shall not be relieved of the responsibility with respect thereto or,
solely by virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto, it being expressly understood and agreed that no
insurer or any other third party shall be entitled to a "windfall" (i.e., a
benefit they would not be entitled to receive in the absence of the
indemnification provisions) by virtue of the indemnification provisions hereof.
Nothing contained in this Agreement or any Ancillary Agreement shall obligate
any member of any Group to seek to collect or recover any Insurance Proceeds.
5.05. PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS.
(a) If an Indemnitee shall receive notice or otherwise learn of the assertion by
a Person (including any Governmental Authority) who is not a member of the ATI
Group or the Water Pik Group of any claim or of the commencement by any such
Person of any Action (collectively, a "Third Party Claim") with respect to which
an Indemnifying Party may be obligated to provide indemnification to such
Indemnitee pursuant to Section 5.02 or 5.03, or any other Section of this
Agreement or any Ancillary Agreement, such Indemnitee shall give such
Indemnifying Party and, if ATI is not the Indemnifying Party, ATI written notice
thereof as soon as practicable but in any event not less than 20 days after
becoming aware of such Third Party Claim. Any such notice shall describe the
Third Party Claim in reasonable detail. Notwithstanding the foregoing, the
failure of any Indemnitee or other Person to give notice as provided in this
Section 5.05(a) shall
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not relieve the related Indemnifying Party of its obligations under this Article
V, except to the extent that such Indemnifying Party is actually prejudiced by
such failure to give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after
the receipt of notice from an Indemnitee in accordance with Section 5.05(a) (or
sooner, if the nature of such Third Party Claim so requires), the Indemnifying
Party shall notify the Indemnitee of its election whether the Indemnifying Party
will assume responsibility for defending such Third Party Claim, which election
shall specify any reservations or exceptions. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, such Indemnitee shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnitee except as set forth in the next sentence. In the event that the
Indemnifying Party has elected to assume the defense of the Third Party Claim
but has specified, and continues to assert, any reservations or exceptions in
such notice, then, in any such case, the reasonable fees and expenses of one
separate counsel for all Indemnitees shall be borne by the Indemnifying Party.
(c) If an Indemnifying Party elects not to assume
responsibility for defending a Third Party Claim, or fails to notify an
Indemnitee of its election as provided in Section 5.05(b), such Indemnitee may
defend such Third Party Claim at the cost and expense (including allocated costs
of in-house counsel and other personnel) of the Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the
defense of the Third Party Claim in accordance with the terms of this Agreement,
no Indemnitee may settle or compromise any Third Party Claim without the consent
of the Indemnifying Party.
(e) No Indemnifying Party shall consent to entry of any
judgment or enter into any settlement of the Third Party Claim without the
consent of the Indemnitee if the effect thereof is to permit any injunction,
declaratory judgment, other order or other nonmonetary relief to be entered,
directly or indirectly, against any Indemnitee.
5.06. ADDITIONAL MATTERS. (a) Any claim on account of a
Liability which does not result from a Third Party Claim shall be asserted by
written notice given by the Indemnitee to the related Indemnifying Party. Such
Indemnifying Party shall have a period of 30 days after the receipt of such
notice within which to respond thereto. If such Indemnifying Party does not
respond within such 30-day period, such Indemnifying Party shall be deemed to
have refused to accept responsibility to make payment. If such Indemnifying
Party does not respond within such 30-day period or rejects such claim in whole
or in part, such Indemnitee shall be free to pursue such remedies as may be
available to such party as contemplated by this Agreement and the Ancillary
Agreements.
(b) In the event of payment by or on behalf of any
Indemnifying Party to any Indemnitee in connection with any Third Party Claim,
such Indemnifying Party shall be subrogated to and shall stand in the place of
such Indemnitee as to any events or circumstances in
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respect of which such Indemnitee may have any right, defense or claim relating
to such Third Party Claim against any claimant or plaintiff asserting such Third
Party Claim or against any other person. Such Indemnitee shall cooperate with
such Indemnifying Party in a reasonable manner, and at the cost and expense
(including allocated costs of in-house counsel and other personnel) of such
Indemnifying Party, in prosecuting any subrogated right, defense or claim.
(c) In the event of an Action in which the Indemnifying Party
is not a named defendant, if either the Indemnified Party or Indemnifying Party
shall so request, the parties shall endeavor to substitute the Indemnifying
Party for the named defendant. If such substitution or addition cannot be
achieved for any reason or is not requested, the named defendant shall allow the
Indemnifying Party to manage the Action as set forth in this Section and the
Indemnifying Party shall fully indemnify the named defendant against all costs
of defending the Action (including court costs, sanctions imposed by a court,
attorneys' fees, experts' fees and all other external expenses, and the
allocated costs of in-house counsel and other personnel), the costs of any
judgment or settlement, and the cost of any interest or penalties relating to
any judgment or settlement.
5.07. REMEDIES CUMULATIVE. The remedies provided in this
Article V shall be cumulative and shall not preclude assertion by any Indemnitee
of any other rights or the seeking of any and all other remedies against any
Indemnifying Party.
5.08. SURVIVAL OF INDEMNITIES. The rights and obligations of
each of the Indemnitees under this Article V shall survive the sale or other
transfer by any party of any Assets or businesses or the assignment by it of any
Liabilities.
ARTICLE VI
CERTAIN OTHER MATTERS
6.01. INSURANCE MATTERS. (a) In no event shall ATI, any other
member of the ATI Group or any ATI Indemnitee have any liability or obligation
whatsoever to any member of the Water Pik Group in the event that any Insurance
Policy or other contract or policy of insurance shall be terminated or otherwise
cease to be in effect for any reason, shall be unavailable or inadequate to
cover any Liability of any member of the Water Pik Group for any reason
whatsoever or shall not be renewed or extended beyond the current expiration
date.
(b) (i) Except as otherwise provided in any Ancillary
Agreement, the parties intend by this Agreement that Water Pik and each other
member of the Water Pik Group be successors-in-interest to all rights that any
member of the Water Pik Group may have as of the Distribution Date as a
subsidiary, affiliate, division or department of ATI prior to the Distribution
Date under any policy of insurance issued to ATI and intended to insure the
Water Pik Group by any insurance carrier unaffiliated with ATI or under any
agreements related to such policies executed and delivered prior to the
Distribution Date, including any rights such member of the Water Pik Group may
have, as an insured or additional named insured, subsidiary, affiliate, division
or department, to avail itself of any such policy of insurance or any such
agreements related to such policies as in effect prior to the Distribution Date.
At the request of Water Pik, ATI shall take all reasonable steps, including the
execution and delivery of any instruments, to
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effect the foregoing; provided however that ATI shall not be required to pay any
amounts, waive any rights or incur any Liabilities in connection therewith.
(ii) Except as otherwise contemplated by any Ancillary
Agreement, after the Distribution Date, neither of ATI nor Water Pik or any
member of their respective Groups shall, without the consent of the other,
provide any such insurance carrier with a release, or amend, modify or waive any
rights under any such policy or agreement, if such release, amendment,
modification or waiver would adversely affect any rights or potential rights of
any member of the other Group thereunder; provided however that the foregoing
shall not (A) preclude any member of any Group from presenting any claim or from
exhausting any policy limit, (B) require any member of any Group to pay any
premium or other amount or to incur any Liability, or (C) require any member of
any Group to renew, extend or continue any policy in force. Each of Water Pik
and ATI will, and will cause its respective Group to, share such information as
is reasonably necessary in order to permit the other to manage and conduct its
insurance matters in an orderly fashion.
(c) This Agreement shall not be considered as an attempted
assignment of any policy of insurance or as a contract of insurance and shall
not be construed to waive any right or remedy of any member of the ATI Group in
respect of any Insurance Policy or any other contract or policy of insurance.
(d) Water Pik does hereby, for itself and each other member of
the Water Pik Group, agree that no member of the ATI Group or any ATI Indemnitee
shall have any Liability whatsoever as a result of the insurance policies and
practices of ATI and its Affiliates as in effect at any time prior to the
Distribution Date, including as a result of the level or scope of any such
insurance, the creditworthiness of any insurance carrier, the terms and
conditions of any policy, the adequacy or timeliness of any notice to any
insurance carrier with respect to any claim or potential claim or otherwise.
(e) Nothing in this Agreement shall be deemed to restrict any
member of the Water Pik Group from acquiring at its own expense any other
insurance policy in respect of any Liabilities or covering any period.
(f) With respect to policy periods prior to the Distribution
Date:
(i) Water Pik shall be responsible for: (A) all
Unpaid Losses (but not to exceed the applicable Per Case Maximum) as of
the Distribution Date attributable to Water Pik Liabilities covered
under ATI Automobile Policies and ATI Workers Compensation Policies for
policies in effect prior to the Distribution Date; and (B) Pooled Loss
Costs Allocable to Water Pik.
(ii) On or before June 1, 2000 and on a quarterly
basis thereafter, ATI shall provide Water Pik with a calculation of
amounts due ATI or refunds due Water Pik for Water Pik's obligations
incurred under ATI Automobile Policies and ATI Workers Compensation
Policies for policies under subparagraph immediately (i) above. The
initial calculations shall be based on (A) the change in total Incurred
Losses between the
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Distribution Date and March 31, 2000 for all such policies in effect
prior to the Distribution Date multiplied by the Expense Factors set
forth in such policies and applicable to such Incurred Losses, but only
with respect to that portion of Incurred Losses attributable to Water
Pik Liabilities not exceeding the applicable Per Case Maximum; and (B)
the change in Pooled Loss Costs Allocable to Water Pik for the period
between the Distribution Date and March 31, 2000 for all such policies
in effect prior to the Distribution Date. Subsequent calculations shall
be based on (A) the change in total Incurred Losses for the subsequent
quarterly periods multiplied by the Expense Factors set forth in such
policies and applicable to such losses; but only with respect to that
portion of losses attributable to Water Pik Liabilities not exceeding
the applicable Per Case Maximum, and (B) the change in Pooled Loss
Costs Allocable to Water Pik for the subsequent quarterly period. It is
specifically understood and agreed that Water Pik Liabilities and
losses that are covered under ATI Policies, other than ATI Workers
Compensation Policies and ATI Automobile Policies, shall not be subject
to a pooling arrangement among ATI divisions that prior to the
Distribution Date applied with respect to certain claims subject to a
Self-Insurance Obligation.
(iii) Within 30 days after receipt by Water Pik of
ATI's calculations referred to in subparagraph (ii) immediately above,
Water Pik on the one hand and ATI on the other hand shall pay to the
other the net amount owed after taking into account the combined
amounts reflected on the calculations.
(g) At its sole option, ATI shall have the right to handle,
defend, resolve, and administer claims in its sole discretion, with respect to
Water Pik Liabilities covered, in whole or in part, by ATI Policies, including,
without limitation, the reporting of claims to the issuers of such ATI Policies
insurance carriers, as well as the management, defense and settlement of claims.
ATI will not enter into any such settlement of a claim without the consent of
Water Pik (which will not be unreasonably withheld) if the effect thereof is to
render Water Pik liable for a monetary obligation with respect to such claim.
Water Pik agrees to cooperate, at its own expense, with ATI in the reporting,
handling, defense, resolution and administration of such claims. Alternatively,
ATI, at its sole option shall have the right to require, at any time and from
time to time, that Water Pik and any member of the Water Pik Group, at their
sole expense, defend, resolve and administer any one or more or all claims with
respect to Water Pik Liabilities covered in whole, or in part, by ATI Policies,
including without limitation, the reporting of claims to the issuers of such ATI
Policies, as well as the management, defense and settlement of such claims and,
if ATI exercises such option, Water Pik and members of the Water Pik Group, at
ATI's request, shall at their expense provide ATI with any and all information
concerning, and permit ATI to monitor, the foregoing management, defense,
settlement and insurance handling of such claims. Except with the express
written consent of ATI, neither Water Pik nor any member of the Water Pik Group
shall provide any issuer of ATI Policies with a release, nor shall they amend,
modify, or waive any rights under such ATI Policies, if such release, amendment,
modification or waiver would adversely affect rights or potential rights of ATI
or any other member of the ATI Group.
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(h) With respect to policies procured by or for the Water Pik
Group subsequent to January 1999 and to policy years commencing on or after the
Distribution Date, Water Pik shall be responsible for all aspects of claims
administration with respect to Water Pik Liabilities, and ATI shall have no
responsibility therefor whatsoever.
(i) With respect to any Water Pik Liabilities or Water Pik
losses covered under ATI Policies other than ATI Workers Compensation Policies
and ATI Automobile Policies, including, but not limited to ATI General Liability
Policies and ATI Product Liability Policies, Water Pik shall be responsible for
all Unpaid Losses and all costs and expenses that give rise to a Self-Insurance
Obligation. In the event that ATI pays any such costs and expenses, Water Pik
shall reimburse ATI within thirty days of receipt of a billing for any such
costs and expenses.
6.02. CERTAIN BUSINESS MATTERS. No member of any Group shall
have any duty to refrain from (i) engaging in the same or similar activities or
lines of business as any member of any other Group, (ii) doing business with any
potential or actual supplier or customer of any member of any other Group, or
(iii) engaging in, or refraining from, any other activities whatsoever relating
to any of the potential or actual suppliers or customers of any member of any
other Group.
6.03. LATE PAYMENTS. Except as expressly provided to the
contrary in this Agreement or in any Ancillary Agreement, any amount not paid
when due pursuant to this Agreement or any Ancillary Agreement (and any amounts
billed or otherwise invoiced or demanded and properly payable that are not paid
within 30 days of such bill, invoice or other demand) shall accrue interest at a
rate per annum equal to the Prime Rate plus 2%.
6.04. CERTAIN GOVERNANCE MATTERS. (a) Water Pik and ATI intend
that until the third annual meeting of stockholders of Water Pik held following
the Distribution Date, at least a majority of the members of the Board of
Directors of Water Pik will at all times consist of persons who are also members
of the Board of Directors of ATI. The initial members of the Board of Directors
of Water Pik and the respective initial Classes of the Board in which they will
serve are as follows:
Class I: Charles J. Queenan, Jr.
James E. Rohr
Class II: Michael P. Hoopis
William G. Ouchi
Class III: Robert P. Bozzone (Chairman)
W. Craig McClelland
(b) Water Pik will, with respect to the first annual meeting
of stockholders of Water Pik held following the Distribution Date, nominate for
election and recommend to stockholders the election of Charles J. Queenan, Jr.
and James E. Rohr (or, if either such candidate is unable or unwilling to serve,
such other candidate as Messrs. Bozzone and McClelland or the survivor of them
shall designate) to serve as a continuing Class I directors of Water Pik.
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(c) Water Pik shall take such action from time to time as ATI
requests in order to assure that, until the third annual meeting of stockholders
of Water Pik following the Distribution Date, at least a majority of the members
of the Board of Directors of Water Pik will at all times consist of persons who
are also members of the Board of Directors of ATI. Without limiting the
generality of the foregoing, if for any reason (including death, resignation or
disqualification) there are no directors of Water Pik who are also directors of
ATI, Water Pik will immediately take all action requested by ATI to appoint to
the Board of Directors of Water Pik such members of the Board of Directors of
ATI as ATI shall designate.
ARTICLE VII
EXCHANGE OF INFORMATION; CONFIDENTIALITY
7.01. AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. (a)
Each of ATI and Water Pik, on behalf of itself and its respective Group, agrees
to provide, or cause to be provided, to each other Group, at any time before or
after the Distribution Date, as soon as reasonably practicable after written
request therefor, any Information in the possession or under the control of such
respective Group which the requesting party reasonably requires (i) to comply
with reporting, disclosure, filing or other requirements imposed on the
requesting party (including under applicable securities or tax laws) by a
Governmental Authority having jurisdiction over the requesting party, (ii) for
use in any other judicial, regulatory, administrative, tax or other proceeding
or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or
other similar requirements, or (iii) to comply with its obligations under this
Agreement or any Ancillary Agreement; provided, however, that in the event that
any party determines that any such provision of Information could be
commercially detrimental, violate any law or agreement, or waive any
attorney-client privilege, the parties shall take all reasonable measures to
permit the compliance with such obligations in a manner that avoids any such
harm or consequence.
(b) After the Distribution Date, each of ATI and Water Pik
shall have access during regular business hours (as in effect from time to time)
to the documents and objects of historic significance that relate to the their
respective Businesses that are in the possession of any other of such parties or
members of their respective Groups. Any party seeking such access may, at its
cost, obtain copies (but not originals) of documents for bona fide business
purposes and may obtain objects for exhibition purposes for commercially
reasonable periods of time if required for bona fide business purposes, provided
that such party shall cause any such objects to be returned promptly in the same
condition in which they were delivered and shall comply with any rules,
procedures or other requirements, and shall be subject to any restrictions
(including prohibitions on removal of specified objects), that are then
applicable to the possessing party.
(c) After the Distribution Date, (i) Water Pik shall maintain
in effect adequate systems and controls to the extent necessary to enable the
members of the ATI Group to satisfy their respective reporting, accounting,
audit and other obligations, and (ii) Water Pik shall provide, or cause to be
provided, to ATI, all financial and other data and information as ATI determines
necessary or advisable in order to prepare ATI financial statements and reports
or filings with any Governmental Authority.
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7.02. OWNERSHIP OF INFORMATION. Any Information owned by one
Group that is provided to a requesting party pursuant to Section 7.01 shall be
deemed to remain the property of the providing party. Unless specifically set
forth herein, nothing contained in this Agreement shall be construed as granting
or conferring rights of license or otherwise in any such Information.
7.03. COMPENSATION FOR PROVIDING INFORMATION. The party
requesting such Information agrees to reimburse the other party for the
reasonable costs, if any, of creating, gathering and copying such Information,
to the extent that such costs are incurred for the benefit of the requesting
party. Except as may be otherwise specifically provided elsewhere in this
Agreement or in any other agreement between the parties, such costs shall be
computed in accordance with the providing party's standard methodology and
procedures.
7.04. RECORD RETENTION. To facilitate the possible exchange of
Information pursuant to this Article VII and other provisions of this Agreement
after the Distribution Date, the parties agree to use their reasonable best
efforts to retain all Information in their respective possession or control on
the Distribution Date in accordance with the policies of ATI as in effect on the
Distribution Date. No party will destroy, or permit any of its Subsidiaries to
destroy, any Information which the other party may have the right to obtain
pursuant to this Agreement prior to the seventh anniversary of the date hereof
without first using its reasonable best efforts to notify the other party of the
proposed destruction and giving the other party the opportunity to take
possession of such information prior to such destruction; provided, however,
that in the case of any Information relating to Taxes or to Environmental
Liabilities, such period shall be extended to the expiration of the applicable
statute of limitations (giving effect to any extensions thereof).
7.05. OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION.
The rights and obligations granted under this Article VII are subject to any
specific limitations, qualifications or additional provisions on the sharing,
exchange or confidential treatment of Information set forth in any Ancillary
Agreement.
7.06. PRODUCTION OF WITNESSES; RECORDS; COOPERATION. (a) After
the Distribution Date, except in the case of an adversarial Action by one party
against another party, each party hereto shall use its reasonable efforts to
make available to each other party, upon written request, the former, current
and future directors, officers, employees, other personnel and agents of the
members of its respective Group as witnesses and any books, records or other
documents within its control or which it otherwise has the ability to make
available, to the extent that any such person (giving consideration to business
demands of such directors, officers, employees, other personnel and agents) or
books, records or other documents may reasonably be required in connection with
any Action in which the requesting party may from time to time be involved,
regardless of whether such Action is a matter with respect to which
indemnification may be sought hereunder. The requesting party shall bear all
costs and expenses (including allocated costs of in-house counsel and other
personnel) in connection therewith.
(b) If an Indemnifying Party chooses to defend or to seek to
compromise or settle any Third Party Claim, the other parties shall make
available to such Indemnifying Party, upon
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written request, the former, current and future directors, officers, employees,
other personnel and agents of the members of its respective Group as witnesses
and any books, records or other documents within its control or which it
otherwise has the ability to make available, to the extent that any such person
(giving consideration to business demands of such directors, officers,
employees, other personnel and agents) or books, records or other documents may
reasonably be required in connection with such defense, settlement or
compromise, or such prosecution, evaluation or pursuit, as the case may be, and
shall otherwise cooperate in such defense, settlement or compromise, or such
prosecution, evaluation or pursuit, as the case may be.
(c) Without limiting any provision of this Section, the
parties shall cooperate and consult to the extent reasonably necessary with
respect to any Action, and each of the parties agrees to cooperate, and to cause
each member of its respective Group to cooperate, with each other in the defense
of any infringement or similar claim with respect to any intellectual property
and shall not claim to acknowledge, or permit any member of its respective Group
to claim to acknowledge, the validity or infringing use of any intellectual
property of a third Person in a manner that would hamper or undermine the
defense of such infringement or similar claim.
(d) The obligation of the parties to provide witnesses
pursuant to this Section 7.06 is intended to be interpreted in a manner so as to
facilitate cooperation and shall include the obligation to provide as witnesses
inventors and other officers without regard to whether the witness or the
employer of the witness could assert a possible business conflict (subject to
the qualifications set forth in the first sentence of Section 7.06(a)).
(e) In connection with any matter contemplated by this Section
7.06, the parties will enter into a mutually acceptable joint defense agreement
so as to maintain to the extent practicable any applicable attorney-client
privilege or work product immunity of any member of any Group.
7.07. CONFIDENTIALITY. (a) Subject to Section 7.08, each of
ATI and Water Pik, on behalf of itself and each member of its respective Group,
agrees to hold, and to cause its respective directors, officers, employees,
agents, accountants, counsel and other advisors and representatives to hold, in
strict confidence, with at least the same degree of care that applies to ATI's
confidential and proprietary information pursuant to policies in effect as of
the Distribution Date, all Information concerning each such other Group that is
either in its possession or furnished by any such other Group or its respective
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives at any time pursuant to this Agreement, any Ancillary
Agreement or otherwise, and shall not use any such Information other than for
such purposes as shall be expressly permitted hereunder or thereunder, except,
in each case, to the extent that such Information has been (i) in the public
domain through no fault of such party or any member of such Group or any of
their respective directors, officers, employees, agents, accountants, counsel
and other advisors and representatives, (ii) later lawfully acquired from other
sources by such party (or any member of such party's Group) which sources are
not themselves bound by a confidentiality obligation), or (iii) independently
generated without reference to any proprietary or confidential Information of
the other party.
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(b) Each party agrees not to release or disclose, or permit to
be released or disclosed, any such Information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such Information (who shall be advised of
their obligations hereunder with respect to such Information), except in
compliance with Section 7.08. Without limiting the foregoing, when any
Information is no longer needed for the purposes contemplated by this Agreement
or any Ancillary Agreement, each party will promptly after request of the other
party either return to the other party all Information in a tangible form
(including all copies thereof and all notes, extracts or summaries based
thereon) or certify to the other party that it has destroyed such Information
(and such copies thereof and such notes, extracts or summaries based thereon).
7.08. PROTECTIVE ARRANGEMENTS. In the event that any party or
any member of its Group either determines on the advice of its counsel that it
is required to disclose any Information pursuant to applicable law or receives
any demand under lawful process or from any Governmental Authority to disclose
or provide Information of any other party (or any member of any other party's
Group) that is subject to the confidentiality provisions hereof, such party
shall notify the other party prior to disclosing or providing such Information
and shall cooperate at the expense of the requesting party in seeking any
reasonable protective arrangements requested by such other party. Subject to the
foregoing, the Person that received such request may thereafter disclose or
provide Information to the extent required by such law (as so advised by
counsel) or by lawful process or such Governmental Authority.
ARTICLE VIII
FURTHER ASSURANCES
8.01. FURTHER ASSURANCES. (a) In addition to the actions
specifically provided for elsewhere in this Agreement, each of the parties
hereto shall use its reasonable efforts, prior to, on and after the Distribution
Date, to take, or cause to be taken, all actions, and to do, or cause to be
done, all things, reasonably necessary, proper or advisable under applicable
laws, regulations and agreements to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, prior to, on and after the
date hereof, each party hereto shall cooperate with the other parties, and
without any further consideration, but at the expense of the requesting party,
to execute and deliver, or use its reasonable efforts to cause to be executed
and delivered, all instruments, including instruments of conveyance, assignment
and transfer, and to make all filings with, and to obtain all consents,
approvals or authorizations of, any Governmental Authority or any other Person
under any permit, license, agreement, indenture or other instrument (including
any Consents or Governmental Approvals), and to take all such other actions as
such party may reasonably be requested to take by any other party hereto from
time to time, consistent with the terms of this Agreement and the Ancillary
Agreements, in order to effectuate the provisions and purposes of this Agreement
and the Ancillary Agreements and the transfers of the Water Pik Assets and the
assignment and assumption of the Water Pik Liabilities and the other
transactions contemplated hereby and thereby. Without limiting the foregoing,
each party will, at the reasonable request, cost and expense of any other party,
take
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such other actions as may be reasonably necessary to vest in such other party
good and marketable title, free and clear of any Security Interest, if and to
the extent it is practicable to do so.
(c) On or prior to the Distribution Date, ATI and Water Pik in
their respective capacities as direct and indirect stockholders of their
respective Subsidiaries, shall each ratify any actions which are reasonably
necessary or desirable to be taken by ATI or Water Pik or any other Subsidiary
of ATI, as the case may be, to effectuate the transactions contemplated by this
Agreement.
(d) ATI and Water Pik, on behalf of itself and each of member
of its respective Group, waive (and agree not to assert against any of the
others) any claim or demand that any of them may have against any of the others
for any Liabilities or other claims relating to or arising out of: (i) the
failure of Water Pik or any member of the Water Pik Group, on the one hand, or
of ATI or any member of the ATI Group, on the other hand, to provide any
notification or disclosure required under any state Environmental Law in
connection with the Separation or the other transactions contemplated by this
Agreement, including the transfer by any member of any Group to any member of
any other Group of ownership or operational control of any Assets not previously
owned or operated by such transferee; or (ii) any inadequate, incorrect or
incomplete notification or disclosure under any such state Environmental Law by
the applicable transferor. To the extent any Liability to any Governmental
Authority or any third Person arises out of any action or inaction described in
clause (i) or (ii) above, the transferee of the applicable Asset hereby assumes
and agrees to pay any such Liability.
ARTICLE IX
TERMINATION
9.01. TERMINATION. This Agreement may be terminated by ATI at
any time prior to the Distribution.
9.02. EFFECT OF TERMINATION. In the event of any termination
of this Agreement pursuant to Section 9.01, no party to this Agreement (or any
of its directors or officers) shall have any Liability or further obligation to
any other party.
ARTICLE X
MISCELLANEOUS
10.01. COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a)
This Agreement and each Ancillary Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
(b) This Agreement, and the Ancillary Agreements and the
Exhibits, Schedules and Appendices hereto and thereto contain the entire
agreement between the parties with respect to the subject matter hereof,
supersede all previous agreements, negotiations, discussions, writings,
understandings, commitments and conversations with respect to such subject
matter and
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there are no agreements or understandings between the parties other than those
set forth or referred to herein or therein.
(c) ATI represents on behalf of itself and each other member
of the ATI Group and Water Pik represents on behalf of itself and each other
member of the Water Pik Group, as follows:
(i) each such Person has the requisite corporate or
other power and authority and has taken all corporate or other action
necessary in order to execute, deliver and perform each of this
Agreement and each other Ancillary Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby; and
(ii) this Agreement and each Ancillary Agreement to
which it is a party has been duly executed and delivered by it and
constitutes a valid and binding agreement of it enforceable in
accordance with the terms thereof.
(d) Each party hereto acknowledges that it and each other
party hereto may be executing certain of the Ancillary Agreements by facsimile,
stamp or mechanical signature. Each party hereto expressly adopts and confirms
each such facsimile, stamp or mechanical signature made in its respective name
as if it were a manual signature, agrees that it will not assert that any such
signature is not adequate to bind such party to the same extent as if it were
signed manually and agrees that at the reasonable request of any other party
hereto at any time it will as promptly as reasonably practicable cause each such
Ancillary Agreement to be manually executed (any such execution to be as of the
date of the initial date thereof).
10.02. GOVERNING LAW; CONSENT TO JURISDICTION. (a) This
Agreement and, unless expressly provided therein, each Ancillary Agreement,
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania as to all matters, including matters of
validity, construction, effect, enforceability, performance and remedies,
irrespective of the choice of laws principles of the Commonwealth of
Pennsylvania.
(b) Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of (i) the Court of Common Pleas of Allegheny County,
Pennsylvania and (ii) the United States District Court for the Western District
of Pennsylvania, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any Ancillary Agreement or any transaction
contemplated hereby or thereby (and agrees not to commence any action, suit or
proceeding relating thereto except in such courts). Each of the parties hereto
further agrees that service of any process, summons, notice or document hand
delivered or sent by U.S. registered mail to such party's respective address set
forth in Section 10.05 will be effective service of process for any action, suit
or proceeding in Pennsylvania with respect to any matters to which it has
submitted to jurisdiction as set forth in the immediately preceding sentence.
Each of the parties hereto irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement or any Ancillary Agreement or the transactions contemplated hereby or
thereby in (i) the Court of Common Pleas of Allegheny County, Pennsylvania or
(ii) the United States District Court for the Western District of Pennsylvania,
and
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hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
10.03. ASSIGNABILITY. Except as set forth in any Ancillary
Agreement, this Agreement and each Ancillary Agreement shall be binding upon and
inure to the benefit of the parties hereto and thereto, respectively, and their
respective successors and assigns (including any direct or indirect assignee of
any of the Water Pik Assets); provided, however, that no party hereto or thereto
may assign its respective rights or delegate its respective obligations under
this Agreement or any Ancillary Agreement without the express prior written
consent of the other parties hereto or thereto.
10.04. THIRD PARTY BENEFICIARIES. Except for the
indemnification rights under this Agreement of any ATI Indemnitee, Water Pik
Indemnitee or Teledyne Technologies Indemnitee in their respective capacities as
such, (a) the provisions of this Agreement and each Ancillary Agreement are
solely for the benefit of the parties and are not intended to confer upon any
Person except the parties any rights or remedies hereunder, (b) there are no
third party beneficiaries of this Agreement or any Ancillary Agreement, and (c)
neither this Agreement nor any Ancillary Agreement shall provide any third
person with any remedy, claim, liability, reimbursement, claim of action or
other right in excess of those existing without reference to this Agreement or
any Ancillary Agreement. No party hereto shall have any right, remedy or claim
with respect to any provision of this Agreement or any Ancillary Agreement to
the extent such provision relates solely to the other two parties hereto or the
members of such other two parties' respective Groups. No party shall be required
to deliver any notice under this Agreement or under any Ancillary Agreement to
any other party with respect to any matter in which such other party has no
right, remedy or claim.
10.05. NOTICES. All notices or other communications under this
Agreement or any Ancillary Agreement shall be in writing and shall be deemed to
be duly given when (a) delivered in person or (b) deposited in the United States
mail or private express mail, postage prepaid, addressed as follows:
If to ATI, Holdings
or TII, to: Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
Attn: Senior Vice President, General Counsel
& Secretary
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If to Water Pik
to: Water Pik Technologies, Inc.
660 Newport Center Drive, Suite 470
Newport Beach, California 92660
Attn: President
Any party may, by notice to the other party, change the address to which such
notices are to be given.
10.06. SEVERABILITY. If any provision of this Agreement or any
Ancillary Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof or thereof, or the application of
such provision to Persons or circumstances or in jurisdictions other than those
as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby or thereby, as the case may be, is not affected in any
manner adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon such a suitable and equitable
provision to effect the original intent of the parties.
10.07. FORCE MAJEURE. No party shall be deemed in default of
this Agreement or any Ancillary Agreement to the extent that any delay or
failure in the performance of its obligations under this Agreement or any
Ancillary Agreement results from any cause beyond its reasonable control and
without its fault or negligence, such as acts of God, acts of civil or military
authority, embargoes, epidemics, war, riots, insurrections, fires, explosions,
earthquakes, floods, unusually severe weather conditions, labor problems or
unavailability of parts, or, in the case of computer systems, Year 2000 problems
or any failure in electrical or air conditioning equipment. In the event of any
such excused delay, the time for performance shall be extended for a period
equal to the time lost by reason of the delay.
10.08. HEADINGS. The article, section and paragraph headings
contained in this Agreement and in the Ancillary Agreements are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement or any Ancillary Agreement.
10.09. SURVIVAL OF COVENANTS. Except as expressly set forth in
any Ancillary Agreement, the covenants, representations and warranties contained
in this Agreement and each Ancillary Agreement, and liability for the breach of
any obligations contained herein, shall survive each of the Separation and the
Distribution and shall remain in full force and effect.
10.10. WAIVERS OF DEFAULT. Waiver by any party of any default
by the other party of any provision of this Agreement or any Ancillary Agreement
shall not be deemed a waiver by the waiving party of any subsequent or other
default, nor shall it prejudice the rights of the other party.
10.11. SPECIFIC PERFORMANCE. In the event of any actual or
threatened default in, or breach of, any of the terms, conditions and provisions
of this Agreement or any
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Ancillary Agreement, the party or parties who are or are to be thereby aggrieved
shall have the right to specific performance and injunctive or other equitable
relief of its rights under this Agreement or such Ancillary Agreement, in
addition to any and all other rights and remedies at law or in equity, and all
such rights and remedies shall be cumulative. The parties agree that the
remedies at law for any breach or threatened breach, including monetary damages,
are inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived. Any
requirements for the securing or posting of any bond with such remedy are
waived.
10.12. AMENDMENTS. No provisions of this Agreement or any
Ancillary Agreement shall be deemed waived, amended, supplemented or modified by
any party, unless such waiver, amendment, supplement or modification is in
writing and signed by the authorized representative of the party against whom it
is sought to enforce such waiver, amendment, supplement or modification. Without
limiting the foregoing, the parties agree that any waiver, amendment, supplement
or modification of this Agreement or any Ancillary Agreement that solely relates
to and affects only two of the three parties hereto shall not require the
consent of the third party hereto.
10.13. INTERPRETATION. Words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other genders as the context requires. The terms "hereof," "herein,"
and "herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement (or the applicable Ancillary Agreement) as
a whole (including all of the Schedules, Exhibits and Appendices hereto and
thereto) and not to any particular provision of this Agreement (or such
Ancillary Agreement). Article, Section, Exhibit, Schedule and Appendix
references are to the Articles, Sections, Exhibits, Schedules and Appendices to
this Agreement (or the applicable Ancillary Agreement) unless otherwise
specified. The word "including" and words of similar import when used in this
Agreement (or the applicable Ancillary Agreement) shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified. The word "or" shall not be exclusive. Unless expressly stated to the
contrary in this Agreement or in any Ancillary Agreement, all references to "the
date hereof," "the date of this Agreement," "hereby" and "hereupon" and words of
similar import shall all be references to November __, 1999, regardless of any
amendment or restatement hereof.
10.14. DISPUTES. (a) Resolution of any and all disputes
arising from or in connection with this Agreement other than those arising from
or in connection with Article IV of this Agreement, whether based on contract,
tort, statute or otherwise, including, but not limited to, disputes in
connection with claims by third parties (collectively, "Disputes"), shall be
subject to the provisions of this Section 10.14; provided, however, that nothing
contained herein shall preclude any party from seeking or obtaining (i)
injunctive relief or (ii) equitable or other judicial relief to enforce the
provisions hereof or to preserve the status quo pending resolution of Disputes
hereunder.
(b) Any party may give the other parties written notice of any
Dispute not resolved in the normal course of business. The parties shall attempt
in good faith to resolve any Dispute promptly by negotiation between executives
of the parties who have authority to settle
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the controversy. Within 15 days after delivery of the notice, the foregoing
executives of both parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary for a period not to
exceed five days, to attempt to resolve the Dispute. All reasonable requests for
information made by one party to the other will be honored. If the parties do
not resolve the Dispute within such 20 day period (the "Initial Mediation
Period"), the parties shall attempt in good faith to resolve the Dispute by
negotiation between or among the Designated Officers. The Designated Officers
shall meet at a mutually acceptable time and place (but in no event no later
than 15 days following the expiration of the Initial Mediation Period) and
thereafter as often as they reasonably deem necessary for a period not to exceed
15 days, to attempt to resolve the Dispute.
(c) If the Dispute has not been resolved by negotiation within
50 days of the first party's notice, or if the parties failed to meet within 15
days of the first party's notice, or if the Designated Officers failed to meet
within 35 days of the first party's notice, any party may commence any
litigation or other procedure allowed by law.
10.15. EXCLUSIVITY OF TAX SHARING AGREEMENT. Notwithstanding
anything in this Agreement to the contrary, and subject to the provisions of
Article IV hereof, the Tax Sharing Agreement will be the exclusive agreement
among the parties with respect to all matters pertaining to Taxes, including,
without limitation, indemnification with respect to matters pertaining to Taxes
and indemnification with respect to the qualification of the Distribution as a
tax-free distribution under Section 355 and related provisions of the Code.
IN WITNESS WHEREOF, the parties have caused this Separation
and Distribution Agreement to be executed by their duly authorized
representatives.
ALLEGHENY TELEDYNE INCORPORATED
By:
Name:
Title:
TDY HOLDINGS, LLC
By:
Name:
Title:
TELEDYNE INDUSTRIES, INC.
By:
Name:
Title:
WATER PIK TECHNOLOGIES, INC.
By:
Name:
Title:
JOINDER
The undersigned, Water Pik Inc. and Laars Inc. hereby join
this Separation and Distribution Agreement and agree, intending to be legally
bound, to be jointly and severally liable with Water Pik Technologies, Inc. for
obligations of Water Pik Technologies, Inc. under this Separation and
Distribution Agreement.
WATER PIK, INC.
By:
Name:
Title:
LAARS, INC.
By:
Name:
Title:
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<PAGE> 1
Exhibit 10.3
EMPLOYEE BENEFITS AGREEMENT
BETWEEN
ALLEGHENY TELEDYNE INCORPORATED
AND
WATER PIK TECHNOLOGIES, INC.
DATED AS OF NOVEMBER __, 1999
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I DEFINITIONS.............................................................................................1
ARTICLE II GENERAL PRINCIPLES.....................................................................................5
2.1 ASSUMPTION OF LIABILITIES............................................................................5
2.2 ESTABLISHMENT OF WATER PIK PLANS.....................................................................6
2.3 TERMS OF PARTICIPATION BY WATER PIK INDIVIDUALS IN WATER PIK PLANS...................................6
ARTICLE III DEFINED BENEFIT PLANS.................................................................................7
3.1 FREEZING OF PENSION PLAN BENEFITS....................................................................7
3.2 CREDITING SERVICE UNDER ATI'S PENSION PLAN...........................................................7
ARTICLE IV DEFINED CONTRIBUTION PLANS.............................................................................8
4.1 401(k) PLAN..........................................................................................8
4.2 ASSUMPTION OF JANDY INDUSTRIES, INC. EMPLOYEES SAVINGS PLAN..........................................9
ARTICLE V HEALTH AND WELFARE PLANS................................................................................9
5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES....................................................9
5.2 VENDOR CONTRACTS.....................................................................................9
5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE PRACTICES, AND VENDOR CONTRACTS....11
5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION DISABILITY BENEFITS.....................12
5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS..................................................13
5.6 COBRA AND DIRECT PAY................................................................................13
5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS.........................................................13
5.8 APPLICATION OF ARTICLE V TO WATER PIK ENTITIES......................................................14
ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS.................................................15
6.1 ASSUMPTION OF OBLIGATIONS...........................................................................15
6.2 CONSENTS AND NOTIFICATIONS..........................................................................15
6.3 ATI 1999 BONUS PLAN.................................................................................15
6.4 ATI INCENTIVE PLANS.................................................................................15
6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS.....................................................18
6.6 NON-EMPLOYEE DIRECTOR BENEFITS......................................................................18
6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION.........................................................19
ARTICLE VII GENERAL AND ADMINISTRATIVE...........................................................................19
7.1 INTERIM SERVICES AGREEMENT..........................................................................19
7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS...........................................19
7.3 SHARING OF PARTICIPANT INFORMATION..................................................................20
</TABLE>
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<TABLE>
<S> <C>
7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS.........................................20
7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES.........................................20
7.6 BENEFICIARY DESIGNATIONS............................................................................21
7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS...........................................................21
7.8 FIDUCIARY MATTERS...................................................................................21
7.9 COLLECTIVE BARGAINING...............................................................................21
7.10 CONSENT OF THIRD PARTIES...........................................................................21
7.11 INDEMNIFICATION OF ATI.............................................................................21
ARTICLE VIII MISCELLANEOUS.......................................................................................22
8.1 FOREIGN PLANS.......................................................................................22
8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR...............................................................22
8.3 RELATIONSHIP OF PARTIES.............................................................................22
8.4 AFFILIATES..........................................................................................22
8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER.....................................................22
8.6 GOVERNING LAW; CONSENT TO JURISDICTION..............................................................23
8.7 ASSIGNABILITY.......................................................................................23
8.8 THIRD PARTY BENEFICIARIES...........................................................................23
8.9 NOTICES.............................................................................................24
8.10 SEVERABILITY.......................................................................................24
8.11 HEADINGS...........................................................................................24
8.12 WAIVERS OF DEFAULT.................................................................................24
8.13 AMENDMENTS.........................................................................................24
8.14 INTERPRETATION.....................................................................................24
8.15 DISPUTES...........................................................................................25
</TABLE>
ii
<PAGE> 4
EMPLOYEE BENEFITS AGREEMENT
November __, 1999
The parties to this Employee Benefits Agreement, dated as of the date
written above, are Allegheny Teledyne Incorporated, a Delaware corporation
("ATI"), and Water Pik Technologies, Inc., a Delaware corporation ("Water Pik").
Capitalized terms used herein (other than the formal names of ATI Plans (as
defined below) and related trusts of ATI) and not otherwise defined shall have
the respective meanings assigned to them in Article I hereof or as assigned to
them in the Separation and Distribution Agreement (as defined below).
WHEREAS, the Board of Directors of ATI has determined that it is in the
best interests of ATI and its stockholders to separate ATI's consumer products
businesses into an independent business entity;
WHEREAS, in furtherance of the foregoing, ATI and Water Pik have
entered into a Separation and Distribution Agreement, dated as of the date
hereof (the "Separation and Distribution Agreement"), and certain other
agreements that will govern certain matters relating to the Separation, the
Distribution and the relationship of ATI and Water Pik, and their respective
Subsidiaries following the Distribution; and
WHEREAS, pursuant to the Separation and Distribution Agreement, ATI and
Water Pik have agreed to enter into this agreement allocating assets,
liabilities and responsibilities with respect to certain employee compensation
and benefit plans and programs between them.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 Agreement means this Employee Benefits Agreement, including all the
Schedules and Exhibits hereto.
1.2 ASO Contract is defined in Section 5.2(a)(i).
1.3 ATI Entity means any entity that is, at the relevant time, an
Affiliate of ATI, except that, for periods beginning Immediately After the
Distribution Date, the term "ATI Entity" shall not include Water Pik or a Water
Pik Entity.
1.4 ATI Executive means an employee or former employee of ATI, an
ATI Entity, Water Pik or a Water Pik Entity, who immediately before the Close of
the Distribution Date is eligible to participate in or receive a benefit under
any ATI Executive Benefit Plan.
<PAGE> 5
1.5 ATI Master Pension Trust means the master trust under which
the assets of the ATI Pension Plan are held.
1.6 ATI Pension Plan means the Allegheny Teledyne Incorporated Pension
Plan.
1.7 ATI Stock Value means the closing price per share of ATI
Common Stock (regular way) on the NYSE on the Distribution Date.
1.8 Award means an award under the Incentive Plan, including
Performance Awards and SARP Awards. When immediately preceded by "ATI," the term
Award (including the term Performance Award or SARP Award) means an award under
the ATI Incentive Plan. When immediately preceded by "Water Pik," the term Award
(including the term Performance Award or SARP Award) means an award under the
Water Pik Incentive Plan.
1.9 Benefit Liabilities means any Liabilities (as defined in the
Separation and Distribution Agreement) relating to any contributions,
compensation or other benefits accrued or payable under any profit sharing,
pension, savings, deferred compensation, fringe benefit, insurance, medical,
medical reimbursement, life, disability, accident, post-retirement health or
welfare benefit, stock option, stock purchase, sick pay, vacation, employment,
severance, termination or other compensation or benefit plan, agreement,
contract, policy, trust fund or arrangement.
1.10 Change is defined in Section 5.3(b)(i).
1.11 Close of the Distribution Date means 5:00 P.M., Eastern
Standard Time or Eastern Daylight Time (whichever shall then be in effect), on
the Distribution Date.
1.12 COBRA means the continuation coverage requirements for "group
health plans" under Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and as codified in Code Section 4980B and ERISA
Sections 601 through 608.
1.13 Code means the Internal Revenue Code of 1986, as amended.
Reference to a specific Code provision also includes any proposed, temporary, or
final regulation in force under that provision.
1.14 Corporate-Owned Life Insurance Policies means the life
insurance policies owned by ATI insuring the lives of certain ATI Executives and
certain other highly compensated employees of ATI or an ATI Entity.
1.15 DOL means the United States Department of Labor.
1.16 ERISA means the Employee Retirement Income Security Act of
1974, as amended. Reference to a specific provision of ERISA also includes any
proposed, temporary, or final regulation in force under that provision.
1.17 Executive Benefit Plans, when immediately preceded by "ATI,"
means the executive benefit plans, programs, and arrangements established,
maintained, agreed upon, or
2
<PAGE> 6
assumed by ATI or an ATI Entity for the benefit of employees and former
employees of ATI or an ATI Entity before the Close of the Distribution Date as
listed in Schedule 1.17. When immediately preceded by "Water Pik," Executive
Benefit Plans means the executive benefit plans and programs to be established
by Water Pik pursuant to Section 2.2 that correspond to the respective ATI
Executive Benefit Plans.
1.18 Foreign Plan means a Plan maintained by ATI, an ATI Entity,
Water Pik, or a Water Pik Entity for the benefit of employees outside the U.S.
1.19 Group Insurance Policies is defined in Section 5.2(b)(i).
1.20 HCRA Plan, when immediately preceded by "ATI," means the ATI
Health Care Reimbursement Account Plan. When immediately preceded by "Water
Pik," HCRA Plan means the Health Care Reimbursement Account Plan to be
established by Water Pik pursuant to Section 2.2.
1.21 Health and Welfare Plans, when immediately preceded by "ATI,"
means the health and welfare plans listed on Schedule 1.21 established and
maintained by ATI for the benefit of employees and retirees of ATI and certain
ATI Entities, and such other welfare plans or programs as may apply to such
employees and retirees of ATI or an ATI Entity before the Close of the
Distribution Date. When immediately preceded by "Water Pik," Health and Welfare
Plans means the health and welfare plans to be established by Water Pik pursuant
to Section 2.2 that correspond to the respective ATI Health and Welfare Plans.
1.22 HMO means a health maintenance organization that provides
benefits under one or more of the ATI Health and Welfare Plans or the Water Pik
Health and Welfare Plans.
1.23 HMO Agreements is defined in Section 5.2(c)(i).
1.24 Immediately After the Distribution Date means 5:01 P.M.,
Eastern Standard Time or Eastern Daylight Time (whichever shall then be in
effect), on the Distribution Date.
1.25 Incentive Plan, when immediately preceded by "ATI," means any
of the Allegheny Teledyne Incorporated 1996 Incentive Plan, any predecessor
Incentive Plan thereto and any other stock-based incentive plans assumed by ATI
by reason of merger, combination, acquisition or otherwise. When immediately
preceded by "Water Pik," Incentive Plan means the Incentive Plan to be
established by Water Pik pursuant to Section 2.2.
1.26 IRS means the Internal Revenue Service.
1.27 Material Feature means any feature of a Plan that could
reasonably be expected to be of material importance to the sponsoring employer
or the participants and beneficiaries of the Plan, which could include,
depending on the type and purpose of the particular Plan, the class or classes
of employees eligible to participate in such Plan, the nature, type, form,
source, and level of benefits provided by the employer under such Plan and the
amount or level of contributions, if any, required to be made by participants
(or their dependents or beneficiaries) to or under such Plan.
3
<PAGE> 7
1.28 Non-Employee Director, when immediately preceded by "ATI,"
means a member of ATI's Board of Directors who is not an employee of ATI or an
ATI Entity. When immediately preceded by "Water Pik," Non-Employee Director
means a member of Water Pik's Board of Directors who is not an employee of ATI,
an ATI Entity, Water Pik or a Water Pik Entity.
1.29 Non-Employee Director Plans, when immediately preceded by
"ATI," means the Allegheny Teledyne Incorporated 1996 Non-Employee Director
Stock Compensation Plan and the Allegheny Teledyne Incorporated Fee Continuation
Plan for Non-Employee Directors. When immediately preceded by "Water Pik,"
Non-Employee Director Plans means the plans and programs to be established by
Water Pik pursuant to Section 2.2 that correspond to the ATI Non-Employee
Director Plans.
1.30 Nonqualified Deferred Compensation Programs, when immediately
preceded by "ATI," means the Allegheny Teledyne Incorporated Executive Deferred
Compensation Plan, the Allegheny Teledyne Incorporated Supplemental Pension Plan
and the Teledyne, Inc. Pension Equalization Plan. When immediately preceded by
"Water Pik," Deferral Plan means the Executive Deferred Compensation Plan to be
established by Water Pik pursuant to Section 2.2.
1.31 Option, when immediately preceded by "ATI," means an option to
purchase ATI Common Stock and, when immediately preceded by "Water Pik," Option
means an option to purchase Water Pik Common Stock, in each case pursuant to an
Incentive Plan.
1.32 PBGC means the Pension Benefit Guaranty Corporation.
1.33 Performance Award means any Award granted pursuant to the
terms of the Performance Share Program.
1.34 Performance Share Program means the Allegheny Teledyne
Incorporated Performance Share Program adopted pursuant to Administrative Rules
under the ATI Incentive Plan.
1.35 Plan, when immediately preceded by "ATI" or "Water Pik," means
any plan, policy, program, payroll practice, on-going arrangement, contract,
trust, insurance policy or other agreement or funding vehicle providing benefits
to employees, former employees or Non-Employee Directors of ATI or an ATI
Entity, or Water Pik or a Water Pik Entity, as applicable.
1.36 Ratio means the amount obtained by dividing the ATI Stock
Value by the Water Pik Stock Value.
1.37 Reasonable Efforts means such acts or actions that, in the
reasonable good faith opinion of the party taking such acts or actions, are
calculated to achieve, or otherwise further, the applicable provisions to which
the term applies; provided, however, to the extent any costs, fees or other
expenditures (the "Expenses") occur as a result of a party's use of Reasonable
Efforts and such expenses are not expressly allocated under the terms of this
Agreement or any Ancillary Agreement, such Expenses shall be borne by the party
for whose benefit such Expenses are incurred and such party shall indemnify and
hold harmless the other party with respect to such Expenses.
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<PAGE> 8
1.38 SARP, when immediately preceded by "ATI," means the Allegheny
Teledyne Incorporated Stock Acquisition and Retention Program.
1.39 SARP Award means any Award granted pursuant to the terms of the
SARP.
1.40 Separation and Distribution Agreement is defined in the third
paragraph of the preamble of this Agreement.
1.41 Stock Purchase Plan, when immediately preceded by "ATI," means
the Allegheny Teledyne Incorporated Employee Stock Purchase Plan. When
immediately preceded by "Water Pik," Stock Purchase Plan means the employee
stock purchase plan to be established by Water Pik pursuant to Section 2.2.
1.42 Teledyne means Teledyne, Inc., a Delaware corporation, or its
successors and assigns.
1.43 Teledyne 401(k) Plan means the Teledyne, Inc. 401(k) Plan.
1.44 Water Pik Entity means any Person that is, at the relevant
time, a Subsidiary of Water Pik or is otherwise controlled, directly or
indirectly, by Water Pik.
1.45 Water Pik 401(k) Plan means the 401(k) plan established by
Water Pik effective no later than April 1, 2000 pursuant to Section 2.2.
1.46 Water Pik Individual means any individual who, Immediately
After the Distribution Date is an active hourly or salaried employee of Water
Pik or a Water Pik Entity.
1.47 Water Pik Stock Value means the opening price per share of
Water Pik Common Stock on the day following the Distribution Date.
ARTICLE II
GENERAL PRINCIPLES
2.1 ASSUMPTION OF LIABILITIES. Except as otherwise expressly
provided in Section 3.1 or Article VI, Water Pik hereby assumes and agrees to
pay, perform, fulfill and discharge, in accordance with their respective terms,
all of the following (regardless of when or where such Benefit Liabilities arose
or arise or were or are incurred): (i) all Benefit Liabilities to or relating to
Water Pik Individuals, and their respective dependents and beneficiaries, in
each case relating to, arising out of or resulting from employment by ATI or an
ATI Entity before the Distribution Date (including Benefit Liabilities under ATI
Plans and Water Pik Plans); (ii) all other Benefit Liabilities to or relating to
Water Pik Individuals and other employees of Water Pik or a Water Pik Entity,
and their dependents and beneficiaries, to the extent relating to, arising out
of or resulting from future, present or former employment with Water Pik or a
Water Pik Entity (including Benefit Liabilities under ATI Plans and Water Pik
Plans); (iii) all Benefit Liabilities relating to, arising out of or resulting
from any other actual or alleged employment relationship with Water Pik or a
Water Pik Entity; (iv) all Benefit Liabilities relating to, arising out of or
5
<PAGE> 9
resulting from the imposition of withdrawal liability under Subtitle E of Title
IV of ERISA as a result of a complete or partial withdrawal of any ATI Entity
from a "multiemployer plan" within the meaning of ERISA Section 4021 which
occurs solely as a result of the Separation or the Distribution; and (v) all
other Benefit Liabilities relating to, arising out of or resulting from
obligations, liabilities and responsibilities expressly assumed or retained by
Water Pik, a Water Pik Entity, or a Water Pik Plan pursuant to this Agreement.
Notwithstanding the generality of the foregoing, Water Pik does not assume or
agree to pay, perform, fulfill or discharge any Benefit Liabilities relating to,
arising out of or resulting from the Teledyne Savings and Retirement Supplement
Plan.
2.2 ESTABLISHMENT OF WATER PIK PLANS. Effective prior to or within
a reasonable time after the Distribution Date, Water Pik shall adopt, or cause
to be adopted, the amended Teledyne 401(k) Plan for the period between the
Distribution Date and April 1, 2000, the Water Pik Stock Purchase Plan, the
Water Pik Health and Welfare Plans, and the Water Pik Executive Benefit Plans
for the benefit of the Water Pik Individuals and other current and future
employees of Water Pik and the Water Pik Entities; provided, however, that Water
Pik may, in its sole discretion, elect not to adopt or establish the Plan or
Plans listed in Schedule 2.2(a). Subject to the provisions of Section 4.1
regarding the Water Pik 401(k) Plan, or as otherwise may be set forth in
Schedule 2.2(b), the foregoing Water Pik Plans shall be substantially identical
in all Material Features to the corresponding ATI Plans as in effect as of the
Close of the Distribution Date. Effective prior to or within a reasonable time
after the Distribution Date, Water Pik shall adopt, or cause to be adopted, the
Water Pik Non-Employee Director Plans, for the benefit of Water Pik Non-Employee
Directors. The Water Pik Non-Employee Director Plans shall be substantially
similar in all Material Features to the corresponding ATI Non-Employee Director
Plans as in effect on the Distribution Date. No later than April 1, 2000, Water
Pik shall adopt the Water Pik 401(k) Plan and its related trust, which Water Pik
401(k) Plan shall provide for employer contributions, independent of employee
contributions and expressed as a rate of participant compensation, determined
appropriate by Water Pik in its sole discretion in light of Water Pik's choice
not to sponsor a defined benefit plan.
2.3 TERMS OF PARTICIPATION BY WATER PIK INDIVIDUALS IN WATER PIK
PLANS. The Water Pik Plans shall be, with respect to Water Pik Individuals, in
all respects the successors in interest to, and shall not provide benefits that
duplicate benefits provided by, the corresponding ATI Plans. ATI and Water Pik
shall agree on methods and procedures, including amending the respective Plan
documents and/or requesting approvals or consents of Water Pik Individuals where
the parties deem appropriate, to prevent Water Pik Individuals from receiving
duplicative benefits from the ATI Plans and the Water Pik Plans. With respect to
Water Pik Individuals, each Water Pik Plan shall provide that all service, all
compensation and all other benefit-affecting determinations that, as of the
Close of the Distribution Date, were recognized under the corresponding ATI Plan
shall, as of Immediately After the Distribution Date, receive full recognition,
credit, and validity and be taken into account under such Water Pik Plan to the
same extent as if such items occurred under such Water Pik Plan, except to the
extent that duplication of benefits would result. The provisions of this
Agreement for the transfer of assets from certain trusts relating to ATI Plans
(including Foreign Plans) to the corresponding trusts relating to Water Pik
Plans (including Foreign Plans) are based upon the understanding of the parties
that each such Water Pik Plan will assume all Benefit Liabilities of the
corresponding ATI
6
<PAGE> 10
Plan to or relating to Water Pik Individuals, as provided for herein. If any
such Benefit Liabilities are not effectively assumed by the appropriate Water
Pik Plan, then the amount of assets transferred to the trust relating to such
Water Pik Plan from the trust relating to the corresponding ATI Plan shall be
recomputed as set forth below, but taking into account the retention of such
Benefit Liabilities by such ATI Plan, and assets shall be transferred by the
trust relating to such Water Pik Plan to the trust relating to such ATI Plan so
as to place each such trust in the position it would have been in, had the
initial asset transfer been made in accordance with such recomputed amount of
assets.
ARTICLE III
DEFINED BENEFIT PLANS
3.1 FREEZING OF PENSION PLAN BENEFITS. Effective upon the
applicable of the dates under Section 3.2, the accrued benefits with respect to
Water Pik Individuals who, as of the Distribution Date, were participants under
the ATI Pension Plan shall be frozen and such Individuals shall not accrue any
additional benefits from and after the Distribution Date under the ATI Pension
Plan. The assets and Benefit Liabilities with respect to such Individuals,
determined as of the Distribution Date, shall be retained by the ATI Pension
Plan and its related trust and paid therefrom when due under the terms of the
ATI Pension Plan.
3.2 CREDITING SERVICE UNDER ATI'S PENSION PLAN.
(a) VESTING. Water Pik Individuals who, as of the Distribution
Date, were participants in the ATI Pension Plan will continue to receive service
credit for vesting and retirement benefit eligibility purposes under the ATI
Pension Plan for service actually rendered to Water Pik during the period
commencing on the Distribution Date and ending April 1, 2000.
(b) BENEFIT ACCRUAL. Water Pik Individuals who, as of the
Distribution Date, were participants in the ATI Pension Plan will continue to
receive service credit for benefit accrual purposes under the ATI Pension Plan
for service actually rendered to Water Pik during the period commencing on the
Distribution Date and ending April 2, 2000. Benefits accrued with respect to
service credited pursuant to this Section 3.2 shall be paid by the ATI Pension
Plan at the same times and under the same terms and conditions as applicable to
benefits accrued under the ATI Pension Plan.
(c) DISTRIBUTION OF BENEFITS FROM ATI PENSION PLAN TO WATER PIK
INDIVIDUALS. For purposes of the ATI Pension Plan, the date which is the earlier
of the applicable of (i) a Water Pik's Individual's actual separation from
service with Water Pik or (ii) April 1, 2000 shall be for each Water Pik
Individual a separation from service with the employer and Water Pik Individuals
who are eligible to commence receipt of benefits under the ATI Pension Plan may,
in their respective discretion, apply at any time after the applicable date
described above to commence benefits to the extent then payable and subject to
the terms and conditions of the ATI Pension Plan. The Distribution Date does
not, however, constitute and shall not be treated under the ATI Pension Plan as
a sale or otherwise as an event permitting Water Pik Individuals to elect to
receive a lump sum form of distribution under the ATI Pension Plan.
7
<PAGE> 11
ARTICLE IV
DEFINED CONTRIBUTION PLANS
4.1 401(k) PLAN.
(a) ADOPTION BY WATER PIK OF TELEDYNE 401(k) PLAN AMENDED TO BE A
MULTIPLE EMPLOYER PLAN. On or before the Distribution Date, the Teledyne 401(k)
Plan will be amended by Teledyne to be and become a multiple employer plan under
which Water Pik may elect to be a contributing sponsor and to provide
participation to Water Pik Individuals under the terms and conditions set forth
in the Teledyne 401(k) Plan for a period ending on the earlier of (i) adoption
by Water Pik of the Water Pik 401(k) Plan or (ii) April 1, 2000. The right to
amend the Teledyne 401(k) Plan in any respect shall be exclusively within the
power of Teledyne at all relevant times. As amended, the Teledyne 401(k) Plan
shall provide that (A) Water Pik Individuals shall not be permitted to direct
investments after the Distribution Date in shares of common stock of ATI ("ATI
Common Stock") or in the common stock of any other corporation spun off by ATI
on the Distribution Date other than Water Pik and (B) that each Water Pik
Individual shall have the right to direct the administrator of the Teledyne
401(k) Plan to liquidate the interests of Water Pik Individuals in shares of ATI
Common Stock, Water Pik Common Stock or the common stock of any other previously
related corporation and direct the method of reinvestment of the proceeds of
such sale from among the options then available under the Teledyne 401(k) Plan.
(b) ESTABLISHMENT OF WATER PIK 401(k) PLAN AND TRUST. The Water Pik
401(k) Plan, established by Water Pik pursuant to Section 2.2 no later than
April 1, 2000, (i) shall be a qualified defined contribution plan within the
meaning of Code Section 401(a), (ii) except as provided under Section 4.1(c),
shall contain provisions, terms and conditions substantially similar to the
provisions, terms and conditions of the Teledyne 401(k) Plan, including
provisions with respect to the ATI Common Stock and the common stock of Water
Pik and any other corporation spun off by ATI on the Distribution Date, and
shall further provide that Water Pik individuals may maintain investments in ATI
Common Stock, Water Pik Common Stock and/or stock of any previously related
corporation until December 31, 2002 and, if ATI Common Stock and/or common stock
of any previously related corporation other than Water Pik is held in accounts
of Water Pik Individuals in the Teledyne 401(k) Plan as of December 31, 2002,
the interests of Water Pik Individuals shall be liquidated by the Plan
administrator and the proceeds reinvested in Water Pik Common Stock, and (iii)
shall provide coverage from and after the earlier of (i) its adoption by Water
Pik or (ii) April 1, 2000 with respect to Water Pik Individuals who, as of the
later of the dates above, were participants in the Teledyne 401(k) Plan as
amended as described in Section 4.1(a). The trust related to the Water Pik
401(k) Plan, established by Water Pik pursuant to Section 2.2, shall be exempt
from taxation under Code Section 501(a).
(c) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS.
(i) Effective Immediately After the Distribution Date and
until the earlier of (i) the date of adoption by Water Pik of the Water
Pik 401(k) Plan or (ii) April 1, 2000, ATI shall administer or cause
the administration of the assets and Benefit Liabilities of the
Teledyne 401(k) Plan with respect to both Teledyne employees and Water
Pik Individuals. Water Pik shall pay to ATI, within thirty (30) days of
presentment of an invoice therefor, an amount equal to the actual cost
incurred by ATI for administration of the assets and Benefit
Liabilities in the Teledyne 401(k) Plan relating to Water Pik
Individuals. Water Pik Individuals shall continue to accrue service
credit under the Teledyne 401(k) Plan for
8
<PAGE> 12
vesting and benefit eligibility purposes until the earlier of (i) the
date of adoption by Water Pik of the Water Pik 401(k) Plan or (ii)
April 1, 2000. Effective as of the earlier of (i) the adoption by Water
Pik of the Water Pik 401(k) Plan or (ii) April 1, 2000: (A) the Water
Pik 401(k) Plan shall assume and be solely responsible for all Benefit
Liabilities to or relating to Water Pik Individuals under the Water Pik
401(k) Plan, and (B) ATI shall cause an amount equal to the aggregate
account balances of the Water Pik Individuals participating under the
Teledyne 401(k) Plan, whether such amounts are vested or unvested under
the terms of the Teledyne 401(k) Plan, which are held by the related
trust as of the applicable of (i) the date of adoption by Water Pik of
the Water Pik 401(k) Plan or (ii) April 1, 2000 to be transferred to
the Water Pik 401(k) Plan, and its related trust, and Water Pik shall
cause such transferred accounts to be accepted by such plan and trust.
In ATI's sole and absolute discretion, the amount so transferred may be
in cash or in kind or a combination thereof; provided, however, that
the following shall be transferred in kind: (A) shares of ATI Common
Stock, shares of Water Pik Common Stock allocated to participants'
accounts as a result of the Distribution and shares of Teledyne
Technologies Incorporated Common Stock allocated to participants'
accounts as a result of the spin-off of ATI's aerospace and electronics
businesses; and (B) all promissory notes reflecting participant loans
to Water Pik Individuals under the Teledyne 401(k) Plan outstanding as
of the Distribution Date.
(ii) If any benefit with respect to a Water Pik Individual
under the Teledyne 401(k) Plan is subject to a qualified domestic
relations order at the time of transfer, all documentation concerning
such qualified domestic relations order shall be assigned to the Water
Pik 401(k) Plan.
4.2 ASSUMPTION OF JANDY INDUSTRIES, INC. EMPLOYEES SAVINGS PLAN.
Effective Immediately After the Effective Date, Water Pik will assume
sponsorship of and liability and responsibility for the Jandy Industries, Inc.
Employees Savings Plan.
ARTICLE V
HEALTH AND WELFARE PLANS
5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES.
(a) Immediately After the Distribution Date, all Benefit
Liabilities to or relating to Water Pik Individuals under the ATI Health and
Welfare Plans shall cease to be Benefit Liabilities of the ATI Health and
Welfare Plans and shall be assumed by the corresponding Water Pik Health and
Welfare Plans.
(b) Notwithstanding Section 5.1(a), all treatments which have been
pre-certified for or are being provided to a Water Pik Individual as of the
Close of the Distribution Date shall be provided without interruption under the
appropriate ATI Health and Welfare Plan until such treatment is concluded or
discontinued pursuant to applicable plan rules and limitations, but Water Pik
shall continue to be responsible for all Benefit Liabilities relating to,
arising out of or resulting from such ongoing treatments as of the Close of the
Distribution Date.
5.2 VENDOR CONTRACTS.
(a) THIRD-PARTY ASO CONTRACTS.
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(i) ATI shall use its Reasonable Efforts to amend each
administrative services only contract with a third-party administrator
that relates to any of the ATI Health and Welfare Plans (an "ASO
Contract") in existence as of the date of this Agreement to permit
Water Pik to participate in the terms and conditions of such ASO
Contract from Immediately After the Distribution Date until December
31, 2000. ATI shall use its Reasonable Efforts to cause all ASO
Contracts into which ATI enters after the date of this Agreement but
before the Close of the Distribution Date to allow Water Pik to
participate in the terms and conditions thereof effective Immediately
After the Distribution Date on the same basis as ATI.
(ii) ATI shall have the right to determine, and shall promptly
notify Water Pik of, the manner in which Water Pik's participation in
the terms and conditions of ASO Contracts as set forth above shall be
effectuated. The permissible ways in which Water Pik's participation
may be effectuated include automatically making Water Pik a party to
the ASO Contracts or obligating the third party to enter into a
separate ASO Contract with Water Pik providing for the same terms and
conditions as are contained in the ASO Contracts to which ATI is a
party (or such other arrangement as to which ATI and Water Pik shall
mutually agree). Such terms and conditions shall include the financial
and termination provisions, performance standards, methodology,
auditing policies, quality measures, reporting requirements and target
claims. Water Pik hereby authorizes ATI to act on its behalf to extend
to Water Pik the terms and conditions of the ASO Contracts. Water Pik
shall fully cooperate with ATI in such efforts, and Water Pik shall not
perform any act, including discussing any alternative arrangements with
any third party, that would prejudice ATI's efforts.
(b) GROUP INSURANCE POLICIES.
(i) This Section 5.2(b) applies to group insurance policies
not subject to allocation or transfer pursuant to the foregoing
provisions of this Article V ("Group Insurance Policies").
(ii) ATI shall use its Reasonable Efforts to amend each Group
Insurance Policy in existence as of the date of this Agreement for the
provision or administration of benefits under the ATI Health and
Welfare Plans to permit Water Pik to participate in the terms and
conditions of such policy from Immediately After the Distribution Date
until December 31, 2000. ATI shall use its Reasonable Efforts to cause
all Group Insurance Policies into which ATI enters or which ATI renews
after the date of this Agreement but before the Close of the
Distribution Date to allow Water Pik to participate in the terms and
conditions thereof effective Immediately After the Distribution Date on
the same basis as ATI.
(iii) Water Pik's participation in the terms and conditions of
each such Group Insurance Policy shall be effectuated by obligating the
insurance company that issued such insurance policy to ATI to issue one
or more separate policies to Water Pik. Such terms and conditions shall
include the financial and termination provisions, performance standards
and target claims. Water Pik hereby unconditionally and irrevocably
authorizes
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ATI to act on its behalf to extend to Water Pik the terms and
conditions of such Group Insurance Policies. Water Pik shall fully
cooperate with ATI in such efforts, and Water Pik shall not perform any
act, including discussing any alternative arrangements with third
parties, that would prejudice ATI's efforts.
(c) HMO AGREEMENTS.
(i) Before the Distribution Date, ATI shall use its Reasonable
Efforts to amend all letter agreements with HMOs that provide medical
services under the ATI Medical Plans for 1999 ("HMO Agreements") in
existence as of the date of this Agreement to permit Water Pik to
participate in the terms and conditions of such HMO Agreements, in each
case, from Immediately After the Distribution Date until December 31,
2000. ATI shall use its Reasonable Efforts to cause all HMO Agreements
into which ATI enters after the date of this Agreement but before the
Close of the Distribution Date to allow Water Pik to participate in the
terms and conditions of such HMO Agreements from Immediately After the
Distribution Date until December 31, 2000 on the same basis as ATI.
(ii) ATI shall have the right to determine, and shall promptly
notify Water Pik of, the manner in which Water Pik's participation in
the terms and conditions of all HMO Agreements as set forth above shall
be effectuated. The permissible ways in which Water Pik's participation
may be effectuated include automatically making Water Pik a party to
the HMO Agreements or obligating the HMOs to enter into letter
agreements with Water Pik which are identical to the HMO Agreements (or
such other arrangements as to which ATI and Water Pik shall mutually
agree). Such terms and conditions shall include the financial and
termination provisions of the HMO Agreements. Water Pik hereby
authorizes ATI to act on its behalf to extend to Water Pik the terms
and conditions of the HMO Agreements. Water Pik shall fully cooperate
with ATI in such efforts, and Water Pik shall not perform any act,
including discussing any alternative arrangements with any third-party,
that would prejudice ATI's efforts.
(iii) Notwithstanding anything in this Article V to the
contrary, Water Pik shall have the sole discretion to determine which
HMOs to offer to the participants in the Water Pik Health and Welfare
Plans for 2001 and subsequent years, and all HMO Agreements in which
Water Pik participates pursuant to this Section 5.2(c) shall provide
Water Pik with the right to discontinue its participation effective
January 1, 2001.
5.3 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE
PRACTICES, AND VENDOR CONTRACTS.
(a) AMENDMENTS TO PLAN DOCUMENTS. From Immediately After the
Distribution Date through December 31, 2000, Water Pik shall not amend any Water
Pik Health and Welfare Plan or Plans, and Water Pik shall have no rights or
privileges with respect to such Plans other than those rights and privileges
contained in any policy, contract or other written arrangement governing such
Plans. During any period in which ATI is providing Interim Services with respect
to any Water Pik Health and Welfare Plan pursuant to Section 7.1, ATI shall have
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the right to amend any applicable Water Pik Health and Welfare Plan; provided
that, in ATI's reasonable good faith opinion, such amendment will have no
material adverse impact on the Water Pik Health and Welfare Plan or its
participants or, to the extent a material adverse impact would occur, such
impact would affect both the applicable Water Pik Health and Welfare Plan and
any corresponding ATI Health and Welfare Plan and any costs incurred as a result
of such amendment shall be borne by ATI and Water Pik in the same proportion
that Water Pik and ATI employees, respectively, participate.
(b) CHANGES IN VENDOR CONTRACTS, GROUP INSURANCE POLICIES, PLAN DESIGN,
AND ADMINISTRATION PRACTICES AND PROCEDURES.
(i) From Immediately After the Distribution Date until
December 31, 2000, Water Pik shall not materially modify, or take other
action which would have a material effect on, any of the following
items (each such modification, a "Change"): (A) the termination date,
administration, or operation of (1) an ASO contract between ATI or
Water Pik and a third-party administrator, (2) a Group Insurance Policy
issued to ATI or Water Pik, or (3) an HMO Agreement with ATI or Water
Pik, in each case, the material terms and conditions of which contracts
and policies are extended to Water Pik or to which Water Pik becomes a
party pursuant to Section 5.2; (B) the design of either an ATI Health
and Welfare Plan or a Water Pik Health and Welfare Plan; or (C) the
financing, operation, administration or delivery of benefits under
either an ATI Health and Welfare Plan or a Water Pik Health and Welfare
Plan.
(ii) During any period in which ATI is providing Interim
Services with respect to any Water Pik Health and Welfare Plan pursuant
to Section 7.1, ATI shall be permitted to make any Change to such Water
Pik Plan; provided that, in ATI's reasonable good faith opinion, such
Change would affect both the applicable Water Pik Health and Welfare
Plan and any corresponding ATI Health and Welfare Plan and any costs
incurred as a result of such amendment shall be borne proportionally by
ATI and Water Pik in the same proportion that Water Pik and ATI
employees, respectively, participate.
(c) EMPLOYEE CONTRIBUTIONS. Except as otherwise expressly provided
in Sections 5.3(a) and 5.3(b), as of January 1, 2001, Water Pik shall have the
right, in its sole and absolute discretion and without compliance with Sections
5.3(a) and 5.3(b), to increase or decrease the amount of employee contributions
under their respective Health and Welfare Plans.
5.4 ATI SICKNESS AND ACCIDENT, LONG TERM DISABILITY AND PENSION
DISABILITY BENEFITS. ATI shall transfer to Water Pik, effective Immediately
After the Distribution Date, responsibility for administering all claims
incurred by Water Pik Individuals and other employees and former employees of
Water Pik and the Water Pik Entities before the Close of the Distribution Date
that are administered by ATI as of the Close of the Distribution Date. Water Pik
shall administer such claims in the same manner, and using the same methods and
procedures, as ATI used in administering such claims. Water Pik shall have sole
discretionary authority to make any necessary determinations with respect to
such claims, including entering into settlements with respect to such claims.
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5.5 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS. As soon as
practicable after the Distribution Date, Water Pik shall provide ATI with a list
of all Water Pik Individuals who are, to the best knowledge of Water Pik,
eligible to receive retiree medical or dental coverage under the ATI Health and
Welfare Plans from and after the Distribution Date and/or post-retirement life
insurance coverage under the ATI Group Life Program, and the type of retiree
medical or dental coverage and the level of life insurance coverage for which
they are eligible, as applicable.
5.6 COBRA AND DIRECT PAY. Effective Immediately After the
Distribution Date, Water Pik shall solely be responsible for administering
compliance with the health care continuation coverage requirements of COBRA and
the Water Pik Health and Welfare plans, and, with respect to Water Pik
Individuals, the ATI Health and Welfare Plans.
5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS.
(a) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM BENEFITS.
(i) Water Pik shall cause the Water Pik Health and Welfare
Plans to recognize and maintain all coverage and contribution elections
made by Water Pik Individuals under the ATI Health and Welfare Plans
and apply such elections under the Water Pik Health and Welfare Plans
for the remainder of the period or periods for which such elections are
by their terms applicable. The transfer or other movement of employment
from ATI to Water Pik at any time before the Close of the Distribution
Date shall neither constitute nor be treated as a "status change" under
the ATI Health and Welfare Plans or the Water Pik Health and Welfare
Plans.
(ii) Water Pik shall cause the Water Pik Health and Welfare
Plans to recognize and give credit for (A) all amounts applied to
deductibles, out-of-pocket maximums, and other applicable benefit
coverage limits with respect to which such expenses have been incurred
by Water Pik Individuals under the ATI Health and Welfare Plans for the
remainder of the year in which the Distribution occurs, and (B) all
benefits paid to Water Pik Individuals under the ATI Health and Welfare
Plans for purposes of determining when such persons have reached their
lifetime maximum benefits under the Water Pik Health and Welfare Plans.
(iii) Water Pik shall recognize and maintain through December
31, 1999 all eligible populations covered by the ATI Health and Welfare
Plans (as defined in the applicable ATI Health and Welfare Plan
documents), including Class I and Class II dependents, term and
temporary employees, alternate benefit plan employees, and all
categories of part-time employees (which are fully and non-fully
eligible for company contributions).
(iv) Water Pik shall (A) provide coverage to Water Pik
Individuals under the Water Pik Group Life Program without the need to
undergo a physical examination or otherwise provide evidence of
insurability, and (B) recognize and maintain all irrevocable
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assignments and accelerated benefit option elections made by Water Pik
Individuals under the ATI Group Life Program.
(b) OTHER POST-DISTRIBUTION TRANSITIONAL RULES.
(i) ATI HCRA PLAN. To the extent any Water Pik Individual
contributed to an account under the ATI HCRA Plan during the calendar
year that includes the Distribution Date, effective as of the Close of
the Distribution Date, ATI shall transfer to the Water Pik HCRA Plan
the account balances of Water Pik Individuals for such calendar year
under the ATI HCRA Plan, regardless of whether the account balance is
positive or negative.
(ii) ATI CHILD/ELDER CARE REIMBURSEMENT ACCOUNT PLAN. To the
extent any Water Pik Individual contributed to the ATI CECRA Plan
during the calendar year that includes the Distribution Date, ATI shall
transfer the account balances of Water Pik Individuals for such
calendar year in the ATI CECRA Plan to the Water Pik CECRA Plan.
(iii) POST-RETIREMENT MEDICAL PLAN. For the period ending on
December 31st of the calendar year which is five calendar years after
the Distribution Date, Water Pik shall comply with all cost maintenance
period requirements and benefit maintenance period requirements under
Code Sections 401(h) or 420 that are applicable to post-retirement
health benefits under the Water Pik Health Plans for any pension asset
transfers pursuant to Code Section 420 by or on behalf of ATI for
qualified current retiree health liabilities (as defined under Code
Section 420). With respect to any pension asset transfers pursuant to
Code Section 420, Water Pik shall obtain ATI's prior written approval
before amending any Water Pik Health Plan with respect to the provision
of post-retirement health benefits during the cost maintenance or
benefit maintenance periods to which the ATI Health Plans are subject
pursuant to Code Section 420 and no such amendment shall be effective
in any respect until ATI's prior written approval is obtained. No
pension asset transfer pursuant to Code Section 420 shall be made by
Water Pik after the date hereof and before the Close of the
Distribution Date unless Water Pik and ATI so agree.
(iv) HEALTH AND WELFARE PLANS SUBROGATION RECOVERY. After the
Close of the Distribution Date, ATI shall pay to Water Pik any amounts
ATI recovers from time to time through subrogation or otherwise for
claims incurred by or reimbursed to any Water Pik Individual. If Water
Pik recovers any amounts through subrogation or otherwise for claims
incurred by or reimbursed to employees and former employees of ATI or
an ATI Entity and their respective beneficiaries and dependents (other
than Water Pik Individuals), Water Pik shall pay such amounts to ATI.
5.8 APPLICATION OF ARTICLE V TO WATER PIK ENTITIES. Any reference
in this Article V to "Water Pik" shall include a reference to a Water Pik Entity
when and to the extent ATI or Water Pik has caused the Water Pik Entity to (a)
become a party to a vendor contract, group insurance contract, or HMO letter
agreement associated with a Water Pik Health
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and Welfare Plan, (b) become a self-insured entity for the purposes of one or
more Water Pik Health and Welfare Plans, (c) assume all or a portion of the
liabilities or administrative responsibilities for benefits which arose before
the Close of the Distribution Date under an ATI Health and Welfare Plan and
which were expressly assumed by Water Pik pursuant to the terms of this
Agreement, or (d) take any other action, extend any coverage, assume any other
liability or fulfill any other responsibility that Water Pik would otherwise be
required to take under the terms of this Article V, unless it is clear from the
context that the particular reference is not intended to include a Water Pik
Entity. In all such instances in which a reference in this Article V to "Water
Pik" includes a reference to a Water Pik Entity, Water Pik shall be responsible
to ATI for ensuring that the Water Pik Entity complies with the applicable terms
of this Agreement and the Water Pik Individuals allocated to such Water Pik
Entity shall have the same rights and entitlements to benefits under the
applicable Water Pik Health and Welfare Plans that the Water Pik Individual
would have had if he or she had instead been allocated to Water Pik. Further,
each such Water Pik Entity, unless otherwise expressly provided under the terms
of this Agreement or any Ancillary Agreement, shall defend, indemnify and hold
harmless ATI for any costs incurred by ATI pursuant to the provisions of Article
V on behalf of or related to such Water Pik Entity.
ARTICLE VI
EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS
6.1 ASSUMPTION OF OBLIGATIONS. Except (i) for Benefit Liabilities
arising under the Teledyne Pension Equalization Plan and (ii) as otherwise
expressly provided in this Article VI, effective Immediately After the
Distribution Date, Water Pik and the Water Pik Entities shall assume and be
solely responsible for all Benefit Liabilities to or relating to Water Pik
Individuals under all ATI Executive Benefit Plans.
6.2 CONSENTS AND NOTIFICATIONS. ATI and Water Pik shall use their
Reasonable Efforts to obtain, or cause to be obtained, to the extent necessary,
the written consent of each Water Pik Individual who is a party to a separate
agreement between the Individual and ATI and/or a participant in any ATI
Executive Benefit Plan, to the treatment of such individual agreement and/or
Executive Benefit Plan, as applicable, in accordance with this Article VI,
including the assumption by Water Pik and the Water Pik Entities, of sole
responsibility for, and the release of ATI and the ATI Entities from, all
Benefit Liabilities thereunder; provided, that no failure to seek or to obtain
any such consent shall have any effect upon the obligations of Water Pik and the
Water Pik Entities with respect to such Benefit Liabilities.
6.3 ATI 1999 BONUS PLAN. Subject to the provisions of Section
6.4(a)(ii)(B), Water Pik shall be responsible for determining, with respect to
all Awards that would otherwise be payable under any bonus Plan or arrangement
to Water Pik Individuals for the 1999 performance year, (a) the extent to which
established performance criteria (as interpreted by Water Pik, in its sole
discretion, after taking into account the effects of the Distribution) have been
met and (b) the payment level for each Water Pik Individual.
6.4 ATI INCENTIVE PLANS. ATI and Water Pik shall use their
Reasonable Efforts to take all actions necessary or appropriate so that each
outstanding Award granted under any
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ATI Incentive Plan held by any Water Pik Individual shall be determined,
converted or replaced, as the case may be, as set forth in this Section 6.4 with
an Award under the Water Pik Incentive Plan.
(a) WATER PIK INDIVIDUALS WHO ARE ACTIVE EMPLOYEES OF WATER PIK.
(i) STOCK OPTIONS. Water Pik shall cause each ATI Option that
is outstanding as of the Close of the Distribution Date and is held by
a Water Pik Individual to be converted, effective Immediately After the
Distribution Date, to a Water Pik Option (a "Converted Option"). Such
Converted Option shall provide for the option to purchase a number of
shares of Water Pik Common Stock equal to the number of shares of ATI
Common Stock subject to such ATI Option as of the Close of the
Distribution Date, multiplied by the Ratio, and then rounded up to the
nearest whole share. The per-share exercise price of such Converted
Option shall equal the per-share exercise price of such ATI Option as
of the Close of the Distribution Date divided by the Ratio. Each such
Converted Option shall otherwise have the same terms and conditions as
were applicable to the corresponding ATI Option as of the Close of the
Distribution Date, except that references to ATI and its Affiliates
shall be amended to refer to Water Pik and its Affiliates.
(ii) PERFORMANCE AWARDS.
(A) The current performance period under the ATI
Performance Share Program is the three-year period commencing
on January 1, 1998. Either prior to or within a reasonable
time after the Distribution Date, in accordance with the
provisions of Section 6.4(a)(ii)(B), the applicable ATI
Performance Award under the ATI Performance Share Program
shall be determined by ATI with respect to each Water Pik
Individual for the period from January 1, 1998 through the
Distribution Date. Effective Immediately After the
Distribution Date, Water Pik and the Water Pik Entities shall
assume and be solely responsible for all Benefit Liabilities
to or relating to Water Pik Individuals with respect to the
administration and distribution of Performance Awards to such
Water Pik Individuals.
(B) Notwithstanding the provisions of Section 6.3,
the ATI Personnel and Compensation Committee or the Stock
Incentive Award Subcommittee, as the case may be, shall
determine, in its sole and absolute discretion, with respect
to each Water Pik Individual, the extent to which, as of the
Distribution Date, such Individual has achieved target
performance levels established under the ATI Performance Share
Program and the appropriate Performance Award for such
Individual based upon such performance. The Performance Award
so determined shall be pro-rated by multiplying the
Performance Award determined under the preceding sentence by a
fraction, the numerator of which shall be equal to the number
of months from and including January 1, 1998 to the month in
which the Distribution Date occurs and the denominator of
which shall be 36. The Performance Award as determined
hereunder shall be distributed by Water Pik and
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the Water Pik Entities to the applicable Water Pik Individual
as provided under the terms of the Performance Share Program;
provided, however, that any ATI Common Stock allocated or
otherwise awarded to a Water Pik Individual as part of a
Performance Award under the provisions of this Section
6.4(a)(ii) shall, prior to any distribution to such Individual
and, in any event, no later than Immediately After the
Distribution Date, be converted into Water Pik Common Stock by
multiplying the number of shares of ATI Common Stock subject
to such Performance Award by an appropriate ratio, as
determined by ATI's Board of Directors or an applicable
Committee thereof and then rounding up the product to the
nearest whole share.
(iii) SARP. As of the Distribution Date, all shares of ATI
Common Stock issued and outstanding held by a Water Pik Individual
under the ATI SARP as Designated Stock or Purchased Stock (as those
terms are defined in the ATI SARP) shall continue to be so held, and
the shares of Water Pik Common Stock received by Water Pik Individuals
in respect of their Purchased Stock and Designated Stock pursuant to
the distribution terms of Article III of the Separation and
Distribution Agreement and the shares of Teledyne Technologies
Incorporated Common Stock received by Water Pik Individuals in respect
of their Purchased Stock and Designated Stock as a result of the
spin-off of Teledyne Technologies Incorporated by ATI to ATI's
stockholders shall also be considered Designated Stock or Purchased
Stock, as the case may be, subject to the terms of the ATI SARP.
Effective Immediately After the Distribution Date, Water Pik shall
assume all Benefit Liabilities to or relating to Water Pik Individuals
under the ATI SARP relating to the Restricted Stock (as that term is
defined in the ATI SARP), but ATI shall retain all promissory notes
payable by participants into the ATI SARP, including Water Pik
Individuals, to the order of ATI, and the collateral with respect to
such notes shall include all shares of ATI Common Stock that were
pledged as collateral for purposes of the ATI SARP immediately prior to
the Distribution Date as well as the shares of Water Pik Common Stock
and Teledyne Technologies Incorporated Common Stock issued in respect
of such shares of ATI Common Stock held as collateral. Effective
Immediately After the Distribution Date, pursuant to the terms of the
ATI SARP, all Water Pik Individuals holding awards of Restricted Stock
under the ATI SARP as of the Distribution Date shall receive, without
any further action on their part and in substitution for all shares of
Restricted Stock held immediately prior to the Distribution Date by
such Water Pik Individuals under the ATI SARP, a number of shares of
Water Pik Common Stock determined by multiplying the number of shares
of ATI Common Stock that are held immediately prior to the Distribution
Date as Restricted Stock under the ATI SARP by an appropriate ratio, as
determined by ATI's Board of Directors or an applicable Committee
thereof then rounding the product up to the nearest whole share, and
such shares of Water Pik Common Stock shall be subject to the same
restrictions as the shares of ATI Common Stock prior to the conversion.
(b) WATER PIK INDIVIDUALS WHO ARE NOT ACTIVE EMPLOYEES OF WATER
PIK. Each outstanding Award that is held by an individual who, as of the Close
of the Distribution Date, would otherwise be a Water Pik Individual but is not
an active employee of or on leave of absence from Water Pik or a Water Pik
Entity shall remain outstanding Immediately
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After the Distribution Date in accordance with its terms as applicable as of the
Close of the Distribution Date, subject to such adjustments as may be applicable
to outstanding Awards held by individuals who remain active employees of or on
leave of absence from ATI or an ATI Entity after the Distribution Date.
6.5 ATI NONQUALIFIED DEFERRED COMPENSATION PROGRAMS.
(a) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. Subject to
the provisions of Section 6.1, effective Immediately After the Distribution
Date, Water Pik shall assume all Benefit Liabilities to or relating to Water Pik
Individuals under the ATI Nonqualified Deferred Compensation Programs. Effective
Immediately After the Distribution Date, to the extent ATI has acquired
Corporate-Owned Life Insurance Policies as a source of payment of liabilities
which are or may be payable under the Allegheny Teledyne Incorporated Executive
Deferred Compensation Plan with respect to Water Pik Individuals, ATI shall, in
ATI's sole discretion, (i) transfer an amount in cash equal to the cash
surrender value of such policies or (ii) cause the transfer, either by
assignment or any other reasonable means, to Water Pik of Corporate-Owned Life
Insurance Policies on the lives of such Water Pik Individuals and such other
employees or former employees of ATI or its subsidiaries as ATI may, in its sole
discretion select, or any portion thereof, having in the aggregate a cash
surrender value equal to the amount of any Benefit Liabilities for Water Pik
Individuals under the Allegheny Teledyne Incorporated Executive Deferred
Compensation Plan.
(b) CORPORATE-OWNED LIFE INSURANCE. ATI and Water Pik shall take
all actions necessary to replicate the manner in which ATI has heretofore held
Corporate-Owned Life Insurance Policies, and executing or accepting delivery of
any assignments reasonably requested by either party or any insurance company
insuring one or more lives under the Corporate-Owned Life Insurance Policies, as
may be necessary or appropriate in order to assign those Policies insuring Water
Pik Individuals to Water Pik, effective Immediately After the Distribution Date.
If a Corporate-Owned Life Insurance Policy is so assigned to Water Pik, Water
Pik shall assume and be solely responsible for all Benefit Liabilities, and
shall be entitled to all benefits, thereunder, effective as of the earlier of
(i) the Close of the Distribution Date and (ii) the date of such assignment. ATI
and Water Pik shall continue, liquidate and/or administer such Corporate-Owned
Life Insurance Policies on terms and conditions agreed to by ATI and
Water Pik. ATI and Water Pik shall share all information that may be necessary
to identify the individuals insured by the Corporate-Owned Life Insurance
Policies owned by ATI and/or Water Pik and to determine when and whether such
individuals are deceased.
6.6 NON-EMPLOYEE DIRECTOR BENEFITS. The parties intend that all
Water Pik Non-Employee Directors who were ATI Non-Employee Directors prior to
the Distribution Date may continue to serve as ATI Non-Employee Directors. In
furtherance of such intention, ATI shall retain all Benefit Liabilities with
respect to the services of its Non-Employee Directors under the ATI Non-Employee
Director Plans accrued as of the Distribution Date. Water Pik assumes no Benefit
Liabilities under the ATI Non-Employee Director Plans.
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6.7 CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of
this Agreement shall be deemed to release any individual for a violation of any
agreement or policy pertaining to confidential or proprietary information of ATI
or any of its Affiliates, or otherwise relieve any individual of his or her
obligations under any such agreement or policy.
ARTICLE VII
GENERAL AND ADMINISTRATIVE
7.1 INTERIM SERVICES AGREEMENT. Effective on or before the
Distribution Date, ATI and Water Pik shall enter into an agreement relating to
the coordination of and payment for transition services to be provided by ATI
regarding the establishment and administration of the Water Pik Plans (the
"Interim Services Agreement"). The provisions of the Interim Services Agreement
shall be incorporated by reference in this Agreement and shall become a part of
this Agreement.
7.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS.
(a) ACTUARIAL AND ACCOUNTING METHODOLOGIES AND ASSUMPTIONS. For
purposes of this Agreement, unless specifically indicated otherwise: (i) all
actuarial methodologies and assumptions used for a particular Plan shall (except
to the extent otherwise determined by ATI and Water Pik to be reasonable or
necessary) be substantially the same as those used in the actuarial valuation of
that Plan used to determine minimum funding requirements under ERISA Section 302
and Code Section 412(c) for 1999, or, if such Plan is not subject to such
minimum funding requirements, the assumptions used to prepare ATI's audited
financial statements for 1999, as the case may be; and (ii) the value of plan
assets shall be the value established by ATI for purposes of audited financial
statements of the relevant plan or trust for the period ending on the date as of
which the valuation is to be made. Except as otherwise contemplated by this
Agreement or as required by law, all determinations as to the amount or
valuation of any assets of or relating to any ATI Plan (whether or not such
assets are being transferred to a Water Pik Plan) shall be made by ATI in its
sole and absolute discretion and such determination shall be final and binding
on all parties.
(b) PAYMENT OF LIABILITIES; DETERMINATION OF EMPLOYEE STATUS.
Water Pik shall pay directly, or reimburse ATI promptly for, all Benefit
Liabilities assumed by it pursuant to this Agreement, including all compensation
payable to Water Pik Individuals for services rendered while in the employ of
ATI or an ATI Entity before becoming a Water Pik Individual (to the extent not
charged for pursuant to Section 7.1 or another Ancillary Agreement). To the
extent the amount of such Benefit Liabilities is not yet determinable because
the status of individuals as Water Pik Individuals is not yet determined, except
as otherwise specified herein or in another Ancillary Agreement with respect to
particular Benefit Liabilities, Water Pik shall make such payments or
reimbursements based upon ATI's reasonable estimates of the amounts thereof, and
when such status is determined, Water Pik shall make additional reimbursements
or payments, or ATI shall reimburse Water Pik, to the extent necessary to
reflect the actual amount of such Benefit Liabilities. In determining the number
of individuals in any particular group of employees
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<PAGE> 23
described in this Agreement (such as "Water Pik Individuals"), no individual
shall be counted twice. Determinations of what entity employs or employed a
particular individual shall be made by reference to the applicable legal entity
and/or other appropriate accounting code, to the extent possible.
7.3 SHARING OF PARTICIPANT INFORMATION. ATI and Water Pik shall
share, ATI shall cause each applicable ATI Entity to share, and Water Pik shall
cause each applicable Water Pik Entity to share, with each other and their
respective agents and vendors (without obtaining releases) all participant
information necessary for the efficient and accurate administration of each of
the ATI Plans and the Water Pik Plans. ATI and Water Pik and their respective
authorized agents shall, subject to applicable laws on confidentiality, be given
reasonable and timely access to, and may make copies of, all information
relating to the subjects of this Agreement in the custody of the other party, to
the extent necessary for such administration. Until December 31, 2000, all
participant information shall be provided in a manner and medium that is
compatible with the data processing systems of ATI as in effect on the Close of
the Distribution Date, unless otherwise agreed to by ATI and Water Pik.
7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS.
Water Pik shall take, and shall cause each other applicable Water Pik Entity to
take, all actions necessary or appropriate to facilitate the distribution of all
applicable ATI Plan-related communications and materials to Water Pik
Individuals and their beneficiaries, including summary plan descriptions and
related summaries of material modification, summary annual reports, investment
information, prospectuses, notices and enrollment material related to the Water
Pik Plans. Water Pik shall pay ATI the cost relating to the copies of all such
documents provided to Water Pik, except to the extent such costs are charged
pursuant to Section 7.1 or pursuant to an Ancillary Agreement. Water Pik shall
assist, and Water Pik shall cause each other applicable Water Pik Entity to
assist, ATI in complying with all reporting and disclosure requirements of
ERISA, including the preparation of Form 5500 annual reports for the ATI Plans,
where applicable.
7.5 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES.
No provision of this Agreement or the Separation and Distribution Agreement
shall be construed to create any right, or accelerate entitlement, to any
compensation or benefit whatsoever on the part of any Water Pik Individual or
other future, present or former employee of ATI, an ATI Entity, Water Pik, or a
Water Pik Entity under any ATI Plan or Water Pik Plan or otherwise. Without
limiting the generality of the foregoing: (i) the Distribution shall not cause
any employee to be deemed to have incurred a termination of employment which
entitles such individual to the commencement of benefits under any of the ATI
Plans, any of the Water Pik Plans, or any individual agreements; and (ii) except
as expressly provided in this Agreement, nothing in this Agreement shall
preclude Water Pik, at any time after the Close of the Distribution Date, from
amending, merging, modifying, terminating, eliminating, reducing, or otherwise
altering in any respect any Water Pik Plan, any benefit under any Plan or any
trust, insurance policy or funding vehicle related to any Water Pik Plan unless
such change could or will increase the obligations of ATI or any ATI Entity
under any Plan or agreement.
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<PAGE> 24
7.6 BENEFICIARY DESIGNATIONS. All beneficiary designations made by
Water Pik Individuals for ATI Plans shall be transferred to and be in full force
and effect under the corresponding Water Pik Plans until such beneficiary
designations are replaced or revoked by the Water Pik Individual who made the
beneficiary designation.
7.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS. Water Pik shall
cooperate fully with ATI on any issue relating to the transactions contemplated
by this Agreement for which ATI elects to seek a determination letter or private
letter ruling from the IRS or an advisory opinion from the DOL. ATI shall
cooperate fully with Water Pik with respect to any request for a determination
letter or private letter ruling from the IRS or advisory opinion from the DOL
with respect to any of the Water Pik Plans relating to the transactions
contemplated by this Agreement.
7.8 FIDUCIARY MATTERS. ATI and Water Pik each acknowledges that
actions required to be taken pursuant to this Agreement may be subject to
fiduciary duties or standards of conduct under ERISA or other applicable law,
and no party shall be deemed to be in violation of this Agreement if it fails to
comply with any provisions hereof based upon its good faith determination that
to do so would violate such a fiduciary duty or standard.
7.9 COLLECTIVE BARGAINING. To the extent any provision of this
Agreement is contrary to the provisions of any collective bargaining agreement
to which ATI or any Affiliate of ATI is a party, the terms of such collective
bargaining agreement shall prevail. Should any provisions of this Agreement be
deemed to relate to a topic determined by an appropriate authority to be a
mandatory subject of collective bargaining, ATI or Water Pik may be obligated to
bargain with the union representing affected employees concerning those
subjects. Neither party will agree to a modification of any collective
bargaining agreement without the consent of the other.
7.10 CONSENT OF THIRD PARTIES. If any provision of this Agreement
is dependent on the consent of any third party (such as a vendor or a union) and
such consent is withheld, ATI and Water Pik shall use their Reasonable Efforts
to implement the applicable provisions of this Agreement to the full extent
practicable. If any provision of this Agreement cannot be implemented due to the
failure of such third party to consent, ATI and Water Pik shall negotiate in
good faith to implement the provision in a mutually satisfactory manner.
7.11 INDEMNIFICATION OF ATI. Water Pik shall indemnify, defend and
hold harmless ATI, each ATI Entity and each of their respective directors,
officers and employees, and each of the heirs, executors, successors and assigns
of any of the foregoing (collectively, the "ATI Indemnitees") from and against
(i) any and all Benefit Liabilities of the ATI Indemnitees to the extent any
such Benefit Liabilities are assumed by Water Pik or a Water Pik Entity under
this Agreement and (ii) any and all changes or modifications to any rights,
privileges or benefits of or relating to any Water Pik Individual as provided in
or otherwise contemplated by this Agreement.
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ARTICLE VIII
MISCELLANEOUS
8.1 FOREIGN PLANS. To the extent that Water Pik has or assumes any
responsibility for sponsorship, maintenance or administration of any Foreign
Plan, ATI shall have no responsibility or liability with respect to such Plan
and Water Pik shall indemnify and hold harmless ATI from any liability under
such Plan.
8.2 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution
does not occur, then all actions and events that are, under this Agreement, to
be taken or occur effective as of the Close of the Distribution Date,
Immediately After the Distribution Date, or otherwise in connection with the
Distribution, shall not be taken or occur except to the extent specifically
agreed by Water Pik and ATI.
8.3 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship set forth herein.
8.4 AFFILIATES. Each of ATI and Water Pik shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by an ATI Entity or a
Water Pik Entity, respectively.
8.5 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER.
(a) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party.
(b) This Agreement, and the Exhibits, Schedules and Appendices hereto
and thereto contain the entire agreement between the parties with respect to the
subject matter hereof, supersede all previous agreements, negotiations,
discussions, writings, understandings, commitments and conversations with
respect to such subject matter and there are no agreements or understandings
between the parties other than those set forth or referred to herein or therein.
(c) ATI represents on behalf of itself and each ATI Entity, and Water
Pik represents on behalf of itself and each Water Pik Entity, as follows:
(i) each such Person has the requisite corporate or other
power and authority and has taken all corporate or other action necessary in
order to execute, deliver and perform each of this Agreement and to consummate
the transactions contemplated hereby; and
(ii) this Agreement has been duly executed and delivered by it
and constitutes a valid and binding agreement of it enforceable in accordance
with the terms thereof.
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<PAGE> 26
(d) Each party hereto acknowledges that it and each other party hereto
may be executing this Agreement by facsimile, stamp or mechanical signature.
Each party hereto expressly adopts and confirms each such facsimile, stamp or
mechanical signature made in its respective name as if it were a manual
signature, agrees that it will not assert that any such signature is not
adequate to bind such party to the same extent as if it were signed manually and
agrees that at the reasonable request of any other party hereto at any time it
will as promptly as reasonably practicable cause this Agreement to be manually
executed (any such execution to be as of the date of the initial date thereof).
8.6 GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the Commonwealth of Pennsylvania as to all
matters, including matters of validity, construction, effect, enforceability,
performance and remedies, irrespective of the choice of laws principles of the
Commonwealth of Pennsylvania.
(b) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of (i) the Court of Common Pleas of Allegheny County, Pennsylvania
and (ii) the United States District Court for the Western District of
Pennsylvania, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby (and agrees not to
commence any action, suit or proceeding relating thereto except in such courts).
Each of the parties hereto further agrees that service of any process, summons,
notice or document hand delivered or sent by U.S. registered mail to such
party's respective address set forth in Section 8.9 will be effective service of
process for any action, suit or proceeding in Pennsylvania with respect to any
matters to which it has submitted to jurisdiction as set forth in the
immediately preceding sentence. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Court of Common Pleas of Allegheny County, Pennsylvania or
(ii) the United States District Court for the Western District of Pennsylvania,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
8.7 ASSIGNABILITY. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that no party hereto may assign its respective
rights or delegate its respective obligations under this Agreement without the
express prior written consent of the other party hereto.
8.8 THIRD PARTY BENEFICIARIES. Except as otherwise expressly
provided herein, (a) the provisions of this Agreement are solely for the benefit
of the parties and are not intended to confer upon any Person except the parties
any rights or remedies hereunder, (b) there are no third party beneficiaries of
this Agreement, and (c) this Agreement shall not provide any third person with
any remedy, claim, liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement. No party shall be
required to deliver any notice under this Agreement to any other party with
respect to any matter in which such other party has no right, remedy or claim.
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<PAGE> 27
8.9 NOTICES. All notices or other communications under this
Agreement shall be in writing and shall be deemed to be duly given when (a)
delivered in person or (b) deposited in the United States mail or private
express mail, postage prepaid, addressed as follows:
If to ATI, to: Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
Attn: Senior Vice President, General Counsel
& Secretary
If to Water Pik, to: Water Pik Technologies, Inc.
600 Newport Center Drive, Suite 470
Newport Beach, California 92660
Attn: President
Any party may, by notice to the other party, change the address to which such
notices are to be given.
8.10 SEVERABILITY. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof or thereof, or the application of such provision to Persons or
circumstances or in jurisdictions other than those as to which it has been held
invalid or unenforceable, shall remain in full force and effect and shall in no
way be affected, impaired or invalidated thereby, so long as the economic or
legal substance of the transactions contemplated hereby or thereby, as the case
may be, is not affected in any manner adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort to agree
upon such a suitable and equitable provision to effect the original intent of
the parties.
8.11 HEADINGS. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
8.12 WAIVERS OF DEFAULT. Waiver by any party of any default by the
other party of any provision of this Agreement shall not be deemed a waiver by
the waiving party of any subsequent or other default, nor shall it prejudice the
rights of the other party.
8.13 AMENDMENTS. No provisions of this Agreement shall be deemed
waived, amended, supplemented or modified by any party, unless such waiver,
amendment, supplement or modification is in writing and signed by the authorized
representative of the party against whom it is sought to enforce such waiver,
amendment, supplement or modification.
8.14 INTERPRETATION. Words in the singular shall be held to include
the plural and vice versa and words of one gender shall be held to include the
other genders as the context requires. The terms "hereof," "herein," and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole (including all of the Schedules,
Exhibits and Appendices hereto) and not to any particular provision of this
Agreement. Article, Section, Exhibit, Schedule and Appendix references are to
the Articles, Sections,
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<PAGE> 28
Exhibits, Schedules and Appendices to this Agreement unless otherwise specified.
The word "including" and words of similar import when used in this Agreement
shall mean "including, without limitation," unless the context otherwise
requires or unless otherwise specified. The word "or" shall not be exclusive.
Unless expressly stated to the contrary in this Agreement, all references to
"the date hereof," "the date of this Agreement," "hereby" and "hereupon" and
words of similar input shall all be references to __________, 1999, regardless
of any amendment or restatement hereof.
8.15 DISPUTES. (a) Resolution of any and all disputes arising from
or in connection with this Agreement, whether based on contract, tort, statute
or otherwise, including, but not limited to, disputes in connection with claims
by third parties (collectively, "Disputes"), shall be subject to the provisions
of this Section 8.17; provided, however, that nothing contained herein shall
preclude any party from seeking or obtaining (i) injunctive relief or (ii)
equitable or other judicial relief to enforce the provisions hereof or to
preserve the status quo pending resolution of Disputes hereunder.
(b) Any party may give the other parties written notice of any Dispute
not resolved in the normal course of business. The parties shall attempt in good
faith to resolve any Dispute promptly by negotiation between executives of the
parties who have authority to settle the controversy. Within 15 days after
delivery of the notice, the foregoing executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary for a period not to exceed five days, to attempt to resolve the
Dispute. All reasonable requests for information made by one party to the other
will be honored. If the parties do not resolve the Dispute within such 20 day
period (the "Initial Mediation Period"), the parties shall attempt in good faith
to resolve the Dispute by negotiation between or among the Designated Officers
(as defined in the Separation and Distribution Agreement). The Designated
Officers shall meet at a mutually acceptable time and place (but in no event no
later than 15 days following the expiration of the Initial Mediation Period) and
thereafter as often as they reasonably deem necessary for a period not to exceed
15 days, to attempt to resolve the Dispute.
(c) If the Dispute has not been resolved by negotiation within 50 days
of the first party's notice, or if the parties failed to meet within 15 days of
the first party's notice, or if the Designated Officers failed to meet within 35
days of the first party's notice, any party may commence any litigation or other
procedure allowed by law.
IN WITNESS WHEREOF, the parties have caused this Employee Benefits
Agreement to be duly executed as of the day and year first above written.
ALLEGHENY TELEDYNE INCORPORATED
By: __________________________________
Title: _______________________________
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WATER PIK TECHNOLOGIES, INC.
By: __________________________________
Title: _______________________________
26
<PAGE> 1
Exhibit 10.6
FORM OF WATER PIK TECHNOLOGIES, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
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 providing an opportunity for Non-Employee
Directors to elect to receive Stock Options and/or Common Stock in lieu of
Director's Retainer Fee Payments, the 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 Stock
Options and/or Common Stock and granting each Non-Employee Director annually an
option covering 1,000 shares of Common Stock.
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(a) of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "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.
(d) "Common Stock" means the common stock, par value $0.10 per
share, of the Company.
(e) "Company" means Water Pik Technologies, Inc., a Delaware
corporation, and any successor thereto.
(f) "Compensation Year" means each calendar year or portion
thereof during which the Plan is in effect.
(g) "Director" means a member of the Board.
(h) "Director's Fees" means the Director's Retainer Fee Payments
and the Director's Meeting Fee Payments.
<PAGE> 2
(i) "Director's Meeting Fee Payment" means the dollar amount of
the fees which the Non-Employee Director would be entitled to
receive for attending meetings of the Board or any committee
of the Board or for serving as the chair of the Board or any
committee of the Board.
(j) "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 as of a particular Quarterly
Payment Date, as established by the Board and in effect from
time to time.
(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) "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.
(n) "Non-Employee Director" means a Director who is not an
Employee.
(o) "Non-Employee Director Notice" means a written notice
delivered in accordance with Section 4.2.
(p) "Plan" means this Water Pik Technologies, Inc. 1999
Non-Employee Director Stock Compensation Plan, as it may
hereafter be amended from time to time.
(q) "Quarterly Payment Date" means each of the quarterly dates on
which the Director's Retainer Fee Payment is paid by the
Company.
(r) "Retainer Fee Options" means the Stock Options issuable under
Section 4.3 of the Plan.
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<PAGE> 3
(s) "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 _______________. 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 under the Securities Exchange Act of 1934, as amended (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.
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 Quarterly 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. Director's Meeting Fee payments shall be paid
reasonably promptly following the date of the meeting to which such payments
relate. If for the applicable Compensation Year such Non-Employee Director has
not made an election to receive Stock Options or Common Stock in lieu of at
least one-fourth (1/4) of the Director's Retainer Fee Payment pursuant to
Section 4.2, three-fourths (3/4) of the Director's Retainer Fee Payment shall be
paid in cash and one-fourth (1/4) of the Director's Retainer Fee Payment shall
be paid in the form of Common Stock.
4.2. Non-Employee Director Notice. Non-Employee Directors may file with
the Committee or its designee prior to the commencement of a Compensation Year a
Non-Employee Director Notice electing to receive a specified portion (but not
below twenty five percent (25%)) of his or her Director's Retainer Fee Payment
in the form of Stock Options and/or Common Stock.
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<PAGE> 4
Notwithstanding the foregoing, elections to receive Common Stock or Stock
Options 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 or Stock Options 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 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 and as of the applicable Quarterly Payment Date, shall receive
as of each Quarterly Payment Date 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 such Quarterly
Payment Date. Cash shall be paid in lieu of any fractional shares.
4.4. Stock Options.
(a) Annual Option Grants. An Annual Option covering 1,000 shares of
Common Stock shall be granted to each Non-Employee Director on the date of
adoption of this Plan by the Board, subject to approval of 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 date of adoption of this Plan, 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
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<PAGE> 5
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.
(b) Retainer Fees Options. Retainer Fees Options for a Compensation
Year will be granted on January 2 of such Compensation Year (or if such January
2 is not a business day, on the next succeeding business day) for service during
such Compensation Year. The number of shares of Common Stock to be subject to a
Retainer Fees Option shall be equal to the nearest number of whole shares
determined by multiplying the Fair Market Value of a share of Company Common
Stock on the date of grant by 0.3333 and dividing the result into the portion of
the Director's Retainer Fee Payment elected to be received as Stock Options by
the Non-Employee Director for the Compensation Year. The purchase price of each
share covered by each Retainer Fee Option shall be equal to the Fair Market
Value of a share of Common Stock on the date of grant of the Retainer Fee Option
multiplied by 0.6666.
(c) Duration and Exercise of Stock Options. Subject to Section 4.04(f)
below, Annual Options and Retainer Fee Options become exercisable on the first
anniversary 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 the 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 permitted by Rule 16b-3 promulgated under the Exchange Act.
Subject to the foregoing, Stock Options shall not be
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<PAGE> 6
assigned, pledged or otherwise encumbered by the holder thereof, either
voluntarily or by operation of law.
(f) Termination of Directorship. All rights of a Director in a Stock
Option, to the extent that the Stock Option has not been exercised, shall
terminate three months after the date of the termination of his or her services
as a director for any reason other than (i) the death of the Director, (ii)
cessation of services as a director because the individual, although nominated
by the Board, is not elected by the stockholders to the Board, or (iii)
retirement because of total and permanent disability as defined in Section
22(e)(3) of the Code (collectively "Termination Events"). If a Director ceases
to be a director of the Company because of a Termination Event, the nearest
whole number of unexercisable Stock Options shall immediately become exercisable
which equals the number of full months actually served by the director as a
Non-Employee Director during the Compensation Year at issue divided by 12,
multiplied by the number of unexercisable Stock Options on the date of the
Termination Event. The remaining unexercisable portion of all such Stock Options
shall terminate. All then exercisable Stock Options shall expire twelve months
after the date of a Termination Event.
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 or 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.
6
<PAGE> 7
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 of law, as to all matters, including matters of
validity, construction, effect, performance and remedies.
7
<PAGE> 1
Exhibit 10.7
FORM OF
WATER PIK TECHNOLOGIES, INC.
1999 INCENTIVE PLAN
ARTICLE I
PURPOSE AND ADOPTION OF THE PLAN
1.01. PURPOSE. The purpose of the Water Pik Technologies, Inc.
1999 Incentive Plan (hereinafter referred to as the "Plan") is to assist in
attracting and retaining highly competent employees, to act as an incentive in
motivating selected officers and other key employees of Water Pik Technologies,
Inc. and its Subsidiaries to achieve long-term corporate objectives and to
enable cash incentive awards to qualify as performance-based for purposes of the
tax deduction limitations under Section 162(m) of the Code.
1.02. ADOPTION AND TERM. The Plan has been approved by the
Board of Directors of Water Pik Technologies, Inc., to be effective as of the
effective date of the distribution by Allegheny Teledyne Incorporated to its
stockholders of Water Pik Technologies, Inc. Common Stock (the "Effective
Date"), but is subject to the approval of the stockholders of the Company. The
Plan shall remain in effect until terminated by action of the Board; provided,
however, that no Incentive Stock Option may be granted hereunder after the tenth
anniversary of the Effective Date and the provisions of Articles VII, VIII, IX
and X with respect to performance-based awards to "covered employees" under
Section 162(m) of the Code shall expire as of the fifth anniversary of the
Effective Date.
ARTICLE II
DEFINITIONS
For the purpose of this Plan, capitalized terms shall have the
following meanings:
2.01. AWARD means any one or a combination of Non-Qualified
Stock Options or Incentive Stock Options described in Article VI, Stock
Appreciation Rights described in Article VI, Restricted Shares described in
Article VII, Performance Awards described in Article VIII, Awards of cash or any
other Award made under the terms of the Plan.
2.02. AWARD AGREEMENT means a written agreement between the
Company and a Participant or a written acknowledgment from the Company to a
Participant specifically setting forth the terms and conditions of an Award
granted under the Plan.
<PAGE> 2
2.03. AWARD PERIOD means, with respect to an Award, the period
of time set forth in the Award Agreement during which specified target
performance goals must be achieved or other conditions set forth in the Award
Agreement must be satisfied.
2.04. BENEFICIARY means an individual, trust or estate who or
which, by a written designation of the Participant filed with the Company or by
operation of law, succeeds to the rights and obligations of the Participant
under the Plan and the Award Agreement upon the Participant's death.
2.05. BOARD means the Board of Directors of the Company.
2.06. CHANGE IN CONTROL means, and shall be deemed to have
occurred upon the occurrence of, any one of the following events:
(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;
(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 the
Effective Date and (ii) persons who were nominated for
elections as members of the Board at a time when two-thirds of
the Board consisted of persons who were members of the Board
on the Effective Date, provided, however, that any person
nominated for election by a Board at least two-thirds of whom
constituted 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);
(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 Common 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 seventy five (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 Common Stock and Company Voting Securities
immediately prior to such reorganization, merger or
consolidation, as the case may be; or
<PAGE> 3
(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.
2.07. 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.
2.08. COMMITTEE means the Committee defined in Section 3.01.
2.09. COMPANY means Water Pik Technologies, Inc., a
Delaware corporation, and its successors.
2.10. COMMON STOCK means Common Stock of the Company, par
value $0.01 per share.
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 directors to the Board.
2.12. DATE OF GRANT means the date designated by the Committee
as the date as of which it grants an Award, which shall not be earlier than the
date on which the Committee approves the granting of such Award.
2.13. EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended.
2.14. EXERCISE PRICE means, with respect to a Stock
Appreciation Right, the amount established by the Committee in the Award
Agreement which is to be subtracted from the Fair Market Value on the date of
exercise in order to determine the amount of the payment to be made to the
Participant, as further described in Section 6.02(b).
2.15. FAIR MARKET VALUE means, on any date, the average of the
high and low quoted sales prices of a share of Common Stock, as reported on the
Composite Tape for New York Stock Exchange Listed Companies on such date or, if
there were no sales on such date, on the last date preceding such date on which
a sale was reported.
2.16. INCENTIVE STOCK OPTION means a stock option within the
meaning of Section 422 of the Code.
2.17. MERGER means any merger, reorganization, consolidation,
exchange, transfer of assets or other transaction having similar effect
involving the Company.
2.18. NON-QUALIFIED STOCK OPTION means a stock option which is
not an Incentive Stock Option.
<PAGE> 4
2.19. OPTIONS means all Non-Qualified Stock Options and
Incentive Stock Options granted at any time under the Plan.
2.20. OUTSTANDING COMMON STOCK means, at any time, the issued
and outstanding shares of Common Stock.
2.21. PARTICIPANT means a person designated to receive an
Award under the Plan in accordance with Section 5.01.
2.22. PERFORMANCE AWARDS means Awards granted in accordance
with Article VIII.
2.23. PERFORMANCE GOALS means operating income, operating
profit (earnings from continuing operations before interest and taxes), earnings
per share, return on investment or working capital, return on stockholders'
equity, economic value added (the amount, if any, by which net operating profit
after tax exceeds a reference cost of capital), reductions in inventory,
inventory turns and on-time delivery performance, any one of which may be
measured with respect to the Company or any one or more of its Subsidiaries and
divisions and either in absolute terms or as compared to another company or
companies, and quantifiable, objective measures of individual performance
relevant to the particular individual's job responsibilities.
2.24. PLAN means the Water Pik Technologies, Inc. 1999
Incentive Plan as described herein, as the same may be amended from time to
time.
2.25. PURCHASE PRICE, with respect to Options, shall have the
meaning set forth in Section 6.01(b).
2.26. RESTORATION OPTION means a Non-Qualified Stock Option
granted pursuant to Section 6.01(f).
2.27. RESTRICTED SHARES means Common Stock subject to
restrictions imposed in connection with Awards granted under Article VII.
2.28. RETIREMENT means early or normal retirement under a
pension plan or arrangement of the Company or one of its Subsidiaries in which
the Participant participates.
2.29. RULE 16B-3 means Rule 16b-3 promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act, as the
same may be amended from time to time, and any successor rule.
2.30. STOCK APPRECIATION RIGHTS means Awards granted in
accordance with Article VI.
2.31. SUBSIDIARY means a subsidiary of the Company within the
meaning of Section 424(f) of the Code.
<PAGE> 5
2.32. TERMINATION OF EMPLOYMENT means the voluntary or
involuntary termination of a Participant's employment with the Company or a
Subsidiary for any reason, including death, disability, retirement or as the
result of the divestiture of the Participant's employer or any similar
transaction in which the Participant's employer ceases to be the Company or one
of its Subsidiaries. Whether entering military or other government service shall
constitute Termination of Employment, or whether a Termination of Employment
shall occur as a result of disability, shall be determined in each case by the
Committee in its sole discretion.
ARTICLE III
ADMINISTRATION
3.01. COMMITTEE. The Plan shall be administered by a committee
of the Board ("Committee") comprised of at least two persons. The Committee
shall have exclusive and final authority in each determination, interpretation
or other action affecting the Plan and its Participants. The Committee shall
have the sole discretionary authority to interpret the Plan, to establish and
modify administrative rules for the Plan, to impose such conditions and
restrictions on Awards as it determines appropriate, to cancel Awards (including
those made pursuant to other plans of the Company) and to substitute new Options
for previously awarded Options which, at the time of such substitution, have an
exercise price in excess of the Fair Market Value of the underlying Common Stock
(including options granted under other incentive compensation programs of the
Company) with the consent of the recipient, and to take such steps in connection
with the Plan and Awards granted hereunder as it may deem necessary or
advisable. The Committee shall not, however, have or exercise any discretion
that would disqualify amounts payable under Article X as performance-based
compensation for purposes of Section 162(m) of the Code. The Committee may
delegate such of its powers and authority under the Plan as it deems appropriate
to a subcommittee of the Committee and/or designated officers or employees of
the Company. In addition, the full Board may exercise any of the powers and
authority of the Committee under the Plan. In the event of such delegation of
authority or exercise of authority by the Board, references in the Plan to the
Committee shall be deemed to refer, as appropriate, to the delegate of the
Committee or the Board. Actions taken by the Committee or any subcommittee
thereof, and any delegation by the Committee to designated officers or
employees, under this Section 3.01 shall comply with Section 16(b) of the
Exchange Act, the performance-based provisions of Section 162(m) of the Code,
and the regulations promulgated under each of such statutory provisions, or the
respective successors to such statutory provisions or regulations, as in effect
from time to time, to the extent applicable.
ARTICLE IV
SHARES
4.01. NUMBER OF SHARES ISSUABLE. The total number of shares
initially authorized to be issued under the Plan shall equal 10% of the issued
and outstanding shares of Common Stock immediately following the effective date
of the Plan. If the number of issued and outstanding shares of Common Stock is
increased after the effective date of the Plan, the total number of shares
available under the Plan will be increased by 10% of such increase. No more
then 945,000 shares of the Common Stock may be issued under the Plan as
Incentive Stock Options. The number of shares available for issuance under the
Plan shall be further subject to adjustment in accordance with Section 11.07.
The shares to be offered under the Plan shall be authorized and
<PAGE> 6
unissued Common Stock, or issued Common Stock which shall have been reacquired
by the Company.
4.02. SHARES SUBJECT TO TERMINATED AWARDS. Common Stock
covered by any unexercised portions of terminated Options (including canceled
Options) granted under Article VI, Common Stock forfeited as provided in Section
7.02(a) and Common Stock subject to any Awards which are otherwise surrendered
by the Participant may again be subject to new Awards under the Plan. Common
Stock subject to Options, or portions thereof, which have been surrendered in
connection with the exercise of Stock Appreciation Rights shall not be available
for subsequent Awards under the Plan, but Common Stock issued in payment of such
Stock Appreciation Rights shall not be charged against the number of shares of
Common Stock available for the grant of Awards hereunder.
ARTICLE V
PARTICIPATION
5.01. ELIGIBLE PARTICIPANTS. Participants in the Plan shall be
such officers and other key employees of the Company and its Subsidiaries,
whether or not members of the Board, as the Committee, in its sole discretion,
may designate from time to time. The Committee's designation of a Participant in
any year shall not require the Committee to designate such person to receive
Awards or grants in any other year. The designation of a Participant to receive
awards or grants under one portion of the Plan does not require the Committee to
include such Participant under other portions of the Plan. The Committee shall
consider such factors as it deems pertinent in selecting Participants and in
determining the type and amount of their respective Awards. Notwithstanding any
provision herein to the contrary, the Committee may grant Awards under the Plan,
other than Incentive Stock Options, to non-employees who, in the judgment of the
Committee, render significant services to the Company or any of its
Subsidiaries, on such terms and conditions as the Committee deems appropriate
and consistent with the intent of the Plan. Subject to adjustment in accordance
with Section 11.07, in any calendar year, no Participant shall be granted Awards
in respect of more than _____________ shares of Common Stock (whether through
grants of Options or Stock Appreciation Rights or other grants of Common Stock
or rights with respect thereto) and $_______________ in cash.
ARTICLE VI
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
6.01. OPTION AWARDS.
(a) GRANT OF OPTIONS. The Committee may grant, to
such Participants as the Committee may select, Options
entitling the Participant to purchase shares of Common Stock
from the Company in such number, at such price, and on such
terms and subject to such conditions, not inconsistent with
the terms of this Plan, as may be established by the
Committee. The terms of any Option granted under this Plan
shall be set forth in an Award Agreement.
<PAGE> 7
(b) PURCHASE PRICE OF OPTIONS. The Purchase Price of
each share of Common Stock which may be purchased upon
exercise of any Option granted under the Plan shall be
determined by the Committee; provided, however, that the
Purchase Price of the Common Stock purchased pursuant to
Options designated by the Committee as Incentive Stock Options
shall be equal to or greater than the Fair Market Value on the
Date of Grant as required under Section 422 of the Code.
(c) DESIGNATION OF OPTIONS. Except as otherwise
expressly provided in the Plan, the Committee may designate,
at the time of the grant of each Option, the Option as an
Incentive Stock Option or a Non-Qualified Stock Option.
(d) INCENTIVE STOCK OPTION SHARE LIMITATION. No
Participant may be granted Incentive Stock Options under the
Plan (or any other plans of the Company and its Subsidiaries)
which would result in shares with an aggregate Fair Market
Value (measured on the Date of Grant) of more than $100,000
first becoming exercisable in any one calendar year.
(e) RIGHTS AS A STOCKHOLDER. A Participant or a
transferee of an Option pursuant to Section 11.04 shall have
no rights as a stockholder with respect to Common Stock
covered by an Option until the Participant or transferee shall
have become the holder of record of any such shares, and no
adjustment shall be made for dividends in cash or other
property or distributions or other rights with respect to any
such Common Stock for which the record date is prior to the
date on which the Participant or a transferee of the Option
shall have become the holder of record of any such shares
covered by the Option; provided, however, that Participants
are entitled to share adjustments to reflect capital changes
under Section 11.07.
(f) RESTORATION OPTIONS UPON THE EXERCISE OF A
NON-QUALIFIED STOCK OPTION. In the event that any Participant
delivers to the Company, or has withheld from the shares
otherwise issuable upon the exercise of a Non-Qualified Stock
Option, shares of Common Stock in payment of the Purchase
Price of any Non-Qualified Stock Option granted hereunder in
accordance with Section 6.04, the Committee shall have the
authority to grant or provide for the automatic grant of a
Restoration Option to such Participant. The grant of a
Restoration Option shall be subject to the satisfaction of
such conditions or criteria as the Committee in its sole
discretion shall establish from time to time. A Restoration
Option shall entitle the holder thereof to purchase a number
of shares of Common Stock equal to the number of such shares
so delivered or withheld upon exercise of the original Option
and, in the discretion of the Committee, the number of shares,
if any, delivered or withheld to the Corporation to satisfy
any withholding tax liability arising in connection with the
exercise of the original Option. A Restoration Option shall
have a per share Purchase Price of not less than 100% of the
per share Fair Market Value of the Common Stock on the
<PAGE> 8
date of grant of such Restoration Option, a term not longer
than the remaining term of the original Option at the time of
exercise thereof, and such other terms and conditions as the
Committee in its sole discretion shall determine.
6.02. STOCK APPRECIATION RIGHTS.
(a) STOCK APPRECIATION RIGHT AWARDS. The Committee is
authorized to grant to any Participant one or more Stock
Appreciation Rights. Such Stock Appreciation Rights may be
granted either independent of or in tandem with Options
granted to the same Participant. Stock Appreciation Rights
granted in tandem with Options may be granted simultaneously
with, or, in the case of Non-Qualified Stock Options,
subsequent to, the grant to such Participant of the related
Option; provided however, that: (i) any Option covering any
share of Common Stock shall expire and not be exercisable upon
the exercise of any Stock Appreciation Right with respect to
the same share, (ii) any Stock Appreciation Right covering any
share of Common Stock shall expire and not be exercisable upon
the exercise of any related Option with respect to the same
share, and (iii) an Option and Stock Appreciation Right
covering the same share of Common Stock may not be exercised
simultaneously. Upon exercise of a Stock Appreciation Right
with respect to a share of Common Stock, the Participant shall
be entitled to receive an amount equal to the excess, if any,
of (A) the Fair Market Value of a share of Common Stock on the
date of exercise over (B) the Exercise Price of such Stock
Appreciation Right established in the Award Agreement, which
amount shall be payable as provided in Section 6.02(c).
(b) EXERCISE PRICE. The Exercise Price established
under any Stock Appreciation Right granted under this Plan
shall be determined by the Committee, but in the case of Stock
Appreciation Rights granted in tandem with Options shall not
be less than the Purchase Price of the related Option. Upon
exercise of Stock Appreciation Rights granted in tandem with
options, the number of shares subject to exercise under any
related Option shall automatically be reduced by the number of
shares of Common Stock represented by the Option or portion
thereof which are surrendered as a result of the exercise of
such Stock Appreciation Rights.
(c) PAYMENT OF INCREMENTAL VALUE. Any payment which
may become due from the Company by reason of a Participant's
exercise of a Stock Appreciation Right may be paid to the
Participant as determined by the Committee (i) all in cash,
(ii) all in Common Stock, or (iii) in any combination of cash
and Common Stock. In the event that all or a portion of the
payment is made in Common Stock, the number of shares of
Common Stock delivered in satisfaction of such payment shall
be determined by dividing the amount of such payment or
portion thereof by the Fair Market Value on the Exercise Date.
No fractional share of Common Stock shall be issued to make
any payment in respect of Stock Appreciation Rights; if any
fractional share would be issuable, the
<PAGE> 9
combination of cash and Common Stock payable to the
Participant shall be adjusted as directed by the Committee to
avoid the issuance of any fractional share.
6.03. TERMS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
(a) CONDITIONS ON EXERCISE. An Award Agreement with
respect to Options and/or Stock Appreciation Rights may
contain such waiting periods, exercise dates and restrictions
on exercise (including, but not limited to, periodic
installments) as may be determined by the Committee at the
time of grant.
(b) DURATION OF OPTIONS AND STOCK APPRECIATION
RIGHTS. Options and Stock Appreciation Rights shall terminate
upon the first to occur of the following events:
(i) Expiration of the Option or Stock
Appreciation Right as provided in the Award
Agreement; or
(ii) Termination of the Award in the event of a
Participant's disability, Retirement, death or other
Termination of Employment as provided in the Award
Agreement; or
(iii) In the case of an Incentive Stock Option,
ten years from the Date of Grant; or
(iv) Solely in the case of a Stock Appreciation
Right granted in tandem with an Option, upon the
expiration of the related Option.
(c) ACCELERATION OR EXTENSION OF EXERCISE TIME. The
Committee, in its sole discretion, shall have the right (but
shall not be obligated), exercisable on or at any time after
the Date of Grant, to permit the exercise of an Option or
Stock Appreciation Right (i) prior to the time such Option or
Stock Appreciation Right would become exercisable under the
terms of the Award Agreement, (ii) after the termination of
the Option or Stock Appreciation Right under the terms of the
Award Agreement, or (iii) after the expiration of the Option
or Stock Appreciation Right.
6.04. EXERCISE PROCEDURES. Each Option and Stock Appreciation
Right granted under the Plan shall be exercised by written notice to the Company
which must be received by the officer or employee of the Company designated in
the Award Agreement on or before the close of business on the expiration date of
the Award. The Purchase Price of shares purchased upon exercise of an Option
granted under the Plan shall be paid in full in cash by the Participant pursuant
to the Award Agreement; provided however, that the Committee may (but shall not
be required to) permit payment to be made by delivery to the Company of either
(a)
<PAGE> 10
Common Stock (which may include Restricted Shares or shares otherwise issuable
in connection with the exercise of the Option, subject to such rules as the
Committee deems appropriate) or (b) any combination of cash and Common Stock, or
(c) such other consideration as the Committee deems appropriate and in
compliance with applicable law (including payment in accordance with a cashless
exercise program under which, if so instructed by the Participant, Common Stock
may be issued directly to the Participant's broker or dealer upon receipt of an
irrevocable written notice of exercise from the Participant). In the event that
any Common Stock shall be transferred to the Company to satisfy all or any part
of the Purchase Price, the part of the Purchase Price deemed to have been
satisfied by such transfer of Common Stock shall be equal to the product derived
by multiplying the Fair Market Value as of the date of exercise times the number
of shares of Common Stock transferred to the Company. The Participant may not
transfer to the Company in satisfaction of the Purchase Price any fractional
share of Common Stock. Any part of the Purchase Price paid in cash upon the
exercise of any Option shall be added to the general funds of the Company and
may be used for any proper corporate purpose. Unless the Committee shall
otherwise determine, any Common Stock transferred to the Company as payment of
all or part of the Purchase Price upon the exercise of any Option shall be held
as treasury shares.
6.05. CHANGE IN CONTROL. Unless otherwise provided by the
Committee in the applicable Award Agreement, in the event of a Change in
Control, all Options outstanding on the date of such Change in Control, and all
Stock Appreciation Rights shall become immediately and fully exercisable. The
provisions of this Section 6.05 shall not be applicable to any Options or Stock
Appreciation Rights granted to a Participant if any Change in Control results
from such Participant's beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of Common Stock or Company Voting Securities.
ARTICLE VII
RESTRICTED SHARES
7.01. RESTRICTED SHARE AWARDS. The Committee may grant to any
Participant an Award of Common Stock in such number of shares, and on such
terms, conditions and restrictions, whether based on performance standards,
periods of service, retention by the Participant of ownership of purchased or
designated shares of Common Stock or other criteria, as the Committee shall
establish. With respect to performance-based Awards of Restricted Shares to
"covered employees" (as defined in Section 162(m) of the Code), performance
targets will be limited to specified levels of one or more of the Performance
Goals. The terms of any Restricted Share Award granted under this Plan shall be
set forth in an Award Agreement which shall contain provisions determined by the
Committee and not inconsistent with this Plan.
(a) ISSUANCE OF RESTRICTED SHARES. As soon as
practicable after the Date of Grant of a Restricted Share
Award by the Committee, the Company shall cause to be
transferred on the books of the Company, or its agent, Common
Stock, registered on behalf of the Participant, evidencing the
Restricted Shares covered by the Award, but subject to
forfeiture to the Company as of the Date of Grant if an Award
Agreement with respect to the Restricted Shares covered by the
Award is not duly executed by the Participant and timely
<PAGE> 11
returned to the Company. All Common Stock covered by Awards
under this Article VII shall be subject to the restrictions,
terms and conditions contained in the Plan and the Award
Agreement entered into by the Participant. Until the lapse or
release of all restrictions applicable to an Award of
Restricted Shares, the share certificates representing such
Restricted Shares may be held in custody by the Company, its
designee, or, if the certificates bear a restrictive legend,
by the Participant. Upon the lapse or release of all
restrictions with respect to an Award as described in Section
7.01(d), one or more share certificates, registered in the
name of the Participant, for an appropriate number of shares
as provided in Section 7.01(d), free of any restrictions set
forth in the Plan and the Award Agreement shall be delivered
to the Participant.
(b) STOCKHOLDER RIGHTS. Beginning on the Date of
Grant of the Restricted Share Award and subject to execution
of the Award Agreement as provided in Section 7.01(a), the
Participant shall become a stockholder of the Company with
respect to all shares subject to the Award Agreement and shall
have all of the rights of a shareholder, including, but not
limited to, the right to vote such shares and the right to
receive dividends; provided, however, that any Common Stock
distributed as a dividend or otherwise with respect to any
Restricted Shares as to which the restrictions have not yet
lapsed, shall be subject to the same restrictions as such
Restricted Shares and held or restricted as provided in
Section 7.01(a).
(c) RESTRICTION ON TRANSFERABILITY. None of the
Restricted Shares may be assigned or transferred (other than
by will or the laws of descent and distribution, or to an
inter vivos trust with respect to which the Participant is
treated as the owner under Sections 671 through 677 of the
Code, except to the extent that Section 16 of the Exchange Act
limits a participant's right to make such transfers), pledged
or sold prior to lapse of the restrictions applicable thereto.
(d) DELIVERY OF SHARES UPON VESTING. 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 Committee, or at such earlier
time as provided under the provisions of Section 7.03, the
restrictions applicable to the Restricted Shares shall lapse.
As promptly as administratively feasible thereafter, subject
to the requirements of Section 11.05, the Company shall
deliver to the Participant or, in case of the Participant's
death, to the Participant's Beneficiary, one or more share
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.
7.02. TERMS OF RESTRICTED SHARES.
(a) FORFEITURE OF RESTRICTED SHARES. Subject to
Sections 7.02(b) and 7.03, all Restricted Shares shall be
forfeited and returned to
<PAGE> 12
the Company and all rights of the Participant with respect to
such Restricted Shares shall terminate unless the Participant
continues in the service of the Company or a Subsidiary as an
employee until the expiration of the forfeiture period for
such Restricted Shares and satisfies any and all other
conditions set forth in the Award Agreement. The Committee
shall determine the forfeiture period (which may, but need
not, lapse in installments) and any other terms and conditions
applicable with respect to any Restricted Share Award.
(b) WAIVER OF FORFEITURE PERIOD. Notwithstanding
anything contained in this Article VII to the contrary, the
Committee may, in its sole discretion, waive the forfeiture
period and any other conditions set forth in any Award
Agreement under appropriate circumstances (including the
death, disability or Retirement of the Participant or a
material change in circumstances arising after the date of an
Award) and subject to such terms and conditions (including
forfeiture of a proportionate number of the Restricted Shares)
as the Committee shall deem appropriate.
7.03. CHANGE IN CONTROL. Unless otherwise provided by the
Committee in the applicable Award Agreement, in the event of a Change in
Control, all restrictions applicable to the Restricted Share Award shall
terminate fully and the Participant shall immediately have the right to the
delivery of share certificate or certificates for such shares in accordance with
Section 7.01(d).
ARTICLE VIII
PERFORMANCE AWARDS
8.01. PERFORMANCE AWARDS.
(a) AWARD PERIODS AND CALCULATIONS OF POTENTIAL
INCENTIVE AMOUNTS. The Committee may grant Performance Awards
to Participants. A Performance Award shall consist of the
right to receive a payment (measured by the Fair Market Value
of a specified number of shares of Common Stock, increases in
such Fair Market Value during the Award Period and/or a fixed
cash amount) contingent upon the extent to which certain
predetermined performance targets have been met during an
Award Period. Performance Awards may be made in conjunction
with, or in addition to, Restricted Share Awards made under
Article VII. The Award Period shall be two or more fiscal or
calendar years as determined by the Committee. The Committee,
in its discretion and under such terms as it deems
appropriate, may permit newly eligible employees, such as
those who are promoted or newly hired, to receive Performance
Awards after an Award Period has commenced.
(b) PERFORMANCE TARGETS. The performance targets may
include such goals related to the performance of the Company
or, where relevant, any one or more of its Subsidiaries or
divisions and/or the performance of
<PAGE> 13
a Participant as may be established by the Committee in its
discretion. In the case of Performance Awards to "covered
employees" (as defined in Section 162(m) of the Code), the
targets will be limited to specified levels of one or more of
the Performance Goals. The performance targets established by
the Committee may vary for different Award Periods and need
not be the same for each Participant receiving a Performance
Award in an Award Period. Except to the extent inconsistent
with the performance-based compensation exception under
Section 162(m) of the Code, in the case of Performance Awards
granted to employees to whom such section is applicable, the
Committee, in its discretion, but only under extraordinary
circumstances as determined by the Committee, may change any
prior determination of performance targets for any Award
Period at any time prior to the final determination of the
Award when events or transactions occur to cause the
performance targets to be an inappropriate measure of
achievement.
(c) EARNING PERFORMANCE AWARDS. The Committee, at or
as soon as practicable after the Date of Grant, shall
prescribe a formula to determine the percentage of the
Performance Award to be earned based upon the degree of
attainment of performance targets.
(d) PAYMENT OF EARNED PERFORMANCE AWARDS. Subject to
the requirements of Section 11.05, payments of earned
Performance Awards shall be made in cash or Common Stock, or a
combination of cash and Common Stock, in the discretion of the
Committee. The Committee, in its sole discretion, may define
such terms and conditions with respect to the payment of
earned Performance Awards as it may deem desirable.
8.02. TERMS OF PERFORMANCE AWARDS.
(a) TERMINATION OF EMPLOYMENT. Unless otherwise
provided below or in Section 8.03, in the case of a
Participant's Termination of Employment prior to the end of an
Award Period, the Participant will not have earned any
Performance Awards.
(b) RETIREMENT. If a Participant's Termination of
Employment is because of Retirement prior to the end of an
Award Period, the Participant will not be paid any Performance
Awards, unless the Committee, in its sole and exclusive
discretion, determines that an Award should be paid. In such a
case, the Participant shall be entitled to receive a pro-rata
portion of his or her Award as determined under Subsection
(d).
(c) DEATH OR DISABILITY. If a Participant's
Termination of Employment is due to death or disability (as
determined in the sole and exclusive discretion of the
Committee) prior to the end of an Award Period, the
Participant or the Participant's personal representative shall
be entitled to receive a pro-rata share of his or her Award as
determined under Subsection (d).
<PAGE> 14
(d) PRO-RATA PAYMENT. The amount of any payment made
to a Participant whose employment is terminated by Retirement,
death or disability (under circumstances described in
Subsections (b) and (c)) will be the amount determined by
multiplying the amount of the Performance Award which would
have been earned, determined at the end of the Award Period,
had such employment not been terminated, by a fraction, the
numerator of which is the number of whole months such
Participant was employed during the Award Period, and the
denominator of which is the total number of months of the
Award Period. Any such payment made to a Participant whose
employment is terminated prior to the end of an Award Period
under this Section 8.02 shall be made at the end of the
respective Award Period, unless otherwise determined by the
Committee in its sole discretion. Any partial payment
previously made or credited to a deferred account for the
benefit of a Participant as provided under Section 8.01(d) of
the Plan shall be subtracted from the amount otherwise
determined as payable as provided in this Section.
(e) OTHER EVENTS. Notwithstanding anything to the
contrary in this Article VIII, the Committee may, in its sole
and exclusive discretion, determine to pay all or any portion
of a Performance Award to a Participant who has terminated
employment prior to the end of an Award Period under certain
circumstances (including the death, disability or retirement
of the Participant or a material change in circumstances
arising after the Date of Grant) and subject to such terms and
conditions as the Committee shall deem appropriate.
8.03. CHANGE IN CONTROL. Unless otherwise provided by the
Committee in the applicable Award Agreement, in the event of a Change in
Control, all Performance Awards for all Award Periods shall immediately become
fully payable to all Participants and shall be paid to Participants in
accordance with Section 8.02(d), within 30 days after such Change in Control.
ARTICLE IX
OTHER STOCK-BASED AWARDS
9.01. GRANT OF OTHER STOCK-BASED AWARDS. Other stock-based
awards, consisting of stock purchase rights (with or without loans to
Participants by the Company containing such terms as the Committee shall
determine), Awards of cash, Awards of Common Stock, or Awards valued in whole or
in part by reference to, or otherwise based on, Common Stock, may be granted
either alone or in addition to or in conjunction with other Awards under the
Plan. Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons to whom and the time or times at
which such Awards shall be made, the number of shares of Common Stock to be
granted pursuant to such Awards, and all other conditions of the Awards. Any
such Award shall be confirmed by an Award Agreement executed by the Committee
and the Participant, which Award Agreement shall contain such provisions as the
Committee determines to be necessary or appropriate to carry out the intent of
this Plan with respect to such Award.
<PAGE> 15
9.02. TERMS OF OTHER STOCK-BASED AWARDS. In addition to the
terms and conditions specified in the Award Agreement, Awards made pursuant to
this Article IX shall be subject to the following:
(a) Any Common Stock subject to Awards made under
this Article IX may not be sold, assigned, transferred,
pledged or otherwise encumbered prior to the date on which the
shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period lapses;
and
(b) If specified by the Committee in the Award
Agreement, the recipient of an Award under this Article IX
shall be entitled to receive, currently or on a deferred
basis, interest or dividends or dividend equivalents with
respect to the Common Stock or other securities covered by the
Award; and
(c) The Award Agreement with respect to any Award
shall contain provisions dealing with the disposition of such
Award in the event of a Termination of Employment prior to the
exercise, realization or payment of such Award, whether such
termination occurs because of Retirement, disability, death or
other reason, with such provisions to take account of the
specific nature and purpose of the Award.
9.03. FOREIGN QUALIFIED AWARDS. Awards under the Plan may be
granted to such employees of the Company and its Subsidiaries who are residing
in foreign jurisdictions as the Committee in its sole discretion may determine
from time to time. The Committee may adopt such supplements to the Plan as may
be necessary or appropriate to comply with the applicable laws of such foreign
jurisdictions and to afford Participants favorable treatment under such laws;
provided, however, that no Award shall be granted under any such supplement with
terms or conditions inconsistent with the provision set forth in the Plan.
ARTICLE X
SHORT-TERM CASH INCENTIVE AWARDS
10.01. ELIGIBILITY. Executive officers of the Company who are
from time to time determined by the Committee to be "covered employees" for
purposes of Section 162(m) of the Code will be eligible to receive short-term
cash incentive awards under this Article X.
10.02. AWARDS.
(a) PERFORMANCE TARGETS. For each fiscal year of the
Company after fiscal year 1999, the Committee shall establish
objective performance targets based on specified levels of one
or more of the Performance Goals. Such performance targets
shall be established by the Committee on a timely basis to
ensure that the targets are considered "preestablished" for
purposes of Section 162(m) of the Code.
<PAGE> 16
(b) AMOUNTS OF AWARDS. In conjunction with the
establishment of performance targets for a fiscal year, the
Committee shall adopt an objective formula (on the basis of
percentages of Participants' salaries, shares in a bonus pool
or otherwise) for computing the respective amounts payable
under the Plan to Participants if and to the extent that the
performance targets are attained. Such formula shall comply
with the requirements applicable to performance-based
compensation plans under Section 162(m) of the Code and, to
the extent based on percentages of a bonus pool, such
percentages shall not exceed 100% in the aggregate.
(c) PAYMENT OF AWARDS. Awards will be payable to
Participants in cash each year upon prior written
certification by the Committee of attainment of the specified
performance targets for the preceding fiscal year.
(d) NEGATIVE DISCRETION. Notwithstanding the
attainment by the Company of the specified performance
targets, the Committee shall have the discretion, which need
not be exercised uniformly among the Participants, to reduce
or eliminate the award that would be otherwise paid.
(e) GUIDELINES. The Committee shall adopt from time
to time written policies for its implementation of this
Article X. Such guidelines shall reflect the intention of the
Company that all payments hereunder qualify as
performance-based compensation under Section 162(m) of the
Code.
(f) NON-EXCLUSIVE ARRANGEMENT. The adoption and
operation of this Article X shall not preclude the Board or
the Committee from approving other short-term incentive
compensation arrangements for the benefit of individuals who
are Participants hereunder as the Board or Committee, as the
case may be, deems appropriate and in the best of the Company.
ARTICLE XI
TERMS APPLICABLE GENERALLY TO AWARDS GRANTED UNDER THE PLAN
11.01. PLAN PROVISIONS CONTROL AWARD TERMS. Except as provided
in Section 11.16, the terms of the Plan shall govern all Awards granted under
the Plan, and in no event shall the Committee have the power to grant any Award
under the Plan which is contrary to any of the provisions of the Plan. In the
event any provision of any Award granted under the Plan shall conflict with any
term in the Plan as constituted on the Date of Grant of such Award, the term in
the Plan as constituted on the Date of Grant of such Award shall control. Except
as provided in Section 11.03 and Section 11.07, the terms of any Award granted
under the Plan may not be changed after the Date of Grant of such Award so as to
materially decrease the value of the Award without the express written approval
of the holder.
11.02. AWARD AGREEMENT. No person shall have any rights under
any Award granted under the Plan unless and until the Company and the
Participant to whom such
<PAGE> 17
Award shall have been granted shall have executed and delivered an Award
Agreement or received any other Award acknowledgment authorized by the Committee
expressly granting the Award to such person and containing provisions setting
forth the terms of the Award.
11.03. MODIFICATION OF AWARD AFTER GRANT. No Award granted
under the Plan to a Participant may be modified (unless such modification does
not materially decrease the value of the Award) after the Date of Grant except
by express written agreement between the Company and the Participant, provided
that any such change (a) shall not be inconsistent with the terms of the Plan,
and (b) shall be approved by the Committee.
11.04. LIMITATION ON TRANSFER. Except as provided in Section
7.01(c) in the case of Restricted Shares, a Participant's rights and interest
under the Plan may not be assigned or transferred other than by will or the laws
of descent and distribution, and during the lifetime of a Participant, only the
Participant personally (or the Participant's personal representative) may
exercise rights under the Plan. The Participant's Beneficiary may exercise the
Participant's rights to the extent they are exercisable under the Plan following
the death of the Participant. Notwithstanding the foregoing, to the extent
permitted under Section 16(b) of the Exchange Act with respect to Participants
subject to such Section, the Committee may grant Non-Qualified Stock Options
that are transferable, without payment of consideration, to immediate family
members of the Participant or to trusts or partnerships for such family members,
and the Committee may also amend outstanding Non-Qualified Stock Options to
provide for such transferability.
11.05. TAXES. The Company shall be entitled, if the Committee
deems it necessary or desirable, to withhold (or secure payment from the
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 amount
payable and/or shares issuable under such Participant's Award, or with respect
to any income recognized upon a disqualifying disposition of shares received
pursuant to the exercise of an Incentive Stock Option, and the Company may defer
payment or issuance of the cash or shares upon exercise or vesting of an Award
unless indemnified to its satisfaction against any liability for any such tax.
The amount of such withholding or tax payment shall be determined by the
Committee and shall be payable by the Participant at such time as the Committee
determines in accordance with the following rules:
(a) The Participant shall have the right to elect to
meet his or her withholding requirement (i) by having withheld
from such Award at the appropriate time that number of shares
of Common Stock, rounded up to the next whole share, whose
Fair Market Value is equal to the amount of withholding taxes
due, (ii) by direct payment to the Company in cash of the
amount of any taxes required to be withheld with respect to
such Award or (iii) by a combination of shares and cash.
(b) The Committee shall have the discretion as to any
Award, to cause the Company to pay to tax authorities for the
benefit of any Participant, or to reimburse such Participant
for the individual taxes which are due on the grant, exercise
or vesting of any share Award, or the lapse of any restriction
on
<PAGE> 18
any share Award (whether by reason of a Participant's filing
of an election under Section 83(b) of the Code or otherwise),
including, but not limited to, Federal income tax, state
income tax, local income tax and excise tax under Section 4999
of the Code, as well as for any such taxes as may be imposed
upon such tax payment or reimbursement.
(c) In the case of Participants who are subject to
Section 16 of the Exchange Act, the Committee may impose such
limitations and restrictions as it deems necessary or
appropriate with respect to the delivery or withholding of
shares of Common Stock to meet tax withholding obligations.
11.06. SURRENDER OF AWARDS. Any Award granted under the Plan
may be surrendered to the Company for cancellation on such terms as the
Committee and the holder approve.
11.07. ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) RECAPITALIZATION. The number and kind of shares
subject to outstanding Awards, the Purchase Price or Exercise
Price for such shares, the number and kind of shares available
for Awards subsequently granted under the Plan and the maximum
number of shares in respect of which Awards can be made to any
Participant in any calendar year shall be appropriately
adjusted to 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 or the Awards granted under the Plan. The
Committee shall have the power and sole discretion to
determine the amount of the adjustment to be made in each
case.
(b) MERGER. After any Merger in which the Company is
the surviving corporation, each Participant shall, at no
additional cost, be entitled upon any exercise of all Options
or receipt of other Award to receive (subject to any required
action by shareholders), in lieu of the number of shares of
Common Stock receivable or exercisable pursuant to such Award,
the number and class of shares or other securities to which
such Participant would have been entitled pursuant to the
terms of the Merger if, at the time of the Merger, such
Participant had been the holder of record of a number of
shares equal to the number of shares receivable or exercisable
pursuant to such Award. Comparable rights shall accrue to each
Participant in the event of successive Mergers of the
character described above. In the event of a Merger in which
the Company is not the surviving corporation, the surviving,
continuing, successor, or purchasing corporation, as the case
may be (the "Acquiring Corporation"), shall either assume the
Company's rights and obligations under outstanding Award
Agreements or substitute awards in respect of the Acquiring
Corporation's stock for such outstanding Awards. In the event
the Acquiring Corporation fails to assume or substitute for
such outstanding Awards, the Board shall provide that any
unexercisable and/or unvested portion of the outstanding
Awards shall be immediately exercisable and vested as of a
date
<PAGE> 19
prior to such Merger, as the Board so determines. The exercise
and/or vesting of any Award that was permissible solely by
reason of this Section 11.07(b) shall be conditioned upon the
consummation of the Merger. Any Options which are neither
assumed by the Acquiring Corporation nor exercised as of the
date of the Merger shall terminate effective as of the
effective date of the Merger.
(c) OPTIONS TO PURCHASE SHARES OR STOCK OF ACQUIRED
COMPANIES. After any Merger in which the Company or a
Subsidiary shall be a surviving corporation, the Committee may
grant substituted options under the provisions of the Plan,
pursuant to Section 424 of the Code, replacing old options
granted under a plan of another party to the Merger whose
shares or stock subject to the old options may no longer be
issued following the Merger. The foregoing adjustments and
manner of application of the foregoing provisions shall be
determined by the Committee in its sole discretion. Any such
adjustments may provide for the elimination of any fractional
shares which might otherwise become subject to any Options.
11.08. NO RIGHT TO EMPLOYMENT. No employee or other person
shall have any claim of right to be granted an Award under this Plan. Neither
the Plan nor any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Company or any of its
Subsidiaries.
11.09. AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Payments
received by a Participant pursuant to the provisions of the Plan shall not be
included in the determination of benefits under any pension, group insurance or
other benefit plan applicable to the Participant which is maintained by the
Company or any of its Subsidiaries, except as may be provided under the terms of
such plans or determined by the Board.
11.10. GOVERNING LAW. All determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the State of
Delaware and construed in accordance therewith.
11.11. NO STRICT CONSTRUCTION. No rule of strict construction
shall be implied against the Company, the Committee, or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the Plan
or any rule or procedure established by the Committee.
11.12. COMPLIANCE WITH RULE 16B-3. It is intended that, unless
the Committee determines otherwise, Awards under the Plan be eligible for
exemption under Rule 16b-3. The Board is authorized to amend the Plan and to
make any such modifications to Award Agreements to comply with Rule 16b-3, as it
may be amended from time to time, and to make any other such amendments or
modifications as it deems necessary or appropriate to better accomplish the
purposes of the Plan in light of any amendments made to Rule 16b-3.
11.13. CAPTIONS. The captions (i.e., all Section headings)
used in the Plan are for convenience only, do not constitute a part of the Plan,
and shall not be deemed to limit,
<PAGE> 20
characterize or affect in any way any provisions of the Plan, and all provisions
of the Plan shall be construed as if no captions have been used in the Plan.
11.14. SEVERABILITY. Whenever possible, each provision in the
Plan and every Award at any time granted under the Plan shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of the Plan or any Award at any time granted under the Plan shall be
held to be prohibited by or invalid under applicable law, then (a) such
provision shall be deemed amended to accomplish the objectives of the provision
as originally written to the fullest extent permitted by law and (b) all other
provisions of the Plan and every other Award at any time granted under the Plan
shall remain in full force and effect.
11.15. AMENDMENT AND TERMINATION.
(a) AMENDMENT. The Board shall have complete power
and authority to amend the Plan at any time; provided,
however, that the Board shall not, without the requisite
affirmative approval of shareholders of the Company, make any
amendment which requires shareholder approval under the Code
or under any other applicable law or rule of any stock
exchange which lists Common Stock or Company Voting
Securities. No termination or amendment of the Plan may,
without the consent of the Participant to whom any Award
shall theretofore have been granted under the Plan, adversely
affect the right of such individual under such Award.
(b) TERMINATION. The Board shall have the right and
the power to terminate the Plan at any time. No Award shall be
granted under the Plan after the termination of the Plan, but
the termination of the Plan shall not have any other effect
and any Award outstanding at the time of the termination of
the Plan may be exercised after termination of the Plan at any
time prior to the expiration date of such Award to the same
extent such Award would have been exercisable had the Plan not
terminated.
11.16. SPECIAL PROVISION RELATING TO CERTAIN STOCK ISSUANCES.
Notwithstanding anything to the contrary contained in this Plan, shares of
Common Stock authorized to be issued under this Plan may be issued to pay awards
originally made under and satisfy options originally granted under the Allegheny
Teledyne Incorporated 1996 Incentive Plan or any other stock option plan adopted
by ATI (an "ATI Plan"), as provided in the Employee Benefits Agreement dated as
of ____________, 1999, between the Company and Allegheny Teledyne Incorporated.
All shares of Common Stock issued in payment of an award or grant shall be
governed exclusively by the terms of such award or grant under the applicable
ATI Plan, and any terms of this Plan inconsistent therewith shall be
inapplicable to such shares.
