AMENDMENT NO. 1 TO
SUPPLEMENTAL COMPENSATION AGREEMENT
Amendment No. 1 to Supplemental Compensation Agreement ("Amendment") made
as of the 25th day of July 2000, by and between WATTS INDUSTRIES, INC., a
Delaware corporation with its principal place of business in North Andover,
Massachusetts (the "Company"), and Timothy P. Horne, an individual residing in
Andover, Massachusetts ("Mr. Horne"). Capitalized terms used herein and not
otherwise defined will have the meanings ascribed thereto in the Original
Agreement (as defined below).
WITNESSETH:
WHEREAS, the Company and Mr. Horne are parties to a Supplemental
Compensation Agreement dated September 1, 1996 (the "Original Agreement"); and
WHEREAS, the Company and Mr. Horne desire to amend the Original Agreement
as provided in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Amendment to Section 1. Section 1 of the Original Agreement is hereby
amended and restated in its entirety to read as follows:
"1. Supplemental Compensation.
(a) Monthly Payments. Commencing on the date on which Mr.
Horne shall have ceased to be a full time employee of the Company or
any subsidiary thereof (the "Termination Date"), regardless of the
reason of such termination (other than a termination of Mr. Horne's
employment by reason of death), and, subject to Section 1(b) below,
continuing until the date of Mr. Horne's death, Mr. Horne shall
receive Supplemental Compensation equal on an annual basis to the
greater of (i) one-half of the average of Mr. Horne's annual base
salary as an employee of the Company during the three years
immediately prior to the Termination Date or (ii) $400,000;
provided, however, that the amount applicable under this clause (ii)
shall be automatically subject to a percentage increase as of each
anniversary of the date hereof, based on the amount applicable under
this clause (ii) with respect to the year then ended, with such
percentage increase determined with reference to the aggregate
percentage increase for the preceding twelve months of the Consumer
Price Index For All Urban Consumers as published by the United
States Department of Labor. Such Supplemental Compensation shall be
paid in equal monthly installments payable on the first day of each
month, with the first such payment due on the first day
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of the month following the Termination Date. In the event of Mr.
Horne's death, the Company shall make a Supplemental Compensation
payment as provided above to Mr. Horne's estate on the first day of
the month following the date of Mr. Horne's death, thereby
terminating this Agreement and its obligation to make further
payments hereunder.
(b) Lump Sum Payment. If a Change of Control (as defined
below) occurs on or after the Termination Date, Mr. Horne shall have
the right, in his sole discretion, to elect to receive a lump sum
cash payment (the "Lump Sum Payment") equal to the present value
(using the discount rate and mortality table then applicable under
the Watts Industries, Inc. Retirement Plan for Salaried Employees)
of a stream of equal monthly payments of $23,650 each continuing
until Mr. Horne's death, with the last payment being made on the
first day of the month following the date of Mr. Horne's death. Any
such election shall be made by written notice to the Company on or
before, or within thirty (30) days after, the date of such Change of
Control, and the Company shall pay the Lump Sum Payment to Mr. Horne
on the date of such Change of Control, unless such notice is given
after the Change of Control in which case payment shall be made
within fifteen (15) days following receipt of such notice. Upon
payment by the Company to Mr. Horne of the Lump Sum Payment, this
Agreement and the obligations of the Company (including the
obligation to make payments under Section 1(a) hereof) and Mr. Horne
(including his obligations under Section 2 hereof) hereunder will
terminate, provided that the obligations of the Company and Mr.
Horne under Section 1(c) hereof shall continue.
(c) Tax Gross-up.
(i) Notwithstanding anything to the contrary in this
Agreement, in the event of any transaction (including a Change
of Control) that would be deemed a change in the ownership or
effective control of the Company or a change in the ownership
of a substantial portion of the Company's assets, in each case
as those terms are used under Section 280G(b)(2)(A)(i) of the
Internal Revenue Code of 1986, as amended (the "Code"),
payments in the nature of compensation to Mr. Horne by the
Company shall be increased by an amount equal to the sum of
the following amounts (x) the amount of any excise tax payable
by Mr. Horne pursuant to Section 4999 of the Code by reason of
payments made by the Company to Mr. Horne pursuant to this
Agreement (other than pursuant to this subsection 1(c)) or any
other arrangement or agreement between the Company and Mr.
Horne, and (y) an amount equal to all Federal, state and local
taxes, including excise taxes payable pursuant to Section 4999
of the Code, payable by Mr. Horne with respect to payments
made to Mr. Horne pursuant to this subsection 1(c). For
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purposes of this subsection 1(c), Mr. Horne shall be deemed to
be subject to tax at the highest marginal rate of Federal,
state and local taxes. Payments pursuant to this subsection
shall be made at the same time as the payments giving rise to
the excise tax. The determination of the amount of the payment
to be made to Mr. Horne pursuant to this subsection 1(c) shall
be made by such tax professional as may be selected by Mr.
Horne, subject to the consent of the Company, which consent
shall not be unreasonably withheld.
(ii) In the event that the Internal Revenue Service
subsequently adjusts the excise tax payable by Mr. Horne, the
Company shall pay to Mr. Horne, or Mr. Horne shall pay to the
Company, as the case may be, within sixty (60) days of the
final determination of such adjustment, an amount calculated
as follows:
(x) if the amount of the excise tax is reduced,
Mr. Horne shall pay to the Company the amount of such
reduction (including the amount of any related interest
due from the Internal Revenue Service) plus the amount
of any payment that Mr. Horne received pursuant to
subsection 1(c)(i)(y) hereof that he would not have
received had the excise tax originally payable by Mr.
Horne been reduced by the aggregate amount refunded to
him by the Internal Revenue Service; and
(y) if the amount of the excise tax is increased,
the Company shall pay to Mr. Horne the amount of such
increase (including the amount of any related interest
and penalties) plus the amount payable pursuant to
subsection 1(c)(i)(y) hereof with respect to such
increase.
(d) Change of Control. For purposes of this Agreement, the
term "Change of Control" means any of the following events:
(i) a merger or consolidation of the Company with or
into another corporation, limited liability company or other
entity, or the merger or consolidation of another corporation,
limited liability company or other entity with or into the
Company, with the effect that, immediately after such
transaction, the stockholders of the Company immediately prior
to such transaction have beneficial ownership (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934, as amended (the "Exchange Act") of less than fifty
percent (50%) of the total voting power of the outstanding
securities of the entity surviving such merger or
consolidation;
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(ii) the acquisition by any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Horne Family Holders, of
beneficial ownership (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this
subsection 1(d)(ii) such person or group shall be deemed to
have beneficial ownership of all shares that any said person
or group has the right to acquire whether such right is
exercisable immediately or only after the passage of time),
directly or indirectly, of securities representing more than
fifty percent (50%) of the total voting power of the Company's
then outstanding securities; or
(iii) the sale, lease or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its
subsidiaries to any person, excluding any sale, lease or other
transfer to or among the subsidiaries of the Company.
For purposes of this definition, (x) the term "person" includes a
person within the meaning of Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder and (y) the term
"Horne Family Holder" means any descendant of George B. Horne, any
spouse of any descendant of George B. Horne, and any limited
partnership, trust (including any voting trust) or other entity in
which all of the beneficial interests are held, directly or
indirectly, by one or more of such descendants or spouses."
2. Amendment to Section 2. Section 2 of the Original Agreement is hereby
amended and restated in its entirety to read as follows:
"2. Services of Mr. Horne. Following termination of Mr. Horne's
status as an employee of the Company and its subsidiaries (whether full or
part time), Mr. Horne hereby agrees to make himself available to serve the
Company and its subsidiaries so long as he is physically able to do so,
upon request of the Board of Directors, as a consultant and as Chairman of
the Board of Directors for a minimum of 300 hours per year commencing on
the Termination Date; provided, however, that in no event shall Mr. Horne
be required to devote more than 500 hours per year to the performance of
services hereunder; and provided further, however, that Mr. Horne's
physical inability to perform services hereunder shall not affect or limit
the Company's obligation under Section 1. The obligations of Mr. Horne
under this Section 2 will terminate upon payment by the Company of the
Lump Sum Payment."
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3. Miscellaneous.
(a) Except as expressly amended by this Amendment, the Original
Agreement shall remain in full force and effect in accordance with its terms.
(b) More than one counterpart of this Amendment may be executed by
the parties hereto, but all of such counterparts taken together shall be deemed
to constitute one and the same Amendment.
(c) This Amendment shall be construed in accordance with and
governed by the laws of the Commonwealth of Massachusetts.
[END OF TEXT]
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IN WITNESS WHEREOF, this Amendment has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by Mr.
Horne, as of the date and year first above written.
WATTS INDUSTRIES, INC.
By: /s/ Daniel J. Murphy III
-------------------------------------
Name:
Title: Compensation Committee
Chairman
/s/ Timothy P. Horne
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TIMOTHY P. HORNE
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