<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
FILED BY THE REGISTRANT [ X ]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] PRELIMINARY PROXY STATEMENT [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
[ X ] DEFINITIVE PROXY STATEMENT
[ X ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO RULE 14a-11(c) OR RULE 14a-12
COMMERCIAL INTERTECH CORP.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ X ] NO FEE REQUIRED.
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(i)(1) AND
0-11.
(1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
- --------------------------------------------------------------------------------
(2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
- --------------------------------------------------------------------------------
(3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH THE FILING FEE
IS CALCULATED AND STATE HOW IT WAS DETERMINED):
- --------------------------------------------------------------------------------
(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
- --------------------------------------------------------------------------------
(5) TOTAL FEE PAID:
- --------------------------------------------------------------------------------
[ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS:
- --------------------------------------------------------------------------------
<PAGE> 2
[ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE
ACT RULE 0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS
PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER,
OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
(1) AMOUNT PREVIOUSLY PAID:
- --------------------------------------------------------------------------------
(2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:
- --------------------------------------------------------------------------------
(3) FILING PARTY:
- --------------------------------------------------------------------------------
(4) DATE FILED:
- --------------------------------------------------------------------------------
<PAGE> 3
COMMERCIAL
INTERTECH
Notice of
Annual Meeting
of
Shareholders
March 26, 1997
and
Proxy Statement
Commercial Intertech Corp.
1775 Logan Avenue
Youngstown, Ohio 44501
<PAGE> 4
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 26, 1997
To the Shareholders of Commercial Intertech Corp.:
The Annual Meeting of the Shareholders of Commercial Intertech Corp.
(the "Annual Meeting") will be held at The Butler Institute of American Art, 524
Wick Avenue, Youngstown, Ohio on Wednesday, March 26, 1997, at 10:00 A.M.,
eastern time, for the following purposes:
1. Election of four (4) directors of the Second Class to serve
for a term of three (3) years and until their successors shall
have been elected and qualified;
2. Amendment of the Code of Regulations of the Company to
establish a minimum of 9 and a maximum of 15 directors as
provided in the resolution set forth in Exhibit A to the
accompanying Proxy Statement;
3. Ratification of the selection of Ernst & Young LLP as
independent auditors for the fiscal year ending October 31,
1997;
4. Transaction of such other business as may properly come before
the meeting and any adjournments or postponements thereof;
all in accordance with the accompanying Proxy Statement.
The Board of Directors has fixed the close of business on January 27,
1997 as the record date for the determination of the shareholders entitled to
notice of and to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
SHIRLEY M. SHIELDS
Secretary
January 30, 1997
VOTING YOUR PROXY IS IMPORTANT
PROMPT ACTION IN SENDING IN YOUR PROXY WILL ELIMINATE THE
EXPENSE OF FURTHER SOLICITATION. AN ENVELOPE IS PROVIDED FOR
YOUR USE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. YOU ARE RECEIVING A PROXY FOR EACH ACCOUNT IN YOUR
HOUSEHOLD. PLEASE VOTE, SIGN AND MAIL ALL PROXIES YOU RECEIVE.
2
<PAGE> 5
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 26, 1997
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Commercial Intertech Corp. (the "Company") of
proxies to be voted at the Annual Meeting of Shareholders to be held at THE
BUTLER INSTITUTE OF AMERICAN ART, 524 WICK AVENUE, YOUNGSTOWN, OHIO, 44502 on
Wednesday, March 26, 1997, at 10:00 A.M., eastern time, and at any adjournments
or postponements thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Shareholders. This Proxy Statement and the accompanying
form of proxy were first released to shareholders on or about January 30, 1997.
Any shareholder giving a proxy will have the right to revoke it at any
time prior to the voting thereof by giving written notice to the Secretary of
the Company. All shares represented by effective proxies will be voted at the
meeting or at any adjournments or postponements thereof. In addition, if you are
present at the meeting, you may revoke your proxy at that time and vote
personally on all matters brought before the meeting. All shares represented by
effective proxies marked "abstain" will be counted as present and entitled to
vote for purposes of reaching a quorum at the meeting or at any adjournments or
postponements thereof and will be counted for purposes of voting on any proposal
presented at the meeting or any adjournments or postponements thereof.
Abstentions will have the same effect as votes cast against a proposal. Broker
non-votes will be included in determining the presence of a quorum, but will not
be considered as present and entitled to vote with respect to any matter. Broker
non-votes will have no effect on the proposals to elect directors and to ratify
auditors, and will have the same effect as votes cast against the proposal to
amend the Company's Code of Regulations.
VOTING SHARES
The Board of Directors has fixed the close of business January 27, 1997
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting. Only shareholders of record at the close of
business on that date will be entitled to vote at the Annual Meeting or any
adjournments or postponements thereof. The Company's voting securities
outstanding on December 31, 1996 consisted of 13,560,885 shares of its $1 par
value common stock ("Common Stock") (exclusive of 2,243,650 shares of treasury
stock) and 1,039,657 shares of ESOP Convertible Preferred Stock Series B, no par
value, each of which will be entitled to one vote at the meeting.
Under the General Corporation Law of Ohio, if a shareholder gives
written notice to the President, a Vice President, or the Secretary of the
Company, not less than forty-eight hours before the time fixed for holding a
meeting to elect directors, of his desire that the voting be cumulative, and if
an announcement of the giving of such notice is made upon the convening of the
meeting, each shareholder has the right to cumulate such voting power as he
possesses and to give one candidate the number of votes equal to the number of
directors to be elected multiplied by the number of shares he holds or to
distribute his votes on the same
3
<PAGE> 6
principle among two or more candidates, as he sees fit. A shareholder notice to
exercise cumulative voting rights at the meeting must be in writing, addressed
to the President, Vice President or Secretary of the Company, and must be
received at the principal executive offices of the Company not less than 48
hours before 10:00 A.M., eastern time, March 26, 1997.
The ESOP Convertible Preferred Stock Series B is held of record by a
trustee for the Commercial Intertech Corp. Employee Stock Ownership Plan and the
Commercial Intertech Retirement Stock Ownership and Savings Plan. The trust for
these plans contains pass-through voting provisions for the participants of the
plans. Shares which are allocable to a participant's account will be voted by
the trustee as directed by the participant. The trustee will vote the shares
which are either not allocable to any participant's account or which are
allocable, but which were not voted by the participant, proportionately as the
allocable shares voted by participants were voted.
1. ELECTION OF DIRECTORS
------------------------
The Code of Regulations of the Company currently provides that the
Company shall have twelve directors and that the Board shall be classified with
respect to the time for which members shall severally hold office by dividing
them into three classes, each of such classes consisting of four directors to
hold office for a term of three years. At the Annual Meeting, the shareholders
will be asked to vote on a proposal to amend the Code of Regulations to
establish a minimum of nine (9) and a maximum of (15) directors.
Four directors of the Second Class are to be elected at the Annual
Meeting on March 26, 1997 for a term of three years expiring at the Annual
Meeting in 2000. It is the intention of the persons named in the enclosed form
of proxy to vote such proxy as specified and, if no specification is made on a
signed and returned proxy, to vote such proxy for the election of directors of
the four nominees listed in the table set forth below to serve for a term of
three years and until their successors shall be elected and qualify. Directors
of the Second Class whose terms of office expire at the Annual Meeting on March
26, 1997 are Messrs. Bresnahan, William Cushwa, Humphrey and Midgley. Messrs.
Cushwa and Humphrey were elected to their present terms of office by the
shareholders at the annual meeting held March 23, 1994. Mr. Bresnahan was
appointed a Director on December 13, 1995 and Mr. Midgley was appointed on
August 1, 1995.
The Board of Directors has no reason to believe that the persons
nominated will not be available. In the event that a vacancy among such original
nominees occurs prior to the meeting, shares represented by the proxies so
appointed will be voted for a substitute nominee or nominees designated by the
Board of Directors. All of the original nominees have consented to serve if
elected. In the event cumulative voting is appropriately called for, the
enclosed proxy may be voted in favor of any one or more of the below-named
nominees, to the exclusion of the others, and in such order of preference as the
proxy holder may determine in his or her discretion. In any event, the shares
represented by the proxy will be voted for the election of directors unless
instructed to the contrary.
The terms of office of Messrs. McDonough, Powers, Smart and Tucker,
directors of the Third Class, will expire at the Annual Meeting in 1998 and the
terms of office of Messrs. Charles Cushwa, Galvin, Hill and
4
<PAGE> 7
Kassling, directors of the First Class, will expire at the Annual Meeting in
1999. Except for Messrs. William W. Cushwa and Charles B. Cushwa III, who are
brothers, none of the directors are related.
Required Vote
Candidates for the office of Director receiving the greatest number of
votes shall be elected.
Board Recommendation
The Board of Directors recommends a vote FOR the election of all
nominees as directors.
INFORMATION AS TO NOMINEES
The names of the nominees for the office of director to be elected at
the Annual Meeting, together with certain information concerning the nominees,
are set forth below:
William J. Bresnahan, age 46 - Director
since 1995.
President of Hynes Industries. Mr. Bresnahan
received his bachelor of science degree in
Business Administration from Youngstown
State University and his master's degree in
Business Administration from the University
of Pittsburgh. He held sales and marketing
positions with Procter & Gamble and
Pharmacia, Inc. before joining Hynes
Industries in 1980. He held sales and
general management positions at Hynes
Industries until he was named President in
1989. Mr. Bresnahan is a director of the
Mahoning National Bank, Youngstown, Ohio.
NOMINEE FOR SECOND CLASS (PRESENT TERM
EXPIRES IN 1997).
William W. Cushwa, age 59 - Director since
1975.
Retired Vice President Planning and
Assistant Treasurer of the Company. Mr.
Cushwa received his bachelor of arts degree
from the University of Notre Dame and his
master's degree in Business Administration
from Case Western Reserve University. Mr.
Cushwa joined the Company in 1960, was
elected Assistant Treasurer in 1969, and
Director of Corporate Planning in 1977 and
was elected Vice President Planning and
Assistant Treasurer in 1983 and retired
December 31, 1996.
NOMINEE FOR SECOND CLASS (PRESENT TERM
EXPIRES IN 1997).
5
<PAGE> 8
Neil D. Humphrey, age 68 - Director since
1985
President Emeritus of Youngstown State
University, having retired as President in
1992 after eight years in that position. Dr.
Humphrey received his bachelor of arts
degree from Idaho State University, his
master of science degree in Government
Management from the School of Business
Administration of the University of Denver,
and his doctorate degree in Education from
Brigham Young University. His prior
experience includes 10 years as Chancellor
of the University of Nevada System. He also
served as Budget Director for the State of
Nevada.
NOMINEE FOR SECOND CLASS (PRESENT TERM
EXPIRES IN 1997).
C. Edward Midgley, age 59 - Director since
1995.
Managing Director, PaineWebber
Incorporated. Mr. Midgley received his
bachelor of arts degree in Economics from
Princeton University and his master's degree
in Business Administration from Harvard
Business School. Until 1995 he was Co-Head
of Investment Banking, Executive Managing
Director, Head of Mergers and Acquisitions
and Member of the Board of Directors of
Kidder, Peabody & Co. Incorporated. He has
served as Managing Director, Partner and
Head of Corporate Finance/Client Coverage
Group at Bankers Trust Company; Vice
Chairman, Office of the Chief Executive at
Fieldcrest Cannon, Inc.; and Vice Chairman
at Amoskeag Company. Mr. Midgley is a
director of Cuno Incorporated, Meriden,
Connecticut.
NOMINEE FOR SECOND CLASS (PRESENT TERM
EXPIRES IN 1997).
INFORMATION CONCERNING DIRECTORS WHOSE TERMS OF
OFFICE WILL CONTINUE AFTER THE MEETING
The names of the remaining eight directors of the Company, and certain
information with respect to such directors, are as follows:
Gerald C. McDonough, age 68 - Director since
1992.
Retired in July 1988 as Chairman of the
Board and Chief Executive Officer of
Leaseway Transportation Corporation. Mr.
McDonough received his bachelor's degree in
Business Administration from Case Western
Reserve University. Mr. McDonough is a
director of York International, York,
Pennsylvania; Cuno Incorporated, Meriden,
Connecticut; Brush-Wellman
6
<PAGE> 9
Corporation, Cleveland, Ohio; and Associated
Estates Realty Corporation, Cleveland, Ohio;
and a trustee of the Fidelity Funds, Boston,
Massachusetts.
DIRECTOR OF THIRD CLASS (PRESENT TERM
EXPIRES IN 1998).
Paul J. Powers, age 61 - Director since
1984.
Chairman, President, Chief Executive Officer
and Chief Operating Officer of the Company.
Mr. Powers received his bachelor's degree in
Economics from Merrimack College and his
master's degree in Business Administration
from George Washington University. Mr.
Powers joined the Company in 1982 as Group
Vice President of Hydraulics, was elected
President and Chief Operating Officer in
1984 and was elected Chairman and Chief
Executive Officer in 1987. Mr. Powers is a
director of Cuno Incorporated, Meriden,
Connecticut; Ohio Edison Company, Akron,
Ohio; Twin Disc, Inc., Racine, Wisconsin;
and Global Marine, Inc., Houston, Texas.
DIRECTOR OF THIRD CLASS (PRESENT TERM
EXPIRES IN 1998).
George M. Smart, age 51 - Director since
1995.
President and Chairman of the Board of
Phoenix Packaging Corporation. Mr. Smart
received his bachelor of science degree from
The Defiance College and his master's degree
in Business Administration from Wharton
School, University of Pennsylvania. He was
President and Chief Executive Officer of
Central States Can Co. from 1978 to 1993. He
has been President and Chairman of Phoenix
Packaging Corporation since 1993. Mr. Smart
is a director of Phoenix Packaging
Corporation, North Canton, Ohio; Belden &
Blake Corporation, North Canton, Ohio; Ohio
Edison Company, Akron, Ohio; and The
Defiance College, Defiance, Ohio.
DIRECTOR OF THIRD CLASS (PRESENT TERM
EXPIRES IN 1998).
Don E. Tucker, age 68 - Director since 1977.
Retired Senior Vice President and Chief
Administrative Officer of the Company. Mr.
Tucker received his bachelor of arts degree
from Aurora College and his bachelor of law
degree from Yale University. Mr. Tucker
joined the Company in 1972 as General
Counsel and Assistant Secretary, was elected
Senior Vice President and Chief
Administrative Officer in 1984 and retired
in 1993.
DIRECTOR OF THIRD CLASS (PRESENT TERM
EXPIRES IN 1998).
7
<PAGE> 10
Charles B. Cushwa III, age 62 - Director
since 1972.
Director of Cushwa Center for
Entrepreneurship, Youngstown State
University since 1988. Mr. Cushwa received
his bachelor of arts degree in Sociology and
his master of arts degree in Economics from
the University of Notre Dame. Mr. Cushwa
joined the Company in 1961 and held various
management positions with the Company until
retiring in 1988 as the Secretary of the
Company. Mr. Cushwa is a director of Home
Savings and Loan Company of Youngstown,
Youngstown, Ohio.
DIRECTOR OF FIRST CLASS (PRESENT TERM
EXPIRES IN 1999).
John M. Galvin, age 64 - Director since
1993.
Private investor and consultant following
retirement in 1992. He was Vice Chairman and
Director of The Irvine Company from 1987 to
1992. He received his bachelor's degree in
Business Administration from Indiana
University. He has served as President of
the Rust Group of Austin, Texas; as Senior
Vice President of Aetna Life and Casualty;
and as Chief Executive Officer of Aetna's
International and Diversified Business
Division. Mr. Galvin is a Director of Global
Marine, Inc. of Houston, Texas; Oasis
Residential Inc. of Las Vegas, Nevada; and
Cuno Incorporated of Meriden, Connecticut.
DIRECTOR OF FIRST CLASS (PRESENT TERM
EXPIRES IN 1999).
Richard J. Hill, age 66 - Director since
1993.
Retired in 1990 as Certified Public
Accountant with Hill, Barth & King, CPAs, a
regional certified public accounting firm
operating in Ohio, Pennsylvania and Florida.
Mr. Hill formerly was a general partner and
chairman of the Executive Committee of Hill,
Barth & King. He received his bachelor's
degree in Business Administration from
Youngstown State University. Mr. Hill is a
director of Panelmatic, Inc., Youngstown,
Ohio.
DIRECTOR OF FIRST CLASS (PRESENT TERM
EXPIRES IN 1999).
8
<PAGE> 11
William E. Kassling, age 52 - Director since
1996.
Chairman, Chief Executive Officer and
President of Westinghouse Air Brake Company.
Mr. Kassling received his bachelor of
science degree in Industrial Management from
Purdue University and his master's degree in
Business Administration from the University
of Chicago. He has served as Management
Consultant for Boston Consulting Group;
Director, Planning and Development for Clark
Equipment Company; and Vice President,
Planning, Vice President Group Executive
Building Specialties Group and Railway
Products Group for American Standard
Incorporated. He is a director of Dravo
Corporation, Pittsburgh, Pennsylvania; and
Scientific Atlanta, Inc., Atlanta, Georgia.
DIRECTOR OF FIRST CLASS (PRESENT TERM
EXPIRES IN 1999).
9
<PAGE> 12
BOARD MEETINGS AND COMMITTEE INFORMATION
The Board of Directors held fifteen meetings during the year and has
established four committees to assist in the discharge of its responsibilities.
These are the Executive and Finance, Audit, Pension and Pension Investment, and
Management Evaluation and Compensation Committees. There is no nominating
committee; the Board as a whole nominates directors for election after receiving
recommendations from the Executive and Finance Committee. During the year, all
directors attended 75% or more of the aggregate of meetings of the Board and the
Board committees to which they were assigned. The total attendance at the
meetings of the Board of Directors and committee meetings during the year was
99%.
The Executive and Finance Committee functions as the Executive
Committee provided for in the Company's Code of Regulations and, during the
intervals between the meetings of the Board of Directors, possesses and may
exercise all the powers of the Board of Directors in the management of the
corporation in so far as may be permitted by law, except that no obligations or
indebtedness other than those properly pertaining to current business shall be
contracted without authorization by the Board of Directors. The Committee is
responsible for making recommendations to the Board of Directors on candidates
for election and reelection to the Board; and has the responsibility for
overseeing and ensuring that the Company's financial resources are managed
prudently and cost effectively, with emphasis on those issues which are
long-term in nature, and also makes recommendations to the Board of Directors as
to debt and capital structure, issuance of shares or repurchase of outstanding
shares, dividend policy and the declaration of dividends, acquisitions and
divestitures, and any other financial matters deemed appropriate by the
Committee. During the past year, the Committee held twelve meetings. The
Committee consists of six members as follows: Messrs. Powers (Chairman), Galvin,
Humphrey, McDonough, Midgley and Tucker.
The Audit Committee has the responsibility for recommending the
selection of the independent auditors by the Board of Directors; reviewing with
such auditors, prior to the commencement of or during such audit for each fiscal
year, the scope of the examination to be made; reviewing with such auditors the
certified financial reports, any changes in accounting policies, the services
rendered by such auditors (including management consulting services) and the
effect of such services on the independence of such auditors; reviewing the
corporation's internal audit and control functions; considering such other
matters relating to such audits and to the accounting procedures employed by the
corporation as the Audit Committee may deem appropriate; and reporting to the
full Board of Directors regarding all of the foregoing. During the past year,
the Committee held four meetings with the auditors. This Committee consists of
six members as follows: Messrs. Hill (Chairman), Bresnahan, Charles Cushwa,
Kassling, Smart and Tucker. None of the members of the Audit Committee is an
employee of the Company.
The Pension and Pension Investment Committee has the responsibility for
overseeing and evaluating the investment of the corporation's pension plan
assets, selecting fund managers, reviewing their performance, designating the
proportion of pension contributions assigned to such managers and monitoring
plan liabilities for changes which might influence investment decisions. During
the past year, the Committee held one meeting. The Committee consists of six
members: Messrs. McDonough (Chairman), Bresnahan, Charles Cushwa, Humphrey,
Kassling, and Smart. None of the members of the Pension and Pension Investment
Committee is an employee of the Company.
10
<PAGE> 13
The Management Evaluation and Compensation Committee has the authority
to determine annual salaries and bonuses for all elected officers and senior
management; constitutes the "Committee" contemplated by the Company's various
stock option and award plans with the responsibility for administering such
plans; approves incentive and deferred compensation plans and the funding
arrangements related thereto for elected officers and senior management; and has
the responsibility for evaluating the performance of the Chief Executive Officer
and Senior Officers of the Company on an annual basis for purposes of
compensation. During the past year, the Committee held seven meetings. The
Committee consists of five members: Messrs. Humphrey (Chairman), Galvin, Hill,
McDonough and Midgley. None of the members of the Management Evaluation and
Compensation Committee is an employee of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten-percent shareholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended October 31, 1996 all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with; except that, inadvertently,
one report of one transaction was filed late by John M. Galvin.
MANAGEMENT INDEBTEDNESS
During the fiscal year Mr. Jacobs van Merlen, Senior Vice President and
Chief Financial Officer, became indebted to the Company in the aggregate amount
of $73,560, consisting of a loan in the amount of $60,000 with interest at the
rate of 6% per annum to assist in the purchase of a residence in connection with
his relocation and $13,560 in the form of interest free periodic advances, all
of which advances were repaid to the Company within 90 days of borrowing. The
amount of indebtedness still outstanding is $60,000 plus interest.
EXECUTIVE COMPENSATION
MANAGEMENT EVALUATION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
Overall Policy and Administration
The Company's executive compensation program, as developed by the
Management Evaluation & Compensation Committee of the Board of Directors (the
"Compensation Committee"), is designed to preserve and enhance shareholder
value. Within a strategy that links executive and shareholder financial
interests, the executive compensation program is designed to:
11
<PAGE> 14
o Motivate executives toward long term strategic management of the
Company's assets and operations through stock programs that focus
executive attention on increasing shareholder value.
o Recognize and reward individual contributions and achievements as well
as overall business performance via annual incentives which are tied to
annual operating, financial and strategic objectives.
o Provide a competitive salary structure to attract and retain the
executive talent necessary to ensure the Company's continued profitable
growth.
The executive compensation program is administered by the Compensation
Committee, which is comprised of five independent directors, none of whom has
interlocking or other relationships which might be considered conflicts of
interest. The Compensation Committee establishes salaries for corporate officers
and administers the Company's Senior Management Target Incentive Plan (SMTIP),
Salaried Employee Incentive Plan (SEIP) and the Stock Option and Award Plans. In
its decision-making process, the Compensation Committee uses independent
compensation consultants and may periodically seek input from appropriate
Company executives.
To further the Compensation Committee's strategy of linking executive
and shareholder financial interests, in recent years the Compensation Committee
has adjusted the mix of an executive's overall compensation components to
increase the emphasis on performance based (annual cash incentive awards; stock
options; performance shares) versus fixed (base salary and restricted stock)
compensation.
BASE SALARIES
In establishing base salaries of Company executives, the Compensation
Committee generally targets market median (50th percentile) compensation levels
of senior executives and other corporate officers in comparably sized durable
goods manufacturing companies. Other factors such as availability of talent, the
recruiting requirements of the particular situation, experience and anticipated
performance are considered in determining individual base salary compensation
levels and may result in salaries above or below the stated target.
The Compensation Committee uses data from several executive
compensation surveys. The number of participant companies appearing in these
surveys is more extensive than the peer group established for performance graph
purposes, reflecting the broader group of companies with which the Company
competes for executive talent.
Any adjustments in the base salaries of senior executives and other
corporate officers are normally effective as of January 1 each year and are
dependent upon such factors as the executive's current responsibilities and
experience, competitive compensation practices at comparably sized durable goods
manufacturing companies, and the Compensation Committee's judgment regarding the
performance of the executive.
ANNUAL INCENTIVE COMPENSATION
12
<PAGE> 15
The Compensation Committee administers two annual incentive plans. The
SMTIP was approved by shareholders in 1995 and is a performance-based plan in
which payouts are set in accordance with the requirements of Internal Revenue
Code Section 162(m).
In addition, the Compensation Committee also administers the SEIP which
provides compensation that is not performance-based as defined in Code Section
162(m), but which is based on both objective and subjective evaluations of
individual executive performance.
The Senior Management Target Incentive Plan
The SMTIP provides annual incentive compensation to the Company's seven
senior executives based solely on the achievement of predetermined financial
performance objectives, including group operating income and corporate net
income, return on group sales and return on group assets. Target awards, as a
percent of salary, range from 26.25 to 60 percent.
The Salaried Employee Incentive Plan
The SEIP provides senior and top managers an opportunity to earn annual
cash payments (target incentive awards) based primarily on the achievement of
important financial goals (operating and net income, return on sales, and return
on assets) as well as individual objectives. A threshold level of net income
must be achieved before any payments are made.
Selection of participants by the Compensation Committee, which in 1996
totaled 150 individuals, and accompanying target award ranges (from 8.75 to 40
percent of base salary) are determined according to individual responsibility
levels, business judgment and market median data for comparably sized durable
goods manufacturing companies.
The participants selected by the Compensation Committee included 41
executives from Cuno Incorporated ("Cuno"), which was spun off into an
independent company during September 1996. Because the Cuno participants were
part of the Company for all but 50 days in fiscal 1996, their incentives under
the SMTIP and the SEIP were paid based on their goals and objectives set at the
beginning of 1996 by the Compensation Committee. The actual incentives earned
were allocated to Cuno.
To enhance the Company's objectives of encouraging additional executive
stock ownership and increasing Company cash flow, certain participants in the
SMTIP and SEIP may elect to receive up to 50% of their earned awards in
restricted stock. If the participant elects part of an earned award in
restricted stock, the Company increases the stock award by a fixed percentage.
The vesting period associated with the stock award is three years and the shares
are forfeited in the event a participant voluntarily leaves the Company or is
terminated "for cause." Cuno participants who elected prior to the start of the
fiscal year to receive part of their award in restricted stock received Cuno
stock rather than Company stock.
13
<PAGE> 16
THE STOCK OPTION AND AWARD PLANS
The Company's Stock Option and Award Plans allow for the grant of a
variety of stock incentive instruments, including nonqualified (i.e., not
tax-preferred) and incentive stock options, stock appreciation rights,
restricted stock and performance shares.
For many years, the Company has made annual stock option grants to its
key executives to create a direct link between shareholder and executive
interests. In determining stock option awards, the Compensation Committee
considers such factors as median competitive award levels, the size of previous
stock option awards and Company and individual performance.
The performance share program, first initiated in fiscal 1993, is a
longer-term incentive program designed to motivate key executives whose efforts
result in the achievement of sustained financial results leading to increased
shareholder value. Designed to replace substantially the restricted stock grants
previously made to key executives, the Compensation Committee believes
performance shares better align executive and shareholder financial interests.
The Compensation Committee selected 47 executives throughout the Company for
participation in the performance share program, in which grants are made on a
biannual basis. No performance share grants were made to named executives in
fiscal 1996.
Depending on the responsibilities within the Company, performance
shares are earned based on average corporate and/or group return on equity
(ROE), divisional operating income and, for certain executives, individual
specific objectives over a three-year performance period. In future years, the
Compensation Committee may consider other measures of shareholder value and
performance periods, as appropriate, in light of the Company's strategic
objectives. Threshold levels of ROE and, in certain cases, operating income must
be achieved before any distributions are made.
In the past the Company has also periodically granted time-lapse
restricted stock to its key executives. Restricted stock is now used only in
special circumstances, such as to attract new key executives for employment with
the Company and in other similar non-recurring circumstances.
The spin-off of Cuno during 1996 served to enhance overall shareholder
values, but caused the Company's share price to be greatly reduced. In such
spin-off situations, accounting regulations allow for executive stock options to
be adjusted in a manner that preserves the paper gain, option cost and vesting
schedules of the options in place prior to the spin-off. Such an outcome is
important as option holders did not share in the Cuno stock dividend that was
distributed to Company shareholders during the spin-off and which accounted for
the enhanced shareholder value resulting from the spin-off. The adjustments,
which were made in accordance with the anti-dilution provisions of the Company's
existing stock plans, were made prior to the close of fiscal 1996 and did not
result in an accounting charge to earnings and served to keep executives whole
with regard to option gains.
The adjustments to previously outstanding stock option grants required
the allocation of approximately 590,000 additional stock options at varying
exercise prices. A number of stock option grants and restricted stock and
performance share awards held by Cuno employees were canceled as a result of the
spin-off. The net number of new shares used was approximately 500,000. As
provided in the 1989, 1993 and 1995 Stock Option and Award Plans, the number of
shares available for grants has been adjusted to account for these events.
14
<PAGE> 17
SEVERANCE AGREEMENTS
At the beginning of fiscal 1996, the Compensation Committee began to
reexamine the severance agreements that were then in effect for senior
management. As the Company was contemplating the spin-off of Cuno during 1996,
it was subjected to a hostile takeover attempt by an outside third party. During
this takeover attempt, the Committee continued its reevaluation of the severance
agreements in place for senior management and concluded that the then-current
arrangements were inadequate for a number of reasons, including the level of
coverage provided and the number of executives covered by such agreements.
Subsequent to the end of the hostile takeover attempt, and acting on
the advice of its outside legal, tax and compensation advisors, the Compensation
Committee elected to enhance the competitiveness of and expand the coverage of
the Company's severance agreements by extending such agreements to 14 members of
senior management.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Powers' annual base salary for 1996 was $472,500. This rate was
based on the Compensation Committee's judgment regarding his performance, his
service to the Company and competitive salary levels for CEOs of comparably
sized durable goods manufacturing companies. During the fourth quarter of fiscal
1996, Mr. Powers also assumed the duties of Chairman and Chief Executive Officer
of Cuno. For such services, he was paid $25,000 by Cuno and his Company salary
was reduced by a like amount.
For performance in fiscal 1996, Mr. Powers received a payment under the
SMTIP of $225,000. This payment was based on a predetermined formula based on
corporate net income set by the Compensation Committee and certified by the
Compensation Committee in accordance with the provisions of Code Section 162(m).
In addition, Mr. Powers received a payment from the SEIP of $575,000 based on
the Compensation Committee's judgment on Mr. Powers' achievement of personal
goals and objectives during 1996.
Mr. Powers received options to purchase 42,000 shares of Common Stock
in 1996. In determining this grant, the Compensation Committee considered
Company and individual performance, the size of previous awards and market
median long-term incentive statistics. Mr. Powers did not receive a performance
share grant in 1996.
INTERNAL REVENUE SECTION 162(m)
A 1993 Internal Revenue Code amendment caps the allowable federal
income tax deduction for compensation paid to each of the proxy-reported
officers of a public company. The deduction limit, which was effective in 1994,
does not apply to compensation paid under a plan that meets certain requirements
for performance-based compensation. It is the Compensation Committee's general
policy to structure the major components of the Company's incentive compensation
programs to qualify as performance-based compensation and to preserve the
deductibility of compensation paid to executive officers on an ongoing basis.
To implement the above policy, the Company sought and received
shareholder approval of the Stock Option and Award Plan of 1995. Such approval
preserved the full tax deductibility of stock options, performance shares and
annual incentive awards earned by the Company's executive officers under the
SMTIP.
15
<PAGE> 18
The Stock Option and Award Plan of 1995 links compensation to the attainment of
key financial objectives leading to increases in shareholder value.
By: The Management Evaluation & Compensation Committee
Neil D. Humphrey, Chairman Gerald C. McDonough
John M. Galvin C. Edward Midgley
Richard J. Hill
16
<PAGE> 19
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
------------------- ------ -------
====================================================================================================================================
Securities
Under-
Other Annual lying
Compen- Restricted Op- LTIP All Other
Salary Bonus sation Stock Awards tions Payouts Compensation
Name and Year ($) ($) ($) ($)(3) (#) ($) ($)
Principal Position ---- --- --- --- ------ --- --- ---
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul J. Powers 1996 472,500 640,000 -0- 191,995 42,000(4) 846,943 16,023(10)
Chairman, President, 1995 481,667 440,000 -0- 131,995 34,000 -0- 15,810
Chief Executive Officer 1994 461,667 400,000 -0- 835,634 37,500 -0- 15,876
and Chief Operating
Officer
Mark G. Kachur(1) 1996 218,333 152,000 10,883 45,601 22,500(5) -0- 20,742(11)
Senior Vice President- 1995 247,500 135,000 38,414 24,008 15,000 -0- 21,706
Fluid Purification Group 1994 134,300 120,000 -0- 174,375 15,000 -0- -0-
Bruce C. Wheatley 1996 233,333 105,000 -0- 42,002 10,000(6) 201,653 8,098(12)
Senior Vice President- 1995 223,833 90,000 -0- 36,002 7,500 -0- 8,075
Administration 1994 216,500 50,000 -0- 59,996 7,500 -0- 5,428
Hubert Jacobs van 1996 222,500 90,000 -0- -0- 12,500(7) -0- -0-
Merlen(2) 1995 204,777 67,200 7,193 20,152 7,500 -0- 1,085
Senior Vice President and 1994 - - - - - -0- -
Chief Financial Officer
Robert A. Calcagni 1996 193,083 75,000 -0- -0- 8,000(8) 60,495 6,766(13)
Group Vice President 1995 182,083 30,000 22,735 -0- 6,000 -0- 6,708
1994 172,250 22,000 26,680 -0- 7,500 -0- 6,004
Gilbert M. Manchester 1996 168,333 45,000 -0- 53,996 6,000(9) 44,891 5,273(14)
Vice President, General 1995 156,250 35,000 -0- 30,005 4,000 -0- 5,789
Counsel and Assistant 1994 142,500 25,000 -0- 36,008 3,000 -0- 5,382
Secretary
====================================================================================================================================
</TABLE>
17
<PAGE> 20
(1) Mark G. Kachur left the Company on September 10, 1996 to become President
and Chief Operating Officer of Cuno following the spin-off of Cuno from the
Company. Mr. Kachur's 1996 bonus of $190,000 which was paid $152,000 in cash and
$45,601 in Cuno restricted stock was paid by Cuno.
(2) Mr. Jacobs van Merlen became Senior Vice President and Chief Financial
Officer of the Company on August 1, 1995 and resigned effective November 30,
1996.
(3) This column shows the market value of restricted share awards on the date of
award. The aggregate holdings/value of Restricted Stock held on October 31, 1996
by the individuals listed in this table, not including awards which were earned
after the end of the fiscal year as part of the SEIP and were elected to be
taken in the form of restricted stock, as described in the Compensation
Committee Report on Executive Compensation, were: Paul J. Powers - 67,896
shares/$755,343; Bruce C. Wheatley - 9,087 shares/$101,093; Hubert Jacobs van
Merlen - 2,745 shares/$30,538; Robert A. Calcagni - 1,500 shares/$16,688; and
Gilbert M. Manchester - 3,654 shares/$40,651. Mark G. Kachur's shares were
forfeited upon termination of his employment. Regular quarterly dividends are
paid on Restricted Stock held by these individuals.
(4) In connection with the spin-off of Cuno, the Compensation Committee adjusted
the number of shares of Common Stock underlying options granted to Mr. Powers as
follows: 52,132 additional shares under his 1996 option award; 42,206 additional
shares under his 1995 option award; and 46,554 additional shares under his 1994
option award.
(5) In connection with the spin-off of Cuno, the Compensation Committee adjusted
the vested portion of Mr. Kachur's 1994 option award so that such award covers
an additional 9,309 shares of Common Stock. All other options expired upon
termination of his employment.
(6) In connection with the spin-off of Cuno, the Compensation Committee adjusted
the number of shares of Common Stock underlying options granted to Mr. Wheatley
as follows: 12,412 additional shares under his 1996 option award; 9,310
additional shares under his 1995 option award; and 9,310 additional shares under
his 1994 option award.
(7) In connection with the spin-off of Cuno, the Compensation Committee adjusted
the number of shares of Common Stock underlying options granted to Mr. Jacobs
van Merlen as follows: 15,516 additional shares under his 1996 option award and
9,312 additional shares under his 1995 option award. All of the above options
were forfeited upon his resignation, effective November 30, 1996.
(8) In connection with the spin-off of Cuno, the Compensation Committee adjusted
the number of shares of Common Stock underlying options granted to Mr. Calcagni
as follows: 9,930 additional shares under his 1996 option award; 7,448
additional shares under his 1995 option award; and 9,310 additional shares under
his 1994 option award.
(9) In connection with the spin-off of Cuno, the Compensation Committee adjusted
the number of shares of Common Stock underlying options granted to Mr.
Manchester as follows: 7,448 additional shares under his 1996 option award;
4,966 additional shares under his 1995 option award; and 1,862 additional shares
18
<PAGE> 21
under his 1994 option award.
(10) Includes Company matching contributions pursuant to the Non-Qualified Stock
Purchase Plan in the amount of $10,425; Company matching contributions pursuant
to the 401(k) Plan in the amount of $4,500; and Company contribution pursuant to
the Employee Stock Ownership Plan in the amount of $1,098.
(11) Includes Company matching contributions pursuant to the Non-Qualified Stock
Purchase Plan in the amount of $2,300; and Company contribution pursuant to the
Employee Stock Ownership Plan in the amount of $1,098. Also includes $17,344 for
relocation costs.
(12) Includes Company matching contributions pursuant to the Non-Qualified Stock
Purchase Plan in the amount of $2,500; Company matching contributions pursuant
to the 401(k) Plan in the amount of $4,500; and Company contribution pursuant to
the Employee Stock Ownership Plan in the amount of $1,098.
(13) Includes Company matching contributions pursuant to the Non-Qualified Stock
Purchase Plan in the amount of $1,293; Company matching contributions pursuant
to the 401(k) Plan in the amount of $4,375; and Company contribution pursuant to
the Employee Stock Ownership Plan in the amount of $1,098.
(14) Includes Company matching contributions pursuant to the Non-Qualified Stock
Purchase Plan in the amount of $550; Company matching contributions pursuant to
the 401(k) Plan in the amount of $3,625; and Company contribution pursuant to
the Employee Stock Ownership Plan in the amount of $1,098.
19
<PAGE> 22
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (2)
----------------- -------------------
% of
Number of Total Op-
Securities tions Exercise
Underlying Granted to or Base
Options Employees Price Expira-
Granted in Fiscal ($/Share) tion 5% 10%
Name (#)(1) Year ($)(1) Date ($) ($)
---- ------ ---- ------ ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Paul J. 42,000 32.3% 18.875 1/23/06 $498,640 $1,263,644
Powers
Mark G. 22,500 17.3 18.875 1/23/06 267,128 676,952
Kachur
Bruce C. 10,000 7.7 18.875 1/23/06 118,724 300,868
Wheatley
Hubert Jacobs 12,500 9.6 18.875 1/23/06 148,405 376,084
van Merlen
Robert A. 8,000 6.2 18.875 1/23/06 94,979 240,694
Calcagni
Gilbert M. 6,000 4.6 18.875 1/23/06 71,234 180,521
Manchester
<FN>
(1) The options listed in the above table were granted subject to a three-year
vesting period, with 50% of the options granted becoming exercisable on the
second anniversary of the grant date and 50% on the third anniversary. No SARs
were granted. The exercisability of the options may be accelerated in the event
of a change in control or a potential change in control. In connection with the
spin-off of Cuno, the Compensation Committee adjusted the number of securities
underlying and the exercise price of options granted as follows: the adjustment
granted to Mr. Powers covers an additional 52,132 shares; the adjustment granted
to Mr. Wheatley covers an additional 12,412 shares; the adjustment granted to
Mr. Jacobs van Merlen covers an additional 15,516 shares; the adjustment granted
to Mr. Calcagni covers an additional 9,930 shares; and the adjustment granted to
Mr. Manchester covers an additional 7,448 shares. The exercise price has been
reduced to $8.4216. Mr. Kachur's options expired upon termination of his
employment.
20
<PAGE> 23
(2) Potential Realizable Value is presented net of the option exercise price but
before any federal or state income taxes associated with exercise. These amounts
represent certain assumed rates of appreciation only. Actual gains are dependent
on the future performance of the Company's Common Stock and the option holders'
continued employment throughout the vesting period. The amounts reflected in the
table may not necessarily be achieved.
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (1) FY-End (1)(2)
(#) ($)
--- ---
Shares
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- --- --- ------------- -------------
<S> <C> <C> <C> <C>
Paul J. Powers 42,000 $380,502 247,126/212,365 $1,396,776/$664,195
Mark G. Kachur -0- -0- 16,809/-0- 70,751/-0-
Bruce C. Wheatley -0- -0- 25,216/47,627 132,404/146,423
Hubert Jacobs van -0- -0- -0-/44,828 -0-/124,015
Merlen
Robert A. Calcagni 29,909 348,855 15,333/39,783 80,511/125,965
Gilbert M. Manchester 14,250 140,281 -0-/25,776 -0-/76,250
<FN>
(1) These numbers and values reflect the adjustment of outstanding options in
connection with the spin-off of Cuno.
(2) The value per option is calculated by subtracting the exercise price from
the October 31, 1996 closing price of the Company's Common Stock on the New York
Stock Exchange of $11.125.
</TABLE>
21
<PAGE> 24
RETIREMENT BENEFITS
Employees may retire from the Company with unreduced benefits under the
Company's retirement plans at age 65 or later with 25 or more years of service.
The table below shows the estimated annual pension benefits provided under the
Company's defined benefit retirement plans for employees in higher salary
classifications retiring at age 65 or later.
<TABLE>
<CAPTION>
ESTIMATED TOTAL ANNUAL RETIREMENT BENEFITS UNDER THE PENSION PLAN FOR
SALARIED EMPLOYEES AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
YEARS OF SERVICE
REMUNERATION 15 20 25 30 35
<C> <C> <C> <C> <C> <C>
$150,000 $40,684 $54,245 $67,806 $71,196 $74,587
200,000 55,684 74,245 92,806 97,446 102,087
250,000 70,684 94,245 117,806 123,696 129,587
300,000 85,684 114,245 142,806 149,946 157,087
400,000 115,684 154,245 192,806 202,446 212,087
500,000 145,684 194,245 242,806 254,946 267,087
600,000 175,684 234,245 292,806 307,446 322,087
700,000 205,684 274,245 342,806 359,946 377,087
800,000 235,684 314,245 392,806 412,446 432,087
900,000 265,684 354,245 442,806 464,946 487,087
</TABLE>
Benefits under the plans are calculated generally under a formula of
50% of the participant's final average compensation reduced by 50% of the
participant's estimated social security benefits, reflected in the table in the
form of a straight life annuity. The pension plan and the supplemental executive
retirement plan for the Chief Executive Officer provides a minimum overall
benefit of $500,000 per year. The compensation covered by the pension plan is
base salary as set forth in the Salary column of the Summary Compensation Table
on page 17. The compensation covered by the supplemental executive retirement
plans is also base salary for those executives participating other than the
Chief Executive Officer, for which the compensation covered is base salary plus
bonus as set forth in the Summary Compensation Table. As of December 31, 1996,
the following executive officers had the following credited years of service
under the pension plan with the Company: Mr. Powers, 14; Mr. Wheatley, 4; Mr.
Jacobs van Merlen, 9; Mr. Calcagni, 30; and Mr. Manchester, 21.
22
<PAGE> 25
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG COMMERCIAL INTERTECH CORP., NYSE
AND DOW JONES INDUSTRIAL DIVERSIFIED INDUSTRY GROUP INDICES
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TEC 100.00 134.59 156.59 233.61 216.35 344.04
NYSE 100.00 106.81 126.71 131.42 154.28 188.39
DJID 100.00 110.29 138.16 141.91 162.29 212.01
</TABLE>
23
<PAGE> 26
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN (CONT.)
Assumes $100 invested on October 31, 1991.
Total return assumes reinvestment of dividends.
Data as of October 31 of each year.
In accordance with SEC guidelines, the New York Stock Exchange (NYSE) Index was
selected as the broad market indicator because Commercial Intertech (TEC) shares
are traded on the NYSE.
The Dow Jones Industrial Diversified (DJID) Index was selected as the industry
index because TEC is included in said index along with a number of competitors
and other companies involved in two or more industries or whose products are
used in many different industries.
On September 10, 1996 (the "Distribution Date"), the Company effected a
distribution of its fluid purification subsidiary, Cuno Incorporated, to the
shareholders of the Company. This transaction was treated as a special dividend
as of the Distribution Date, reinvested in shares of Common Stock of the
Company, in determining the total return to the shareholders.
EMPLOYMENT AGREEMENTS
On July 27, 1994, the Company entered into an Employment Agreement with
Paul J. Powers. Mr. Powers' Employment Agreement expires on February 28, 2000.
The Employment Agreement provides for the payment of a base salary of $465,000
which can be increased at the discretion of the Company. Additionally, Mr.
Powers shall be eligible to (1) receive cash bonuses as part of the Company's
SEIP; and (2) participate in other incentive, stock option, profit sharing and
similar plans maintained by the Company for the benefit of its executives. In
addition, the employment agreement with Mr. Powers provides that in the event of
his termination without cause (as defined in his employment agreement), Mr.
Powers shall receive a lump sum payment equal to two and one-half times his most
recent annual cash compensation. Finally, Mr. Powers will be included in all
other employee benefit plans to the extent that he is eligible. Such plans
include, but are not limited to, group life insurance plans, hospitalization and
medical plans and long-term disability plans.
TERMINATION BENEFITS
During 1996, the Company entered into termination and change of control
agreements ("Termination Agreements") with the officers listed in the Summary
Compensation Table. Under these Termination Agreements, such officers are
entitled to receive the following:
o If a termination of employment occurs prior to a "Change of
Control" (as defined in the Termination Agreements) and is at
the request of the Company but without "cause" (as defined in
the Termination Agreements), the officer will receive one
times his or her base
24
<PAGE> 27
salary, and otherwise vested amounts and benefits under the
Company's compensation and benefit plans.
o If the termination of employment occurs after a Change of
Control and is either at the Company's request but without
cause, or is initiated by the officer for "Good Reason" (as
defined in the Termination Agreements), the officer will
receive (i) three times the sum of base salary and his or her
highest annual bonus, (ii) a pro rata portion of his or her
highest recent bonus, (iii) the actuarial value of his or her
accrued benefit under the supplemental retirement benefit
plan, including, for certain officers, additional years of
accrual, (iv) the full value of performance shares assuming at
least 100% target performance, (v) vested and accrued benefits
under other benefit and compensation plans, and (vi) a
continuation of medical benefits for three years and certain
other perquisites including automobile lease, out-placement
services, club dues, tax planning, relocation expenses
(including home repurchase) and insurance. In addition, the
Company is obligated to set aside in trust sufficient assets
to fund its obligations. In addition, payments could be
subject to an excise tax; thus, the officers will receive an
additional amount for excise tax payments.
Under the Termination Agreements, each officer has agreed not to
compete against the Company for certain periods of time.
RESIGNATION OF MR. JACOBS VAN MERLEN
Effective November 30, 1996, Mr. Hubert Jacobs van Merlen resigned from
his position as an officer of the Company and as officer and director of the
Company's subsidiaries. In connection with such resignation, the Company and Mr.
Jacobs van Merlen entered into an agreement pursuant to which Mr. Jacobs van
Merlen will receive monthly payments of his salary until November 30, 1997, or
under certain circumstances until May 31, 1998 at the latest.
The Company also agreed to accelerate the vesting of 1,500 restricted
shares of Common Stock and 1,245 restricted shares of Common Stock earned under
the Company's Target Award Plan by Mr. Jacobs van Merlen and to prorate the
vesting of certain Performance Shares.
The Company also agreed to pay certain amounts relating to Mr. Jacobs
van Merlen's relocation.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive an annual
retainer fee in the amount of $19,000, plus $1,000 for attending each meeting of
the Board of Directors. They also receive $950 for attending each committee
meeting. Directors who are employees of the Company do not receive compensation
for serving as directors.
Non-employee directors who retire with at least ten years of
non-employee Board service will be paid a retirement benefit consisting of an
annual amount equal to the Board retainer being paid to such directors at the
time of retirement. Retiring directors with less than ten years of non-employee
Board
25
<PAGE> 28
service will receive proportionally decreased amounts. Non-employee directors
are entitled to receive automatically a non-qualified stock option to purchase
2,250 shares of Common Stock upon election to a new three-year term.
Mr. Don E. Tucker, former Senior Vice President and Chief
Administrative Officer of the Company, provides consulting services to the
Company. Fees paid for those services during fiscal 1996 were $48,000.
26
<PAGE> 29
SECURITY OWNERSHIP OF MANAGEMENT
The directors, nominees for the office of director, the Chief Executive
Officer, the four other highly-compensated executive officers, a former
executive officer and all directors and executive officers as a group were the
beneficial owners of the Company's voting shares, as of December 31, 1996, as
set forth below:
<TABLE>
<CAPTION>
Amount and Nature Percent
Name of Beneficial of Beneficial of Voting
Owner Ownership Shares
----- --------- ------
<S> <C> <C>
William J. Bresnahan 300 *
Robert A. Calcagni 67,410 (6)(7)(8)(13) *
Charles B. Cushwa III 222,456 (1)(2)(3) 1.52%
(11)
William W. Cushwa 233,850 (1)(2)(4)(5)(6) 1.60%
(12)(13)(16)
John M. Galvin 10,543 (6) *
Richard J. Hill 10,635 (7) *
Neil D. Humphrey 6,806 (7) *
Hubert Jacobs van Merlen 13,103 *
Mark G. Kachur 12,047 (10) *
William E. Kassling 5,000 *
Gilbert M. Manchester 46,419 (1)(6)(8)(13) *
Gerald C. McDonough 4,500 *
C. Edward Midgley 20,000 *
Paul J. Powers 545,113 (6)(8)(13) 3.65%
George M. Smart 2,750 *
Don E. Tucker 137,822 (1)(6)(9) *
Bruce C. Wheatley 69,307 (6)(14) *
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
Amount and Nature Percent
Name of Beneficial of Beneficial of Voting
Owner Ownership Shares
----- --------- ------
<S> <C> <C>
All Directors and
Executive Officers as a 1,510,430 10.02%
Group (20 people)
<FN>
*less than 1%
(1) Does not include Common Stock owned by the members of the
above-mentioned individuals' families who share their homes, as follows: of Mr.
Charles Cushwa - 947 shares; of Mr. William Cushwa - 46,749 shares; of Mr.
Manchester - 283 shares; of Mr. Tucker - 1,146 shares. Beneficial ownership
thereof is disclaimed by the respective individuals.
(2) Charles B. Cushwa III and William W. Cushwa are two of three
beneficiaries of a trust, of which they are not trustees, which consists of
294,000 shares of Common Stock the income from which will be paid to the
beneficiaries equally during their lives. These shares are not included in the
amounts shown in the table.
(3) Includes 46,500 shares of Common Stock held in trust, in which the
children of Charles B. Cushwa III have a remainder interest, and of which
National City Bank, N.E. and Charles B. Cushwa III are co-trustees. Beneficial
ownership thereof is disclaimed by Mr. Charles B. Cushwa III.
(4) Does not include 11,250 shares of Common Stock held in trust, of
which William W. Cushwa is not a trustee, for the benefit of his child and of
which beneficial ownership is disclaimed by Mr. William W. Cushwa.
(5) Includes 44,000 shares of Common Stock held in trust, in which the
children of William W. Cushwa have a remainder interest, and of which National
City Bank, N.E. and William W. Cushwa are co-trustees. Beneficial ownership
thereof is disclaimed by Mr. William W. Cushwa.
(6) Includes shares of Common Stock acquirable within 60 days of
December 31, 1996 upon exercise of options issued under the Company's Stock
Option and Award Plans as follows: Mr. Calcagni - 30,462 shares; Mr. William
Cushwa - 3,362 shares; Mr. Galvin - 5,043 shares; Mr. Manchester - 7,845 shares;
Mr. Powers - 327,256 shares; Mr. Tucker - 1,681 shares; and Mr. Wheatley -
42,026 shares.
(7) Includes shares of Common Stock (fractional shares not shown)
credited to the accounts of the above-mentioned beneficial owners by the
administrator of the Company's Automatic Dividend Reinvestment Plan, as follows:
Mr. Calcagni - 651 shares; Mr. Hill - 3,385 shares; and Mr. Humphrey - 1,656
shares.
(8) Includes in each case 317 shares of Series B Preferred Stock
(fractional shares not shown)
28
<PAGE> 31
and the following number of Common Stock (fractional shares not shown) credited
to the accounts of the above-mentioned beneficial owners by the Trustee acting
under the provisions of the Company's 401(k) plan: Mr. Calcagni - 1,648 shares;
Mr. Manchester - 6,206 shares; and Mr. Powers - 6,952 shares.
(9) Includes 206 shares of Series B Preferred Stock (fractional shares
not shown) and 5,072 shares of Common Stock (fractional shares not shown)
credited by the Trustee acting under the provisions of the Company's 401(k)
plan.
(10) Includes 47 shares of Series B Preferred Stock (fractional shares
not shown) as a result of participation in the Commercial Intertech Employee
Stock Ownership Plan.
(11) Includes 39,244 shares of Common Stock held in trust, in which
the children of Charles B. Cushwa III have a remainder interest, and of which
National City Bank, N.E. and Charles B. Cushwa III are co-trustees. Beneficial
ownership thereof is disclaimed by Mr. Charles B. Cushwa III.
(12) Includes 61,000 shares of Common Stock held in trust, in which
the children of William W. Cushwa have a remainder interest, and of which
National City Bank, N.E. and William W. Cushwa are co-trustees. Beneficial
ownership thereof is disclaimed by Mr. William W. Cushwa.
(13) Includes in each case two shares of Common Stock (fractional
shares not shown) as a result of participation in the Commercial Intertech
Employee Stock Ownership Plan and the following number of shares of Series B
Preferred Stock (fractional shares not shown) as a result of participation in
the Commercial Intertech Employee Stock Ownership Plan: Mr. Calcagni - 463
shares; Mr. William Cushwa - 324 shares; Mr. Manchester - 416 shares;
Mr. Powers - 719 shares.
(14) Includes 96 shares of Series B Preferred Stock (fractional shares
not shown) and 2,170 shares of Common Stock (fractional shares not shown) held
under the provisions of the Company's 401(k) plan. Includes 110 shares of Series
B Preferred Stock (fractional shares not shown) as a result of participation in
the Commercial Intertech Employee Stock Ownership Plan.
(15) Charles B. Cushwa III and William W. Cushwa are two of three
beneficiaries of an estate containing 75,000 shares, distribution of which is
dependent upon the resolution of certain estate matters. The shares are not
included in the amounts shown in the table.
(16) Includes 300 shares of Series B Preferred Stock (fractional
shares not shown) and 915 shares of Common Stock (fractional shares not shown)
credited by the Trustee acting under the provisions of the Company's 401(k)
plan.
</TABLE>
The information set forth above concerning beneficial shareholdings of
the beneficial owners is based on information received from the persons named.
None of such beneficial owners, directly or indirectly, owns beneficially any
equity securities of any subsidiary of the Company.
29
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The name of any person or "group" (as that term is used in the Exchange
Act) known by the Company to be the beneficial owner of more than five percent
(5%) of any class of the Company's voting securities as of December 31, 1996 is
set forth below:
<TABLE>
<CAPTION>
Amount and
Title Name and Address Nature of Percent Percent of
of of Beneficial of All Voting
Class Beneficial Owner Ownership Class Shares
----- ---------------- --------- ----- ------
<S> <C> <C> <C>
Common National City Bank, N.E. 840,954(1) 6.20% 5.76%
P.O. Box 450
Youngstown, OH 44501
Common LaSalle National Trust, N.A. 602,589(2) 4.44% 4.13%
135 South LaSalle St.
Chicago, IL 60603
Series B LaSalle National Trust, N.A.
Preferred 135 South LaSalle St. 1,039,657(3) 100.00% 7.12%
Chicago, IL 60603
<FN>
(1) This figure includes 3,328 shares of Common Stock held in trust by
National City Bank (trustee) for the benefit of participants in the
Non-Qualified Stock Purchase Plan of Commercial Intertech Corp.
National City Bank has sole voting power over 670,148 shares and shared
voting power over 170,806 shares. National City Bank has sole investment power
over 95,880 shares, shared investment power over 707,860 shares and no
investment power over 37,214.
(2) LaSalle National Trust has shared voting power over 602,589 shares.
LaSalle National Trust has sole investment power over 267,537 shares and shared
investment power over 335,052 shares.
(3) This figure represents all of the outstanding ESOP Convertible
Preferred Stock Series B held of record by LaSalle National Trust, N.A.
(trustee) for the benefit of participants in the Commercial Intertech Employee
Stock Ownership Plan and the Commercial Intertech Retirement Stock Ownership and
Savings Plan. The trust for these plans contains provisions for pass-through
voting rights to the employee participants in the plans.
LaSalle National Trust has shared voting power and sole investment
power over all shares of Preferred Stock Series B.
30
</TABLE>
<PAGE> 33
2. PROPOSAL TO AMEND THE CODE OF REGULATIONS TO
ESTABLISH A MINIMUM AND A MAXIMUM NUMBER OF
DIRECTORS
The Board of Directors has proposed and recommended for adoption by the
Company's shareholders an amendment to Sections 1 and 2 of Article II of the
Company's Code of Regulations (the "Regulations"). The Company's shareholders
will be asked to consider and approve this amendment at the Annual Meeting.
The proposed amendment provides that Sections 1 and 2 of Article II of
the Regulations be amended to read in their entirety as set forth in the
resolution attached hereto as Exhibit A. A summary of this proposed amendment is
set forth below; however, shareholders are urged to read carefully Exhibit A.
Summary of Proposed Amendment
Article II, Section 1 of the Regulations currently provides that the
number of directors shall be twelve (12) unless changed in accordance with
Article II, Section 2 of the Regulations. Article II, Section 2 of the
Regulations provides that the Board of Directors shall be classified into three
(3) classes, each consisting of four (4) directors, and also currently provides
that the number of directors in each class may only be increased or decreased by
resolution adopted by shareholders entitled to vote a majority of the voting
power on such proposal.
The proposed amendment to the Regulations would instead establish a
minimum and maximum number of directors, with the Board consisting of not less
than nine (9) nor more than fifteen (15) directors, as determined, from time to
time, by resolution adopted by the affirmative vote of a majority of the
directors then in office. The proposed amendment to the Regulations would also
enable the Board of Directors to apportion any increase or decrease in the
number of directors among the classes provided that: (i) the number of directors
of any one class shall not be less than three (3); and (ii) no decrease in the
number of directors shall by itself have the effect of shortening the term of
any incumbent director.
The proposed amendment would also eliminate, in its entirety, the last
paragraph of Article II, Section 2 of the Regulations which allows the holders
of the Company's Senior Increasing Rate Cumulative Convertible Preferred Stock
(the "Preferred Shares") to elect up to two additional directors to the Board.
The proposal eliminates this paragraph because the Preferred Shares have been
redeemed and retired.
Reason for the Proposal
The Board of Directors believes the proposal to amend the Regulations
as described above is in the best interests of the Company and should be
approved by the shareholders because it will provide the Board of Directors with
greater flexibility in administering its own affairs. Specifically:
(i) the Board will be able to add to its membership highly
qualified individuals who can contribute
31
<PAGE> 34
their knowledge, experience and expertise without the delay of
calling a special meeting of shareholders or waiting for the
Company's next annual meeting; and
(ii) the Board will be able to eliminate vacancies arising
when directors retire, fail to seek re-election, resign or are
otherwise unable to continue to serve on the Board of
Directors, by reducing the size of the Board.
Required Vote
The affirmative vote of the holders of a majority of the voting power
of the Company is required to approve Proposal Number 2 to amend the
Regulations.
Board Recommendation
The Board of Directors recommends a vote FOR approval of Proposal
Number 2 to amend the Regulations.
3. SELECTION OF INDEPENDENT AUDITORS
------------------------------------
The Board of Directors has selected Ernst & Young LLP to audit the
financial statements of the Company and its consolidated subsidiaries for the
fiscal year ending October 31, 1997. Ernst & Young LLP has served the Company in
this capacity since 1921. A representative of Ernst & Young LLP is expected to
be present at the Annual Meeting with the opportunity to make a statement if
such representative so desires and will also be available to respond to
appropriate questions from shareholders.
Unless contrary instructions are noted on the proxy, it will be voted
to ratify the selection by the Board of Directors of Ernst & Young LLP as
independent public auditors for the fiscal year ending October 31, 1997.
Required Vote
The affirmative vote of the holders of a majority of the voting shares
represented at the Annual Meeting is required for such ratification.
Board Recommendation
The Board of Directors recommends a vote FOR the approval of auditors.
32
<PAGE> 35
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report of the Company and its subsidiaries for the fiscal
year ended October 31, 1996, including financial statements reflecting the
financial position and operations of the Company and its subsidiaries for that
year, is being mailed to shareholders simultaneously with this Proxy Statement.
The annual report is not deemed to have been filed with the Securities and
Exchange Commission and is not part of this proxy solicitation.
1998 ANNUAL MEETING OF SHAREHOLDERS
The deadline for receipt of shareholders' proposals for inclusion in
the Company's 1998 proxy material is October 3, 1997.
FORM 10-K
A COPY OF THE COMPANY'S ANNUAL REPORT AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996, MAY
BE OBTAINED BY SHAREHOLDERS AFTER JANUARY 31, 1997, WITHOUT CHARGE, ON WRITTEN
REQUEST DIRECTED TO THE SECRETARY, COMMERCIAL INTERTECH CORP., P.O., BOX 239,
YOUNGSTOWN, OHIO 44501.
4. OTHER MATTERS
----------------
The Board of Directors does not know of any matters of business to be
presented for action at the meeting other than as set forth above. The enclosed
proxy does, however, confer discretionary authority upon the persons named
therein, or their substitutes, to take action with respect to any other matters
that may properly be brought before the meeting.
SOLICITATION OF PROXIES
The enclosed form of proxy is solicited by the Board of Directors.
Shares represented by the proxy will be voted at the meeting in accordance with
the shareholder's written instructions. The cost of preparing, printing,
assembling and mailing will be paid by the Company. Officers, directors or other
employees of the Company, without additional remuneration, may solicit proxies
personally or by other appropriate means, if deemed advisable. The Company will
also request brokers, banks and other nominees to send proxy material to and
obtain proxies from their principals, and it will reimburse such persons for
their expenses in so doing. In addition, the Company has retained Morrow & Co.,
Inc. to assist in the solicitation of proxies. Morrow & Co., Inc. will request
brokerage houses and other nominees, fiduciaries and custodians nominally
holding shares of the Company's Common Stock of record to forward proxy
solicitation material to the beneficial owners of such shares. For these
33
<PAGE> 36
services, the Company will pay Morrow & Co., Inc. a fee estimated not to exceed
$5,000 plus reimbursement of expenses.
Please complete, sign, date and return your proxy promptly to ensure
that your shares will be voted at the Annual Meeting. We hope that you will
attend the Annual Meeting. For your convenience, a self-addressed envelope,
which requires no additional postage if mailed in the United States, is
enclosed.
BY ORDER OF THE BOARD OF DIRECTORS
SHIRLEY M. SHIELDS
Secretary
Youngstown, Ohio
January 30, 1997
34
<PAGE> 37
EXHIBIT A
---------
PROPOSED RESOLUTION AMENDING THE CODE OF REGULATIONS OF COMMERCIAL
INTERTECH CORP. AS HERETOFORE AMENDED, ESTABLISHING A MINIMUM AND A
MAXIMUM NUMBER OF DIRECTORS.
RESOLVED that Article II of the Code of Regulations shall be amended as
follows:
Sections 1 and 2 shall be amended to read in their entirety as follows:
"Section 1. NUMBER. The board of directors of the corporation shall
consist of not less than nine (9) nor more than fifteen (15) directors. The
exact number shall be determined, from time to time, by resolution adopted by
the affirmative vote of a majority of the directors in office at the time of
adoption of such resolution. Upon adoption of this amendment to the Code of
Regulations, the number of directors is twelve (12).
Section 2. ELECTION AND TERM. The directors shall be classified with
respect to the time for which they shall severally hold office by dividing them
into three (3) classes entitled directors of the first class, directors of the
second class and directors of the third class. Upon adoption of this amendment
to the Code of Regulations, each class consists of four (4) directors. At each
succeeding annual meeting of shareholders, the successors to the class of
directors whose terms expire at the election to be held at such meeting shall be
elected (or if not then elected, or if such meeting be not held at the time
fixed therefor, then at a special meeting called for that purpose) to hold
office for a term of three (3) years. Each director shall serve for the term for
which he or she shall have been elected and until his or her successor shall
have been elected and shall qualify. The election of directors shall, if the
number of persons nominated be greater than the number of directorships to be
filled, be by ballot.
If the number of directors is changed, any increase or decrease shall
be apportioned among the classes by the board of directors, provided that the
number of directors of any one class shall not be less than three (3), and
provided further that no decrease in the number of directors shall of itself
have the effect of shortening the term of any incumbent director. In case of any
increase in the number of directors of any class, any director chosen to fill
any directorship created by such increase shall hold office for a term which
shall be coincident with the term of the class for which he or she is chosen.
The board of directors may adopt such further regulations governing the
election of directors, not inconsistent with the foregoing, as shall to the
board seem proper and expedient."
A-1
<PAGE> 38
APPENDIX
1. Commercial Intertech Corp. logo appears on first page.
2. Pictures of members of the Board of Directors appear on pages 5
through 9.
3. Performance graph appears on page 23.
<PAGE> 39
1775 Logan Avenue
Youngstown, Ohio 44501
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF SHAREHOLDERS, MARCH 26, 1997
The undersigned hereby appoints JOHN S. ANDREWS, RICHARD J. HILL and
DON E. TUCKER, and each or any of them, attorneys and proxies with full power of
substitution, to represent the undersigned and to vote all shares of stock of
Commercial Intertech Corp. which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of Commercial Intertech Corp. to be held at The
Butler Institute of American Art, 524 Wick Avenue, Youngstown, Ohio on
Wednesday, March 26, 1997, at 10:00 A.M., eastern time, or at any adjournments
or postponements thereof, upon all matters as set forth in the Notice of Annual
Meeting and Proxy Statement, receipt of which is hereby acknowledged.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Dated: _________________________, 1997
__________________________________________
__________________________________________
__________________________________________
Signature of Shareholder
THIS PROXY SHOULD BE SIGNED
EXACTLY AS NAME APPEARS HEREON
Executors, administrators, trustee,
attorneys, etc., should give full title as
such. If the signer is a corporation,
partnership or limited liability company,
please sign full corporate, partnership or
limited liability company name by duly
authorized person
<PAGE> 40
1. ELECTION OF DIRECTORS
The Board of Directors recommends a vote FOR the election of all nominees listed
below as directors.
Nominees: William J. Bresnahan, William W. Cushwa, Neil D. Humphrey
and C. Edward Midgley.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed above to vote for all
(except as listed nominees listed
to the contrary above
below)
If you wish to withhold authority to vote for any individual nominee, you may
write that nominee's name in the space provided below.
____________________________________________________________________________
2. AMENDMENT OF THE CODE OF REGULATIONS OF THE COMPANY TO ESTABLISH A
MINIMUM OF NINE (9) AND A MAXIMUM OF FIFTEEN (15) DIRECTORS AS PROVIDED
IN THE RESOLUTION SET FORTH IN EXHIBIT A TO THE ACCOMPANYING PROXY
STATEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR approval of the amendment.
3. RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR the approval of auditors.
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE, OR IF RETURNED EXECUTED WITH NO
DIRECTION GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR AMENDING THE
CODE OF REGULATIONS AND FOR RATIFICATION OF ERNST & YOUNG LLP AS AUDITORS.
