UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission File No. 001-11625
PENTAIR, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0907434
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation
or organization)
1500 County B2 West, Suite 400
St. Paul, Minnesota 55113-3105
(Address of principal
executive offices) (Zip Code)
(612) 636-7920
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of Registrant's only class
of common stock on March 31, 1996 was 37,428,992.
<PAGE>
PENTAIR, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of
Results of Operations and
Financial Condition
PART II - OTHER INFORMATION
Item 4. Results of Votes of
Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PENTAIR, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
($ expressed in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Net sales $366,290 $333,823
Operating costs
Cost of goods sold 251,554 232,624
Selling, general and
administrative 82,111 71,971
Total operating costs 333,665 304,595
Operating income 32,625 29,228
Interest expense 5,337 6,058
Interest income 712 292
Income from continuing
operations before
income taxes 28,000 23,462
Provision for income taxes 11,500 9,611
Income from continuing
operations 16,500 13,851
Discontinued operations:
Income from operations of
discontinued Paper Products
and Joint Venture segments
(Net of applicable income
taxes of $0 and $899,
respectively) 0 1,499
Net income 16,500 15,350
Preferred dividend
requirements 1,275 1,330
Earnings applicable
to common stock $15,225 $14,020
Earnings per share:
Primary
Income from:
continuing operations $.40 $.34
discontinued operations .00 .04
Net income .40 .38
Diluted
Income from:
continuing operations $.38 $.32
discontinued operations .00 .04
Net income .38 .36
Weighted average common
and common equivalent shares:
Primary 37,728 37,102
Diluted 42,652 42,286
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
($ expressed in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets
Cash and cash equivalents $28,037 $36,648
Accounts receivable - net 287,143 262,503
Note receivable 0 100,000
Inventories
Finished goods 167,756 134,456
Work in process 44,296 40,801
Raw materials
and supplies 36,092 37,428
Total inventory 248,144 212,685
Deferred income taxes 26,281 26,017
Other current assets 10,513 9,391
Total current assets 600,118 647,244
Property, plant
and equipment 461,224 452,108
Accumulated depreciation 196,834 185,381
PP & E - net 264,390 266,727
Marketable securities -
insurance subsidiary 34,508 33,036
Goodwill - net 280,109 282,376
Other assets 22,235 23,110
TOTAL ASSETS $1,201,360 $1,252,493
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $104,342 $90,846
Notes payable 0 120,732
Compensation and other
benefits accruals 65,196 68,414
Income taxes 21,928 17,812
Accrued product claims
and warranties 20,985 21,684
Accrued expenses and
other liabilities 58,675 58,363
Current maturities of
long-term debt 13,530 18,950
Total current liabilities 284,656 396,801
Long-term debt 263,960 219,896
Other liabilities 22,870 21,141
Deferred income taxes (234) 68
Pensions and other
retirement compensation 37,767 38,220
Postretirement medical and
other benefits 46,226 46,158
Reserves -
insurance subsidiary 28,526 27,354
Commitments and contingencies
Shareholders' equity
Preferred stock - at
liquidation value
Authorized: 2,500,000 shares
Outstanding:
1996 - 1,811,241 63,737 65,656
1995 - 1,873,051
Unearned compensation
relating to ESOP (20,039) (21,074)
Common stock - par
value, $.16 2/3
Authorized: 72,500,000 shares
Outstanding:
1996 - 37,428,992 6,238 6,172
1995 - 37,035,082
Additional paid-in capital 175,575 169,832
Currency translation and
pension adjustments 10,024 11,020
Retained earnings 282,054 271,249
Total shareholders'
equity 517,589 502,855
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $1,201,360 $1,252,493
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($ expressed in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31 March 31
1996 1995
<S> <C> <C>
Cash provided by (used for)
Operating activities
Net income $16,500 $15,350
Adjustment for discontinued
operations 0 (1,499)
Adjustments to reconcile
to cash flow:
Depreciation 11,891 10,259
Amortization 2,722 1,015
Deferred income taxes (378) (939)
Changes in assets and liabilities,
net of effects of acquisition
Accounts receivable (25,600) (19,823)
Inventories (35,011) (33,470)
Accounts payable 13,853 (2,397)
Compensation and benefits (2,961) 409
Income taxes 4,307 9,548
Pensions and other
retirement compensation 108 5,079
Reserves -
insurance subsidiary 1,172 1,755
Other assets/
liabilities - net (2,487) 7,700
Cash from Operations:
continuing operations (15,884) (7,013)
Payments related to
discontinued operations 0 (8,611)
Total cash from operating
activities (15,884) (15,624)
Investing activities
Capital expenditures (9,415) (9,853)
Purchase of marketable
securities - net (1,471) (986)
Proceeds from sale of
Discontinued Operations 100,000 0
Acquisition -
net of cash acquired (126,883) 0
Net cash (used) for
investing activities (37,769) (10,839)
Financing activities
Borrowings 47,245 24,500
Debt payments (1,985) (6,770)
Unearned ESOP
compensation decrease 1,035 2,080
Employee stock plans and other 3,891 2,479
Dividends paid (5,920) (4,989)
Net cash provided for
financing activities 44,266 17,300
Effects of currency
exchange rate changes 776 1,678
Increase (decrease)
in cash and cash equivalents (8,611) (7,485)
Cash and cash equivalents
- beginning of period 36,648 32,677
- end of period $28,037 $25,192
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
instructions for Form 10-Q and, accordingly, do not include
all information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, considered
necessary for a fair presentation have been included.
These statements should be read in conjunction with the
financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, previously filed with the Commission.
2. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the
operating results to be expected for the full year.
3. Income tax provisions for interim periods are based on
the current best estimate of the effective federal, state
and foreign income tax rates.
4. Earnings per common share are based on the weighted
average number of common and common equivalent shares
outstanding during each period. The tax benefits applicable
to preferred dividends paid to ESOPs are: for allocated
shares credited to income tax expense and for unallocated
shares, credited to retained earnings and are not
considered earnings applicable to common stock.
Fully diluted computations assume full conversion of each
series of preferred stock into common stock, the
elimination of preferred dividend requirements, and the
recognition of the tax benefit on deductible ESOP dividends
applicable to allocated shares payable based on the
converted common dividend rate. Conversion was assumed
during the portion of each period that the securities were
outstanding.
5. The long-term debt is summarized as follows ($
millions):
<TABLE>
<CAPTION>
March 31,December 31,
1996 1995
<S> <C> <C>
Revolving credit facilities $137 $93
Private placement debt 125 125
Other 16 21
TOTAL 278 239
Current maturities (14) (19)
Total long-term debt $264 $220
</TABLE>
Debt agreements contain various restrictive covenants,
including a limitation on the payment of dividends and
certain other restricted payments. Under the most
restrictive covenants, $56 million of the March 31, 1996
retained earnings were unrestricted for such purposes.
6.Statement of Cash Flows
The following is supplemental information relating to the
Statement of Cash Flows ($000's):
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
<S> <C> <C>
Interest paid
(net of capitalized
interest in 1995) $6,187 $8,227
Income tax payments 3,310 4,158
</TABLE>
7. Stock Split
On January 22, 1996 the board of directors approved a
two-for-one stock split in the form of a 100% stock dividend.
The dividend was payable February 16, 1996 to shareholders
of record at the close of business on February 2, 1996.
All references in the financial statements to shares
outstanding and per share amounts have been restated to
reflect this split.
8. Reclassifications
Certain reclassifications have been made to prior years'
financial statements to conform to the current year
presentation.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
BUSINESS SEGMENT INFORMATION
Selected information for business segments for the three
months ended March 31, 1996 and 1995 follows ($ millions):
<TABLE>
<CAPTION>
General
SpecialtyIndustrial
Products Equipment Corporate Total
1996
<S> <C> <C> <C> <C>
Net Sales $153.4 $212.9 $0.0 $366.3
Operating Income 18.9 19.2 (5.5) 32.6
Identifiable Assets 417.5 708.6 75.3 1,201.4
Depreciation
and Amortization 4.6 10.0 0.0 14.6
Capital Expenditures 3.6 5.8 0.0 9.4
1995
Net Sales $117.6 $216.2 $ 0.0 $333.8
Operating Income 13.4 21.1 (5.3) 29.2
Identifiable Assets 240.7 677.0 322.5 1,240.2
Depreciation
and Amortization 2.5 7.8 0.0 11.3
Capital Expenditures 2.0 7.9 0.0 9.9
</TABLE>
RESULTS OF OPERATIONS
Pentair reported net income of $16.5 million, or 38 cents
per fully diluted share, on consolidated net sales of
$366.3 million for the three months ended March 31, 1996.
This represented a 19 percent increase in net income and a
10 percent increase in sales over the first quarter of
1995. The first quarter 1995 income from continuing
operations was $13.9 million, or 32 cents per fully diluted
share, on consolidated net sales of $333.8 million.
Specialty Products Segment. Net sales increased $35.8
million or 30% and operating income increased $5.5 million
or 41%. The increase is attributable to Fleck Controls, an
acquisition made in November 1995 and double digit sales growth
over the last year at Delta, Myers and Porter Cable.
The improvements reflect new product sales,
contributions from smaller acquisitions, and further
expansion into major home center distribution channels.
General Industrial Equipment Segment. Sales decreased $3.3
million or 1.5% and operating income decreased $1.9 million
or 9%. Hoffman and Schroff posted modest sales increases
and level earnings as compared to very good 1995 first
quarter results. Both Lincoln Industrial and Lincoln
Automotive profits increased due to cost reductions and
improved productivity. Sales at Federal Cartridge were
slow in the seasonally weak first quarter. Federal
continues to feel the effects of the industry correction
due to abnormally high ammunition sales in 1994. Buying
patterns in the ammunition industry are expected to cause
a concentration of sales in the late summer/early fall
hunting season.
FINANCIAL CONDITION
In 1996 as in 1995, net income adjusted for non-cash items
provided some of the funds for seasonal working capital
increases. Accounts receivable levels increased due to
dating programs and strong sales in the later part of
March. Some subsidiaries were also building inventory
levels after high fourth quarter 1995 sales. Borrowings in
the first quarter of 1996 financed some operating needs,
acquisition payments, along with capital expenditures. The
proceeds from the $100 million note receivable from the
sale of Cross Pointe Paper offset much of the $120 million
notes payable for the purchase of Fleck Controls. Capital
expenditures were $9.4 million in 1996 as compared to $9.9
million in 1995. The percentage of long-term debt to total
capital was 34% at March 31, 1996 compared to 31% at
December 31, 1995.
The full year 1996 cash flow from operations is expected to
increase with additional net income contributions as
compared to last year. Working capital needs are somewhat
seasonal during the year and tend to grow over time as
sales increase. Capital expenditures are expected to be
about $90 million in 1996 as compared to $63.8 million in
1995. This increase is due primarily to the addition of a
Hoffman manufacturing facility in Mount Sterling, Kentucky
and new product development activities.
Based upon current operating expectations, credit available
under revolving credit facilities is expected to be
adequate to cover seasonal working capital, long-term
capital expenditure requirements and acquisitions.
OUTLOOK
In general, the Company is well-positioned to continue its
internal growth. Recent acquisitions are expected to
continue to contribute to sales and earnings growth. The
strong emphasis on product development and aggressive
efforts to expand distribution channels that helped during
1995 are expected to generate growth in market share, sales
and profits. In all subsidiaries, sales will continue to
grow as a result of new products and enhanced customer
service. Pentair continues to search for strategic or
synergistic industrial acquisitions.
PART II - OTHER INFORMATION
ITEM 4 -Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Pentair, Inc. was
held on April 24, 1996, for the purpose of electing certain
members to the board of directors, approving the
appointment of auditors, and voting on the proposals
described below. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Exchange Act of
1934.
PROPOSAL 1
All of management's nominees for directors as listed in the
proxy statement were elected with the following vote:
Shares Shares Broker
Voted "For" "Withheld" Non-Votes
G. Butzow 32,460,848 162,857 0
W. Buxton 32,452,237 171,468 0
W. Kissling 32,460,139 163,566 0
B. Grogan 32,439,073 184,632 0
W. Cadogan 32,468,001 155,704 0
PROPOSAL 2
A proposal to extend the 1990 Omnibus Stock Incentive Plan
and to increase the number of shares and incentive
compensation units was passed with the following vote:
Shares
Shares Voted Shares Broker
Voted "For" "Against" "Abstaining" Non-Votes
20,523,262 9,324,358 1,095,922 1,680,163
PROPOSAL 3
A proposal to amend the 1990 Omnibus Stock Incentive Plan
to comply with the Internal Revenue Code Section 162(m) was
passed with the following vote:
Shares
Shares Voted Shares Broker
Voted "For" "Against" "Abstaining" Non-Votes
30,410,160 1,301,616 905,429 6,500
PROPOSAL 4
A proposal to approve the adoption of the Executive
Officers Performance Plan to comply with the Internal
Revenue Code Section 162(m) was passed with the following
vote:
Shares
Shares Voted Shares Broker
Voted "For" "Against" "Abstaining" Non-Votes
30,784,235 920,464 912,506 6,500
PROPOSAL 5
The appointment of Deloitte & Touche LLP as independent
auditors of the Company for 1996 was ratified by the
following vote:
Shares
Shares Voted Shares Broker
Voted "For" "Against" "Abstaining" Non-Votes
32,159,536 358,688 105,481 0
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included with
this Form 10-Q Report as required by Item 601 of Regulation
S-K.
Exhibit Description
Number
10.1 Pentair, Inc. Omnibus Stock Incentive Plan
as Amended and Restated
10.2 Pentair, Inc. Executive Officers Performance Plan
11 Calculation of Earnings per Common and Common
Equivalent Share
27 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K was filed on January 23, 1996
disclosing the two-for-one stock split in the form of a 100
percent stock dividend.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
/s/ David D. Harrison
Executive Vice President and
Chief Financial Officer
May 14, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Number
10.1 Pentair, Inc. Omnibus Stock Incentive Plan
as Amended and Restated
10.2 Pentair, Inc. Executive Officers Performance Plan
11 Calculation of Earnings per Common and
Common Equivalent Share
27 Financial Data Schedule
EXHIBIT 11
PENTAIR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Quarter Ended
March 31
1996 1995
INCOME ($ thousands)
<S> <C> <C>
Net income $16,500 $15,350
Preferred dividend requirements 1,275 1,330
Earnings available to common and common
equivalent shares - Primary 15,225 14,020
Preferred dividends assuming conversion
of Preferred Stock:
Series 1988 240 250
Series 1990 1,035 1,080
Tax benefit on preferred ESOP dividend
eliminated due to conversion into common (350) (322)
Tax benefit on ESOP dividend assuming con-
version to common, at common dividend rate 169 128
Earnings available for common and common equivalent
shares - Diluted $16,319 $15,147
SHARES (thousands)
Weighted average number of shares outstanding
during the period 37,256 36,604
Shares issuable on exercise of stock options
less shares repurchaseable from proceeds 472 498
Common and Common Equivalent Shares -
Primary 37,728 37,102
Shares issuable on conversion of:
$7.50 Callable Cumulative Convertible
Preferred Stock, Series 1988 962 998
8% Callable Cumulative Voting Convertible
Preferred Stock, Series 1990 3,962 4,186
Common and Common Equivalent Shares -
Diluted 42,652 42,286
Earnings per Share:
Primary
Income from continuing operations $.40 $.34
Income from discontinued operations .00 .04
Net income $.40 $.38
Diluted
Income from continuing operations $.38 $.32
Income from discontinued operations .00 .04
Net income $.38 $.36
</TABLE>
EXECUTIVE OFFICER PERFORMANCE
PLAN
Pentair, Inc.
Purpose
A primary objective of Pentair, Inc. ("Pentair" or
"Corporate") is to be a top-performing company by
consistently achieving profit performance that is higher
than the performance of comparable companies. Pentair
has also identified growth as a key strategy for the long
term success of the business. The return on our
investments, whether to support internal growth and
improvements or make acquisitions, is also a key
determinant of our business success and the return to our
shareholders. Pentair expects to compensate executive
officers for their performance against key financial
measurements in accordance with the terms of the
Executive Officer Performance Plan(EOPP).
Participation
Key employees in executive positions will be considered for
participation. Participation is determined by the magnitude
and scope of the employee's position and is subject to
Pentair Inc. Compensation Committee nomination. An
employee who participates in this program is not eligible for
the Pentair Management Incentive Plan.
Qualifying Positions and BOC Percentages
Bonus Opportunity Category (BOC) percentages are
assigned to each qualifying position by the Compensation
Committee based on competitive market data.
The current designated Qualifying Position and BOC
percentage is:
Qualifying Position BOC Percentage
Chairman, CEO 71.5%
The BOC% for other positions that may qualify for future
participation at the discretion of the Compensation
Committee are:
President, Chief Operating Officer 58.5%
Executive VP 52.0%
Other Sr. Officers 45.5%
Establishment of Goals and Factors
Corporate Performance Goals and Factors
EOPP Goals are established for Corporate for the following
three financial performance measurements: Earnings Per
Share (EPS) Growth, Return on Invested Capital (ROIC)
and Return on Sales (ROS). EOPP Goals are a function of
the overall financial goals for Pentair and are based on the
comparative market data and the historical and expected
performance of the company and its subsidiaries.
Financial performance that meets the EOPP Goals will
result in a corporate performance factor of 1.00. Financial
performance results that are below or above the EOPP
Goals are indexed with factors ranging from a low of .50 to
a high of 1.80. Any result falling between the stated goals
and factors will be interpolated.
The EOPP Goals and factors established for the fiscal year
are measured against Pentair's fiscal year performance for
that year. They are determined early in the fiscal year by the
Compensation Committee of the Board of Directors. They
have been established to be used over multiple fiscal years,
although they will be determined annually by the
Compensation Committee.
Incentive Awards
Incentive Awards under the EOPP are determined
according to the following formula:
Incentive Award = Base Salary x BOC% x C.P.F.
Base Salary = Actual base salary earned during the
year
BOC% = Bonus Opportunity Category Percentage
C.P.F. =Corporate Performance Factor
Cash Pay-out Limit
The cash incentive award for the fiscal year will be
limited to one times the participant's annual base
salary. The portion in excess of one times the
participant's annual base salary will be awarded as
performance shares. The performance shares will be
subject to the terms and provisions of the Omnibus
Stock Incentive Plan.
Maximum Award
No participant will receive an Incentive Award(cash plus
stock) greater than $1.5 million or 200% of annual base
salary.
Timing of Pay-out
Incentive Awards for a fiscal year, shall be paid as soon
as administratively possible after the annual audit is
complete and the compensation Committee has
reviewed and approved the payment.
CORPORATE PERFORMANCE FACTOR
The Corporate Performance Factor is based on actual
fiscal year financial performance achieved as measured
against the following goals, which when achieved will
create shareholder value and move Pentair toward its
top performance objectives. The goals to be measured
are multiplicative to emphasize a balanced approach to
financial performance. Each of the measures are
intended to emphasize a different aspect of financial
performance:
Earnings Per Share (EPS) Growth
Return on Invested Capital (ROIC)
Return on Sales (ROS)
Economic Value Added (EVA) is the concept used to
measure shareholder value creation. (EVA is the
"residual income" left over from operating profits after
the cost of capital has been subtracted.) The three
measures chosen encircle EVA. The strength of these
measures is that they reflect shareholder value.
Pentair will have one primary measure and two
secondary measures with factors based on the current
and historical performance. Earnings Per Share Growth
(EPS) will be primary and the secondary factors are
ROIC and ROS. If Corporate attains the goal on each
of the three measures the plan participants will receive
a Corporate Performance factor of 1.00. There will be
a range of performance factors for each measure that
when multiplied together give the total Corporate
Performance Factor.
Primary Factor x Secondary Factor #1 x
Secondary Factor #2 =
Corporate Performance Factor
Performance Multiplier Grid
Performance Factor Grid
Minimum
Below Goal
On Goal
Above Goal
Maximum
E.P.S. Growth
.50
.75
1.00
1.20
1.40
1.60
1.80
R.O.I.C.
.80
.90
1.00
1.10
1.20
R.O.S.
.80
.90
1.00
1.10
1.20
1.30
Corp. Perf.
Factor*
.32
1.00
2.81
*Performance falling between stated factors will be
interpolated.
Minimum Operating Income Requirement
If Pentair's operating income (after corporate charges)
is zero or less, there will be no bonus payouts.
Consideration for Acquisitions/Divestitures
In the case of an acquisition, no special adjustment
will be necessary. The additional sales, earnings,
and invested capital will flow into the calculations and
impact the results and payouts.
Divestitures will be excluded from the calculations. In
the event of a divestiture, EOPP will be calculated
based on results from continuing operations. Any
financial gain/loss from the divestiture will be
excluded from the EOPP calculation.
Approval of Final Awards
The Compensation Committee will review and approve
all goals and final Incentive Awards granted under this
plan. The Compensation Committee has the flexibility
to reduce or eliminate the award based on its business
judgement. The Compensation Committee does not
have the authority or discretion to award more than the
incentive award generated by the formula, subject to
the stated limits.
General Provisions
1. Nothing contained herein shall be construed to limit or
affect in any manner or degree the normal and usual
powers of management, including the right to terminate
the employment of any participant or remove him/her
from participating in the EOPP at any time.
2. The judgment of the Compensation Committee in
administering the EOPP will be final, conclusive and
binding upon all officers and employees of Pentair and
its subsidiaries, whether or not selected as participants
hereunder, and their heirs, executors, personal
representatives and assigns.
3. The Compensation Committee has the authority and
duties to:
a. Determine the rights and benefits under the
EOPP of participants and other persons;
b. Interpret the terms of the EOPP and apply them
to different situations;
c. Approve, process and direct the payment of
EOPP benefits, and
d. Adopt rules, procedures and forms which are
appropriate for the smooth and proper
operation of the EOPP.
4. In the event of death, a participant's designated
beneficiary will be entitled to the participant's Plan
benefits. If a participant does not designate a
beneficiary, the participant's beneficiary(ies) will be
determined according to the participant's will. If there
is no will, the beneficiary(ies) shall be determined by
the laws of descent and distribution of the state in
which the participant is a resident on the date of death.
5. A participant does not have the right to assign, transfer,
encumber or dispose of any award under the Plan until
it is distributed to the participant. Also, no award is
liable to the claims of any creditor of the participant
until it is distributed to him or her.
6. The Compensation Committee subject to approval by
the Pentair, Inc. Board of Directors, has the right to
terminate the Plan at any time.
7. Calculations will exclude the impact of periodic
change in accounting methods used by Pentair or
required by the Financial Accounting Standards
Board.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 28037000
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PENTAIR, INC.
OMNIBUS STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED
SECTION 1. BACKGROUND AND PURPOSE
1.1 Background. Pentair, Inc. ("Pentair")
maintains a comprehensive equity compensation incentive
plan to award long-term equity incentives which tie the
compensation of executives and key managerial employees to
Pentair operating results. In particular, this Plan is designed
to attract and retain top quality executives and key employees,
encourage innovation and growth, reward executives for
attainment of short-term performance objectives and long-term
shareholder value, recognize outstanding performance,
encourage executive stock ownership and, in general, to align
management and shareholder interests. Pentair established
the Plan in 1990 by combining its then separate equity
compensation plans into one plan to achieve administrative
consistency and greater flexibility in structuring equity
compensation awards.
1.2 Restatement of Plan. Pentair is amending
and restating this Plan to authorize additional shares of Stock
and ICUs with which to make grants under the Plan, clarify
certain administrative practices and bring the Plan into
compliance with Code requirements enacted since the Plan's
adoption. The amended and restated Plan was adopted on
February 14, 1996, subject to shareholder approval, and shall
be applied to all equity compensation grants made after that
date. The plan is intended to extend until February 14, 2006.
SECTION 2. DEFINITIONS
Unless the context requires otherwise, when
capitalized the terms listed below shall have the following
meanings when used in this or any other section of the Plan:
2.1 "Affiliate" is any corporation, business trust,
division, partnership or joint venture in which Pentair owns
(either directly or indirectly) fifty percent (50%) or more of
the voting stock, or rights analogous to voting stock, but only
for the duration of such ownership.
2.2 "Board" is the Board of Directors of Pentair,
Inc., as elected from time to time.
2.3 "Book Value per Share" or "Book Value" is
the total consolidated shareholders' equity of Pentair at the
close of a Fiscal Year, less the equity attributable to preferred
shares, divided by the number of shares of Stock outstanding
at the end of that Fiscal Year.
2.4 "Code" is the Internal Revenue Code of 1986,
as amended.
2.5 "Committee" is the Compensation and
Personnel Committee of the Board, as appointed from time to
time.
2.6 "Disabled" or "Disability" is a physical or
mental incapacity which qualifies an individual to collect a
benefit under the long-term disability plan of Pentair or an
Affiliate, or such other condition which the Committee may
determine to be a Disability.
2.7 "Eligible Employee" is any key managerial,
administrative or professional employee of Pentair or an
Affiliate, generally in salary grade 25 or higher, who is in a
position to make a material contribution to the continued
profitable growth and long term success of Pentair or an
Affiliate.
2.8 "Fair Market Value" is the closing price of
a share of Stock on the relevant date as reported on either the
NASDAQ National Market System or the New York Stock
Exchange, depending on which exchange then lists Pentair
stock, or as otherwise determined using procedures
established by the Committee.
2.9 "Fiscal Year" is the twelve (12) consecutive
month period beginning January 1 and ending December 31.
2.10 "Incentive Compensation Unit" or "ICU" is
a unit representing the right to receive an amount determined
by attainment of corporate performance objectives over an
applicable Incentive Period.
2.11 "Incentive Period" is a period of continuous
employment fixed by the Committee at the time of grant of an
ICU after which such ICU may become payable, provided all
relevant performance objectives have been met.
2.12 "Incentive Stock Option" or "ISO" is an
Option which is designated as such by the Committee and
intended to so qualify under Code section 422.
2.13 "Nonqualified Stock Option" or "NQSO" is
any Option which is not an ISO.
2.14 "Option" is a right granted pursuant to the
Plan to purchase Stock subject to such terms and conditions
as may be specified by the Committee at the time of grant.
2.15 "Participant" is an Eligible Employee
approved by the Committee to receive a grant or award under
the Plan.
2.16 "Pentair" is Pentair, Inc., a Minnesota
corporation.
2.17 "Performance Period" is the period of time
over which a Participant must meet the relevant performance
criteria established by the Committee at the time of an award
of Performance Shares or Performance Units.
2.18 "Performance Share" is a share of Stock,
Restricted Stock, or a Right to Restricted Stock, awarded by
the Committee, subject to such performance targets or other
restrictions as are established by the Committee at the time of
award.
2.19 "Performance Unit" is an amount equal to the
value of an ICU determined on the date of award.
2.20 "Plan" is the Pentair, Inc. Omnibus Stock
Incentive Plan, as amended from time to time.
2.21 "Restricted Stock" is Stock issued or
transferred to a Participant by means of an award subject to
such restrictions as may be imposed at the time of grant by
the Committee, and which will remain subject to said
restrictions until such time as the restrictions lapse.
2.22 "Retirement" is the time a Participant who is
eligible to receive retirement income benefits from the Pentair
tax qualified pension plan separates from employment.
2.23 "Right to Restricted Stock" is a right
awarded to a Participant to receive Stock or Restricted Stock
which will vest at some future time and which is subject to
such restrictions as may be imposed at the time of grant by
the Committee, and which will remain subject to such
restrictions until the restrictions lapse.
2.24 "Significant Shareholder" is an employee
who owns more than ten percent (10%) of the total combined
voting power of all classes of stock issued by Pentair as of the
date such employee is granted an Option. For this purpose,
the provisions of Code sections 422 and 424, as amended,
shall apply.
2.25 "Stock" is Pentair common stock.
SECTION 3. SHARES SUBJECT TO THE PLAN
3.1 Shares. (a) Number of Shares. The
maximum number of shares of Stock which may be issued for
any type of award or grant under the Plan shall be 3,200,000,
subject to adjustment as provided in Sections 3.1(b) and 3.3.
(b) Unused Shares. Any shares of Stock subject
to an Option which is canceled, expires or otherwise
terminates without having been exercised in full (unless such
cancellation is due to the exercise of a related SAR), or any
shares of Restricted Stock, Rights to Restricted Stock or
Performance Shares which are forfeited, shall again be
available for grants or awards under the Plan.
3.2 Incentive Compensation Units. The
maximum number of Incentive Compensation Units which
may be awarded under the Plan is 4,000,000, subject to
adjustment as provided in this Section 3.2 and in Section 3.3.
If an ICU is awarded, but is forfeited or otherwise terminates
without payment having been made to the Participant, then
such ICU shall again be available for awards under the Plan.
3.3 Antidilution. In the event of a change in the
number or class of outstanding shares of Stock by reason of
a stock dividend or split, recapitalization, reclassification,
merger, consolidation, or other similar corporate change, the
number of shares of Stock as to which grants of Options or
other awards under the Plan may be made, and the number of
ICUs available for award under the Plan, shall be adjusted
proportionately to the nearest whole share or unit. Any such
action shall be within the discretion of the Committee, whose
determination shall be conclusive.
If such an adjustment is made with respect to shares
then subject to an Option, the number of shares and the
Option price per share shall be adjusted proportionately so the
aggregate exercise price of such Option shall not change.
SECTION 4. STOCK OPTIONS
4.1 Granting Options. Participants may be
granted ISOs, SARs or NQSOs. No one Participant shall be
granted, in the aggregate, Options or SARs on more than
150,000 shares in any calendar year. Solely for purposes of
determining the number of Options or SARs available for
grant to an individual in any calendar year, Options which are
canceled or repriced shall be counted against this annual
maximum to the extent required by applicable regulations.
4.2 Option Terms and Conditions. (a) Grant of
Option. Except as otherwise limited by the Plan, the
Committee shall have the discretion to grant to a Participant
any number or type of Options at any time, and subject to
such terms and conditions as the Committee may determine.
(b) Exercise Limit. With respect to Options
designated as ISOs at the time of grant, to the extent the
aggregate Fair Market Value of Stock, determined as of the
date of grant, with respect to which ISOs are first exercisable
during any single calendar year exceeds $100,000, or such
other limit as shall be allowed under the Code, such Options
shall be treated as NQSOs. In applying this limit Options
shall be taken into account in the order granted.
(c) Option Price. The Option price of an ISO or
NQSO shall be not less than Fair Market Value as of the date
of grant. If an ISO is granted to a Significant Shareholder, the
Option price shall be not less than 110% of Fair Market Value
on the date of grant.
(d) Term of Option. Each Option shall expire at
the time specified by the Committee when granting the
Option. The Committee may not fix a term which is shorter
than required under any applicable state or federal law, nor
longer than ten (10) years from the date of grant. With
respect to a Significant Shareholder, the Committee may not
fix a term which is longer than five (5) years from the date of
grant. An Option term may extend beyond the Plan's
termination date.
(e) Manner of Exercise. To exercise an Option,
whether partially or completely, the Participant shall give
written notice to Pentair in such form and manner as the
Committee may prescribe. Payment for Stock to be acquired
by the exercise of an Option must accompany the written
notice of exercise.
(f) Payment. (1) General. Full payment for all
Stock to be acquired upon the exercise of an Option, together
with an amount sufficient to satisfy applicable federal, state
or local withholding taxes, shall be made at the time such
Option, or any part thereof, is exercised, and no Stock
certificate shall be issued until such payment has been made.
Payment may be made in cash or in such other form as is
acceptable to the Committee, provided that in the case of an
ISO, no form of payment shall be allowed which would
prevent the Option from qualifying as such within the
meaning of Code section 422.
(2) Payment with Options. The Participant, in lieu
of or in combination with a payment in cash, may transfer to
Pentair a sufficient number of outstanding Options as will pay
all applicable withholding tax liability incurred on exercise of
the Option. For this purpose, the Participant may use only
Options having an exercise price less than Fair Market Value
on the date such Options are transferred or exercised, and the
value of such any Option so transferred shall be the difference
between its then exercise price and Fair Market Value.
Transfer of an Option for payment of taxes shall be
considered exercise of the Option.
(3) Payment with Stock. Subject to such Code
requirements as are relevant to ISOs, a Participant, in lieu of
or in combination with a payment in cash, may transfer to
Pentair a sufficient number of shares of Stock to satisfy all or
any part of the Option price and applicable withholding taxes.
Such Stock may be Stock already owned by the Participant
or, in the case of an NQSO, Stock to be acquired by exercise
of the Option. For this purpose, the value of the Stock shall
be Fair Market Value as of the date of exercise. Where
payment is made in whole or in part by Stock, the Participant
may not transfer fractional shares of Stock or shares of Stock
with an aggregate Fair Market Value in excess of the Option
price plus applicable withholding taxes.
(4) Interim Broker Loan. The Committee may
arrange through a stock brokerage or other similar agent, a
loan to a Participant of some or all of the funds needed to
exercise an Option. Upon application for such loan and
receipt of written notice of exercise of an Option from a
Participant, the broker will pay to Pentair the amount
requested by the Participant to pay the Option exercise price
and applicable withholding taxes. Pentair will promptly
deliver to such broker a certificate representing the total
number of shares of Stock to be acquired by exercise of said
Option. The broker will then sell part or all of these shares
and pay to the Participant the proceeds from the sale, less the
loan principal and any interest charged thereon from the date
the broker received the notice of exercise until the date the
broker is repaid.
(5) Other Payment Methods. The Committee
may, in its discretion, authorize payment by other methods or
forms within the limitations imposed by the Plan and
applicable state or federal law.
(g) No Tandem Options. No ISO granted under
this Plan shall contain terms which would limit or otherwise
affect a Participant's right to exercise any other Option, nor
shall any NQSO contain terms which will limit or otherwise
affect the Participant's right to exercise any other Option in
such a manner that an Option intended to be an ISO would be
deemed a tandem option.
4.3 Stock Appreciation Rights. (a) Grant of
Stock Appreciation Rights. The Committee may grant Stock
Appreciation Rights ("SARs") to Participants who have been
granted ISOs. These SARs may relate to any number of
shares, up to the total number of shares the Participant could
acquire by exercise of the underlying ISOs. An SAR shall
expire no later than the expiration date of the underlying ISO,
and the amount paid shall not be more than 100% of the
difference between the Option price and Fair Market Value of
the Stock subject to the Option, determined on the date the
SAR is exercised.
(b) Exercise. Stock Appreciation Rights may be
exercised at the same time, to the same extent and subject to
the same conditions as the related ISO, and only when the
Fair Market Value of the Stock subject to the ISO exceeds the
Option price. The exercise of an SAR shall cancel the related
ISO; the exercise of an ISO shall cancel a related SAR.
(c) Payment of Stock Appreciation Rights. Upon
exercise of an SAR, the Participant shall be paid in cash,
Stock, Rights to Restricted Stock, Restricted Stock, or a
combination thereof, as the Committee shall determine at the
time of grant. If payment is made in Stock, Rights to
Restricted Stock or Restricted Stock, the shares shall be
valued at Fair Market Value on the date the SAR is exercised.
4.4 Issuance of Certificates. (a) Delivery. As
soon as practicable after either the exercise of an Option and
the delivery of payment therefor, or the exercise of an SAR
which is to be paid in Stock, Rights to Restricted Stock or
Restricted Stock, Pentair shall:
(i) if Stock is to be issued due to the exercise of
an Option, record in the name of the
Participant a number of certificated or
uncertificated shares equal to the number of
shares acquired by the Participant through
exercise of the Option;
(ii) if payment is to be made in Restricted Stock,
record in the name of the Participant a number
of nonnegotiable certificated or uncertificated
shares equal to the number of shares of
Restricted Stock acquired; and
(iii) if payment is to be made in Rights to
Restricted Stock, establish and maintain a
separate written account for each Participant
and record in such account the number of
Rights to Restricted Stock so acquired.
Consistent with applicable state or federal law, the
Committee may fix a minimum or maximum period of time
during which a Participant may not sell any such Stock or
Restricted Stock, or obtain Restricted Stock in lieu of a Right
to Restricted Stock.
(b) Designation. Shares acquired pursuant to the
exercise of an ISO shall be designated as such on the stock
transfer records of Pentair, to the extent the value of such
shares does not exceed the exercise limit contained in Section
4.2(b). Shares acquired by exercise of an Option which
exceed this exercise limit shall be designated on Pentair's
stock transfer records as shares acquired pursuant to the
exercise of an NQSO. For purposes of this exercise limit, the
designation of shares as acquired pursuant to the exercise of
an ISO or NQSO shall be subject to change as permitted by
applicable Code provisions.
SECTION 5. RESTRICTED STOCK AND
INCENTIVE
COMPENSATION UNITS
5.1 Restricted Stock Awards (a) Written
Agreement. Each award of Restricted Stock or Rights to
Restricted Stock shall be evidenced by a written agreement,
executed by the Participant and Pentair. Such agreement shall
specify the number of shares of Restricted Stock or the
number of Rights to Restricted Stock awarded and any terms
and conditions the Committee may require on such award.
(b) Restriction Period. At the time of an award of
Restricted Stock or Rights to Restricted Stock, the Committee
shall fix a period of time ("Restriction Period") during which
such restrictions as are imposed by the Committee shall
remain in effect. Such restrictions shall lapse upon expiration
of the Restriction Period, or sooner if otherwise provided in
the Plan.
(c) Restrictions. In addition to such other
restrictions as the Committee may impose at grant, each share
of Restricted Stock or Right to Restricted Stock shall be
subject to the following restrictions:
(i) Neither Restricted Stock nor Rights to
Restricted Stock may be sold, assigned,
transferred, pledged, hypothecated, or
otherwise disposed of during a Restriction
Period.
(ii) Except as otherwise herein provided, unless
the Participant remains continuously
employed by Pentair or an Affiliate until the
conditions for the removal of such restrictions
as the Committee may impose have been
satisfied, Restricted Stock and Rights to
Restricted Stock shall be forfeited and
returned to Pentair, and all rights of a
Participant to receive Restricted Stock or vest
in Rights to Restricted Stock shall terminate
without any payment or consideration by
Pentair.
(d) Recordkeeping. As soon as practicable after
the execution of the written agreement required by Section
5.2(a), Pentair shall:
(i) for awards of Restricted Stock, record in the
name of the Participant a number of
nonnegotiable, certificated or uncertificated
shares equal to the number of shares of
Restricted Stock awarded; and
(ii) for awards of Rights to Restricted Stock,
establish and maintain a separate written
account for each Participant and record in
such account the number of Rights to
Restricted Stock awarded.
(e) Dividends. Dividends declared with respect to
shares of Restricted Stock shall be paid in cash to the
Participant as and when declared, or as otherwise determined
by the Committee. Where Rights to Restricted Stock are
awarded, the Committee shall determine whether amounts
equivalent to dividends declared on Stock subject to an award
of Rights to Restricted Stock shall be paid when the dividends
are declared, or as otherwise determined by the Committee.
Dividends, regardless of when paid, shall be subject to all
applicable withholding taxes.
5.2 Incentive Compensation Units. (a) Award
Agreements. Each ICU award shall be evidenced by a written
agreement, executed by the Participant and Pentair, which
shall specify the number of ICUs awarded and contain such
other terms and conditions as the Committee may require.
(b) ICU Account. Pentair shall establish and
maintain a separate account ("ICU Account") for each
Participant and record in such accounts the number of ICUs
awarded to each Participant. The number of ICUs which may
be realized by each Participant may be adjusted by any
conditions specified by the Committee in the award
agreement. The maintenance of an ICU Account is
principally a bookkeeping function and does not entitle a
Participant to realize on an ICU award.
(c) Earning an ICU Award. (1) General. The
ability of a Participant to realize on an ICU award shall be
determined by achievement of specific corporate performance
factors over the designated Incentive Period. The maximum
amount of compensation per ICU payable to a Participant in
any calendar year by reason of an ICU award shall not exceed
twice the growth in Book Value, determined pursuant to
Section 5.2(d), over the applicable Incentive Period.
(2) Incentive Period. At the time of award, the
Committee shall fix the Incentive Period during which the
Participant must remain continuously employed by Pentair or
an Affiliate. The Incentive Period shall generally be three (3)
years, unless another expiration date is specified by the
Committee or the Plan provides otherwise.
(3) Corporate Performance Factors. The amount
of compensation payable to a Participant on account of an
ICU award shall be determined by application of the
following factors:
(i) the change in Book Value per share of
Stock over the designated Incentive Period;
(ii) the growth in earning per share of
Stock over the designated Incentive
Period;
(iii) the average return on equity of Stock
over the designated Incentive Period;
or
(iv) such other factors as the Committee
shall specify at the time of grant.
(d) Valuation of Incentive Compensation Unit.
(1) Valuation at Expiration of Incentive Period. As soon as
practicable after the Incentive Period expires, Pentair's
audited financial statements for the preceding Fiscal Year
shall be provided in final form to the Committee, which shall
determine the value of each ICU. Such value shall be based
on the net increase in Book Value over the Incentive Period,
calculated by subtracting the beginning Book Value (
determined as of the December 31 immediately preceding the
date the ICUs were awarded) from the ending Book Value
(determined on the December 31 immediately following the
end of the Incentive Period). The resulting number shall then
be subject to adjustment by a multiplier which takes into
account average return on equity, compounded growth in
earnings per share, or any other corporate performance factors
established with respect to the award being valued.
(2) Valuation if Incentive Period Shortened. If for
any reason an Incentive Period is shortened, the Committee
shall determine the value of an affected Participant's ICUs as
soon as practicable after the date such Period prematurely
ends, and for this purpose, the ending Book Value shall be
determined as of the December 31 immediately preceding the
date the Incentive Period ends, or as otherwise determined by
the Committee.
(3) Adjustments to Valuation Formula. The
Committee shall retain the discretion to modify the factors or
formula used to value an ICU award; provided, however, that
any such change shall be defined in the written agreement
executed pursuant to Section 5.2(a) at the time of grant. No
such modification shall in any event cause the value of an
ICU award made to any one Participant to exceed the
maximum possible award as defined in Section 5.2(c)(1).
(e) Payment of ICU Account. Payment of the
value of each ICU shall be made to the Participant, or, if
applicable, a designated beneficiary, as soon as practicable
after valuation. Such payment may be made in cash, Stock,
Rights to Restricted Stock, Restricted Stock or any
combination thereof, as the Committee shall determine at the
time of grant. If payment is made in Stock, Rights to
Restricted Stock or Restricted Stock, the shares shall be
valued at Fair Market Value (as adjusted for any restrictions)
on the date the Incentive Period expires.
SECTION 6. PERFORMANCE SHARES AND
PERFORMANCE UNITS
6.1 Performance Awards. (a) Performance
Agreement. Each award of Performance Shares and
Performance Units shall be evidenced by a written agreement,
executed by the Participant and Pentair. Such agreement shall
establish all terms and conditions applicable to the payment
of a Performance Share or Performance Unit as the
Committee may determine, including the achievement of
relevant performance objectives. These performance
objectives shall include such financial measures as return on
shareholders equity, growth in earnings per share, return on
sales, growth in income, growth in sales and various
techniques which compare actual returns with required returns
based on cost of capital criteria.
(b) Performance Accounts. At such time as a
performance award is made, Pentair shall establish an account
("Performance Account") for each Participant and credit the
Performance Units and Performance Shares awarded to such
account. Performance Shares shall be credited in the form of
Restricted Stock or Rights to Restricted Stock. The
maintenance of Performance Accounts is principally a
bookkeeping function, and does not entitle a Participant to
payment of any awards hereunder.
(c) Dividends. Dividends or the equivalent paid
with respect to Restricted Stock shall be paid in cash to the
Participant as and when declared, or as other determined by
the Committee. The Committee shall determine whether
dividends or the equivalent declared on Stock subject to
Rights to Restricted Stock shall be paid when declared, or as
otherwise determined by the Committee. Dividends,
regardless of when paid, shall be subject to all applicable
withholding taxes.
6.2 Performance Period and Targets. (a)
Performance Period. The Performance Period shall be
established by the Committee at the time of the award. This
period may differ for each award granted to any one
Participant.
(b) Performance Targets. At the time a
performance award is established, the Committee shall
establish such performance targets as it determines to be
relevant. Successful completion of performance targets
within the designated Performance Period shall be certified by
the Committee, using such measures of performance during
the Performance Period as are specified in the performance
agreement.
6.3 Earning a Performance Award. The
Committee shall pay a performance award to a Participant
based on the degree of attainment of the relevant performance
targets during the Performance Period, and in accordance with
the provisions of the performance agreement. The maximum
amount of compensation a Participant may be granted by
reason of a performance award in any one calendar year shall
be $100,000, calculated by reference to Fair Market Value of
the award on date of grant.
6.4 Payment of Performance Awards. (a) Time
for Payment. No performance award shall be payable until
after earned in accordance with the terms and conditions of
the performance agreement, unless otherwise provided in the
Plan or in the sole discretion of the Committee. Any
Performance Shares, Performance Units or other amounts
credited to a Performance Account shall be paid to the
Participant only when, and to the extent, the Committee so
determines. All such determinations shall be made during the
four (4) month period immediately following the end of the
Performance Period as established in the performance
agreement.
(b) Form of Payment. Payment of Performance
Shares or Performance Units shall be in the form of cash,
Stock, Rights to Restricted Stock or Restricted Stock, or a
combination thereof as determined by the Committee at the
time of grant. If payment is made in Stock, Rights to
Restricted Stock or Restricted Stock, the shares shall be
valued at Fair Market Value (as adjusted for any restrictions)
on the date the Performance Period expires.
6.5 Bonus Plans. (a) Executive Bonus Award.
On February 14, 1996, Pentair adopted the Executive Officer
Performance Plan ("EOPP"), an annual bonus plan designed
to compensate participating executive officers for
performance as measured against the key financial
measurements defined in the EOPP plan. Cash awards under
the EOPP are limited to an amount equal to an EOPP
participant's annual base salary, even though a total bonus
award under the EOPP may exceed that amount. To the
extent an annual bonus award exceeds the amount which can
be paid in cash pursuant to the EOPP, the balance shall be
considered an award of Performance Shares payable in the
form of Restricted Stock under the Plan. The performance
targets applicable to such Performance Shares shall be the
same as the criteria established under the EOPP for purposes
of earning the award. The Performance Shares so granted
shall be subject to any vesting conditions the Committee may
impose as of the date the Performance Shares are issued. The
maximum amount of compensation a Participant may be
granted by reason of a Performance Share award under the
EOPP in any one calendar year is equal to the maximum
award available to such Participant under the EOPP, reduced
by the amount of such award payable to the Participant in
cash.
(b) Management Incentive Plan. Pentair also
maintains an annual bonus plan (the "MIP") which provides
incentive compensation for management employees other
than executive officers. Like the EOPP, cash awards under
the MIP are limited to an amount equal to a MIP participant's
annual base salary, even though a total bonus award under the
MIP may exceed that amount. To the extent such an annual
bonus award exceeds the amount which can be paid in cash
under the MIP, the balance shall be considered an award of
Performance Shares payable in the form of Restricted Stock
under the Plan. The Performance Shares so granted shall be
subject to any vesting conditions the Committee may impose
as of the date the Performance Shares are issued. The
maximum amount of compensation a Participant may be
granted by reason of a Performance Share award under the
MIP in any one calendar year is equal to the maximum award
available to such Participant under the MIP reduced by the
amount of such award payable to the Participant in cash.
SECTION 7. TERMINATION OF EMPLOYMENT
7.1 General Rule. Except as otherwise provided
herein, Options and SARs may be exercised and Restricted
Stock, Rights to Restricted Stock, ICUs, Performance Share
or Performance Unit awards paid to a Participant only in
accordance with the terms and conditions specified by the
Committee at the time of grant.
7.2 Exceptions for Death, Disability or
Retirement. (a) Death of Participant. If a Participant's
employment terminates due to death, any benefits under the
Plan may be transferred to the beneficiary designated by the
Participant. If no beneficiary has been duly designated, said
benefits shall transfer pursuant to the provisions of such
Participant's will, or if there is no will, by the laws of intestate
succession in the state in which the Participant is domiciled
on the date of death. The individual who succeeds to the
Participant's benefits under the Plan may:
(i) exercise any outstanding Options to the same
extent the Participant was entitled to exercise
such Options, together with any Options the
Committee may accelerate, at any time prior
to the earlier of six (6) months from the date
of the Participant's death, or the date the
Options would otherwise expire by their
terms;
(ii) receive payment of any shares of Restricted
Stock or Rights to Restricted Stock based on
a deemed lapse of the restrictions, or of any
ICUs based on a deemed expiration of the
Incentive Period and attainment of the
relevant performance goals, provided that any
such payment may be either prorated or
otherwise paid as determined by the
Committee;
(iii) receive payment of a Performance Share or
Performance Unit award, as determined by the
Committee, based on the degree to which
established performance targets had been
attained as of the Participant's death.
(b) Disability of Participant. A Participant who
becomes Disabled may:
(i) exercise outstanding Options that are
otherwise exercisable, together with any
Options the Committee may accelerate, at any
time prior to the earlier of twelve (12) months
after the date of Disability or the date the
Options would otherwise expire by their
terms;
(ii) be paid a prorated amount of an award of
Restricted Stock or Rights to Restricted Stock
or ICUs, determined by application of the
payment provisions in Section 7.2(a)(ii),
based on a deemed lapse of restrictions or a
deemed expiration of an Incentive Period and
attainment of the relevant performance goals;
(iii) be paid a Performance Share or Performance
Unit award prior to expiration of a
Performance Period, as the Committee shall
determine by considering the degree of
attainment of established performance targets.
(c) Retirement. At the time of Retirement, a
Participant may:
(i) exercise outstanding Options which are
otherwise exercisable, together with any
Options the Committee may accelerate, at any
time prior to the earlier of thirty (30) days
following Retirement, or the date the Options
would otherwise expire by their terms;
(ii) receive a prorated payment of an award of
Restricted Stock, Rights to Restricted Stock or
ICUs, determined by application of the
payment provisions in Section 7.2(a)(ii),
based on a deemed lapse of restrictions or a
deemed expiration of an Incentive Period and,
if applicable, attainment of relevant
performance goals;
(iii) receive a payment of Performance Shares or
Performance Units as the Committee shall
determine by considering the degree to which
performance targets have been attained.
(d) Other Termination of Employment. (1)
Termination Not for Cause. If a Participant's employment
ends for reasons other than those listed in Sections 7.2 or 7.3,
outstanding Options may be exercised no later than the earlier
of thirty (30) days following such termination, or the date the
Options would, by their terms, expire. Any other outstanding
awards under the Plan, to the extent not then earned and paid
to the Participant, shall terminate unless accelerated by the
Committee, subject to the provisions of Section 8.1.
(2) Termination for Cause. If a Participant's
services are terminated for cause, as determined by the
Committee, all Options or other benefits granted under the
Plan, to the extent not already exercised or otherwise earned
or paid, shall terminate.
7.3 Change in Control. (a) Acquisition. In the
event a controlling number of Pentair's shares is acquired, or
in the event substantially all of Pentair's assets are acquired:
(i) with respect to outstanding Options, the
Committee may, in its discretion, cancel all
Options, even if then exercisable, and
authorize payment to the affected Participant
of the per share amount payable to a
shareholder as a result of the acquisition
multiplied by the number of shares subject to
Option, less the Option price;
(ii) with respect to any awards of Restricted
Stock, Rights to Restricted Stock, ICUs and
Performance Shares or Performance Units, if
the Participant's employment terminates
within one year of such acquisition, whether
voluntarily or involuntarily, and such award is
then payable, then all restrictions shall be
deemed to have lapsed, all applicable
incentive or performance periods shall be
deemed to have expired, and all performance
targets shall be deemed to have been fully
attained as of the date of such termination of
employment.
(b) Merger. (1) Options. With respect to Options
outstanding at the time of a merger or consolidation of Pentair
with another corporation, such Options shall be deemed to
apply to the same number of shares a holder of shares not
subject to an Option would have been entitled to receive
under the terms of such merger or consolidation. If Pentair is
not the surviving entity after such merger or consolidation,
the Participant shall (i) be given a commitment from the
surviving entity to offer to the Participant options to purchase
that entity's stock on terms and conditions which substantially
preserve the rights and benefits of the outstanding Options
granted by Pentair, or (ii) have the right to exercise any
outstanding Options immediately prior to the merger, even if
such Options would otherwise not be exercisable.
(2) Restricted Stock. If Pentair is consolidated or
merged with another corporation, each Participant who has
been awarded Restricted Stock or Rights to Restricted Stock
shall be entitled to the same rights and privileges as any other
stockholder; provided, however, that any shares of Stock
received in connection with the merger shall be subject to the
same restrictions as were imposed on the underlying shares of
Restricted Stock or the Rights to Restricted Stock, unless
otherwise accelerated.
(c) Other Extraordinary Transactions. If Pentair
dissolves or is liquidated, every outstanding Option or other
type of award shall be terminated as of the effective date of
such dissolution or liquidation. The Committee, immediately
prior to the dissolution or liquidation, and in its sole
discretion, may (i) give to Participants the right to exercise
any outstanding Options, even if not then otherwise
exercisable, or (ii) pay to Participants any other outstanding
awards under the Plan even if applicable restrictions have not
lapsed, applicable periods have not expired or performance
targets have not been attained. If Pentair divests an Affiliate,
Participants employed by such Affiliate shall be treated as if
Pentair had dissolved or liquidated.
SECTION 8. CHANGES TO AWARDS
8.1 Acceleration of Benefits. The Committee
shall have the discretion to accelerate the exercise date of an
Option or SAR or the time at which restrictions on Stock or
Rights thereto lapse, to remove any Stock restrictions or to
accelerate the expiration of an Incentive Period or
Performance Period due to changes in applicable tax or other
laws, or such other changes of circumstances as may arise
after the date of an award under the Plan, or to take any such
similar action it may decide, in its absolute discretion, is in
the best interests of Pentair and equitable to a Participant (or
such Participant's heirs or beneficiaries). Notwithstanding the
above, however, the Committee shall have no discretion to
increase the amount of compensation a Participant could earn
by application of the preestablished performance goals and
financial measurements relevant to the award, although the
Committee shall retain the discretion to decrease any such
award. Any action by the Committee to accelerate a grant or
award for reasons other than death, disability or change in
control of Pentair shall include application of a commercially
reasonable discount to the compensation payable to reflect the
value of accelerated payment.
8.2 Accounting Standards. Calculation of changes
to any performance goal established for purposes of making
awards under the Plan shall be without regard to changes in
accounting methods used by Pentair or in accounting
standards that may be required by the Financial Accounting
Standards Board after the goal is established and prior to the
time compensation earned on account of achievement of the
relevant performance goal is paid to the Participant.
SECTION 9. MISCELLANEOUS PROVISIONS
9.1 Stockholder Privileges. (a) Options. Until
such time as a Stock certificate is issued, a Participant, or
other person entitled to exercise an Option under the Plan,
shall have none of the privileges of a stockholder with respect
to Stock covered by an Option granted under this Plan.
(b) Other Awards. Upon delivery of Restricted
Stock to a Participant (or to an escrow holder, if applicable)
such Participant shall have all of the rights of a shareholder
with respect to the Restricted Stock, subject to the restrictions
imposed, including the right to receive dividends and vote the
shares of Restricted Stock. Participants for whom an account
is established to record an award of Rights to Restricted Stock
shall not have the rights of a shareholder until such time as
the Rights to Restricted Stock vest, but may, in the discretion
of the Committee, receive payment of or credit for the
equivalent of dividends otherwise payable with respect to the
number of shares of Stock to which such Rights to Restricted
Stock relate.
In the event of forfeiture, the certificate or certificates,
if any, representing such Restricted Stock shall be delivered
to Pentair, accompanied by executed instruments of transfer.
If the Restricted Stock is held in escrow, Pentair shall be
entitled to have the certificates representing the Restricted
Stock redelivered to it out of escrow.
(c) Interest. The Committee may provide for the
crediting of earnings interest with respect to Performance
Units or ICUs credited to a Participant's account. Any rate of
earnings credited hereunder shall be determined by the
Committee.
(d) Sale of Stock or Restricted Stock. The
Committee may fix a period during which any Stock, Right
to Restricted Stock or Restricted Stock acquired under the
Plan may not be sold, provided that the Committee may not
fix any period which is less than or which exceeds such
requirements as may be imposed by applicable state or federal
law.
9.2 Amendment, Suspension, Modification and
Termination of Plan. The Committee, subject to approval
by the Board, may amend or modify the Plan at any time to
conform to changes in applicable laws or in any other respect
deemed to be in the best interests of Pentair. Pursuant to Code
section 422, however, no such amendment shall, without
shareholder approval (i) materially increase the number of
shares of Stock as to which ISOs may be granted under the
Plan, (ii) materially modify the requirements as to eligibility
to receive Options under the Plan, (iii) materially increase the
benefits accruing to Participants receiving ISOs under the
Plan, (iv) reduce an ISO Option price below Fair Market
Value on the day the Option is granted, (v) permit the award
of SARs other than in tandem with an ISO, (vi) extend the
period during which an Option may be granted or exercised,
or (vii) extend the termination date of the provisions of the
Plan which permit the granting of ISOs. No amendment or
modification of the Plan shall adversely affect any Participant
under the Plan, or any section thereof, without such
Participant's consent.
9.3 Administration. The Plan shall be
administered by the Committee. Pursuant to this delegation,
the Committee is authorized to (i) interpret and construe the
Plan, (ii) adopt, amend, or rescind rules and regulations
relating to the Plan, and (iii) make all other determinations
necessary or advisable for the administration of the Plan, to
the extent not contrary to the express provisions of the Plan.
Any actions, determinations or other interpretations made by
the Committee within the scope of its authority shall be final,
binding and conclusive for all purposes.
9.4 Indemnification. To the extent permitted by
law, members of the Committee and the Board shall be
indemnified and held harmless by Pentair with respect to any
loss, cost, liability or expense that may reasonably be incurred
in connection with any claim, action, suit or proceeding
which arises by reason of any act or omission under the Plan,
taken within the scope of the authority delegated herein.
9.5 Expenses. The expenses of maintaining and
administering this Plan shall be borne by Pentair.
9.6 Rights of Participants. Nothing in this Plan
shall interfere with or limit in any way the right of Pentair or
an Affiliate to terminate any individual's employment at any
time, with or without notice or cause. This Plan does not, nor
is it intended to, confer upon any employee the right to
continue in the employment of Pentair or an Affiliate.
9.7 Transferability. (a) Nontransferability.
Except as otherwise specified in the Plan, Options, SARs,
Restricted Stock, Rights to Restricted Stock, ICUs,
Performance Shares and Performance Units granted or
awarded under the Plan shall not be transferrable.
(b) Designation of Beneficiary(ies). A Participant
may designate a person or persons to receive his or her Plan
benefits in the event of death. Such designation shall be on
forms as prescribed by the Committee and may be modified
or revoked only in writing.
9.8 Governing Law. To the extent not preempted
by applicable federal law, this Plan shall be construed and
interpreted in accordance with the substantive laws of the
State of Minnesota.
IN WITNESS WHEREOF, this amended and
restated Plan has been executed this ____ day of
___________, 1996.
PENTAIR, INC.
By __________________________________
Winslow H. Buxton
Chief Executive Officer
By __________________________________
Roy T. Rueb
Secretary
