<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
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
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PENTAIR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MERRILL CORP.
- --------------------------------------------------------------------------------
(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:
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(2) Aggregate number of securities to which transaction applies:
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(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.
/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PENTAIR, INC.
1500 County Road B2 West
Saint Paul, Minnesota 55113
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 23, 1997
To our Shareholders:
The Annual Meeting of Shareholders of Pentair, Inc. (the "Company") will be
held at the Northland Inn and Conference Center, 7101 Northland Circle, Brooklyn
Park, Minnesota, on Wednesday, April 23, 1997, at 10:00 a.m., for the following
purposes:
1. To elect three directors.
2. To vote on a proposal to ratify the selection of Deloitte & Touche LLP
as independent auditors of the Company for 1997.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on February 24, 1997
as the record date for determining the shareholders entitled to vote at the
annual meeting. Accordingly, only shareholders of record at the close of
business on that date will be entitled to vote. The Company's transfer books
will not be closed.
By Order of the Board of Directors
Roy T. Rueb, Secretary
Saint Paul, Minnesota
March 7, 1997
IMPORTANT: To assure that the annual meeting may be legally held, there must be
a quorum (50% plus 1 vote). Accordingly, you are urged to SIGN AND RETURN THE
ENCLOSED PROXY PROMPTLY. This will not prevent you from voting in person if you
so desire.
<PAGE>
TABLE OF CONTENTS FOR PROXY STATEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Solicitation............................................................................................... 1
Revocation and Voting of Proxy............................................................................. 1
Outstanding Shares and Voting Rights....................................................................... 2
Security Ownership of Management and Beneficial Ownership.................................................. 2
Proposals to be Acted Upon at the Annual Meeting
Item 1 -- Election of Directors.......................................................................... 5
Item 2 -- Approval of Auditors........................................................................... 11
Executive Compensation..................................................................................... 11
Future Proposals........................................................................................... 21
Other Business............................................................................................. 21
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 23, 1997
------------------------------------------------------------
PENTAIR, INC.
1500 County Road B2 West
Saint Paul, Minnesota 55113
March 7, 1997
The following statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Pentair, Inc. (the "Company") to be voted
at the annual meeting of shareholders of the Company to be held on Wednesday,
April 23, 1997, or at any adjournment or adjournments of such meeting.
Distribution of this proxy statement and proxy to shareholders began on or about
March 7, 1997.
SOLICITATION
The cost of soliciting proxies and the notices of the meeting, including the
preparation, assembly and mailing of proxies and this statement, will be borne
by the Company. In addition to this mailing, proxies may be solicited personally
or by telephone by regular employees of the Company. Assistance in the
solicitation of proxies is also being rendered by Morrow & Co., 909 Third
Avenue, New York, New York, at a cost to the Company of $7,000 plus expenses.
Furthermore, arrangements may be made with brokers, banks and similar
organizations to send proxies and proxy materials to beneficial owners for
voting instructions, for which the Company will reimburse such organizations for
their expense in so doing and will pay all costs of soliciting the proxies.
REVOCATION AND VOTING OF PROXY
Any shareholder giving a proxy may revoke it prior to its use at the meeting
by (1) delivering a written notice expressly revoking the proxy to the Secretary
at the Company's offices, (2) signing and forwarding to the Company at its
offices a later dated proxy, or (3) attending the annual meeting and casting his
or her votes personally.
A majority of the outstanding shares will constitute a quorum at the Annual
Meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
Pursuant to Minnesota law and the Company's Articles of Incorporation,
abstentions are counted in determining the total number of the votes cast on
proposals presented to shareholders, but will not be treated as votes in favor
of the proposals. Broker non-votes are not counted for purposes of determining
the total number of votes cast on proposals presented to shareholders.
Unless otherwise directed in the accompanying proxy, the persons named
therein will vote FOR the directors and approval of auditors as set forth in
this Notice of Annual Meeting of Shareholders. As to any other business which
may properly come before the meeting, they will vote in accordance with their
best judgment. The Company does not presently know of any other business.
1
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on February 24, 1997, the record date, there were
outstanding 37,863,963 shares of common stock, par value $.16 2/3 per share, and
1,638,108 shares of 8% Callable Cumulative Voting Convertible Preferred Stock,
Series 1990, par value $.10 per share ("Voting Preferred"), which are the only
classes of voting stock of the Company entitled to be voted at the meeting.
A shareholder is entitled to one vote for each common share and Voting
Preferred share held on the record date with respect to all matters that may be
brought before the meeting. There is no cumulative voting for directors. An
affirmative vote of the holders of a majority of the voting power of the shares
present at the meeting is required for election of directors and the approval of
all other proposals set forth in this Proxy Statement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers 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.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the Company's officers and directors,
the Company believes all persons subject to these reporting requirements filed
the required reports on a timely basis, except that Richard J. Cathcart, an
officer of the Company, did not timely file the required Form 4, Statement of
Changes in Beneficial Ownership, for his purchase of common shares. The required
report was filed in the month following the month the shares were purchased.
SECURITY OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERSHIP
The following table contains information concerning the beneficial ownership
of the Company's voting shares as of February 24, 1997 by each director, by each
named executive officer, by all directors and executive officers as a group and,
as of December 31, 1996, by two persons known to the Company to "beneficially
own" more than 5% of either of its classes of voting shares.
<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENT OF NUMBER OF VOTING PERCENT OF COMBINED VOTING
BENEFICIAL OWNER (A) SHARES (B) CLASS PREFERRED SHARES (B) CLASS PERCENTAGE (C)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
George N. Butzow 41,632(d) * 0 0 *
Winslow H. Buxton 432,376(e) 1.1% 1,811 * 1.1%
William J. Cadogan 347(f) * 0 0 *
Richard J. Cathcart 31,005(g) * 204 * *
Joseph R. Collins 112,413(h) * 1,667 * *
James H. Frank 68,102(i) * 1,772 * *
Barbara B. Grogan 983(j) * 0 0 *
Charles A. Haggerty 11,344(k) * 0 0 *
Harold V. Haverty 9,950(l) * 0 0 *
Quentin J. Hietpas 26,036(m) * 0 0 *
Walter Kissling 11,730(n) * 0 0 *
Gerald C. Kitch 140,821(o) * 1,779 * *
D. Eugene Nugent 814,305(p) 2.1% 0 0 2.0%
Richard M. Schulze 7,855(q) * 0 0 *
Karen E. Welke 3,463(r) * 0 0 *
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENT OF NUMBER OF VOTING PERCENT OF COMBINED VOTING
BENEFICIAL OWNER (A) SHARES (B) CLASS PREFERRED SHARES (B) CLASS PERCENTAGE (C)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
All directors & executive 1,849,616(s) 4.8% 11,523 * 4.7%
officers as a group (18
persons)
Brinson Partners, Inc. 3,067,771(t) 8.0% 0 0 7.7%
209 South LaSalle St.
Chicago, IL 60604-1295
State Street Bank 158,784(u) * 1,648,091(u) 100% 4.5%
and Trust Company
225 Franklin St.
Boston, MA 02110
</TABLE>
* Less than 1.0%.
(a) Unless otherwise noted, all shares are held by individuals possessing sole
voting and investment power with respect to such shares. Amounts listed do
not include 1,056,570 shares held by the Pentair, Inc. Master Trust for
various pension plans of the Company and it subsidiaries. The Trust
Investment Committee of such Master Trust includes Winslow H. Buxton and
three other officers. Although these individuals could be deemed under
applicable Securities and Exchange Commission rules to "beneficially own"
all of the shares held by these plans because of their shared voting and
investment power with respect to those shares, they disclaim beneficial
ownership of such shares.
(b) The shares of Voting Preferred stock are all held by the trustee of the
Company's Employee Stock Ownership Trust. These shares are converted into
common shares upon the retirement or other termination of employment of an
ESOP participant at the ratio of approximately 2.3077 common shares for each
preferred share. The shares of preferred stock vote together with the common
shares as a single class on most issues, with each preferred share having
one vote. As named fiduciaries (i.e. the responsible parties identified in
the voting section of the ESOP Trust Agreement), the ESOP participants,
including those officers listed in the table, have the right to direct the
Trustee to vote the shares allocated to their accounts although participants
have no investment power over those shares. In addition, ESOP participants
have the right to direct the Trustee to vote a portion of the shares that
have not been allocated to participant accounts or for which no instructions
are timely received by the Trustee.
Since the Voting Preferred shares could be converted into approximately
3,803,300 common shares, under applicable SEC rules the ESOP trustee may be
deemed to beneficially own that number of common shares in addition to the
preferred shares it holds. However, to avoid overstatement of the aggregate
beneficial ownership of the common and Voting Preferred shares, the common
shares reported in the table do not include the shares that may be acquired
upon conversion of the Voting Preferred shares, and the calculations of the
percentage of common shares beneficially owned do not take into account any
such shares.
(c) Since the common shares and Voting Preferred shares vote together as a
single class on all issues being submitted to the shareholders at the
upcoming annual meeting, the percentages listed in the table indicate the
percentage of the aggregate voting power represented by the shares of both
classes plus, shares that could be obtained upon exercise of stock options
within 60 days.
(d) Includes 6,000 shares that could be obtained upon exercise of stock options
within 60 days and 19,843 shares representing share units credited to Mr.
Butzow's account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which he currently has no voting or investment
power.
(e) Includes 27,656 restricted shares issued pursuant to an incentive plan as to
which Mr. Buxton has sole voting power but no investment power, 14,874 held
by his spouse as to which he may be
3
<PAGE>
deemed to share voting and investment power, but as to which he disclaims
beneficial ownership and 234,592 shares that could be obtained upon exercise
of employee stock options within 60 days.
(f) Includes 347 shares representing share units credited to Mr. Cadogan's
account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which he currently has no voting or investment
power.
(g) Includes 6,608 restricted shares issued pursuant to an incentive plan as to
which Mr. Cathcart has sole voting power but no investment power, 4,920
shares held jointly with his spouse as to which he shares voting and
investment power, and 14,799 shares that could be obtained upon exercise of
employee stock options within 60 days.
(h) Includes 8,274 restricted shares issued pursuant to an incentive plan as to
which Mr. Collins has sole voting power but no investment power, 20,278
shares held in a trust as to which he has sole voting and investment power,
19,334 shares held by his spouse in a trust as to which he may be deemed to
share voting and investment power, but as to which he disclaims beneficial
ownership, 802 shares held by children as to which he may be deemed to share
voting and investment power but as to which he disclaims beneficial
ownership and 59,410 shares that could be obtained upon exercise of employee
stock options within 60 days.
(i) Includes 2,384 restricted shares issued pursuant to an incentive plan as to
which Mr. Frank has sole voting power but no investment power, 15,550 shares
held by his spouse as to which he may be deemed to share voting and
investment power, but as to which he disclaims beneficial ownership and
28,332 shares that could be obtained upon exercise of employee stock options
within 60 days.
(j) Includes 983 shares representing share units credited to Ms. Grogan's
account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which she has no voting or investment power.
(k) Includes 3,000 shares that could be obtained upon exercise of stock options
within 60 days and 4,344 shares representing share units credited to Mr.
Haggerty's account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which he currently has no voting or investment
power.
(l) Includes 6,000 shares that could be obtained upon exercise of stock options
within 60 days.
(m) Includes 2,967 shares representing share units credited to Mr. Hietpas's
account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which he currently has no voting or investment
power, and 3,000 shares that could be obtained upon exercise of stock
options within 60 days.
(n) Includes 6,000 shares that could be obtained upon exercise of stock options
within 60 days and 5,730 shares representing share units credited to Mr.
Kissling's account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which he has no voting or investment power.
(o) Includes 10,417 restricted shares issued pursuant to an incentive plan as to
which Mr. Kitch has sole voting power but no investment power, and 67,816
shares that could be obtained upon exercise of employee stock options within
60 days.
(p) Includes 453,355 shares that Mr. Nugent holds jointly with his spouse as to
which he shares voting and investment power, 45,560 shares held by his
spouse as to which he may be deemed to share voting and investment power,
but as to which he disclaims beneficial ownership, and 9,000 shares that
could be obtained upon exercise of stock options within 60 days.
(q) Includes 3,000 shares that could be obtained upon exercise of stock options
within 60 days and 2,855 shares representing share units credited to Mr.
Schulze's account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which he has no voting or investment power.
4
<PAGE>
(r) Includes 2,463 shares representing share units credited to Ms. Welke's
account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which she has no voting or investment power,
and 1,000 shares that could be obtained upon exercise of stock options
within 60 days.
(s) Includes, with respect to officers not named above, 1,834 shares held by
children of an officer as to which such officer may be deemed to share
voting and investment power, but as to which he disclaims beneficial
ownership; 23,599 shares held jointly in a trust by an officer and his
spouse as to which they share voting and investment power; 6,557 restricted
shares issued pursuant to an incentive plan as to which such officers have
sole voting power but no investment power; and 63,650 shares that could be
obtained upon exercise of employee stock options within 60 days.
(t) According to its Schedule 13G dated February 12, 1997, as of December 31,
1996, Brinson Partners, Inc., a registered investment adviser, has shared
voting power and shared investment power over all 3,067,771 shares.
(u) According to its Schedule 13G dated February 10, 1997, as of December 31,
1996, State Street Bank and Trust Company, as trustee under the Pentair,
Inc. Employee Stock Ownership Trust, may be deemed to have shared voting
power of the common shares listed and investment power over all Voting
Preferred shares, but it has disclaimed beneficial ownership of all shares.
State Street reports having sole voting power over 154,384 shares, no voting
power over 4,400 shares, sole investment power of 158,600 shares, and shared
investment power over 184 shares which it holds as trustee for collective
investment funds for other employee benefit plans.
PROPOSALS TO BE ACTED UPON AT THE ANNUAL MEETING
ITEM 1
ELECTION OF DIRECTORS
The Company's By-Laws provide for a Board of Directors (sometimes referred
to herein as the "Board") of not fewer than three members and not more than
fifteen members. The Board is divided into three classes with directors serving
three-year terms but with the beginning date for each term staggered so that the
term of only one class expires in any particular year. Vacancies that occur
during a term may be filled by the Board of Directors or by election at a
special meeting of shareholders. Any director elected to fill a vacancy by the
remaining directors is required to stand for election at the next meeting of
shareholders.
At the forthcoming annual meeting, three persons are nominated to be elected
to the Company's Board of Directors. Three incumbent directors, William J.
Cadogan, Charles A. Haggerty and Harold V. Haverty, have been nominated for
three-year terms, expiring at the 2000 Annual Meeting. Seven other directors
have terms of office that do not expire at this time, and each will continue to
serve his or her full term. Proxies cannot be voted for a greater number of
directors than the number nominated. Unless you direct otherwise, proxies will
be voted FOR the election of all nominees listed below. Should any nominee
decline or be unable to accept such nomination or to serve as director (an event
management does not now expect to occur), proxies will be voted FOR a substitute
nominee or nominees in accordance with the best judgment of the person or
persons acting under them.
5
<PAGE>
Information concerning the persons nominated for election as directors, as
well as those continuing in office, is set forth on the following pages.
DIRECTORS STANDING FOR ELECTION
(FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS)
<TABLE>
<S> <C>
[PHOTO]
WILLIAM J. CADOGAN
Director since: 1996
Age: 48
Since November 1993, Mr. Cadogan has been the Chairman of the Board of Directors
of ADC Telecommunications, Inc., a designer and manufacturer of products and
systems for broadband telecommunications networks. Mr. Cadogan has been Chief
Executive Officer of ADC Telecommunications since November, 1991 and was
President from June 1990 to November 1991. He is also a director of Banta
Corporation, Vice Chairman of the Telecommunications Industry Association and
serves on the Board of Governors of the Electronics Industry Association.
[PHOTO]
CHARLES A. HAGGERTY
Director since: 1994
Age: 55
In June 1992, Mr. Haggerty was appointed President and subsequently in July 1993
appointed Chairman of the Board of Directors and Chief Executive Officer of
Western Digital Corporation, a manufacturer of hard disk drives. Prior to that,
he held various positions with IBM Corporation including Vice President -
General Manager, Worldwide OEM Storage Marketing (1991-1992); and Vice President
-General Manager, Low-end Storage Products (1989-1990). Mr. Haggerty is also a
director of Sync Research, Inc. and Beckman Instruments, Inc.
[PHOTO]
HAROLD V. HAVERTY
Director since: 1991
Age: 66
Mr. Haverty was Chairman of the Board of Directors of Deluxe Corporation, a
manufacturer of bank checks and internal bank forms from 1992 until 1996 and
Chief Executive Officer and President of Deluxe from 1986 until 1995. He also
serves on the board of Minnesota Mutual Life.
</TABLE>
6
<PAGE>
DIRECTORS CONTINUING IN OFFICE
(TERM EXPIRES AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS)
<TABLE>
<S> <C>
[PHOTO]
QUENTIN J. HIETPAS
Director since: 1976
Age: 66
Since 1983, Mr. Hietpas has been the Senior Vice President of External Affairs
of the University of St. Thomas.
[PHOTO]
RICHARD M. SCHULZE
Director since: 1994
Age: 56
Since 1983, Mr. Schulze has been Founder, Chairman and Chief Executive Officer
of Best Buy Company, Inc. a consumer electronics and major appliance chain.
[PHOTO]
KAREN E. WELKE
Director since: 1995
Age: 52
Since February 1995, Ms. Welke has been Group Vice President, Medical Markets
Group for Minnesota Mining and Manufacturing Company (3M). Prior to that, she
held various positions with 3M including Managing Director, 3M France (July 1991
to February 1995); and Division Vice President, Medical-Surgical Division (March
1989 to July 1991).
</TABLE>
7
<PAGE>
(TERM EXPIRES AT THE 1999 ANNUAL MEETING OF SHAREHOLDERS)
<TABLE>
<S> <C>
[PHOTO]
GEORGE N. BUTZOW
Director since: 1979
Age: 67
Mr. Butzow is Founder and Chairman Emeritus of MTS Systems, a manufacturer of
high-technology testing systems. Mr. Butzow was Chairman of the Board of
Directors of MTS from 1982 to May 1994.
[PHOTO]
WINSLOW H. BUXTON
Director since: 1990
Age: 57
Since January 1993, Mr. Buxton has been the Chairman of the Board of Directors
of Pentair, Inc. Mr. Buxton has been President and Chief Executive Officer of
the Company since August 1992. Mr. Buxton was Chief Operating Officer of the
Company from August 1990 through August 1992. Mr. Buxton was also Vice President
-Paper Group of the Company from January 1989 through August 1990. Mr. Buxton is
also a director of Bemis Company, Inc.
[PHOTO]
WALTER KISSLING
Director since: 1993
Age: 65
Mr. Kissling has been the President since April 1992 and Chief Executive Officer
since April 1995 of H.B. Fuller Company, a manufacturer and marketer of
specialty chemical products. He was Chief Operating Officer of H.B. Fuller from
July 1990 to April 1995 and Executive Vice President from July 1990 to April
1991, and Senior Vice President from 1980 to 1990. Mr. Kissling is also a
director of H.B. Fuller Company and Chairman and Director of one of its
subsidiaries, Kativo Chemical Industries, S.A.
[PHOTO]
BARBARA B. GROGAN
Director since: 1996
Age: 49
Ms. Grogan is Chairman and President of Western Industrial Contractors, Inc., a
company specializing in machinery erection and installation. Ms. Grogan founded
Western Industrial Contractors, Inc. in September, 1982. She was Chairman of the
Board of Directors of the Federal Reserve Bank of Kansas City, Denver Branch,
from 1989 to 1994, and at present is a member of the Board of Directors of the
U.S. Chamber of Commerce, the Winter Park Recreation Association, Deluxe
Corporation and Apogee, Inc.
</TABLE>
8
<PAGE>
DIRECTORS' ATTENDANCE
The Board of Directors held 7 meetings in 1996. All directors except William
J. Cadogan attended at least 75% of the aggregate of all the meetings of the
Board and its committees on which they served.
COMMITTEES OF THE BOARD
The Audit Committee, which presently consists of George N. Butzow (Chair),
Karen E. Welke, Richard M. Schulze and Charles A. Haggerty, is responsible for
selecting auditors, ensuring the fiscal integrity of the Company, and
establishing and reviewing internal controls. The Audit Committee held 2
meetings in 1996.
The Compensation and Human Resource Committee, which presently consists of
Quentin J. Hietpas (Chair), Harold V. Haverty, William J. Cadogan and George N.
Butzow, is responsible for developing a broad plan of compensation for the
Company that is competitive and rewarding to the degree that it will attract,
hold, and inspire performance of executive, managerial, and other key personnel.
The Committee held 6 meetings during 1996.
The Nominating and Governance Committee presently consists of D. Eugene
Nugent (Chair), Winslow H. Buxton, William J. Cadogan and Quentin J. Hietpas.
George N. Butzow will replace D. Eugene Nugent as Chair after Mr. Nugent
retires. The Nominating and Governance Committee is responsible for nominating
candidates for vacancies on the Board. The Nominating and Governance Committee
will consider nominees recommended by shareholders under procedures set forth in
the Company's By-Laws. Sections 9 through 12 of Article II of the By-Laws
provide that a candidate may not be nominated for election as a director at the
annual meeting of shareholders unless the nomination was previously submitted to
the Board or its Nominating and Governance Committee. A shareholder wishing to
nominate a candidate for director at an annual meeting of shareholders must do
so no later than the sixtieth day after the end of the fiscal year preceding the
year in which such annual meeting will be held. Nominations are deemed made when
the Secretary of the Company receives all of the following: (1) all information
about the nominee that may be required to be provided in any proxy statement
pursuant to the Securities Exchange Act of 1934 and regulations promulgated
thereunder; (2) an executed directors' questionnaire provided by the Company and
completed by the nominee; (3) the nominee's statement consenting to his or her
nomination and agreeing to serve, if elected; and (4) evidence that the person
making the nomination is a shareholder. After reviewing the submission, the
Board or the appointed Nominating and Governance Committee may, but need not,
designate one or more of the nominees to appear as an alternate candidate on any
proxy solicited by management or any proxy statement furnished by management.
The number of such alternate candidates may not exceed the number of directors
to be elected at that annual meeting. Exclusion of any eligible candidate from a
proxy solicited by management does not affect the right of shareholders to
nominate, vote for, or elect such candidate at any shareholders meeting held
within twelve months after submission of the nomination material described
above. The Nominating and Governance Committee held 2 meetings in 1996.
DIRECTORS' COMPENSATION
It is the Company's philosophy that a significant portion of directors'
compensation should be tied to long-term growth in shareholder value. In 1997,
non-employee directors will be paid an annual retainer of $23,000, ($28,000 for
the Chair of the Compensation and Human Resource Committee), $29,850 of deferred
compensation in the form of share units under the Fourth Amended and Restated
Compensation Plan for Non-Employee Directors, $1,000 for attendance at each
Board meeting, $1,000 ($2,000 for committee chairs) for attendance at each
committee meeting, and $500 for participation in a telephone conference in lieu
of a meeting. Under the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors, non-employee directors of the Company may elect to defer
payment of all or a portion of their annual retainer and meeting fees in the
form of share units. The plan provides for a Company match of 25% on the first
$750 per month deferred in the form of share units. The value of a
9
<PAGE>
share unit is equal to the market value of a share of the Company's common
stock. Share units carry no voting or investment power. Participants and amounts
deferred under the Plan are shown below:
<TABLE>
<CAPTION>
$ AMOUNT DEFERRED
------------------------------- SHARE UNITS
1994 1995 1996 12/31/96
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Butzow $ 0 $ 44,650 $ 43,550 19,504
Cadogan -- -- 9,104 296
Grogan -- -- 25,833 773
Haggerty 22,688 39,050 37,450 4,089
Hietpas 9,000 9,000 9,000 2,904
Kissling 31,300 36,450 32,750 5,532
Schulze 0 33,750 36,250 2,603
Welke -- 26,438 34,750 2,279
</TABLE>
Previous versions of the Compensation Plan for Non-Employee Directors
provided for a monthly retirement benefit equal to the prorata monthly retainer
fee being paid to the director at the time of termination for a term equal to
the number of years served as a non-employee director. In accordance with the
Company's philosophy that the interests of the non-employee directors be aligned
with those of shareholders, this directors' retirement benefit has been
eliminated and has been replaced with the deferred compensation in the form of
share units described above. Current non-employee directors can elect to receive
a one time grant of share units equal to the present value of the accumulated
retirement benefit based on service through April 1997. Based on the December
31,1996 closing price of $32.25, this grant would increase aggregate share units
by 19,839. Directors receiving a retirement benefit under the prior version of
the plan will continue to receive such payments.
The Outside Directors Nonqualified Stock Option Plan provides for the
granting of options to purchase the Company's common stock to directors who are
not employees of the Company. The plan provides for automatic annual grants to
the directors and offers alternative forms of payment of the exercise price
including surrender of Pentair common stock or unexercised options. The persons
to receive options, the number of options granted, and the terms of the options
are determined by the Plan. No option granted under the plan, however, may
extend for a period of more than ten years from the date of the grant and no
option exercise price may be less than the current market price of Pentair
common stock on the date of award of such option.
<TABLE>
<CAPTION>
OPTIONS GRANTED
-------------------------------
NAME 1994 1995 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
George N. Butzow 3,000 3,000 3,000
Charles A. Haggerty -- 3,000 3,000
Harold V. Haverty 3,000 3,000 3,000
Quentin J. Hietpas 3,000 3,000 3,000
Walter Kissling 3,000 3,000 3,000
D. Eugene Nugent 3,000 3,000 3,000
Richard M. Schulze -- 3,000 3,000
Karen E. Welke -- -- 3,000
</TABLE>
The exercise price and expiration dates for the above options are: 1996,
$25.00 per share, expiration date January 22, 2001; 1995, $21.50 per share,
expiration date January 18, 2000; 1994, $17.75 per share, expiration date
January 19, 1999.
One-third of the options granted to each recipient become exercisable on
each of the first three anniversaries of the date of grant, and the options
expire five years after the date of grant. Three current directors exercised
options during 1994-1996; the net value of shares (market value less exercise
price) realized from these exercises was $425,456.
10
<PAGE>
ITEM 2
APPROVAL OF AUDITORS
Deloitte & Touche LLP, independent certified public accountants have been
the auditors for the Company since 1977. They have been retained by the Board of
Directors as the Company's auditors for the current fiscal year, and shareholder
approval of such retention is requested.
Representatives of Deloitte & Touche LLP are expected to attend the Annual
Meeting with the opportunity to make a statement if they so desire, and they
will be available to respond to appropriate questions.
The Board of Directors recommends that the shareholders vote "For" the
proposal to approve retention of Deloitte & Touche LLP, and the enclosed proxy
will be so voted unless a contrary vote or abstention is indicated. If retention
of Deloitte & Touche LLP is not approved by the shareholders, the Board of
Directors will make another appointment effective at the earliest practicable
date.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2 TO APPROVE RETENTION
OF DELOITTE & TOUCHE LLP.
EXECUTIVE COMPENSATION
COMPENSATION AND HUMAN RESOURCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Human Resource Committee of the Board of Directors was
comprised of Quentin J. Hietpas (Chair), George N. Butzow, William J. Cadogan
and Harold V. Haverty. None of the members of the Committee were officers or
employees of the Company during 1996. There are no interlock relationships.
COMPENSATION AND HUMAN RESOURCE COMMITTEE REPORT ON EXECUTIVE COMPENSATION.
OVERVIEW
The Compensation and Human Resource Committee of the Board of Directors
(the"Committee") is responsible for supervising the development of and making
recommendations to the Board with respect to the Company's executive
compensation policies. In addition, the Committee makes annual recommendations
to the Board concerning compensation to be paid to the Chief Executive Officer
("CEO") and each of the other executive officers of the Company.
The Committee also oversees all aspects of the Company's executive
compensation program, including many of the Company's employee benefit plans.
The Company currently maintains a variety of compensation and benefit plans in
which its executive officers may participate including the Omnibus Stock
Incentive Plan, the Employee Stock Purchase and Bonus Plan, the Retirement
Savings and Stock Incentive Plan, the RSIP Sidekick Plan, the Supplemental
Executive Retirement Plan, the Executive Officer Performance Plan, and the
Management Incentive Plan. The Company also maintains a defined benefit pension
plan in which substantially all non-bargaining employees, including the
Company's executive officers, participate.
PENTAIR'S COMPENSATION PHILOSOPHY
The principles guiding the executive compensation program are designed to
ensure a proper linkage between executive compensation and creation of
shareholder value. Goals of the program are:
(a) to encourage innovation and growth;
(b) to reward executives for short-term top performance and long-term
shareholder value;
(c) to recognize outstanding performance;
(d) to attract and retain top quality executives and key employees;
11
<PAGE>
(e) to encourage executive stock ownership; and thereby
(f) to align management and shareholder interests.
The Company has maintained the philosophy that compensation of the executive
officers should be directly and materially linked to operating results and stock
price performance. To achieve this, compensation is heavily leveraged through
the annual bonuses and long-term equity incentives. The mix of base salary,
bonuses and other benefits reflects the Company's goal of providing average
compensation for average performance and above average compensation for above
average performance.
In order to make its recommendations to the Board concerning executive
officer compensation, the Committee annually reviews and evaluates the Company's
corporate performance and the compensation and equity ownership of its executive
officers. This is done by reviewing salary practices for comparable positions at
other major industrial organizations as disclosed in the Towers Perrin
compensation database, as well as a review of other nationally recognized pay
surveys. These major organizations include companies that the Corporation
competes with for business or executive talent. Many of the companies which are
included in the Towers Perrin compensation database and national pay surveys are
also listed in the S&P 500 Index, the S&P 400 MidCap Index and the NASDAQ
Non-Financial Index included in the comparative Stock Performance Graph. The
Committee has retained Towers Perrin, an independent compensation consulting
firm, to assist in the review of executive compensation.
EXECUTIVE COMPENSATION PROGRAM
The components of the Company's executive compensation program, which are
subject to the discretion of the Committee on an individual basis, include (a)
base salaries, (b) annual cash performance-based bonuses, (c) long-term
performance-based equity incentives, and (d) miscellaneous other fringe
benefits. All components are comparable to those of similar companies.
BASE SALARY
The CEO submits a performance appraisal and recommendation to the Committee
with respect to annual salaries of the executive officers. The Committee then
discusses, evaluates and approves the salaries and makes its recommendation to
the Board. (See page 14 for discussion of the CEO rating process.) Base salary
targets for executive positions are set at the 50th percentile of competitive
compensation. An individual performance and experience factor is applied to the
target midpoint to determine each executive's actual base salary, within a range
of 20% of midpoint. A competent employee should attain midpoint salary in
approximately 3 years by demonstrating continuing development and performance
consistent with his or her capabilities in the position.
For 1996, the salaries of the named executive officers identified in the
Summary Compensation Table are within the salary targets for each position.
BONUS
Bonuses are considered for payment to executives and key employees following
the end of each year under the Executive Officer Performance Plan (see page 14
for discussion of Executive Officer Performance Plan) and Management Incentive
Plan (MIP). MIP awards are determined by applying the following three factors to
base salary: bonus opportunity category (45% for the Executive Vice President,
President International Development; 40% for other Executive Vice Presidents and
Senior Vice Presidents), company performance factor and individual performance
factor.
The company performance factor is the result of the multiplication of
factors for earnings per share (EPS) growth, return on invested capital (ROIC)
and return on sales (ROS). The use of three multiplicative factors reinforces
the importance of balancing financial oriented goals in terms of growth,
earnings quality and an acceptable return on investment. Under the MIP,
achievement of EPS growth of 10%, ROIC of 15% and ROS of 8.5% results in a
company performance factor of 1.00. The maximum company performance factor is
2.81 and the minimum company performance factor is .32, however, there is no
12
<PAGE>
MIP bonus if the Company's operating income is $0 or less. Performance between
the stated factors is interpolated. For 1996, EPS growth from continuing
operations was 22.7%, ROIC was 18.1% and ROS was 9.1%, resulting in a company
performance factor of 2.266.
The individual performance factor is determined by the assignment of a
numerical factor based on a supervisor's judgement on attainment of expectations
relative to the employee's function. The CEO submits a performance appraisal and
recommendation to the Committee for executive officers with respect to the
individual performance factor.
Bonus awards that exceed an amount equal to base salary are paid as a
performance share award under the Omnibus Stock Incentive Plan. The performance
share award is paid in restricted stock, subject to any vesting condition the
Committee may impose. A special award may be granted at the discretion of the
Committee to any person who has made an extraordinary contribution to the
welfare, reputation and earnings of the Company. The Committee approves all MIP
awards and retains the right to change awards that are not in keeping with the
objectives of the MIP plan.
LONG-TERM EQUITY INCENTIVES
GRANTS
Long-term incentive compensation is awarded in the form of restricted
shares, incentive compensation units (ICUs), performance shares and stock
options. All awards are proposed by the CEO and approved by the Committee.
Long-term incentives are determined by using the average of the 50th and 60th
percentile of comparable grant practices as compiled by the Towers Perrin
compensation database. Awards to senior executives are granted in the form of
ICUs (30%) and stock options (70%). Restricted stock may be awarded to such
individuals as described in the section entitled "stock ownership guidelines";
as an award to a new executive officer; as the form of payment of performance
shares; or in payment of the Management Incentive Plan or Executive Officer
Performance Plan bonus in excess of annual base salary. The Committee is
authorized to grant performance share awards upon attainment of certain
performance criteria which are based on the Company's long-term objectives. The
Black-Scholes Model is used to determine restricted stock and stock option grant
values. A comparable model is used for determining ICU grant values.
The total long-term compensation awards for 1996 for all executive officers
as a group, including the CEO and named executive officers, amounted to 150,432
incentive compensation units (ICUs), 187,688 stock options, 2,257 unrestricted
shares, and 32,188 restricted shares of which 7,046 restricted shares were
awarded for achievement of stock ownership guidelines, 11,148 restricted shares
were awarded as payment for achievement of certain performance criteria and
13,994 restricted shares were awarded under the Management Incentive Plan and
Executive Officer Performance Plan. All grants of ICUs and stock options were
made in accordance with the above formula. Grants for the named executive
officers are shown in the Summary Compensation Table (page 15) and the
Option/SAR grant table (page 16).
PAYOUTS
Payouts on ICUs are based upon growth in the Company's net book value over
the life of the ICUs, as leveraged upward or downward depending on the Company's
return on equity and growth in earnings per share over that period.
Payouts in 1996, for named executive officers, as shown in the LTIP Payout
column on the Summary Compensation Table (page 17), were for previously awarded
ICU grants and were calculated based on the increase in book value and the
percentage attainment of earnings per share and return on equity goals since the
date of such grants.
13
<PAGE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The base salary, annual bonus and long-term equity incentives paid to Mr.
Buxton are generally determined in accordance with the guidelines described
above, and his compensation is comprised of the same elements as for all
executive officers.
The Committee has a formal rating process for evaluating Mr. Buxton's
performance as the CEO. The rating process includes a self evaluation rating by
the CEO, after which each Board member completes an evaluation and rating with
commentary. The Chairman of the Committee provides a consolidated rating report
and chairs a discussion with the Board members without the CEO present. From
that discussion, the performance rating is finalized and the Committee Chairman
is instructed to review the final rating results with the CEO. This then
translates into a personal development plan for the following year.
Mr. Buxton's base salary was increased to $625,000 in accordance with the
Committee's guideline of establishing the base salary at the market compensation
rate for the CEO at the 50th percentile. This resulted in a 6.8% increase in Mr.
Buxton's base salary over 1995.
Mr. Buxton's bonus was determined under the Executive Officers' Performance
Plan ("EOPP"). Currently, the CEO is the only participant in the EOPP. EOPP
awards are determined based on the participant's bonus opportunity and a company
performance factor.
Under the EOPP, achievement of EPS growth of 15%, ROIC of 15% and ROS of
8.5% results in a company performance factor of 1.00. The maximum company
performance factor is 2.81 and the minimum company performance factor is .32,
however, there is no EOPP bonus if the Company's operating income is $0 or less.
Performance between the stated factors is interpolated. The maximum individual
bonus is 200% of the participant's annual base salary, but in no event more than
$1,500,000. In administering the EOPP and in establishing bonus awards
thereunder, the Committee does not have the discretion to pay participants more
than the bonus amount indicated by the preestablished goals. The Committee has
the discretion and flexibility, however, based on its business judgement, to
reduce this amount.
Mr. Buxton's bonus was calculated using the formula described above. The
Committee used his base salary of $625,000, his bonus opportunity category rate
of 71.5% and applied the corporate performance factor for 1996 to obtain his
bonus amount of $793,650. In accordance with the terms of the EOPP, the bonus
amount in excess of one time's base salary was paid in restricted stock which
vests in equal increments on the third, fourth and fifth anniversaries of the
grant.
Mr. Buxton's long-term incentive grants were computed based on the average
of the 50th and 60th percentile of the Towers Perrin compensation database for
comparable grant practices. He was granted 65,000 ICUs and 81,200 stock options
in 1996.
STOCK OWNERSHIP GUIDELINES
Stock ownership guidelines for top management have been established to
motivate individual achievement and increase ownership of Pentair common stock.
The Committee determined that over a period of five years, its top management
should accumulate and hold Company stock equal to the following values: Chief
Executive Officer -- three to five times base salary; Senior Corporate Officers
- -- two to three times base salary; and other corporate officers and subsidiary
presidents -- one to two times base salary. In the opinion of the Committee, the
achievement of ownership levels set forth will result in executive management
being significant shareholders and will further encourage long-term performance
and Company growth.
The Committee will consider making incentive grants of restricted stock
based on the increase in ownership during the preceding year. These restricted
stock grants (made under the Omnibus Plan) vest in equal increments on the
third, fourth, and fifth anniversaries of the grant. The size of the grant is
equal
14
<PAGE>
to 10% of the increase in common shares during the year, limited to 10% of the
targeted ownership level if the targeted ownership level per the stock ownership
guidelines has been achieved.
In 1996, restricted stock awards of 9,772 were granted under these
guidelines.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1 million paid to each of
the corporation's Chief Executive Officer and the four other most highly
compensated officers. Qualifying performance-based compensation is not subject
to the deduction limit if certain requirements are met. The Company's policy is
to maximize the deductibility of executive compensation so long as the
deductibility is compatible with the more important objective of maintaining
competitive and motivational performance-based compensation. In 1996, the
shareholders approved the adoption of the EOPP and approved amendments to the
Omnibus Stock Incentive Plan to comply with Internal Revenue Code Section
162(m). Under current interpretations of Section 162(m), EOPP bonus awards and
Omnibus Stock Incentive Plan awards of stock options, SARs, ICUs, performance
shares and performance units will not be subject to the $1,000,000 deduction
limit assuming compliance with all other aspects of Section 162(m).
Quentin J. Hietpas, Chair George N. Butzow William J. Cadogan Harold V.
Haverty
Compensation and Human Resource Committee of Pentair, Inc.
15
<PAGE>
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return on
the Company's common stock for the last five fiscal years, assuming the
investment of $100 on December 31, 1991 and the reinvestment of all dividends
since that date to December 31, 1996. The graph also contains for comparison
purposes the S&P 500 Index and the S&P 400 MidCap Index.
In 1996, Pentair commenced trading on the New York Stock Exchange and is no
longer a component of the NASDAQ Non-Financial Index. As a result, the NASDAQ
Non-Financial Index will be replaced by the S&P 400 MidCap Index. By virtue of
its market capitalization, Pentair is a component of the S&P 400 MidCap Index.
On the basis of the Company's size and diversification of businesses, a readily
identifiable peer group has not been found. It is our opinion the S&P 400 MidCap
Index is an appropriate comparison. The Company has evaluated other published
indices, but the results are skewed by one or two large companies included in
the indices. We believe such a comparison would not be meaningful.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31
Pentair, Inc. S&P 500 S&P 400 MidCap NASDAQ Non-Financials
91 100 100 100 100
92 100.5 107.6 111.9 103.4
93 128.5 118.5 127.3 126.3
94 169.8 120.0 123.0 121.4
95 201.1 165.1 161.0 169.2
96 265.7 203.0 191.1 205.6
</TABLE>
16
<PAGE>
SUMMARY COMPENSATION TABLE.
The following table sets forth the cash and noncash compensation awarded to
or earned by the Chief Executive Officer of the Company and the four other
highest paid executive officers of the Company whose salary and bonus earned in
1996 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
AWARDS
-------------------------- PAYOUTS
ANNUAL COMPENSATION RESTRICTED ---------
--------------------------------- STOCK SECURITIES LTIP ALL OTHER
NAME AND SALARY BONUS (A) AWARDS (B) UNDERLYING PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) (%) ($) OPTIONS/ SARS ($)(C) ($)(D)
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Winslow H. Buxton 1996 $ 625,000 $ 625,000 $ 314,882 81,200 $ 609,303 $ 16,244
Chief Executive 1995 585,000 585,000 375,326 83,600 149,672 16,178
Officer 1994 500,000 372,515 39,902 82,700 102,718 10,868
Gerald C. Kitch 1996 $ 300,000 $ 395,400 $ 187,559 25,400 $ 203,519 $ 16,244
Executive Vice 1995 263,217 334,767 67,091 22,800 61,223 16,104
President, President 1994 238,500 241,939 19,703 20,900 53,018 10,799
International
Development
Joseph R. Collins 1996 $ 279,000 $ 279,000 $ 138,867 22,400 $ 178,071 $ 18,494
Executive Vice 1995 263,217 263,217 71,572 22,800 29,107 18,102
President, President 1994 238,500 134,934 0 20,900 21,181 12,808
Specialty Products
Group
Richard J. Cathcart 1996 $ 235,000 $ 235,000 $ 107,843 22,400 $ 4,349 $ 17,744
Executive Vice 1995 172,614 172,614 140,010 22,000 600
President Water
Products Group
James H. Frank 1996 $ 220,000 $ 296,880 $ 56,612 8,694 $ 78,657 $ 67,354
Senior Vice
President Enclosures
</TABLE>
- ------------------------
(a) Represents bonuses accrued by the Company for the year even if paid after
December 31.
The bonus amount for Mr. Kitch includes $95,400 in 1996, $71,550 in 1995 and
$71,550 in 1994, and for Mr. Frank includes $71,880 in 1996 which amounts
were awarded based on achievement of performance objectives related to the
integration of Schroff, Inc. which was acquired by the Company in 1994.
(b) The restricted share grants reflected in the table were made pursuant to the
provisions discussed under "stock ownership guidelines," pursuant to
performance share award programs which support the Company's long-term
growth objectives, and for 1996 and 1995, amounts include restricted stock
awarded for compensation earned pursuant to the provisions of the Executive
Officer Performance Plan and the Management Incentive Plan. The restricted
stock awards are subject to vesting, in three equal installments on the
third, fourth and fifth anniversaries of the grant, based solely on the
continued employment of the recipient by the Company. The value of
restricted stock awards reflected in the table is based on the closing
market price of the common stock on the date of grant.
As of December 31, 1996, the following restricted stock awards were held by
each of the named executives (based on 12/31/96 closing price of $32.25):
Buxton 23,246 shares or $749,684; Kitch 7,806 shares or $251,744; Collins
7,094 shares or $228,782; Cathcart 4,634 shares or $149,447 and Frank 2,180
shares or $70,305.
(c) Includes payouts for ICUs and dividends on restricted shares.
(d) Includes Company contributions to the Retirement Savings and Stock Incentive
Plan, RSIP Sidekick Plan and match contribution to the Employee Stock
Purchase and Bonus Plan. The amount for Mr. Frank includes $51,110 of
compensation related to his expatriate assignment at Schroff, Inc.
17
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS.
The following tables summarize option and SAR grants and exercises during
1996 to or by the Chief Executive Officer and the executive officers named in
the Summary Compensation Table above, and the values of the options and SARs
held by such persons at the end of 1996. Option grants shown in the table below
include both incentive stock options and non-qualified stock options. No SARs
have been granted since 1983 and no SARs were exercised during 1996 or remain
outstanding at the end of 1996.
<TABLE>
<CAPTION>
OPTION AND SAR GRANTS IN 1996
- -------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL OPTIONS/ PRICE APPRECIATION
UNDERLYING SARS GRANTED TO FOR OPTION TERM
OPTIONS/ SARS EMPLOYEES IN FISCAL EXERCISE OR EXPIRATION ---------------------
NAME GRANTED (A) 1996 BASE PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Winslow H. Buxton 81,200 21.7% $ 25.00 1/22/01 $ 560,852 $1,239,335
Richard J.
Cathcart 22,400 6.0% $ 25.00 1/22/01 $ 154,718 $ 341,886
Joseph R. Collins 22,400 6.0% $ 25.00 1/22/01 $ 154,718 $ 341,886
James H. Frank 8,694 2.3% $ 25.00 1/22/01 $ 60,050 $ 132,694
Gerald C. Kitch 25,400 6.8% $ 25.00 1/22/01 $ 175,439 $ 387,674
</TABLE>
- ------------------------------
(a) One-third of each grant becomes exercisable on each of the first three
anniversaries of the date of grant, and the options expire five years after
the grant date. The exercise price for the options granted was the closing
market price of the common stock as of the date of grant.
<TABLE>
<CAPTION>
AGGREGATE OPTION AND SAR EXERCISES IN 1996 AND VALUE AT END OF 1996
- --------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT END
OF 1996 OPTIONS/SARS AT END OF
SHARES ACQUIRED VALUE EXERCISABLE (E) 1996 EXERCISABLE (E)
NAME ON EXERCISE REALIZED UNEXERCISABLE (U) UNEXERCISABLE (U)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Winslow H. Buxton 99,908 $ 1,279,948 E 152,092 E $ 2,394,486
U 164,502 U $ 1,587,577
Richard J. Cathcart E 7,333 E $ 79,746
U 37,067 U $ 321,904
Joseph R. Collins 11,932 $ 158,596 E 37,376 E $ 580,789
U 44,568 U $ 426,836
James H. Frank 6,450 $ 98,631 E 18,966 E $ 302,210
U 18,280 U $ 178,644
Gerald C. Kitch 17,700 $ 271,018 E 44,782 E $ 719,652
U 47,568 U $ 448,586
</TABLE>
18
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS.
The following table reflects incentive compensation unit awards made under
the Pentair, Inc. Omnibus Stock Incentive Plan during 1996 to the Chief
Executive Officer and the executive officers named in the Summary Compensation
Table above.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN AWARDS IN 1996
- -------------------------------------------------------------------------------------
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
NUMBER OF OTHER PERIOD UNDER
SHARES, UNITS UNTIL NON-STOCK PRICE BASED PLANS
OR OTHER MATURATION OR ----------------------------
NAME RIGHTS PAYOUT THRESHOLD TARGET
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Winslow H. Buxton 65,000 units 3 years $ 0 $ 349,278
Richard J. Cathcart 18,000 units 3 years $ 0 $ 96,723
Joseph R. Collins 18,000 units 3 years $ 0 $ 96,723
James H. Frank 6,966 units 3 years $ 0 $ 37,432
Gerald C. Kitch 20,300 units 3 years $ 0 $ 109,082
</TABLE>
- ------------------------
The ultimate payout value of each unit is equal to the increase in the common
stock book value per share over the three-year period, multiplied by a factor
from the following schedule based on the Company's average Return on Equity
(ROE) and annual percentage change in Earnings Per Share (EPS) over the
three-year period. Performance falling between the stated factors is
interpolated. The target payout shown in the table is based on annual ROE of 15%
and annual EPS growth of 10% which results in a factor of 1.10.
<TABLE>
<CAPTION>
AVERAGE ROE ROE FACTOR AVERAGE EPS GROWTH EPS FACTOR
<S> <C> <C> <C>
- --------------------------------------------------------------------------
20.0% 1.00 20% 1.00
18.0% .90 16% .80
16.5% .80 13% .60
15.0% .70 10% .40
13.5% .60 8% .20
12.0% .50 6% .10
0% 0 0% 0
</TABLE>
DEFINED BENEFIT PENSION PLAN.
The Company maintains a tax-qualified defined benefit pension plan. In
general, the plan covers non-bargaining employees of the Company and its U.S.
subsidiaries. These employees are eligible to participate in the plan after
attaining age 21 and completing one year of service.
The following table sets forth the estimated normal retirement benefit based
on specified final average annual compensation and years of service
classifications. Each listed benefit amount is determined by using a social
security covered compensation base of $29,304. Currently, the Internal Revenue
Code limits the annual benefit from the plan to $125,000 and limits the pay used
to calculate pensions to $160,000, although these limits are subject to upward
adjustment in future years for cost of living increases.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL GROSS RETIREMENT BENEFITS UNDER CURRENT FORMULA
- --------------------------------------------------------------------------------
FINAL AVERAGE
ANNUAL YEARS OF SERVICE
COMPENSATION 10 15 20 25 30 35+
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
$ 50,000 $ 6,035 $ 9,052 $ 12,070 $ 15,087 $ 18,104 $ 21,122
100,000 13,535 20,302 27,070 33,837 40,604 47,372
160,000 22,535 33,802 45,070 56,337 67,604 78,872
</TABLE>
For purposes of calculating the retirement benefit for named executive
officers under the plan, eligible compensation consists of salary and bonus as
listed in the Summary Compensation Table. Current years of service under the
plan for the named executive officers are: Buxton, 10; Cathcart, 2; Collins, 25;
Frank, 11; and Kitch, 8.
19
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN.
The Company has established the Supplemental Executive Retirement Plan
(SERP) to provide retirement benefits to certain key executives of the Company
and its subsidiaries. The employees are eligible for nomination after attaining
age 50 and completing five years of service. The annual normal retirement
benefit is 50% of the participant's final average annual compensation less 100%
of the participant's annual primary social security benefit. This benefit is
further reduced by the participant's benefits under the Company's or any
previous employer's pension plans. A participant generally does not earn or
become vested in a benefit under the plan until he or she attains age 60. The
plan has been extended to twenty employees, four of whom (Buxton, Collins, Frank
and Kitch) are named executives. To date, six retirees and one beneficiary are
receiving benefits under the plan. The estimated annual benefits for the named
executive officers pursuant to the SERP, assuming retirement at age 65, are as
follows: Buxton $451,000; Collins; $137,000; Frank $111,000; and Kitch $146,000.
CHANGE IN CONTROL ARRANGEMENTS.
Approximately 85 key corporate executives have entered into agreements with
the Company that provide for contingent benefits if the executive leaves the
employ of the Company within one year after an unfriendly change in control.
Such benefits include:
a. bonus awards for the year in question to be made under the Management
Incentive Plan;
b. termination of all restrictions on shares issued under the Omnibus Stock
Incentive Plan, and payment for Incentive Compensation Units and
Performance Units without regard to the plans' forfeiture provisions;
c. reimbursement of income taxes incurred in connection with the exercise
of certain nonqualified options, as well as termination of all
restrictions on transfer and termination of any right of the Company to
repurchase shares received upon exercise of such options;
d. the cost of an executive search agency;
e. directors and officers liability insurance coverage;
f. short-term replacement coverage for Company-provided group medical,
dental, and life insurance policies;
g. amount of non-vested benefits under any of the Company's tax-qualified
deferred compensation plans;
h. the accelerated accrual and vesting of benefits under the Supplemental
Executive Retirement Plan (for those executives who have been made
participants of such plan); and
i. severance pay equal to 300% of annual compensation or, for employees
other than executive officers of the Company, such amount reduced to the
extent necessary to avoid federal excise taxes under Section 280G of the
Internal Revenue Code.
In addition, the Omnibus Stock Incentive Plan permits the Compensation and
Human Resource Committee, upon a change in control of the Company, to cancel all
outstanding options granted under the plan, whether or not exercisable, and
authorize payment of the "spread" between the exercise price of the options and
the then current market value of the underlying stock.
Based upon compensation levels as of December 31, 1996, the dollar value of
the benefits payable upon an unfriendly change in control to the named executive
officers in the Summary Compensation Table by virtue of the agreements and the
Omnibus Plan provision discussed above (excluding amounts that otherwise would
be payable upon a termination of employment not involving an unfriendly change
in control) would be: Buxton, $9,636,000; Cathcart, $2,300,000; Collins,
$3,147,000; Frank, $2,166,000; and Kitch, $3,550,000.
20
<PAGE>
FUTURE PROPOSALS
Any proposal that a shareholder intends to present at the 1998 annual
meeting must be received by the Company no later than November 10, 1997 for
inclusion in the 1998 Notice of Annual Meeting and Proxy Statement.
OTHER BUSINESS
Management does not know of any other business that will be presented for
consideration at the meeting; however, if any other business does properly come
before the meeting, proxies will be voted in accordance with the best judgment
of the person or persons acting under them.
21
<PAGE>
PROXY
PLEASE SIGN AND RETURN PROMPTLY TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 1997
The undersigned hereby appoints Winslow H. Buxton and Richard W. Ingman,
or either of them, as Proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as designated below, all
the shares of common stock of Pentair, Inc. held of record by the undersigned
on February 24, 1997 at the Annual Meeting of Shareholders of Pentair, Inc.
to be held at 10:00 a.m., Wednesday, April 23, 1997, at the Northland Inn and
Conference Center, 7101 Northland Circle, Brooklyn Park, Minnesota, and any
adjournment or adjournments thereof.
SEE REVERSE
SIDE
<PAGE>
/X/ Please mark your votes as in this example.
THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
WITHHOLD
FOR AUTHORITY
1. ELECTION OF DIRECTORS / / / /
FOR all nominees listed below EXCEPT those I have struck by a line through
their names.
WITHHOLD AUTHORITY to vote for ALL nominees listed below.
William J. Cadogan Charles A. Haggerty Harold V. Haverty
2. PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as independent
public accountants for the current fiscal year.
FOR AGAINST ABSTAIN
/ / / / / /
3. To transact such other business as may properly come before the meeeting
or any adjournment thereof.
FOR AGAINST ABSTAIN
/ / / / / /
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY, BUT IF
THIS PROXY IS RETURNED SIGNED WITH NO DIRECTION MADE, THEY WILL BE VOTED
"FOR" EACH OF THE DIRECTORS AND PROPOSALS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENTAIR, INC.
The undersigned hereby ratifies and confirms all that the Proxies shall
lawfully do or cause to be done by virtue hereof and hereby revokes all
proxies heretofore given to vote such shares.
- -------------------------------------------------------------------------------
Signature
- -------------------------------------------------------------------------------
Signature if held jointly
Dated: , 1997
------------------------------------------------------------------
THIS CARD MUST BE DATED.
(Please sign exactly as your name appears to the left. When shares are held
by joint tenants, both should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.)
<PAGE>
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS APRIL 23, 1997
PLEASE SIGN AND RETURN PROMPTLY TO REDUCE SOLICITATION EXPENSES
The undersigned hereby appoints Winslow H. Buxton and Richard W.
Ingman, or either of them, as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the shares of common stock (common and ESPP listed above) of Pentair,
Inc. held of record by the undersigned on February 24, 1997 at the Annual
Meeting of Shareholders of Pentair, Inc. to be held at 10:00 a.m., Wednesday,
April 23, 1997, at the Northland Inn and Conference Center, 7101 Northland
Circle, Brooklyn Park, Minnesota, and any adjournment or adjournments thereof.
Furthermore, as an ESOP participant, I hereby direct State Street Bank
and Trust Company, as ESOP Trustee, to vote at the Annual Meeting of
Shareholders of Pentair, Inc. to be held at 10:00 a.m., Wednesday, April 23,
1997, at the Northland Inn and Conference Center, 7101 Northland Circle,
Brooklyn Park, Minnesota, and any adjournment or adjournments thereof, all
shares of Voting Preferred stock of Pentair, Inc. allocated as of February 24,
1997 to my account in the Pentair, Inc. Retirement Savings and Stock Incentive
Plan, plus a pro rata portion of the shares that have not been allocated to
participant accounts or for which no instructions are received, as designated
below. I understand that this card must be received by Norwest Bank Minnesota,
N.A., acting as tabulation agent for the ESOP Trustee, by April 16, 1997. If it
is not received by that date, or if the voting instructions are invalid because
this form is not properly signed and dated, the shares held in my account will
be voted by State Street Bank and Trust Company in the same proportion that the
other participants in the plan direct the ESOP Trustee to vote shares allocated
to their accounts.
<TABLE>
<S> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below EXCEPT / / WITHHOLD AUTHORITY to vote for ALL
those I have struck by a line through nominees listed below.
their names.
William J. Cadogan Charles A. Haggerty Harold V. Haverty
2. PROPOSAL TO RATIFY the retention of Deloitte & / / FOR / / AGAINST / / ABSTAIN
Touche LLP as independent public accountants
for the current fiscal year.
3. To transact such other business as may properly come before the meeting or any adjournment
thereof.
</TABLE>
THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
<PAGE>
PENTAIR, INC.
ANNUAL MEETING
Northland Inn and Conference Center
7101 Northland Circle
Brooklyn Park, Minnesota
APRIL 23, 1997
10:00 A.M., WEDNESDAY, CENTRAL STANDARD TIME
[LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENTAIR, INC. THE
SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY, BUT IF THIS
PROXY IS RETURNED SIGNED WITH NO DIRECTION MADE, THEY WILL BE VOTED "FOR" EACH
OF THE DIRECTORS AND PROPOSALS.
The undersigned hereby ratifies and confirms all that the Proxies shall
lawfully do or cause to be done by virtue hereof and hereby revokes all proxies
heretofore given to vote such shares.
Dated:
--------------------------------------, 1997
THIS CARD MUST BE
DATED.
-----------------------------------------------
Signature
-----------------------------------------------
Signature if held jointly
(Please sign exactly as your name appears to
the left. When shares are held by joint
tenants, both should sign. When signing as
executor, administrator, attorney, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name
by president or other authorized officer. If a
partnership, please sign in partnership name by
an authorized person.)
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS
PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE
