SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
PENTAIR, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
PENTAIR, INC.
1500 County Road B2 West
Saint Paul, Minnesota 55113
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 1998
To our Shareholders:
The Annual Meeting of Shareholders of Pentair, Inc. (the "Company") will be
held at the Northland Inn and Conference Center, 7025 Northland Drive, Brooklyn
Park, Minnesota, on Wednesday, April 22, 1998, 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 1998.
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 23, 1998
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 6, 1998
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
PAGE
----
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 ................................................... 20
Other Business ..................................................... 20
<PAGE>
----------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 1998
----------------------------------------------
PENTAIR, INC.
1500 County Road B2 West
Saint Paul, Minnesota 55113
March 6, 1998
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 22, 1998, or at any adjournment or adjournments of such meeting.
Distribution of this proxy statement and proxy to shareholders began on or about
March 6, 1998.
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 23, 1998, the record date, there were
outstanding 38,319,608 shares of common stock, par value $.162|M/3 per share,
and 1,588,448 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 ("SEC") 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.
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 23, 1998 by each
director, by each named executive officer, by all directors and executive
officers as a group and, as of December 31, 1997, 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 PERCENT OF NUMBER OF VOTING PERCENT OF COMBINED VOTING
BENEFICIAL OWNER (a) COMMON SHARES (b) CLASS PREFERRED SHARES (b) CLASS PERCENTAGE (c)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
George N. Butzow 54,416(d) * 0 0 *
Winslow H. Buxton 407,906(e) 1.1% 2,095 * 1.0%
William J. Cadogan 2,081(f) * 0 0 *
Richard J. Cathcart 53,409(g) * 441 * *
Joseph R. Collins 135,441(h) * 1,946 * *
Barbara B. Grogan 3,613(i) * 0 0 *
Charles A. Haggerty 16,843(j) * 0 0 *
Harold V. Haverty 14,368(k) * 0 0 *
Quentin J. Hietpas 37,237(l) * 0 0 *
Richard W. Ingman 62,519(m) * 1,817 * *
Walter Kissling 18,419(n) * 0 0 *
Gerald C. Kitch 151,569(o) * 2,061 * *
Richard M. Schulze 12,880(p) * 0 0 *
Karen E. Welke 7,351(q) * 0 0 *
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF NUMBER OF VOTING PERCENT OF COMBINED VOTING
BENEFICIAL OWNER (a) COMMON SHARES (b) CLASS PREFERRED SHARES (b) CLASS PERCENTAGE (c)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
All directors & 1,135,952(r) 2.9% 14,256 * 2.9%
executive
officers as a group
(20 persons)
Brinson Partners, 3,111,971(s) 8.0% 0 0 7.7%
Inc.
209 South LaSalle
St.
Chicago, IL
60604-1295
State Street Bank 3,238,765(t) 8.3% 1,588,448(t) 100% 11.9%
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 896,770 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,
Richard W. Ingman and two 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
3,665,661 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 8,000 shares that could be obtained upon exercise of stock options
within 60 days and 29,497 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 has no voting or investment power.
3
<PAGE>
(e) Includes 31,149 restricted shares issued pursuant to an incentive plan as
to which Mr. Buxton has sole voting power but no investment power, 117,668
shares held in trusts with his spouse as to which they share voting and
investment power, and 205,377 shares that could be obtained upon exercise
of employee stock options within 60 days.
(f) Includes 2,081 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 has no voting or investment power.
(g) Includes 4,909 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, 167 shares held by his children as to which he may be
deemed to share voting and investment power but as to which he disclaims
beneficial ownership, and 35,906 shares that could be obtained upon
exercise of employee stock options within 60 days.
(h) Includes 7,676 restricted shares issued pursuant to an incentive plan as to
which Mr. Collins has sole voting power but no investment power, 62,056
shares held in trusts with his spouse as to which they share voting and
investment power, 812 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 60,308 shares that could be obtained upon exercise
of employee stock options within 60 days.
(i) Includes 3,613 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.
(j) Includes 5,000 shares that could be obtained upon exercise of stock options
within 60 days and 7,843 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 has no voting or investment power.
(k) Includes 4,000 shares that could be obtained upon exercise of stock options
within 60 days and 4,165 shares representing share units credited to Mr.
Haverty's account in the Fourth Amended and Restated Compensation Plan for
Non-Employee Directors as to which he has no voting or investment power.
(l) Includes 12,168 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 has no voting or investment power,
and 5,000 shares that could be obtained upon exercise of stock options
within 60 days.
(m) Includes 1,446 restricted shares issued pursuant to an incentive plan as to
which Mr. Ingman has sole voting power but no investment power, 29,179
shares held jointly in a trust with his spouse as to which they share
voting and investment power and 31,894 shares that could be obtained upon
exercise of employee stock options within 60 days.
(n) Includes 8,000 shares that could be obtained upon exercise of stock options
within 60 days and 10,419 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 9,534 restricted shares issued pursuant to an incentive plan as to
which Mr. Kitch has sole voting power but no investment power, and 63,273
shares that could be obtained upon exercise of employee stock options
within 60 days.
(p) Includes 5,000 shares that could be obtained upon exercise of stock options
within 60 days and 5,880 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>
(q) Includes 5,351 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 2,000 shares that could be obtained upon exercise of stock options
within 60 days.
(r) Includes, with respect to officers not named above, 1,790 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; 13,339 restricted shares issued pursuant to an incentive plan as
to which such officers have sole voting power but no investment power; and
64,052 shares that could be obtained upon exercise of employee stock
options within 60 days.
(s) According to its Schedule 13G dated February 11, 1998, as of December 31,
1997, Brinson Partners, Inc., a registered investment adviser, has shared
voting power and shared investment power over all 3,111,971 shares.
(t) According to its Schedule 13G dated February 10, 1998, as of December 31,
1997, State Street Bank and Trust Company, as trustee under the Pentair,
Inc. Employee Stock Ownership Trust, may be deemed to have shared voting
power and investment power over all Voting Preferred shares, but it has
disclaimed beneficial ownership of all Voting Preferred shares. State
Street reports having sole voting power over 2,957,365 common shares, no
voting power over 281,400 common shares and sole investment power of
3,238,765 common 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 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, Quentin
J. Hietpas, Richard M. Schulze and Karen E. Welke, have been nominated for
three-year terms, expiring at the 2001 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 2001 ANNUAL MEETING OF SHAREHOLDERS)
[PHOTO] Since 1983, Mr. Hietpas has been the Senior Vice
QUENTIN J. HIETPAS President of External Affairs of the University of
Director since: 1976 St. Thomas.
Age: 67
[PHOTO] Since 1983, Mr. Schulze has been Founder, Chairman
RICHARD M. SCHULZE and Chief Executive Officer of Best Buy Company,
Director since: 1994 Inc., a consumer electronics, personal computer,
Age: 57 media software and major appliance chain.
[PHOTO] Since February 1995, Ms. Welke has been Group Vice
KAREN E. WELKE President, Medical Markets Group for Minnesota
Director since: 1995 Mining and Manufacturing Company (3M). Prior to
Age: 53 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).
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<PAGE>
DIRECTORS CONTINUING IN OFFICE
(TERM EXPIRES AT THE 1999 ANNUAL MEETING OF SHAREHOLDERS)
[PHOTO] Mr. Butzow is Founder and Chairman Emeritus of MTS
GEORGE N. BUTZOW Systems, a manufacturer of high-technology testing
Director since: 1979 systems. Mr. Butzow was Chairman of the Board of
Age: 68 Directors of MTS from 1982 to May 1994.
[PHOTO] Since January 1993, Mr. Buxton has been the
WINSLOW H. BUXTON Chairman of the Board of Directors of Pentair,
Director since: 1990 Inc. Mr. Buxton has been President and Chief
Age: 58 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. and The Toro Company.
[PHOTO] Mr. Kissling has been the President since April
WALTER KISSLING 1992 and Chief Executive Officer since April 1995
Director since: 1993 of H.B. Fuller Company, a manufacturer and
Age: 66 marketer of specialty chemical products. He was
Chief Operating Officer of H.B. Fuller from July
1990 to April 1995, Executive Vice President from
July 1990 to April 1992, and Senior Vice President
from 1979 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] Ms. Grogan is Chairman and President of Western
BARBARA B. GROGAN Industrial Contractors, Inc., a company
Director since: 1996 specializing in machinery erection and
Age: 50 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 Deluxe
Corporation, Apogee, Inc., Committee for Economic
Development, New York City and Volunteers of
America, Colorado.
7
<PAGE>
(TERM EXPIRES AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS)
[PHOTO] Since November 1993, Mr. Cadogan has been the
WILLIAM J. CADOGAN Chairman of the Board of Directors of ADC
Director since: 1996 Telecommunications, Inc., a designer and
Age: 49 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, Excel Switching Corporation,
Vice Chairman of the Telecommunications Industry
Association and serves on the Board of Governors
of the Electronics Industry Association.
[PHOTO] In June 1992, Mr. Haggerty was appointed President
CHARLES A. HAGGERTY and subsequently in July 1993 appointed Chairman
Director since: 1994 of the Board of Directors and Chief Executive
Age: 56 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] Mr. Haverty was Chairman of the Board of Directors
HAROLD V. HAVERTY of Deluxe Corporation, a manufacturer of bank
Director since: 1991 checks and internal bank forms from 1992 until
Age: 67 1996 and Chief Executive Officer and President of
Deluxe from 1986 until 1995. He also serves on the
board of Minnesota Mutual Life and as Director
Emeritus on the board of Deluxe Corporation.
8
<PAGE>
DIRECTORS' ATTENDANCE
The Board of Directors held 10 meetings in 1997. All directors 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 Richard M. Schulze
(Chair), Charles A. Haggerty, Walter Kissling and Karen E. Welke, 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 1997.
The Compensation and Human Resource Committee, which presently consists of
Quentin J. Hietpas (Chair), George N. Butzow, William J. Cadogan and Harold V.
Haverty, 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 1997.
The Nominating and Governance Committee presently consists of George N.
Butzow (Chair), Winslow H. Buxton, William J. Cadogan and Quentin J. Hietpas.
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 3 meetings in 1997.
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 were 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
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<PAGE>
a 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:
$ AMOUNT DEFERRED
--------------------------------- SHARE UNITS
1995 1996 1997 12/31/97
- -----------------------------------------------------------------------------
Butzow $44,650 $43,550 $76,100 29,121
Cadogan -- 9,104 40,913 2,024
Grogan -- 25,833 71,600 3,434
Haggerty 39,050 37,450 73,100 7,621
Haverty -- -- 29,850 4,150
Hietpas 9,000 9,000 40,913 12,074
Kissling 36,450 32,750 69,600 10,215
Schulze 33,750 36,250 67,100 5,693
Welke 26,438 34,750 67,100 5,194
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.
OPTIONS GRANTED
-------------------------
NAME 1995 1996 1997
- ----------------------------------------------------------------------------
George N. Butzow 3,000 3,000 2,200
William J. Cadogan -- -- 2,200
Barbara B. Grogan -- -- 2,200
Charles A. Haggerty 3,000 3,000 2,200
Harold V. Haverty 3,000 3,000 2,200
Quentin J. Hietpas 3,000 3,000 2,200
Walter Kissling 3,000 3,000 2,200
Richard M. Schulze 3,000 3,000 2,200
Karen E. Welke -- 3,000 2,200
The exercise price and expiration dates for the above options are: 1997,
$31.375 per share, expiration date February 26, 2002; 1996, $25.00 per share,
expiration date January 22, 2001; 1995, $21.50 per share, expiration date
January 18, 2000.
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 1995-1997; the net value of shares (market value less exercise
price) realized from these exercises was $453,644.
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 during 1997. None of the members of the Committee
were officers or employees of the Company during 1997. 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;
(e) to encourage executive stock ownership; and thereby
(f) to align management and shareholder interests.
11
<PAGE>
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 and the S&P 400 MidCap 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 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
discusses and evaluates the salaries and makes its recommendation to the Board.
(See page 13 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.
For 1997, 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
pages 13 and 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), 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 12%, ROIC of 20% and ROS of 10% 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 MIP
bonus if the Company has an operating loss. Performance between the stated
factors is interpolated. For 1997, EPS growth was 22.0%, ROIC was 19.1% and ROS
was 9.8%, resulting in a company performance factor of 1.666.
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 as a group 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,
12
<PAGE>
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 has the right to adjust
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. Annual 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 stock options and 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 1997 for all executive officers
as a group, including the CEO and named executive officers, amounted to 163,789
incentive compensation units (ICUs), 212,662 stock options, and 10,568
restricted shares of which 3,103 restricted shares were awarded for achievement
of stock ownership guidelines, and 4,053 restricted shares were awarded under
the 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 16) and the
Option/SAR grant table (page 17).
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 1997, for named executive officers, as shown in the LTIP Payout
column on the Summary Compensation Table (page 16), 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.
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 and commentary with the CEO.
This then translates into a personal development plan for the following year.
Mr. Buxton's base salary was increased to $656,250 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 5% increase in Mr.
Buxton's base salary over 1996.
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.
13
<PAGE>
Under the EOPP, achievement of EPS growth of 12%, ROIC of 20% and ROS of
10.0% 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 has an operating loss.
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 judgment, to
reduce this amount.
Mr. Buxton's bonus was calculated using the formula described above. The
Committee used his base salary of $656,250, his bonus opportunity category rate
of 71.5% and the company performance factor of 1.666 to obtain his bonus amount.
In accordance with the terms of the EOPP, the cash bonus was $656,250 and the
bonus amount in excess of one time's base salary was paid in the form of 4,053
restricted shares which vest 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 61,050 ICUs and 76,731 stock options
in 1997.
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 to 10% of the increase in common shares during the year if the annual
ownership increase target is met, limited to 10% of the targeted ownership level
if the targeted ownership level has been achieved.
In 1997, restricted stock awards of 5,135 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.
14
<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, 1992 and the reinvestment of all dividends
since that date to December 31, 1997. The graph also contains for comparison
purposes the S&P 500 Index and the S&P MidCap 400 Index.
By virtue of its market capitalization, Pentair is a component of the S&P
MidCap 400 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 MidCap 400 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.
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
FISCAL YEAR ENDED DECEMBER 31
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
PENTAIR, INC. 100 128.0 169.0 200.1 264.4 299.4
S & P 500 100 110.1 111.5 153.5 188.7 251.6
S & P MIDCAP 400 100 114.0 109.9 143.9 171.5 226.8
</TABLE>
15
<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
1997 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ------------------------- -------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS(a) AWARDS(b) OPTIONS/ PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) (%) ($) SARs(c) ($)(d) ($)(e)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Winslow H. Buxton 1997 $656,250 $656,250 $196,315 76,731 $607,931 $11,074
Chief Executive 1996 625,000 625,000 314,882 81,200 609,303 16,244
Officer 1995 585,000 585,000 375,326 83,600 149,672 16,178
Gerald C. Kitch 1997 $316,000 $284,286 $ 9,362 24,819 $166,732 $11,074
Executive Vice President, 1996 300,000 395,400 187,559 25,400 203,519 16,244
President, Electrical and 1995 263,217 334,767 67,091 22,800 61,223 16,104
Electronic Enclosures Group,
President, International
Development
Joseph R. Collins 1997 $294,000 $284,494 $ 8,680 32,124 $165,815 $12,668
Executive Vice President, 1996 279,000 279,000 138,867 22,400 178,071 18,494
President, 1995 263,217 263,217 71,572 22,800 29,107 18,102
Professional Tools
and Equipment Group
Richard J. Cathcart 1997 $268,054 $214,358 $ 12,307 21,924 $ 3,355 $13,324
Executive Vice President, 1996 235,000 235,000 107,843 22,400 4,349 17,744
President, 1995 172,614 172,614 140,010 22,000 600 0
Water and Fluid
Technologies Group
Richard W. Ingman 1997 $260,000 $207,917 $ 3,379 22,338 $ 75,716 $11,074
Executive Vice President, 1996 211,656 227,568 19,028 8,694 83,732 10,155
Chief Financial Officer
</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, and $71,550 in
1995, and for Mr. Ingman includes $62,000 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 except for 1997 with respect to Management Incentive
Plan, 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, 1997, the following restricted stock awards were held by
each of the named executives (based on 12/31/97 closing price of $35.9375):
Buxton 27,656 shares or $993,887; Kitch 10,417 shares or $374,361; Collins
8,274 shares or $297,347; Cathcart 4,608 shares or $165,600 and Ingman
1,431 shares or $51,427.
(c) The 1997 share amount for Mr. Collins includes 10,200 stock options awarded
based on achievement of performance objectives pursuant to a special
incentive plan for the Professional Tools and Equipment Group.
(d) Includes payouts for ICUs and dividends on restricted shares.
(e) 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.
16
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize option and SAR grants and exercises during
1997 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 1997. 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 1997 or remain
outstanding at the end of 1997.
<TABLE>
<CAPTION>
OPTION AND SAR GRANTS IN 1997
-----------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES ANNUAL RATES OF STOCK
UNDERLYING % OF TOTAL OPTIONS/ PRICE APPRECIATION FOR
OPTIONS/ SARs GRANTED TO OPTION TERM
SARs EMPLOYEES IN EXERCISE OR EXPIRATION ------------------------
NAME GRANTED(a) FISCAL 1997 BASE PRICE DATE 5% 10%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Winslow H. Buxton 76,731 21.3% $ 31.00 1/22/02 $657,180 $1,452,196
Richard J. Cathcart 21,924 6.1% $ 31.00 1/22/02 $187,773 $ 414,929
Joseph R. Collins 21,924 6.1% $ 31.00 1/22/02 $187,773 $ 414,929
10,200 2.8% $ 35.00 1/22/03 $ 98,633 $ 217,952
Richard W. Ingman 22,338 6.2% $ 31.00 1/22/02 $191,319 $ 422,765
Gerald C. Kitch 24,819 6.9% $ 31.00 1/22/02 $212,568 $ 469,720
</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 1997 AND VALUE AT END OF 1997
-------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARs AT OPTIONS/SARs AT
END OF 1997 END OF 1997
SHARES ACQUIRED VALUE EXERCISABLE(E) EXERCISABLE(E)
NAME ON EXERCISE REALIZED UNEXERCISABLE(U) UNEXERCISABLE(U)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Winslow H. Buxton 74,726 $1,732,880 E 159,866 E $2,502,339
U 158,733 U $1,373,294
Richard J. Cathcart 1,000 $ 15,938 E 21,132 E $ 280,671
U 44,192 U $ 378,392
Joseph R. Collins 13,632 $ 166,912 E 45,778 E $ 754,796
U 54,658 U $ 390,878
Richard W. Ingman 5,518 $ 87,441 E 27,964 E $ 504,718
U 31,252 U $ 218,704
Gerald C. Kitch 28,882 $ 652,336 E 38,934 E $ 589,734
U 49,353 U $ 417,484
</TABLE>
17
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS
The following table reflects incentive compensation unit (ICU) awards made
under the Pentair, Inc. Omnibus Stock Incentive Plan during 1997 to the Chief
Executive Officer and the executive officers named in the Summary Compensation
Table above.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN AWARDS IN 1997
---------------------------------------
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER
NUMBER OF OTHER PERIOD NON-STOCK PRICE BASED
SHARES, UNITS UNTIL PLANS
OR OTHER MATURATION OR ------------------------
NAME RIGHTS PAYOUT THRESHOLD TARGET
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Winslow H. Buxton 61,050 units 3 years $0 $321,001
Richard J. Cathcart 17,450 units 3 years $0 $ 91,752
Joseph R. Collins 17,450 units 3 years $0 $ 91,752
Richard W. Ingman 17,700 units 3 years $0 $ 93,067
Gerald C. Kitch 19,750 units 3 years $0 $103,846
</TABLE>
- ------------------
The ultimate payout value of each ICU 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.
AVERAGE ROE ROE FACTOR AVERAGE EPS GROWTH EPS FACTOR
----------------------------------------------------------------
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
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 $31,128. Currently, the Internal Revenue
Code limits the annual benefit from the plan to $130,000 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.
ESTIMATED ANNUAL GROSS RETIREMENT BENEFITS UNDER CURRENT FORMULA
----------------------------------------------------------------
FINAL AVERAGE YEARS OF SERVICE
ANNUAL
COMPENSATION 10 15 20 25 30 35+
- ------------------------------------------------------------------------------
$ 50,000 $ 5,944 $ 8,915 $11,887 $14,859 $17,831 $20,803
100,000 13,444 20,165 26,887 33,609 40,331 47,053
160,000 22,444 33,665 44,887 56,109 67,331 78,553
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, 11; Cathcart, 3; Collins, 26;
Ingman, 8; and Kitch, 9.
18
<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 eighteen employees, four of whom (Buxton, Collins,
Ingman and Kitch) are named executives. To date, seven 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 $523,000; Collins; $171,000; Ingman $115,000; and
Kitch $185,000.
CHANGE IN CONTROL ARRANGEMENTS
Approximately 84 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, 1997, 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, $10,787,000; Cathcart, $2,296,000; Collins,
$3,620,000; Ingman, $2,257,000; and Kitch, $4,868,000.
19
<PAGE>
FUTURE PROPOSALS
Any proposal that a shareholder intends to present at the 1999 annual
meeting must be received by the Company no later than November 6, 1998 for
inclusion in the 1999 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.
20
<PAGE>
PENTAIR, INC.
PLEASE SIGN AND RETURN PROMPTLY TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 1998
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 23, 1998 at the Annual Meeting of Shareholders of Pentair, Inc. to be
held at 10:00 a.m., Wednesday, April 22, 1998, at the Northland Inn and
Conference Center, 7025 Northland Drive, Brooklyn Park, Minnesota, and any
adjournment or adjournments thereof.
(OVER)
<PAGE>
(CONTINUED FROM REVERSE SIDE)
THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
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.
Quentin J. Hietpas Richard M. Schulze Karen E. Welke
2. PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as independent
public accountants for the current fiscal year.
[ ] 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.
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.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF PENTAIR, INC.
----------------------------------------
Signature
----------------------------------------
Signature if held jointly
Dated: , 1998
----------------------------
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.)
