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 26, 2000
To our Shareholders:
The Annual Meeting of Shareholders of Pentair, Inc. (the "Company") will be
held at the Lutheran Brotherhood Auditorium, 625 4th Avenue South, Minneapolis,
Minnesota, on Wednesday, April 26, 2000, 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 2000.
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 28, 2000
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 10, 2000
IMPORTANT: For the Annual Meeting to be legally held, there must be a quorum
(50% plus 1 vote). Accordingly, you are urged to vote your proxy promptly by
internet or telephone as described in the voting instructions on the proxy; or
date, sign and return the proxy in the enclosed envelope. 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..........................................1
Security Ownership of Management and Beneficial Ownership.....................2
Proposals to be Acted Upon at the Annual Meeting
Election of Directors....................................................3
Approval of Auditors.................................................... 7
Executive Compensation........................................................7
Report of the Audit Committee of the Board of Directors......................16
Future Proposals.............................................................17
Other Business...............................................................17
Charter of Responsibilities for Audit Committee......................APPENDIX 1
<PAGE>
- --------------------------------------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 26, 2000
- --------------------------------------------------------------------------------
PENTAIR, INC.
1500 County Road B2 West
Saint Paul, Minnesota 55113
March 10, 2000
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 26, 2000, or at any adjournment or adjournments of such meeting.
Distribution of this proxy statement and proxy to shareholders began on or about
March 10, 2000.
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., 445 Park
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 the other proposals 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.
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on February 28, 2000, the record date, there were
48,484,325 shares of the Company's Common Stock, par value $.162/3 per share
(the "Common Stock") outstanding. Each share of Common Stock entitles the holder
to one vote. There is no cumulative voting for directors.
1
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERSHIP
The following table contains information concerning the beneficial
ownership of the Company's Common Stock as of February 28, 2000 by each
director, by each executive officer listed in the Summary Compensation Table, by
all directors and executive officers as a group and, as of December 31, 1999, by
each person known to the Company to "beneficially own" more than 5% of its
Common Stock.
<TABLE>
<CAPTION>
OBTAINABLE PERCENT
WITHIN RESTRICTED ESOP OF
NAME OF BENEFICIAL OWNER COMMON STOCK(a) SHARE UNITS(b) 60 DAYS(c) STOCK(d) STOCK(e) TOTAL CLASS(f)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Winslow H. Buxton ....... 233,832 242,930 36,113 5,302 518,177 1.1%
William J. Cadogan ...... 4,700 4,578 3,474 12,752
Richard J. Cathcart ..... 23,754 69,323 3,453 1,380 97,910
Joseph R. Collins ....... 92,153 88,873 4,355 4,949 190,330
Barbara B. Grogan ....... 2,400 7,656 3,474 13,530
Charles A. Haggerty ..... 7,000 12,189 6,474 25,663
Harold V. Haverty ....... 7,980 6,052 4,474 18,506
Quentin J. Hietpas ...... 23,069 14,892 6,474 44,435
Randall J. Hogan ........ 19,733 24,999 33,604 78,336
Stuart Maitland ......... 1,859 1,859
Augusto Meozzi........... 200 1,519 1,719
Richard M. Schulze ...... 2,000 10,138 6,474 18,612
Karen E. Welke........... 400 9,422 6,474 16,296
James A. White........... 35,163 38,884 1,166 4,138 79,351
- ------------------------------------------------------------------------------------------------------------------------
Directors and executive
officers as a group ..... 542,060 68,305 599,974 83,060 28,522 1,321,921 2.7%
- ------------------------------------------------------------------------------------------------------------------------
Brinson Partners, Inc.(g)
209 South LaSalle St. 3,268,462 3,268,462 6.7%
Chicago, IL 60604-1295
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Unless otherwise noted, all shares are held either directly or indirectly
by individuals possessing sole voting and investment power with respect to
such shares. Beneficial ownership has been disclaimed of certain shares
held by spouses and children which are not material. Amounts listed do not
include 891,570 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 Joseph R. Collins, 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) Represents share units paid under the Fourth Amended and Restated
Compensation Plan for Non-Employee Directors as to which the beneficial
owner has no voting or investment power.
(c) Represents stock options exercisable within 60 days from February 28, 2000.
(d) Restricted shares issued pursuant to incentive plans as to which the
beneficial owner has sole voting power but no investment power.
2
<PAGE>
(e) Represents common shares owned as a participant in the Pentair Employee
Stock Ownership Plan (Pentair ESOP) and, for one officer, common shares
owned as a participant in the Federal-Hoffman Employee Stock Ownership Plan
(F-H ESOP). As of February 28, 2000, Fidelity Management Trust Company
("Fidelity"), the Trustee of the Pentair ESOP, held 2,861,592 common shares
(5.8%) and Norwest Bank Minnesota, N.A. ("Norwest"), the Trustee of the F-H
ESOP, held 610,987 common shares (1.2%). Fidelity and Norwest disclaim
beneficial ownership of all shares. The Pentair ESOP and F-H ESOP
participants have the right to direct the Trustee to vote their shares
although participants have no investment power over such shares. The
Trustees, except as otherwise required by law, vote the shares for which
they have received no direction from participants, in the same proportion
on each issue as they vote those shares for which they have received voting
directions from participants.
(f) Less than 1% unless otherwise indicated.
(g) According to its 13G dated February 4, 2000, as of December 31, 1999,
Brinson Partners and its affiliate UBS AG, as investment advisors, have
sole voting power over 3,243,862 shares and shared dispositive power over
all 3,268,462 shares. They disclaim beneficial ownership of all 3,268,462
shares.
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 except Augusto Meozzi, a director of the
Company, did not timely file required Form 4, Statement of Changes in Beneficial
Ownership. A report has now been filed.
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. Two incumbent directors, William J.
Cadogan and Charles A. Haggerty, and Randall J. Hogan, who was elected to the
Company's Board of Directors on December 10, 1999 have been nominated for
three-year terms, expiring at the 2003 Annual Meeting. Eight 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.
Information concerning the persons nominated for election as directors, as
well as those continuing in office, is set forth on the following pages.
3
<PAGE>
DIRECTORS STANDING FOR ELECTION
(FOR A THREE-YEAR TERM EXPIRING AT THE 2003 ANNUAL MEETING OF SHAREHOLDERS)
WILLIAM J. CADOGAN, director since 1996, age 51
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 National
Computer Systems, Siara Systems, and Agiliti, Chairman of the Telecommunications
Industry Association, and serves on the Board of Governors of the Electronics
Industry Association.
CHARLES A. HAGGERTY, director since 1994, age 58
Since July 1993, Mr. Haggerty has been Chairman of the Board of Directors
of Western Digital Corporation, a manufacturer of hard disk drives. Mr. Haggerty
was Chief Executive Officer of Western Digital Corporation from July 1993 to
January 2000, and President from June 1992 to July 1993. 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., Beckman Coulter, Inc. and Vixel Inc.
RANDALL J. HOGAN, director since 1999, age 44
Since December 1999, Mr. Hogan has been President and Chief Operating
Officer of Pentair, Inc. From March 1998 to December 1999, he was Executive Vice
President and President of Pentair's Electrical and Electronic Enclosures Group.
From February 1995 to August 1997, he was President of United Technologies'
Carrier Transicold Division, and from March 1994 to February 1995 he was Vice
President and General Manager of the Pratt & Whitney Turbo Power & Marine
Division. From 1988 to 1994 he held various positions with General Electric
Company, and from 1981 to 1987 he was a consultant with McKinsey & Company.
DIRECTORS CONTINUING IN OFFICE
(TERM EXPIRES AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS)
JOSEPH R. COLLINS, director since 1999, age 58
Since November 1998, Mr. Collins has been Vice Chairman of Pentair, Inc.
From March 1995 to October 1998 he was Executive Vice President, President,
Professional Tools and Equipment Group and from August 1991 to February 1995 he
was Senior Vice President - Specialty Products. He also served as Acting Chief
Financial Officer of the Company from June 1993 to March 1994. Mr. Collins is
also a director of Remmele Engineering Corp.
QUENTIN J. HIETPAS, director since 1976, age 69
Since 1983, Mr. Hietpas has been the Senior Vice President of External
Affairs of the University of St. Thomas, St. Paul, Minnesota.
RICHARD M. SCHULZE, director since 1994, age 59
Since 1983, Mr. Schulze has been Founder, Chairman and Chief Executive
Officer of Best Buy Company, Inc. a consumer electronics, personal computer,
media software and major appliance chain.
KAREN E. WELKE, director since 1995, age 55
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). In January 2000, Ms. Welke began a 2-year
Loaned Executive commitment to Project Hope, a non-government, non-profit
organization dedicated to achieving sustainable advances in health care around
the world.
4
<PAGE>
(TERM EXPIRES AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS)
WINSLOW H. BUXTON, director since 1990, age 60
Since January 1993, Mr. Buxton has been the Chairman of the Board of
Directors of Pentair, Inc. Mr. Buxton has been Chief Executive Officer of the
Company since August 1992. Mr. Buxton was President of the Company from August
1992 to December 1999 and Chief Operating Officer of the Company from August
1990 to 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., The Toro Company and Willamette Industries, Inc.
BARBARA B. GROGAN, director since 1996, age 52
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 Deluxe Corporation, Apogee, Inc., Committee for Economic
Development, New York City and Volunteers of America, Colorado.
STUART MAITLAND, director since 1999, age 54
Mr. Maitland has been Director of Manufacturing Operations for the Vehicle
Operations organization at Ford Motor Company, Dearborn, Michigan since 1996. He
joined Ford Motor Company in 1988 and during the period up to his present
position, he has been Plant Manager at Ford's Kansas City Assembly Plant, Twin
Cities Assembly Plant in St. Paul, Minnesota and Dearborn Assembly Plant in
Dearborn, Michigan. From 1963 to 1988, Mr. Maitland held various domestic and
international positions for General Motors Corporation.
AUGUSTO MEOZZI, director since 1999, age 60
Since January 1, 1998, Mr. Meozzi has been the Chief Operating Officer of
the German ISOLA Group, a world-wide producer of base materials. From November
1992 to January 1998, Mr. Meozzi was Corporate Executive Vice President of the
German ISOLA Group.
DIRECTORS' ATTENDANCE
The Board of Directors held nine meetings in 1999. All directors attended
at least 75% of the aggregate of all the meetings of the Board and its
committees on which they served, with the exception of William J. Cadogan, who
attended 63%. The incumbent directors in the aggregate attended 91% of the
meetings of the Board, including the meetings of the committees on which they
serve.
COMMITTEES OF THE BOARD
The Audit Committee, which presently consists of Karen E. Welke (Chair),
Charles A. Haggerty, Stuart Maitland, and Richard M. Schulze, is responsible for
selecting auditors, ensuring the fiscal integrity of the Company, and
establishing and reviewing internal controls. The Audit Committee held five
meetings in 1999.
The Compensation and Human Resource Committee, which presently consists of
Quentin J. Hietpas (Chair), William J. Cadogan, Barbara B. Grogan, Harold V.
Haverty, and Stuart Maitland, 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 Compensation and Human Resource Committee held four
meetings during 1999.
The Nominating and Governance Committee, which presently consists of
Richard M. Schulze (Chair), Winslow H. Buxton, William J. Cadogan and Quentin J.
Hietpas, is responsible for nominating candidates for vacancies on the Board.
The Nominating and Governance Committee considers nominees recommended by
shareholders under the procedures set forth in the Company's By-Laws. The
Nominating and Governance Committee held three meeting in 1999.
5
<PAGE>
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 1999,
non-employee directors were paid an annual retainer of $24,000, ($29,000 for the
Chair of the Compensation and Human Resource Committee), $41,750 of deferred
compensation in the form of share units under the Fourth Amended and Restated
Compensation Plan for Non-Employee Directors, $1,500 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 share unit is
equal to the market value of a share of Common Stock. Share units carry no
voting or investment power. Participants and amounts deferred under the Plan are
shown below:
$ Amount Deferred
----------------------------------- Share Units
Name 1997 1998 1999 12/31/99
- ------------------- -------------------------------------------------
William J. Cadogan $40,913 $39,400 $53,000 4,416
Barbara B. Grogan 71,600 68,400 84,500 7,487
Charles A. Haggerty 73,100 69,400 91,000 11,918
Harold V. Haverty 29,850 28,150 41,750 6,025
Quentin J. Hietpas 40,913 39,400 53,000 14,774
Stuart Maitland 73,250 1,709
Augusto Meozzi 58,187 1,323
Richard M. Schulze 67,100 64,900 94,000 9,904
Karen E. Welke 67,100 62,900 89,500 9,217
The Outside Directors Nonqualified Stock Option Plan provides for the
granting of options to purchase 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 Common Stock. 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 Common Stock on the date of award of such option.
Beginning with stock options granted in 1998, if the option holder exercises the
stock option during the first five years of the option term by tendering to the
Company common shares owned by that person, the Company can grant to such
person, an option ("Reload Option") to purchase common shares equal to the
number of shares tendered. The Reload Option may be exercised during the
remaining term of the original stock option period. The Reload Option exercise
price is equal to the market price per share on the date the shares are
tendered.
Options Granted
---------------------------------
Name 1997 1998 1999
- ------------------- ----- ----- -----
William J. Cadogan 2,200 1,275 1,275
Barbara B. Grogan 2,200 1,275 1,275
Charles A. Haggerty 2,200 1,275 1,275
Harold V. Haverty 2,200 1,275 1,275
Quentin J. Hietpas 2,200 1,275 1,275
Richard M. Schulze 2,200 1,275 1,275
Karen E. Welke 2,200 1,275 1,275
The exercise price and expiration dates for the above options are: 1999,
$39.625 per share, expiration date January 14, 2009; 1998, $40.4375 per share,
expiration date February 25, 2008; 1997, $31.375 per share, expiration date
February 26, 2002.
One-third of the options granted to each recipient become exercisable on
each of the first three anniversaries of the date of grant. The options granted
in 1998 and 1999 expire ten years after the date of grant. The options granted
in 1997 expire five years after the date of grant. Three current directors
exercised options during 1997-1999; the net value of shares (market value less
exercise price) realized from these exercises was $297,813.
6
<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), William J. Cadogan, Barbara B. Grogan,
Harold V. Haverty, and Stuart Maitland during 1999. None of the members of the
Committee were officers or employees of the Company during 1999. 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
7
<PAGE>
(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 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.
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 1999, 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 10 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 (60% for the President, Chief
Operating Officer; 45% for the Vice Chairman; 40% for 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 Sales (ROS) and Pentair
Value Added (PVA). Pentair's value added measurement is calculated as follows:
Net Operating Profit After Taxes less a 10% surcharge against Average Invested
Capital. The use of three multiplicative factors reinforces the importance of
balancing financial oriented goals in terms of growth, quality of earnings, and
optimum balance sheet leverage. Under the MIP, achievement of EPS Growth of 12%,
ROS of 11% and PVA generated that equates to a 15% total business return,
results in a company performance factor of 1.00. The maximum company performance
factor is 3.90 and the minimum company performance factor is 0.20; however,
there is no MIP bonus if the Company has an operating loss. Performance between
the stated factors is interpolated.
In the first quarter of 1999, the Company recorded a special restructuring
charge of $38.0 million ($24.1 million after-tax or $0.56 per share). For
purposes of the MIP calculation, costs related to restructuring activities are
being amortized against the first 24 months of benefits, on a project by project
basis. This is a timing difference only for MIP purposes in order to match the
costs with the associated benefits.
During 1999, the Company successfully completed major acquisitions whose
financial results were excluded from the calculations of ROS and PVA due to
having less than a full year of financials for these new businesses. The partial
year financial results of these new major acquisitions were included in the EPS
growth calculation to reinforce that acquisitions be accretive to EPS as soon as
possible.
8
<PAGE>
For 1999, EPS growth (including a portion of the restructuring charge) was
15.4%, ROS was 11.1% and PVA generated was $41.2 million (both including a
portion of the restructuring charge and excluding new major acquisitions),
resulting in a company performance factor of 1.84.
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 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 under the Omnibus Stock Incentive Plan (Omnibus Plan). 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 are granted in the form of ICUs (10% for the CEO and 20% for executive
officers) and stock options (90% for the CEO and 80% for executive officers).
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
stock option grant values.
Stock options can be granted for terms up to 10 years. Beginning with stock
options granted in 1998, if the option holder exercises the stock option during
the first five years of the option term by tendering to the Company common
shares owned by that person, the Committee can grant to such person, an option
("Reload Option") to purchase common shares equal to the number of shares
tendered. The Reload Option may be exercised during the remaining term of the
original stock option period. The Reload Option exercise price is equal to the
market price per share on the date the shares are tendered.
The total Omnibus Plan awards for 1999 for all executive officers as a
group, including the CEO and named executive officers, amounted to 946,717
incentive compensation units (ICUs), 282,000 stock options, and 3,880 restricted
shares of which 2,720 restricted shares were awarded for achievement of stock
ownership guidelines, and 1,160 restricted shares were awarded under the
Management Incentive Plan. Grants for the named executive officers are shown in
the Summary Compensation Table (page 13) and the Option/SAR grant table (page
14).
PAYOUTS
Payouts on ICUs in 1999 which related to ICU grants in 1996 were 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 1999 for named executive
officers are shown in the LTIP Payout column on the Summary Compensation Table
(page 13).
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.
9
<PAGE>
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 $718,000 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 5% increase in Mr.
Buxton's base salary over 1998.
Mr. Buxton's bonus was determined under the Executive Officer 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.
The EOPP company performance factor is the result of the multiplication of
factors for Earnings Per Share (EPS) growth, Return On Sales (ROS) and Return On
Invested Capital (ROIC). The use of three multiplicative factors reinforces the
importance of balancing financial oriented goals in terms of growth, quality of
earnings, and an acceptable return on investment. Under the EOPP, achievement of
EPS growth of 12%, ROS of 10%, and ROIC of 20%, results in a performance factor
of 1.00. The maximum company performance factor is 2.81 and the minimum company
performance factor is 0.32; 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.
For 1999, EPS declined by 5.3% (including the full impact of the 1999
restructuring charge of $0.56 per share) ROS was 9.1% and ROIC was 15.4% (both
including the full impact of the 1999 restructuring charge and the partial year
of financial results from major acquisitions), resulting in a company
performance factor of 0.34.
Mr. Buxton's bonus was calculated using the formula described above. The
Committee used his base salary of $718,000, his bonus opportunity category of
71.5%, and the company performance factor of 0.34 to obtain his bonus amount. In
accordance with the terms of the EOPP, the bonus amount of $174,546 was paid in
cash.
Mr. Buxton's Omnibus Plan 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 162,416 ICUs and 89,000 stock options
in 1999.
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 target is met, limited to 10% of the targeted ownership level if the
targeted ownership level has been achieved. In 1999, restricted stock awards of
4,281 were granted under these guidelines to all key employees.
10
<PAGE>
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 Plan to comply with Internal Revenue Code Section 162(m). Under current
interpretations of Section 162(m), EOPP bonus awards and Omnibus 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 William J. Cadogan Barbara B. Grogan
Harold V. Haverty Stuart Maitland
Compensation and Human Resource Committee of Pentair, Inc. Board of Directors
11
<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, 1994 and the reinvestment of all dividends
since that date to December 31, 1999. 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 CHART]
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
Pentair, Inc. 100 118.43 156.49 177.19 199.37 195.81
S&P 500 100 137.58 169.17 225.60 290.08 351.12
S&P MidCap 400 100 130.94 156.08 206.43 245.87 282.06
12
<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
1999 exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------- -----------------------------------
Awards Payouts
------------------------ -------
Restricted Securities All Other
Name and Stock Underlying LTIP Compen-
Principal Salary Bonus(a) Awards(b) Options/ Payouts sation
Position Year ($) ($) ($) SARs(c) ($)(d) ($)(e)
- --------------------- ---- ------- -------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Winslow H. Buxton 1999 718,000 174,546 0 89,000 547,374 10,113
Chairman, Chief 1998 683,250 683,250 103,903 89,000 646,974 7,940
Executive Officer 1997 656,250 656,250 196,315 76,731 607,931 11,074
Joseph R. Collins 1999 400,000 400,000 45,898 40,000 150,786 8,788
Vice Chairman 1998 332,500 323,010 7,980 48,250 175,983 7,940
1997 294,000 284,494 8,680 32,124 165,815 12,668
Randall J. Hogan 1999 312,500 312,500 21,313 25,000 2,177 10,481
President, Chief 1998 217,708 175,000 203,063 25,000 1,350
Operating Officer
Richard J. Cathcart 1999 310,000 296,608 24,211 25,000 150,013 11,038
Executive Vice 1998 290,000 250,421 10,535 25,000 123,469 10,190
President, President, 1997 268,054 214,358 12,307 21,924 3,355 13,324
Water and Fluid
Technologies Group
James A. White 1999 300,000 287,040 7,014 25,000 53,827 9,049
Executive Vice 1998 262,500 226,674 3,255 21,000 67,255 8,440
President, President, 1997 220,334 217,448 20,615 8,505 74,442 12,289
Professional Tools
& Equipment
</TABLE>
- ---------------------
(a) Represents bonuses accrued by the Company for the year even if paid after
December 31.
(b) The restricted share grants reflected in the table were made pursuant to
the Company's executive compensation programs. Restricted stock awards are
subject to vesting as determined by the Committee. Generally, 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,
1999, the following restricted stock awards were held by each of the named
executives (based on 12/31/99 closing price of $38.50): Buxton 26,112
shares or $1,005,312; Collins 5,850 shares or $225,225; Cathcart 4,642
shares or $178,717; Hogan 1,902 shares or $73,227; White 1,827 shares or
$70,340.
(c) The share amounts for Mr. Collins include 23,250 stock options in 1998, and
10,200 stock options in 1997, 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.
13
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize option and SAR grants and exercises during
1999 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 1999. 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 1999 or remain
outstanding at the end of 1999.
Option and SAR Grants in 1999
-----------------------------
<TABLE>
<CAPTION>
Number % of Total Potential Realizable
of Options/ Value at Assumed
Securities SARs Annual Rates of Stock
Underlying Granted to Price Appreciation for
Options/ Employees Exercise Expira- Option Term
SARs in Fiscal or Base tion -----------------------
Name Granted(a) 1999 Price Date 5% 10%
- ------------------- ---------- ------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Winslow H. Buxton 89,000 22.4% $39.625 1/14/09 $2,217,876 $5,620,532
Joseph R. Collins 40,000 10.1% $39.625 1/14/09 $ 996,798 $2,526,082
Randall J. Hogan 25,000 6.3% $39.625 1/14/09 $ 622,999 $1,578,801
Richard J. Cathcart 25,000 6.3% $39.625 1/14/09 $ 622,999 $1,578,801
James A. White 25,000 6.3% $39.625 1/14/09 $ 622,999 $1,578,801
</TABLE>
- -------------------
(a) One-third of each grant becomes exercisable on each of the first three
anniversaries of the date of grant. The exercise price for the options
granted was the closing market price of the Common Stock as of the date of
grant.
Aggregate Option and SAR Exercises in 1999 and Value at End of 1999
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
End of 1999 End of 1999
Shares Acquired Value Exercisable (E) Exercisable (E)
Name on Exercise Realized Unexercisable (U) Unexercisable (U)
- ------------------- --------------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
Winslow H. Buxton 82,950 $1,308,016 E 158,020 E $1,529,686
U 173,911 U $ 399,497
Joseph R. Collins 38,068 $ 980,124 E 48,749 E $ 453,086
U 94,025 U $ 136,945
Randall J. Hogan N/A N/A E 8,333 E $ --
U 41,667 U $ --
Richard J. Cathcart 12,700 $ 275,739 E 45,349 E $ 441,186
U 48,975 U $ 113,145
James A. White 2,000 $ 48,000 E 24,044 E $ 232,222
U 41,835 U $ 70,263
</TABLE>
14
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS
The following table reflects incentive compensation unit (ICU) awards made
under the Omnibus Plan during 1999 to the Chief Executive Officer and the
executive officers named in the Summary Compensation Table above.
Long-Term Incentive Plan Awards in 1999
---------------------------------------
<TABLE>
<CAPTION>
Estimated Future Payouts
Number of Performance or Under Non-Stock Price
Shares, Units Other Period Based Plans
or Other Until Matura- ------------------------------------
Name Rights tion or Payout Threshold Target Maximum
- ------------------- ------------- -------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Winslow H. Buxton 162,416 units 3 years $0 $280,980 $773,100
Joseph R. Collins 155,844 units 3 years $0 $269,610 $741,817
Randall J. Hogan 101,839 units 3 years $0 $176,181 $484,754
Richard J. Cathcart 101,839 units 3 years $0 $176,181 $484,754
James A. White 101,839 units 3 years $0 $176,181 $484,754
</TABLE>
The ultimate payout value of each ICU is determined based on the Company's
operating income (OI) growth and return on invested capital (ROIC) averaged over
the three-year period. The target payout shown in the table is based on annual
OI growth of 10% and annual ROIC of 20% which results in a value per ICU of
$1.73. If over the three-year period there is no OI growth or ROIC is less than
15%, the value per ICU will be $0. The maximum value per ICU is $4.76. The
following matrix shows the ICU values based on the OI growth and ROIC.
<TABLE>
<CAPTION>
OPERATING INCOME (OI) GROWTH
RETURN ON INVESTED -----------------------------------------------------------------
CAPITAL (ROIC) 0% 2% 6% 10% 12% 20% 30%
- ------------------ -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
15% 0.13 0.14 0.18 0.22 0.24 0.33 0.46
16% 0.44 0.47 0.53 0.60 0.64 0.79 1.00
18% 0.96 1.01 1.12 1.23 1.29 1.54 1.89
19% 1.17 1.23 1.36 1.49 1.56 1.86 2.27
20% 1.37 1.44 1.58 1.73 1.81 2.15 2.61
30% 2.61 2.73 2.98 3.24 3.38 3.96 4.76
</TABLE>
RETIREMENT BENEFIT PLANS
The Company maintains a tax-qualified defined benefit pension plan covering
substantially all nonbargaining U.S. employees and an excess benefit plan
covering highly-paid employees. Benefits under each plan are based on a
participant's high five year average eligible earnings which generally include
salary and bonus.
The Company maintains an unfunded, nonqualified Supplemental Executive
Retirement Plan (SERP) for corporate officers and subsidiary presidents. The
annual retirement benefit payable under the SERP at age 65 is equal to 50% of
the participant's high three year average eligible earnings reduced by 100% of
the annual primary Social Security benefit and further reduced by age 65
benefits payable under qualified pension plans sponsored by the Company and
previous employers of the participant.
Effective January 1, 1999 the Company amended the SERP to provide an annual
retirement benefit which, expressed as a lump sum, is equal to the product of 15
percentage points for each year of service times the high five year average
eligible earnings with no reductions for Social Security or qualified pension
benefits. SERP benefits are payable as early as the attainment of age 55 and
completion of five years of service in the new plan and are converted into and
received in the form of a term certain or joint and survivor annuity. Five SERP
participants are grandfathered under the old SERP formula (including named
executive officers Buxton and Collins).
The following estimated aggregate amounts are payable, from the qualified
pension, excess plan and SERP, annually upon retirement to the named executive
officers over their lifetime: Buxton $713,680; Collins $317,333; Hogan $332,469;
Cathcart $297,440; and White $241,055.
15
<PAGE>
CHANGE IN CONTROL ARRANGEMENTS
Approximately 75 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
Plan, and payment for ICU's 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 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, 1999, 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, $7,303,179; Collins, $5,048,055; Hogan,
$2,043,445; Cathcart $3,226,009; and White, $2,857,126.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors is responsible for selecting
auditors, ensuring the fiscal integrity of the Company and establishing and
reviewing internal controls. The Audit Committee is comprised of the following
directors:
Name of Director Term Expires Director Since
---------------- ------------ --------------
Karen E. Welke, Chair 2001 1995
Charles A. Haggerty 2000 1994
Stuart Maitland 2002 1999
Richard M. Schulze 2001 1994
During 1999 and 2000 to date, the Audit Committee and the Board of
Directors have reviewed the new standards for audit committees adopted by the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange
("NYSE"). In accordance with this NYSE standard for independence of Audit
Committee members, the Board of Directors considers all of the members of the
Audit Committee to be independent. None of the members of the Audit Committee
were officers or employees of the Company during 1999 or previously, or had a
relationship
16
<PAGE>
with the Company that would, in the opinion of the Board of Directors, interfere
with the exercise of his or her independence from management and the Company.
All of the members of the Audit Committee have substantial experience in
financial matters and business operations.
The Audit Committee has (i) reviewed and discussed the Company's audited
financial statements with management; (ii) discussed with the Company's
independent auditors, Deloitte & Touche, LLP, the matters required to be
discussed by Statement on Auditing Standards No. 61; and (iii) received from the
auditors disclosures regarding the auditors' independence in accordance with
Independence Standards Board Standard No. 1 and discussed with the auditors the
auditors' independence. Based on the review and discussions described above, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements for the year ended December 31, 1999 be included in the
Company's 1999 Annual Report on Form 10-K for filing with the SEC. In addition,
the Audit Committee, through its Chair, reviewed the quarterly results for the
third and fourth quarters of 1999 prior to public release.
The Audit Committee also reviewed and revised its charter in light of the
"Blue Ribbon Committee Report" concerning audit committees and the rules adopted
by the SEC and NYSE. The revised charter was adopted by the Board of Directors
on February 23, 2000 and is attached as Appendix 1 to this Proxy Statement.
Karen E. Welke, Chair Charles A. Haggerty Stuart Maitland Richard M. Schulze
Audit Committee of the Pentair, Inc. Board of Directors
FUTURE PROPOSALS
The deadline for submitting a shareholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 Annual
Meeting of Shareholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is November 10, 2000. Unless a shareholder who wishes to bring a
matter before the shareholders at the Company's 2001 Annual Meeting notifies the
Company of such matter prior to January 24, 2001, the persons named in the proxy
for the 2001 Annual Meeting will have discretionary authority to vote for or
against or to abstain from voting on such proposal in accordance with their best
judgment, if the proposal is actually presented at the meeting. Such proposals
also must comply with the requirements of the Securities and Exchange Commission
and the Company's bylaws. Any shareholder proposal should be sent to the Company
at its principal executive offices: 1500 County Road B2 West, Saint Paul,
Minnesota 55113, Attention: Secretary.
With respect to nomination of directors, 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.
OTHER BUSINESS
Management does not know of any other business that will be presented for
consideration at the Annual Meeting; however, if any other business does
properly come before the Annual Meeting, proxies will be voted in accordance
with the best judgment of the person or persons acting under them.
17
<PAGE>
Appendix 1
CHARTER OF RESPONSIBILITIES
FOR
AUDIT COMMITTEE
Of
Pentair, Inc.
Board of Directors
The Audit Committee (the "Committee")has been appointed by the Board of
Directors to assist the Board in supervising the financial and legal compliance
of the Company. The principal responsibility of the Committee is to monitor the
integrity of the financial statements of the Company and the independence and
performance of the Company's internal and external auditors. The Committee also
will work in cooperation with the Company's legal counsel to monitor compliance
with applicable legal requirements when the risk of non-compliance might have an
adverse impact on the Company's financial condition or results of operations.
The Committee shall consist of at least three directors, all of whom shall be
independent and financially literate, and at least one of whom shall possess
financial or accounting expertise, as determined by the Board of Directors. A
director shall be considered independent if he or she meets the requirements
established by the New York Stock Exchange for audit committee independence and
will submit an annual statement to the Board confirming compliance with these
independence requirements. The members of the Committee will be appointed by the
Board on the recommendation of the Nominating and Governance Committee.
The Committee shall have the authority to retain special legal, accounting or
other consultants to advise the Committee. The Committee may request any officer
or employee of the Company or the Company's outside counsel or independent
auditor to attend a meeting of the Committee or to meet with any members of, or
consultants to, the Committee.
A. With regard to the Company's financial statements and accounting practices
and policies, the Committee shall:
* Meet with management to review the annual audited financial statements
and discuss major issues regarding accounting and auditing principles
and practices as well as the adequacy of internal controls that could
significantly affect the Company's financial statements.
* Review significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial statements.
* Review with management and the independent auditor the Company's
quarterly financial statements prior to the release of quarterly
earnings.
* Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures.
* Review major changes to the Company's accounting principles and
practices as suggested by the independent auditor, internal auditors
or management.
B. With regard to the independent certified public accountants (external
auditors) responsible for rendering opinions reflecting proper compliance
with generally accepted accounting principles and various financial
accounting standards, the Committee shall:
* Review and recommend to the Board the appointment or retention of an
independent auditor, which firm is ultimately accountable to the
Committee and the Board.
* Review and approve the independent auditor's audit plan including
scope, staffing, timing of work and audit fees.
<PAGE>
* Ensure that the external auditors submit on a periodic basis to the
Committee a formal written statement delineating all relationships
between the auditors and the Company; actively engage in a dialogue
with the external auditors with respect to any disclosed relationships
or services that may impact the objectivity and independence of the
external auditors; and recommend that the Board of Directors take
appropriate action in response to the external auditors' report to
satisfy itself of their independence.
* Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
* Review independent auditor's letter reports regarding the Company's
internal controls and other observations and recommendations and
management's responses.
C. With regard to the Company's internal audit practices, the Committee shall:
* Perform a general oversight function assuring adequate competent staff
and sufficient internal control policies to ensure the integrity of
the Company's financial reporting process.
* Review the performance of the internal audit department.
* As appropriate, review significant reports to management prepared by
the internal audit department and management's responses.
D. The Committee shall also:
* Review and approve the report required by the rules of the Securities
and Exchange Commission to be included in the Company's annual proxy
statement regarding the activities of the Committee.
* Review with the Company's General Counsel legal matters that may have
a material impact on the financial statements, the Company's
compliance policies and any material reports or inquiries received
from regulators or government agencies.
* Meet at least annually with the Company's financial management, the
senior internal audit staff and the independent auditor in separate
executive sessions, as needed.
* The Committee shall review and reassess at least annually the adequacy
of this Charter and recommend any proposed changes to the Board for
its review and approval and submit required certifications to the
appropriate exchanges.
While the Committee has the responsibilities and power set forth in this Charter
delegated to it by the Board, it is not the duty of the Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles. This is the responsibility of management and the independent
auditor. Nor is it the duty of the Committee, separate from the Board, to
conduct investigations, to resolve disagreements, if any, between management and
the independent auditor or to assure compliance with laws and regulations and
the Company's Code of Conduct.
<PAGE>
[LOGO] PENTAIR
PLEASE SIGN AND RETURN PROMPTLY
TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENTAIR, INC.
The undersigned hereby appoints Winslow H. Buxton and Randall J. Hogan, 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 28, 2000 at the Annual Meeting of Shareholders of Pentair, Inc. to be
held at 10:00 a.m., Wednesday, April 26, 2000, at the Lutheran Brotherhood
Auditorium, 625 4th Avenue South, Minneapolis, Minnesota, and any adjournment or
adjournments thereof.
Furthermore, if I am a participant in the Pentair, Inc. Employee Stock
Ownership Plan (Pentair ESOP) or the Federal-Hoffman Employee Stock Ownership
Plan (F-H ESOP), as appropriate, I hereby direct Fidelity Management Trust
Company as Pentair ESOP Trustee, or Norwest Bank Minnesota, N.A. as F-H ESOP
Trustee, to vote at the Annual Meeting of Shareholders of Pentair, Inc. to be
held at 10:00 a.m., Wednesday, April 26, 2000, at the Lutheran Brotherhood
Auditorium, 625 4th Avenue South, Minneapolis, Minnesota, and any adjournment or
adjournments thereof, all shares of Common Stock of Pentair, Inc. allocated to
my account in the Pentair ESOP or F-H ESOP as of February 28, 2000. I understand
that this card must be received by Norwest Bank Minnesota, N.A., acting as
tabulation agent for the Pentair ESOP Trustee and F-H ESOP Trustee, by April 19,
2000. 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 Fidelity Management Trust Company or Norwest Bank
Minnesota, N.A., as appropriate, in the same proportion that the other
participants direct them to vote shares allocated to their accounts.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
---------------------
COMPANY #
CONTROL #
---------------------
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
* Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. on April 25, 2000.
* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
* Follow the simple instructions the Voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/pnr/ -- QUICK *** EASY *** IMMEDIATE
* Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 p.m. on April 25, 2000.
* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Pentair, Inc., c/o Shareowner Services(SM), P.O.
Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
[ARROW] PLEASE DETACH HERE [ARROW}
THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as marked) nominees listed below
01 William J. Cadogan 02 Charles A. Haggerty 03 Randall J. Hogan
_____________________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, | |
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT. |_____________________________________|
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 meeting or any adjournment thereof.
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.
Address Change? Mark Box [ ] Indicate changes below:
Date ___________________________, 2000
THIS CARD MUST BE DATED.
_____________________________________
| |
| |
|_____________________________________|
Signature(s) in Box
(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.)
</TABLE>
<PAGE>
[LOGO] PENTAIR
PLEASE SIGN AND RETURN PROMPTLY
TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENTAIR, INC.
As a participant in the Pentair, Inc. International Employee Stock Purchase
and Bonus Plan (Plan), I hereby direct ABN AMRO Trust Company (Jersey) Limited
as Trustee, to vote, as designated on the reverse side, at the Annual Meeting of
Shareholders of Pentair, Inc. to be held at 10:00 a.m., Wednesday, April 26,
2000, at the Lutheran Brotherhood Auditorium, 625 4th Avenue South, Minneapolis,
Minnesota, and any adjournment or adjournments thereof, all shares of Common
Stock of Pentair, Inc. allocated to my account in the Plan as of February 28,
2000. I understand that this card must be received by Norwest Bank Minnesota,
N.A., acting as tabulation agent for the Trustee, by April 19, 2000.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
---------------------
COMPANY #
CONTROL #
---------------------
THERE ARE TWO WAYS TO VOTE YOUR PROXY
YOUR VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER AS
IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY INTERNET -- http://www.eproxy.com/pnr/ -- QUICK *** EASY *** IMMEDIATE
* Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 p.m. on April 25, 2000.
* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Pentair, Inc., c/o Shareowner Services(SM), P.O.
Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
[ARROW] PLEASE DETACH HERE [ARROW}
THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS: [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as marked) nominees listed below
01 William J. Cadogan 02 Charles A. Haggerty 03 Randall J. Hogan
_____________________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, | |
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT. |_____________________________________|
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 meeting or any adjournment thereof.
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.
Address Change? Mark Box [ ] Indicate changes below:
Date ___________________________, 2000
THIS CARD MUST BE DATED.
_____________________________________
| |
| |
|_____________________________________|
Signature(s) in Box
(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.)
</TABLE>
<PAGE>
[LOGO] PENTAIR
PLEASE SIGN AND RETURN PROMPTLY TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 2000
The undersigned hereby appoints Winslow H. Buxton and Randall J. Hogan, 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 28, 2000 at the Annual Meeting of Shareholders of Pentair, Inc. to be
held at 10:00 a.m., Wednesday, April 26, 2000, at the Lutheran Brotherhood
Auditorium, 625 4th Avenue South, Minneapolis, Minnesota, and any adjournment or
adjournments thereof.
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.
William J. Cadogan Charles A. Haggerty Randall J. Hogan
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 meeting or
any adjournment thereof.
(CONTINUED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM REVERSE SIDE)
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: ____________________________, 2000
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.)
