<PAGE> 1
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SCHEDULE 14A
(RULE 14a)
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Essef Corporation
(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 transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] 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: ...........................................................
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<PAGE> 2
PROXY STATEMENT
DECEMBER 19, 1997
GENERAL INFORMATION
This proxy statement is furnished to shareholders of Essef Corporation (the
"Company") on its behalf, by its Board of Directors, in connection with its
Annual Meeting of Shareholders (the "Annual Meeting") to be held on Thursday,
January 29, 1998, at the offices of the Company, 220 Park Drive, Chardon, Ohio
44024 at 10:00 a.m. EST, or any adjournments thereof, (i) to consider and act
upon a proposal to amend the Articles of Incorporation of the Company to
increase the number of authorized common shares from 15,000,000 to 40,000,000
and (ii) to conduct such other business as may properly be brought before the
Annual Meeting. This proxy statement was first mailed on December 19, 1997, to
shareholders of record on November 21, 1997.
On November 21, 1997, 10,592,368 common shares were outstanding. Each
shareholder of record as of that date is entitled to notice of the meeting and
to cast one vote per share held on all matters to come before the Annual
Meeting. The holders of a majority of the votes entitled to be cast present in
person or by proxy shall constitute a quorum for the purposes of the Annual
Meeting.
A form of proxy accompanies this statement which shareholders are urged to fill
in and return. The persons appointed by validly executed proxies will vote the
shares covered thereby according to the instructions endorsed thereon, on each
issue or matter as to which an instruction is given. Shares covered by signed
proxies otherwise unmarked or on which contradictory or unclear instructions are
given will be voted in accordance with the best judgment of the persons
appointed thereon as to any matters properly brought before the Annual Meeting.
The appointment of a proxy may be revoked at any time by providing notice to the
Company prior to the Annual Meeting or by appearing at the Annual Meeting to
vote in person.
1
<PAGE> 3
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES
Article FOURTH of the Company's Second Amended Articles of Incorporation
currently fixes the authorized number of Common Shares at 15,000,000 and the
authorized number of Serial Preferred Shares at 1,000,000. For the reasons
discussed below, the Board of Directors has approved, and recommends for
shareholder approval, an amendment to increase the number of authorized Common
Shares by 25,000,000 (the "Additional Shares") to 40,000,000. No change is being
proposed in the authorized number of Serial Preferred Shares.
As of November 22, 1996, 4,802,700 of the authorized Common Shares were issued
and outstanding and 10,197,300 were available for issue. By November 21, 1997,
however, as a result of, among other things, the ten percent stock dividend
declared on January 23, 1997 and the two-for-one stock split declared on August
7, 1997, the number of issued and outstanding Common Shares had increased to
10,592,368, leaving only 4,407,632 authorized Common Shares available for
issuance.
The amendment would increase the available number of authorized but unissued
Common Shares to approximately 29,407,632. While the Company does not have any
commitment or understanding at this time for the issuance of Additional Shares,
the Board believes that it is prudent to have such shares available for possible
stock splits or other stock distributions, acquisitions, financings, employee
benefit plans or other purposes not currently foreseeable. As a general matter,
the Board supports the use of stock dividends or stock splits to maximize the
potential for continued price growth following periods of significant and
sustained growth in the market price of the Common Shares. The Board also
recognizes the value of Common Shares as a form of acquisition currency. The
amendment would allow the Board to authorize the issuance of Additional Shares
without further shareholder approval, unless required for a particular
transaction by applicable law, regulation or the rules of any stock exchange on
which the Company's securities are listed.
The authorization of the Additional Shares would not, by itself, have any effect
on the rights of the Company's shareholders. The issuance of the Additional
Shares for corporate purposes other than a stock split or pro rata distribution
to existing shareholders could have, among other things, a dilutive effect on
earnings per share and on the equity and voting power of shareholders at the
time of their issuance. In addition, the increase in authorized shares could
render more difficult in certain circumstances or discourage an attempt to
obtain control of the Company, whether through a tender offer or otherwise, by,
for example, allowing the issuance of Common Shares that would dilute the share
ownership of a person attempting to obtain control. This proposal is not,
however, being made in response to any effort of which the Company is aware to
accumulate Common Shares or gain control of the Company.
The amendment requires the affirmative vote of the holders of Common Shares
entitling them to exercise two-thirds of the voting power of the Company with
respect thereto. If the amendment were approved, the first paragraph of Article
FOURTH would be amended to read as following (and the remaining provisions of
Article FOURTH would be unchanged):
FOURTH: The number of shares which the corporation is authorized to
issue and have outstanding is 41,000,000, consisting of 40,000,000 Common Shares
without par value (hereinafter called "Common Shares") and 1,000,000 Serial
Preferred Shares without par value (hereinafter called "Serial Preferred
Shares").
The Board of Directors recommends that the shareholders vote FOR the amendment.
2
<PAGE> 4
NOMINATION AND ELECTION OF DIRECTORS
The number of Directors of the Company is currently set at seven members divided
into two classes. Class A has three members and Class B has four members.
Directors in each class are elected for three year terms expiring on the date of
the third annual meeting following their election. With the resignation of Mr.
Elliot B. Ross in December, 1997, the Board has one vacancy which may be filled
when a suitable candidate is identified.
The regulations of the Company provide for the nomination of directors by
shareholders pursuant to a notice satisfying specified requirements, timely
given to the Secretary of the Company. No such notice has been received as of
the date hereof. The Company's Committee on Directors will also consider
recommendations by shareholders for nomination of directors. Directors are
elected by a plurality of the votes represented at the meeting, either in person
or by proxy, and entitled to vote.
A brief biography of each of the directors, including their principal
occupations, ages at the date of this statement, a brief account of their
business experience, and the identity of certain companies of which they are or
were directors or with which they are or were associated appear in the following
section. Their beneficial ownership of common shares of the Company is contained
in the section headed "Beneficial Ownership Of Shares."
DIRECTORS
JAMES M. BIGGAR
AGE 68
Mr. Biggar is currently Chairman and Chief Executive Officer of Glencairn
Corporation, a real estate development firm. Prior to assuming that position in
July, 1991, he served as Chairman of Nestle USA, Inc., a food products,
restaurant and hotel concern. From January, 1984 to January 1991, Mr. Biggar
served as Chairman and Chief Executive Officer of Nestle Enterprises, Inc. Mr.
Biggar is a director of The Sherwin-Williams Company, a manufacturer of
coatings, Bridgestreet Accomodations, and Donley's, Inc.
Mr. Biggar has served as a director since January, 1997 and is a member of the
Audit and Compensation Committees. His current term of office as a director will
expire with the annual meeting of shareholders in 2000.
GORDON D. HARNETT
AGE 55
Mr. Harnett is Chairman, President, and Chief Executive Officer of Brush-Weilman
Corporation, an international supplier of high performance engineered materials.
Prior to assuming that post in January, 1991 he served as Senior Vice President
(1987-1991) of The B.F. Goodrich Co., a diversified manufacturer of aerospace
and specialty chemical products and as President (1982-1985) and Chief Executive
Officer (1985-1987) of Tremco, Inc. a wholly owned subsidiary of The B.F.
Goodrich Co. Mr. Harnett is a Director of Lubrizol Corporation, National City
Bank, and M. A. Hanna Company.
Mr. Harnett has served the Company as a director since July, 1987 and is a
member of the Compensation Committee, of which he is Chairman, the Committee on
Directors, and the Executive Committee. His current term of office as a director
will expire with the annual meeting of shareholders in 2000.
3
<PAGE> 5
GEORGE M. HUMPHREY, II
AGE 55
Mr. Humphrey is President and a principal of Extrudex, L.P., a privately held
thermo-plastic custom extruder. Prior to joining Extrudex, Mr. Humphrey was
Chairman and a principal owner of Philips Container Co., a privately held
plastic injection molder of pails used as containers for industrial and consumer
products.
Mr. Humphrey has served the Company as a director since January, 1989 and is a
member of the Audit Committee, of which he is Chairman, the Compensation
Committee, and the Committee on Directors. His current term of office as a
director will expire with the annual meeting of shareholders in 1999.
MARY ANN JORGENSON
AGE 56
Ms. Jorgenson is a partner and head of the corporate practice in the law firm of
Squire, Sanders & Dempsey, L.L.P., and has been associated with that firm since
1975. She is a director of the general partner of Cedar Fair, L.P., the owner of
four amusement parks in Ohio, Minnesota, Missouri and Pennsylvania. She is also
a director of S 2 Golf Inc., a manufacturer and distributor of golf clubs and
bags, and a director of Continental Business Enterprises, Inc., an Ohio-based
metal stamping company.
Ms. Jorgenson has served as Secretary of the Company since 1989, as a director
since January, 1993, and is Chairman of the Committee on Directors. Her current
term of office as a director will expire with the annual meeting of shareholders
in 1999.
RALPH T. KING
AGE 68
Mr. King is Chairman of the Board of Essef Corporation and of Creative Label
Company, a label printing company, a post he has held since 1969.
Mr. King has served the Company as a director since 1959 and as its Chairman
since November of 1990. He is a member of the Audit, Compensation, and Executive
Committees. His current term of office as a director will expire with the annual
meeting of shareholders in 2000.
THOMAS B. WALDIN
AGE 55
Mr. Waldin was appointed Chief Executive Officer of the Company in October, 1990
and was elected President of the Company in January, 1991. Since 1977 he has
been active as an investor in and a director of a number of small businesses. He
retired in 1987 as Chief Operating Officer of USG Interiors, Inc. and Chief
Executive Officer of Donn, Inc. The former is a unit of USG Corporation, a
worldwide manufacturer and distributor of building products, created in
connection with the acquisition of Donn, Inc. in 1986.
Mr. Waldin has served as a director since January, 1991 and is a member of the
Executive Committee, of which he is Chairman. His current term of office as a
director will expire with the annual meeting of shareholders in 1999.
4
<PAGE> 6
DIRECTORS' COMMITTEES, MEETINGS AND FEES
At its meeting following the Annual Meeting of Shareholders, the Board of
Directors has customarily appointed from among its membership an Audit
Committee, a Compensation Committee, an Executive Committee, and a Committee on
Directors which serve until the next annual meeting.
THE AUDIT COMMITTEE consists of three directors, none of whom is an officer or
employee of the Company or its subsidiaries. The committee consists of Mr.
Humphrey, Chairman, Mr. Biggar, and Mr. King. The Audit Committee receives the
report of the Company's independent auditors, and provides the link between the
Chief Financial Officer and the controllers of the Company's subsidiaries, the
auditors and the Board of Directors. The Audit Committee met two times in fiscal
1997.
THE COMPENSATION COMMITTEE consists of four directors, none of whom is an
officer or employee of the Company or its subsidiaries. The committee consists
of Mr. Harnett, Chairman, Mr. Biggar, Mr. Humphrey, and Mr. King. The
Compensation Committee has authority to recommend, approve and, pursuant to
specific mandate from the Board of Directors, implement its recommendations on
all matters relating to direct and indirect compensation of officers and
employees of the Company and its subsidiaries. The Compensation Committee met
once in fiscal 1997.
THE EXECUTIVE COMMITTEE consists of three directors, one of whom, its Chairman,
is an officer of the Company. The committee consists of Mr. Waldin, Chairman,
Mr. Harnett, and Mr. King. The Executive Committee is empowered to exercise all
authority of the Board of Directors between meetings of that body, subject to
report, with the exception of the declaration of dividends, appointment or
election of officers and determination of their compensation, and the filling of
vacancies on the Board or any Committee. The Executive Committee did not meet in
fiscal 1997.
THE COMMITTEE ON DIRECTORS consists of three directors, Ms. Jorgenson, its
Chairman, Mr. Harnett and Mr. Humphrey. The Committee on Directors has authority
to recommend director nominees to the Board and to recommend director policies
including terms of office, retirement and compensation. The Committee on
Directors did not meet in fiscal 1997.
THE BOARD OF DIRECTORS of the Company and its four committees held a total of
nine meetings during fiscal 1997 of which six were meetings of the Board of
Directors. All of the directors attended at least 75% of the meetings of the
Board of Directors and committees of which they were members.
Directors who are not employees of the Company or its subsidiaries have been
paid a fee of $750 for each meeting of the Board or Committee attended, plus out
of pocket expenses. Chairmen are paid $1,000 for attendance at meetings of their
Committees. In addition, such non-employee directors are paid an annual retainer
fee of $15,000 without regard to attendance. Mr. King was paid $12,000 in the
last fiscal year for his services as Chairman of the Board, in addition to fees
paid him as director.
Pursuant to the Essef Corporation Deferred Compensation Plan for Directors, each
director has the option to defer receipt, and therefore the recognition of
income for federal income tax purposes, of all or a portion of his or her annual
retainer and meeting fees payable by the Company to the director for his or her
services as a director.
5
<PAGE> 7
EXECUTIVE COMPENSATION
The following table sets forth information relating to the annual and long term
compensation for the fiscal years ended September 30,1997, 1996 and 1995,
respectively, for the named executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
ALL
OTHER RESTRICTED OTHER(2)
NAME AND FISCAL COMPEN- STOCK OPTIONS COMPEN-
PRINCIPAL POSITION YEAR SALARY(S) BONUS($) SATION($) AWARDS($) (#)(1) SATION($)
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas B. Waldin 1997 220,480 193,220 -0- -0- -0- 4,500
President and Chief 1996 220,480 44,540 -0- -0- -0- 6,615
Executive Officer 1995 218,500 -0- -0- -0- -0- 4,500
Elliot B. Ross 1997 260,000 227,855 -0- -0- -0- 9,000
Executive Vice 1996 260,000 52,560 -0- -0- -0- 11,670
President 1995 257,690 -0- -0- -0- 550,000(3) 10,947
Gerald C. Hornick 1997 139,000 68,630 -0- -0- -0- 9,000
Vice President and 1996 139,000 54,700 -0- -0- 2,825 8,680
Assistant Treasurer 1995 132,300 9,340 -0- -0- -0- 9,684
Douglas J. Brittelle 1997 200,000 66,500 -0- -0- -0- 9,000
Executive Vice 1996 200,000 26,290 -0- -0- 2,825 13,620
President 1995 146,150 42,400 -0- -0- 89,000 -0-
Stuart D. Neidus 1997 200,000 146,061 -0- -0- -0- 6,090
Executive Vice 1996 16,315 -0- -0- -0- 275,000 -0-
President and Chief
Financial Officer
<FN>
(1) The number of options has been restated to give effect to the 10% stock
dividend distributed February 28, 1997 and a 2-for-1 stock split
distributed September 9, 1997.
(2) Includes for each named executive officer: (a) matching contributions
for fiscal year 1997 under the Company's 401(k) Profit Sharing Plan,
(b) amounts paid or payable by the Company on the Executive's behalf
into the Company's defined contribution Retirement Plan and Trust.
(3) With Mr. Ross's resignation in December, 1997, his 330,000 performance
options and 44,000 of his initial options were cancelled.
</TABLE>
6
<PAGE> 8
OPTION GRANTS
As indicated in the table below, there were no grants of stock options during
the fiscal year ended September 30, 1997 to the named executive officers
pursuant to the Company's 1987 Employees' Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OPTIONS EXERCISE ANNUAL RATES OF STOCK PRICE
0PTION GRANTED TO OR BASE APPRECIATION FOR OPTION TERM (1)
SHARES EMPLOYEES IN PRICE EXPIRATION --------------------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10%
- ---- ------- ----------- ----------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Thomas B. Waldin -0- -- -- -- $ -- $ --
President and chief
Executive Officer
Elliot B. Ross -0- -- -- -- $ -- $ --
Executive Vice President
Gerald C. Hornick -0- -- -- -- $ -- $ --
Vice President and
Assistant Treasurer
Douglas J. Brittelle -0- -- -- -- $ -- $ --
Executive Vice President
Stuart D. Neidus -0- -- -- -- $ -- $ --
Executive Vice President
and Chief Financial Officer
- ---------
<FN>
FOOTNOTE:
(1) Based on the closing price of the common stock on the NASDAQ National Market System on September 30, 1997 of
$17.25.
</TABLE>
7
<PAGE> 9
Except as otherwise indicated, the following table provides information relating
to aggregate stock option exercises during the last fiscal year and fiscal
year-end stock option values for the named executive officers:
OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED ON VALUE OPTIONS AT FY END THE-MONEY OPTIONS AT FY END(1)
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas B. Waldin -0- $-0- 2,156,431 -0- $35,114,359 $ -0-
Elliot B. Ross -0- $-0- 176,000 -0- $ 1,730,000 $ -0-
Gerald C. Hornick -0- $-0- 27,125 705 $ 344,145 $ 13,125
Douglas J. Brittelle -0- $-0- 14,613 76,212 $ 129,750 $ 735,250
Stuart D. Neidus -0- $-0- 22,000 253,000 $ 204,500 $2,351,750
- ------------
FOOTNOTE:
<FN>
(1) Based on the closing price of the common stock on the NASDAQ National Market System on September 30, 1997 of $17.25.
(2) Amounts shown in the table have been adjusted to reflect changes occurring after the fiscal year-end in connection with Mr.
Ross's resignation in December, 1997. As of September 30, 1997, the number of shares underlying Mr. Ross's unexercised
options were 132,000 (exercisable) and 418,000 (unexercisable) and the value of his unexercised in-the-money options were
$1,297,500 (exercisable) and $4,108,750 (unexercisable).
</TABLE>
8
<PAGE> 10
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with four of the named executive
officers. Set forth below is a brief description of each agreement.
Thomas B. Waldin and the Company are parties to an employment agreement which
initially covered a two year period expiring on October 26, 1992 and was
subsequently extended for additional one year periods until its amendment in
1994. The amended agreement expired on September 30, 1996 and was subsequently
extended according to its terms for two additional one year periods. For a
description of the compensation terms of the employment agreement see "Report of
Compensation Committee on Executive Compensation."
Under the employment agreement, the Company granted Thomas B. Waldin
nonstatutory stock options to purchase up to 2,137,960 Common Shares of the
Company. The exercise price of the options, determined pursuant to a formula, is
$0.91 per share. At the date of the grant of the options, the closing bid for
the shares as quoted by NASDAQ was $1.02. All of the options are vested and
exercisable.
In connection with shares acquired by Mr. Waldin pursuant to the options, Mr.
Waldin may request under certain circumstances that such shares be registered
under the Securities Act of 1933 for the purpose of public distribution. If the
Company elects not to proceed with such a registration, Mr. Waldin may require
the Company to purchase either his shares at a price equal to 95% of the market
value or his options at a purchase price equal to 90% of the price of the shares
underlying the options less the exercise price.
Elliot B. Ross and the Company are parties to an employment agreement which
initially covered a two year period expiring on January 31, 1996. The agreement
was subsequently extended for two additional one year periods according to its
terms. As compensation for his service as Executive Vice President Mr. Ross
receives an annual base salary of $260,000, and performance based bonuses
targeted at 60% of Mr. Ross's annual base salary in each year. In addition, Mr.
Ross was granted initial options, vesting as of commencement of the agreement,
to purchase 220,000 shares of the Company's common stock at $7.42 per share.
Performance options to purchase an additional 330,000 shares were also granted
with vesting and exercise terms based on target earnings per share. Severance
arrangements related to his resignation in December, 1997 cancelled all but
176,000 of Mr. Ross's initial options.
Douglas J. Brittelle and the Company are parties to an employment agreement
which initially covered a two year period expiring on January 3,1997. The
agreement was subsequently extended for an additional one year period according
to its terms. As compensation for his service as Executive Vice President, Mr.
Brittelle receives an annual base salary of at least $200,000 and performance
based bonuses targeted at 55% of Mr. Brittelle's annual base salary. In
addition, Mr. Brittelle was granted initial options, vesting as of the
commencement date of the agreement, to purchase 33,000 shares of the Company's
common stock at $7.42 per share. Performance options to purchase an additional
55,000 shares were also granted with vesting and exercise terms based on target
earnings per share.
Stuart D. Neidus and the Company are parties to an employment agreement which
covers a two year period expiring on September 3, 1998 unless terminated or
extended according to its terms. As compensation for his service as Executive
Vice President and Chief Financial Officer, Mr. Neidus receives an annual base
salary of at least $200,000 and performance based bonuses targeted at 50% of Mr.
Neidus's annual base salary. In addition, Mr. Neidus was granted initial
options, vesting as of the
9
<PAGE> 11
commencement date of the agreement, to purchase 110,000 shares of the Company's
common stock at $7.96 per share. Performance options to purchase an additional
165,000 shares were also granted with vesting and exercise terms based on target
share prices, 110,000 of which have vested but will only be exercisable on
completion of 5 years of service from the date of the grant.
10
<PAGE> 12
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee establishes compensation for the executive officers
of the Company and its subsidiaries. In discharging its function, the Committee
seeks to harmonize three objectives. First, compensation levels are designed to
be sufficiently competitive to attract and retain highly qualified management
personnel. Second, recognition is given to the achievement of annual financial,
operational and strategic objectives. Finally, it is the Company's objective to
continue to align pay and performance for the Company's executives with the
longer-term goal of enhancing shareholder value. To implement these objectives,
the compensation program for executive officers consists of base salary, annual
cash incentives, and the performance share plan.
Base salaries are determined in the first instance by the evaluation of the
executive officer's responsibility and by comparison to similarly situated
executives at other comparable firms to ensure that the Company's salaries are
competitive.
Annual cash incentives are used to recognize the achievement of annual
objectives in line with the Company's long-term goals. The annual objectives are
based on specific and quantifiable financial and operational performance
criteria which are set at the beginning of each fiscal year by the Committee.
Bonuses are primarily based on the performance of specific business units in
which the executive works, except those of the Chief Executive Officer and the
Executive Vice Presidents, whose bonuses are based on a formula relating to the
earnings per share of the Company, among other things.
Performance share unit awards are used primarily as a means for building
shareholder value over the long term. The number of unit awards are generally
contingent on the Company's achievement of certain levels of earnings while the
value is tied to the Company's stock price. The intent is to align the interests
of executive officers with the interests of shareholders.
In fiscal 1995, the Committee undertook a review of the Company's executive
salary structure and incentive programs. The objective of the review was to
ensure that the compensation structure was in alignment with the Company's goal
of enhancing shareholder value. A multidiscipline task force, guided by senior
operating executives, with the assistance of an independent management
consulting firm engaged by the Committee, conducted the review under the
Committee's overall direction. Based on the findings of the review, the
Committee adopted a salary structure that was applied beginning in 1996 to peg
executive salaries at the median (50th percentile) for peer companies. The
Committee also authorized an annual cash incentives plan rewarding key employees
for achieving specific objectives in line with the Company's long-term goals.
Based on targeted annual improvements to earnings, the resulting bonuses would
bring the total cash compensation of executives to the 75th percentile of peer
firms. The Committee has also considered long-term incentive programs and
implemented the performance share plan in 1997 for senior management.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
For fiscal 1997, Mr. Waldin's compensation package was based on a review of his
compensation package in connection with an amendment and extension of his
employment agreement in 1994. The Committee determined then that his total cash
compensation should be at the 75th percentile for compensation received by chief
executive officers of similarly situated companies, adjusted annually to reflect
the percentage of time Mr. Waldin is expected to devote to the Company's
business during the ensuing year.
11
<PAGE> 13
Mr. Waldin's total cash compensation consisted of his base annual salary and
performance based bonuses targeted at 60% of Mr. Waldin's annual salary based on
the Company's annual earnings per share. For fiscal 1997, the base compensation
was not adjusted from the 1996 level of $220,480 and a bonus of $193,220 was
earned.
THE COMPENSATION COMMITTEE
Gordon D. Harnett, Chairman
James M. Biggar
George M. Humphrey, II
Ralph T. King
12
<PAGE> 14
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
cumulative shareholder return with the cumulative total return of the Nasdaq
Stock Market (US Companies) Composite Index and the Standard & Poor's Smallcap
600 Index:
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
Prepared by Zacks Investment Research, Inc.
Produced on 12/9/97 including data to 09/30/97
[GRAPH OMMITTED]
LEGEND
<TABLE>
<CAPTION>
Index Description 09/29/92 09/28/93 09/30/94 09/30/95 09/30/96 09/30/97
----------------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
[] Essef Corporation 100.0 97.9 118.7 145.8 145.8 316.2
* CRSP Index for Nasdaq stock Market (US Companies) 100.0 131.0 132.1 182.4 216.5 297.1
+ S&P Smallcap 600 100.0 136.6 135.9 171.4 197.7 270.8
<FN>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to 100.0 on 09/29/92.
E. In 1997, the Company changed its comparisons from a self-determined peer
group to the S&P Smallcap 600 index. The change was made due to the
additional diversity of the Company's businesses resulting from the
acquisition of General Aquatics, Inc. in May, 1997 and a reduction in the
number of comparable companies due to acquisition activity in the
self-determined peer group used in prior years.
</TABLE>
13
<PAGE> 15
BENEFICIAL OWNERSHIP OF SHARES
The following tables display, as of November 21, 1997, the name and address of
each person who is known to the Company to own beneficially more than 5% of the
Company's voting securities (a single class of Common Shares) as well as the
number of Common Shares beneficially owned by each director and named executive
officer, and the directors and named executive officers of the Company as a
group.
FIVE PERCENT BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
Common Shares Beneficially Owned
--------------------------------
Name Number Percent
---- ------ -------
<S> <C> <C>
Keybank National Association, Trustee (1)(2)(3)(8) 2,207,538 20.84%
127 Public Square
Cleveland, Ohio 44114
The Jane B. King Irrevocable (4) 1,023,000 9.66%
Trust dated July 19, 1979,
Ralph T. King and Alexander
S. Taylor, Trustees
30050 Chagrin Boulevard, Suite 150
Pepper Pike, Ohio 441124
Thomas B. Waldin (5) 2,241,431 17.32%
c/o ESSEF Corporation
220 Park Drive
Chardon, Ohio 44024
Fenimore Asset Management 1,217,180 11.49%
118 North Grand Street
Cobleskill, New York 12043
James A. Horner Trust (6)(7)(8) 633,964 5.98%
James A. Horner, Jr., Douglas M. Horner
and Mary Ann Jorgenson, Trustees
4900 Key Tower
Cleveland, Ohio 44114
<FN>
(1) Keybank National Association exercises (a) sole voting and shared dispositive power over 2,014,408
shares; and (b) shared voting and dispositive power over 119,650 shares held by a trust of which Keybank
National Association is one of three trustees and noted in 2(a) and 8(b) below.
</TABLE>
14
<PAGE> 16
(2) James H. Dempsey, Jr. shares dispositive power of 2,014,408 shares as one
of three trust advisors noted in 1(a) above, (3) and (8)(d) below, and is
also beneficial owner of: (a) 119,650 shares held by a trust of which he is
one of three trustees with shared voting and dispositive power and noted in
1(b) above and 8(b) below; and (b) 73,480 shares held by a trust of which
he is a co-trustee with shared voting and dispositive power and noted in
note 8(c) below. Mr. Dempsey disclaims the benefits of ownership of any of
the aforementioned shares. Mr. Dempsey is a partner in the law firm of
Squire, Sanders & Dempsey L.L.P., which the Company retains as its outside
general counsel.
(3) James P. Oliver shares dispositive power of 2,014,408 shares as one of
three trust advisors noted in 1(a) and (2) above and note 8(d) below. Mr
Oliver disclaims the benefits of ownership of any of the aforementioned
shares. Mr. Oliver is a partner in the law firm of Squire, Sanders &
Dempsey L.L.P., which the Company retains as its outside general counsel.
(4) Ralph T. King shares voting and dispositive power as a co-trustee and is
also beneficial owner of: (a) 131,780 shares owned by him directly;
(b)24,596 shares held by a foundation of which he is a trustee with shared
dispositive power.
(5) Thomas B. Waldin is the beneficial owner of 2,241,431 shares owned by or
benefitting him, his wife or child directly (2,156,431 shares consist of
options to purchase which are exercisable within 60 days of September 30,
1997).
(6) James A. Horner, Jr. shares voting and dispositive power as co-trustee and
is also beneficial owner of: (a) 688,701 shares owned by or benefitting him
or his children directly or indirectly; and (b) 165,000 shares held by
trusts for the benefit of his children, nieces and nephews, of which he is
one of three trustees sharing voting and dispositive power, and noted at
(7)(b) and (8)(e) below.
(7) Douglas M. Horner shares voting and dispositive power as co-trustee and is
also beneficial owner of: (a) 314,819 shares owned by or benefitting him or
his children directly or indirectly and (b) 165,000 shares held by trusts
for the benefit of his children, nieces and nephews, of which he is one of
three trustees sharing voting and dispositive power, and noted at (6)(b)
above and (8)(e) below.
(8) Mary Ann Jorgenson shares voting and dispositive power as co-trustee and is
also beneficial owner of: (a) 76,120 shares held by six trusts of which she
is the sole trustee with sole voting and dispositive power; (b) 119,650
shares held by a trust of which she is one of three trustees with shared
voting and dispositive power and noted in notes 1(b) and 2(a) above; (c)
73,480 shares held by a trust of which she is a co-trustee with shared
voting and dispositive power and noted in note 2(b) above; (d) 2,014,408
shares held by two trusts over which she has shared dispositive power as
one of three trust advisors, and noted in notes 1(a),(2) and (3) above; and
(e) 165,000 shares held by trusts of which she is one of three trustees
with shared voting and dispositive power and noted in (6)(b) and (7)(b)
above. Ms. Jorgenson disclaims the benefits of ownership of any of the
aforementioned shares. Ms. Jorgenson serves as Secretary of the Company and
is a partner in the law firm of Squire, Sanders & Dempsey L.L.P., which the
Company retains as its outside general counsel.
15
<PAGE> 17
BENEFICIAL OWNERSHIP OF SHARES BY DIRECTORS AND NAMED EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Common Shares Beneficially Owned
--------------------------------
Name Number Percent
---- ------ -------
<S> <C> <C>
James M. Biggar 5,400 *
Gordon D. Harnett (1) 23,722 .22%
George M. Humphrey, II (1) 32,160 .30%
Mary Ann Jorgenson (2) 3,082,630 29.10%
Ralph T. King (3) 1,179,376 11.13%
Elliot B. Ross (5) 201,400 1.22%
Thomas B. Waldin (4)(6) 2,241,431 17.32%
Douglas J. Brittelle (4) 14,613 .11%
Gerald C. Hornick(4)(7) 50,563 .39%
Stuart D. Neidus (4) 35,000 .27%
All directors and named executive 6,866,295 52.70%
officers as a group (10 persons)
<FN>
* less than one percent.
(1) Includes shares held by trustee of the Essef Corporation Deferred Compensation Plan for
Directors as of September 30, 1997.
(2) See Note (8) under Beneficial Ownership of Shares.
(3) See Note (4) under Beneficial Ownership of Shares.
(4) Includes shares underlying options which are exercisable within 60 days of September 30,
1997 as follows:
Thomas B. Waldin 2,156,431
Gerald C. Hornick 27,125
Douglas J. Brittelle 14,613
Stuart D. Neidus 22,000
All directors and named executive officers as a group (10 persons) 2,396,169.
(5) Amounts shown have been adjusted to reflect changes occurring after the fiscal year end
in connection with Mr. Ross's resignation in December, 1997 (176,000 shares consist of
options to purchase which are exercisable up to one year from the date of Mr. Ross's
resignation).
(6) See Note (5) under Beneficial Ownership of Shares.
(7) Includes shares held by successor trustee of PAYSOP Plan, as of September 30, 1997 over
which individual beneficiary has sole voting power.
</TABLE>
16
<PAGE> 18
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP has acted as independent auditors of the Company for the
fiscal year ended September 30, 1997. Representatives of Deloitte & Touche LLP
will be present at the meeting and will be given an opportunity to make a
statement if they desire to do so as well as to respond to appropriate
questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders for the fiscal 1998 Annual Meeting of Shareholders to
be held in January, 1999 must be received by the Secretary of the Company no
later than August 21, 1998 to be included in the proxy statement and form of
proxy for that meeting.
SOLICITATION EXPENSES
The Company will bear the costs of proxy solicitation including the preparation
and mailing of this statement and accompanying material. Proxies will be
solicited principally by mall, by employees and agents of the Company and its
subsidiaries. No employee of the Company who assists in the solicitation will be
paid for doing so beyond his regular compensation.
The Company will request brokers, banks and other custodians or fiduciaries
holding shares in their names or in the names of nominees to forward copies of
proxy solicitation materials to the beneficial owners of the shares held by them
and, upon request, will reimburse them for the reasonable expenses incurred in
forwarding the material to their principals and processing responses.
VOTE TABULATION POLICIES AND PROCEDURES
Shares voted by proxy on the form provided by management with this statement
will be tabulated according to the tenor thereof. Shares voted by omnibus proxy
or other proxy forms by brokers, nominees or agents will be tabulated according
to instructions and limitations accompanying the form of proxy. All shares for
which valid proxies are returned will be counted as present at the meeting for
determination of a quorum (a majority of shares entitled to vote at the Annual
Meeting), but the votes of shares represented by omnibus or similar proxy will
be tabulated only to the extent the vote is specifically instructed.
OTHER BUSINESS
The Company is not aware of any business which may be presented for action at
the meeting other than that set forth herein. Should any such business be
presented for a vote of the shareholders, the enclosed form of proxy authorizes
the persons appointed to vote thereon in accordance with their best judgment.
By Order of the Board of Directors
Mary Ann Jorgenson
Secretary
December 19,1997
<PAGE> 19
ESSEF CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS - JANUARY 29, 1998
The undersigned hereby appoints Ralph T. King, Stuart D. Neidus and Mary Ann
Jorgenson, and each of them, attorneys and proxies to attend and represent
the undersigned at the Annual Meeting of Shareholders of ESSEF Corporation to
be held at the office of the corporation, 220 Park Drive, Chardon, Ohio on
January 29, 1998 at 10:00 o'clock A.M. Eastern Standard Time and at all
adjournments thereof, with full power of substitution and full authority to
vote all Common Shares of ESSEF Corporation which the undersigned, if personally
present, would be entitled to vote upon the following proposal:
1. To amend the Articles of Incorporation of the Company to increase the
number of authorized common shares from 15,000,000 to 40,000,000
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THIS PROXY WILL BE VOTED ACCORDING TO INSTRUCTIONS AS MARKED. UNLESS A
CONTRARY INSTRUCTION IS MARKED IT WILL BE VOTED FOR ALL NOMINEES AND PROPOSALS.
This proxy revokes and supersedes any earlier proxy covering the same shares.
______________________
PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR HEREON INDICATING,
WHEN APPROPRIATE, COMPANY AND OFFICIAL POSITION OR REPRESENTATIVE
CAPACITY. IF SHARES ARE HELD IN JOINT NAMES BOTH PARTIES MUST SIGN.
DATE:______________, 199__.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE ENVELOPE ENCLOSED
