SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
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 Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
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 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): _____________________________________________
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[ ] 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: __________________________________________________
PENTAIR, INC.
1500 County Road B2 West
Saint Paul, Minnesota 55113
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 1, 2002
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, May 1, 2002, at 10:00 a.m., for the
following purposes:
1. To elect four directors.
2. To approve amendments to the Articles of Incorporation and
By-Laws to fix the number of the directors at ten.
3. To approve the Omnibus Stock Incentive Plan for Section 162(m)
purposes.
4. To approve an amendment to the Executive Officer Performance
Plan.
5. To vote on a proposal to ratify the selection of Deloitte &
Touche LLP as independent auditors of the Company for 2002.
6. 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 March 4, 2002
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
Louis L. Ainsworth, Secretary
Saint Paul, Minnesota
March 25, 2002
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.
TABLE OF CONTENTS FOR PROXY STATEMENT
PAGE
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Solicitation...................................................................1
Revocation and Voting of Proxy.................................................1
Outstanding Shares and Voting Rights...........................................1
Security Ownership of Management and Beneficial Ownership......................1
Section 16(a) Beneficial Ownership Reporting Compliance........................3
Proposals to be Acted Upon at the Annual Meeting...............................3
Election of Directors....................................................3
Approval of Amendments to Articles of Incorporation and By-Laws..........7
Approval of the Omnibus Stock Incentive Plan.............................9
Approval of an Amendment to the Executive Officer Performance Plan......11
Approval of Auditors....................................................12
Executive Compensation........................................................13
Report of the Audit and Finance Committee of the Board of Directors...........23
Future Proposals..............................................................24
Other Business................................................................25
Charter of Responsibilities for Audit and Finance Committee...........APPENDIX 1
Text of Amendments to Articles and By-Laws............................APPENDIX 2
Omnibus Stock Incentive Plan..........................................APPENDIX 3
Executive Officer Performance Plan....................................APPENDIX 4
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PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 1, 2002
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PENTAIR, INC.
1500 County Road B2 West
Saint Paul, Minnesota 55113
March 25, 2002
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, May 1, 2002, or at any adjournment or adjournments of such
meeting. Distribution of this proxy statement and proxy to shareholders began on
or about March 25, 2002.
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 of up to $2,500. 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 that 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 March 4, 2002, the record date, there were
49,178,709 shares of the Company's Common Stock, par value $.16-2/3 per share
(the "Common Stock") outstanding. Each share of Common Stock entitles the holder
to one vote. There is no cumulative voting for directors.
SECURITY OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERSHIP
The following table contains information concerning the beneficial
ownership of the Company's Common Stock as of March 4, 2002 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, 2001, by
each person known to the Company to "beneficially own" more than 5% of its
Common Stock.
1
OBTAINABLE PERCENT
COMMON SHARE WITHIN RESTRICTED ESOP OF
NAME OF BENEFICIAL OWNER STOCK(a) UNITS(b) 60 DAYS(c) STOCK(d) STOCK(e) TOTAL CLASS(f)
-----------------------------------------------------------------------------------------------------------------------------
Winslow H. Buxton 244,995 0 502,000 0 5,556 752,551 1.5%
William J. Cadogan 4,700 11,480 4,066 0 0 20,246
Richard J. Cathcart 36,084 0 87,333 23,220 1,619 148,256
Frank J. Feraco 0 0 17,000 15,000 64 32,064
Barbara B. Grogan 2,400 14,963 4,066 0 0 21,429
Charles A. Haggerty 9,200 19,933 4,066 0 0 33,199
David D. Harrison 21,154 0 42,494 16,531 163 80,342
William H. Hernandez 500 135 0 0 0 635
Randall J. Hogan 74,262 0 141,827 83,862 233 300,184
Stuart Maitland 1,000 7,433 1,516 0 0 9,949
Augusto Meozzi 200 8,034 1,516 0 0 9,750
William T. Monahan 500 3,887 0 0 0 4,387
Michael V. Schrock 13,287 0 24,500 23,991 233 62,011
Karen E. Welke 2,600 15,576 4,066 0 0 22,242
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Directors and executive officers as 466,435 81,441 949,943 185,707 16,407 1,699,933 3.4%
a group (17 persons)
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FMR Corp.(g) 3,089,896 6.2%
82 Devonshire Street
Boston, MA 02109
-----------------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Companies, Inc. (h) 2,582,432 5.2%
1166 Avenue of the Americas
New York, NY 10036
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(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 of an immaterial
number of shares held by spouses and children has been disclaimed in
some instances. Amounts listed do not include 841,570 shares held by
the Pentair, Inc. Master Trust for various pension plans of the Company
and its subsidiaries. The Trust Investment Committee of such Master
Trust includes Randall J. Hogan, David D. Harrison and one other
officer. 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 March 4, 2002.
(d) Restricted shares issued pursuant to incentive plans as to which the
beneficial owner has sole voting power but no investment power.
(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 March 4, 2002, Fidelity Management
Trust Company ("Fidelity"), the Trustee of the Pentair ESOP, held
2,518,445 common shares (5.0%) and Wells Fargo ("Wells Fargo"), the
Trustee of the F-H ESOP, held 491,870 common shares (1.0%). Fidelity
and Wells Fargo 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
2
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) In a Schedule 13G filed February 14, 2002, as of December 31, 2001,
Fidelity Management & Research Company ("Fidelity"), a wholly owned
subsidiary of FMR Corp. and a registered investment adviser, reported
beneficial ownership of 2,896,196 shares as a result of activities as
an investment adviser. The funds, FMR Corp., through its control of
Fidelity, and its Chairman, Edward C. Johnson III, reported sole
dispositive power of such shares, but had no voting power over such
shares, which is directed by the funds' Boards of Trustees. Fidelity
carries out the voting of the shares under written guidelines
established by the funds' Boards of Trustees. Fidelity Management Trust
Company, a wholly owned subsidiary of FMR Corp. and a bank, reported
beneficial ownership of 193,700 shares as a result of serving as
investment manager of institutional account(s). FMR Corp. and its
Chairman, Edward C. Johnson III, reported sole dispositive power of all
such shares and sole voting power of 186,000 of such shares. They
reported no voting control of 7,700 shares owned by the institutional
accounts. The members of the Edward C. Johnson III family, the
predominant owners of FMR Corp., have entered into a voting agreement
and consequently may be a controlling group of FMR Corp under the
Investment Company Act of 1940, as amended.
(h) In a Schedule 13G filed February 15, 2002, Putnam Investments, LLC
("PI"), a wholly-owned subsidiary of Marsh & McLennan Companies, Inc.,
reported that two registered investment advisers wholly-owned by PI,
Putnam Investment Management, LLC., which is the investment adviser to
the Putnam family of mutual funds ("PIM"), and The Putnam Advisory
Company, LLC. ("PAC"), which is the investment adviser to Putnam's
institutional clients, have dispositive power of the shares as
investment managers but each of the mutual fund's trustees have voting
power over the shares held by each fund and PAC has shared voting power
over the shares held by the institutional clients. PI reported shared
voting power of 570,255 shares and shared dispositive power of
2,582,432 shares; PIM reported shared dispositive power of 1,598,295
shares; and PAC reported shared voting power of 570,255 shares and
shared dispositive power of 984,137 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 that it has previously reported any delinquencies for the
fiscal year ended December 31, 2001 and all other persons subject to these
reporting requirements filed the required reports on a timely basis.
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. If the
proposal to amend the Company's Articles of Incorporation and By-Laws are
approved, then the number of directors will be fixed at 10.
At the forthcoming Annual Meeting, four persons have been nominated as
candidates to be elected to the Company's Board of Directors. Barbara B. Grogan,
Stuart Maitland and Augusto Meozzi, each incumbent directors, have been
nominated for three-year terms, expiring at the 2005 Annual Meeting and William
3
H. Hernandez, who was appointed to the Board in July 2001, subject to election
at the upcoming Annual Meeting, has been nominated for a two-year term, expiring
at the 2004 Annual Meeting. Five other directors have terms of office that do
not expire at this time and who will be continuing to serve his or her full
term. Although there will be one vacancy remaining on the Board following this
election, 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.
DIRECTORS STANDING FOR ELECTION
(FOR A THREE-YEAR TERM EXPIRING AT THE 2005 ANNUAL MEETING OF SHAREHOLDERS)
BARBARA B. GROGAN, director since 1996, age 54
Ms. Grogan is Chairman and President of Western Industrial Contractors,
Inc., a company specializing in machinery erection and installation, which she
founded 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
currently 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 56
Mr. Maitland was Director of Manufacturing Operations for the Vehicle
Operations organization at Ford Motor Company, Dearborn, Michigan from 1996
through October 1, 2001, when he retired. He joined Ford Motor Company in 1988
and held positions as Plant Manager at Ford's Kansas City Assembly Plant, Twin
Cities Assembly Plant in St. Paul, Minnesota and Dearborn Assembly Plant in
Dearborn, Michigan.
AUGUSTO MEOZZI, director since 1999, age 62
Since January 1, 1998, Mr. Meozzi has been the Chief Operating Officer
of the ISOLA Group, a world-wide producer of base materials. From November 1992
to January 1998, Mr. Meozzi was Corporate Executive Vice President of the ISOLA
Group.
(FOR A TWO-YEAR TERM EXPIRING AT THE 2004 ANNUAL MEETING OF SHAREHOLDERS)
WILLIAM H. HERNANDEZ, nominee (appointed to the Board in 2001), age 53
Mr. Hernandez has been the Senior Vice President, Finance of PPG
Industries, Inc. since 1995. He was the Vice President and Controller from 1994
to 1995 and the Controller from 1990 to 1994.
DIRECTORS CONTINUING IN OFFICE
(TERM EXPIRES AT THE 2003 ANNUAL MEETING OF SHAREHOLDERS)
WILLIAM J. CADOGAN, director since 1996, age 53
Since April 2001, Mr. Cadogan has been a General Partner of St. Paul
Venture Capital. Mr. Cadogan was the Chairman of the Board of Directors of ADC
Telecommunications, Inc., a designer and manufacturer of products and systems
for broadband telecommunications networks, from February 1994 through February
2001. Mr. Cadogan was Chief Executive Officer of ADC Telecommunications from
July 1991 through February 2001. He also serves as a director of Ceridian
Corporation (and a member of its Compensation Committee), as well as a number of
smaller, start-up companies. Mr. Cadogan serves as director of the Metropolitan
Economic Development Association, the Minnesota Orchestral Association, Chairman
of the Telecommunications Industry Association, and a member of the Board of
Governors of the Electronics Industry Association and the Board of Overseers of
the Carlson School of Management at the University of Minnesota.
CHARLES A. HAGGERTY, director since 1994, age 60
Mr. Haggerty is currently CEO of LeConte Associates, LLC, a consulting
and investment firm. Mr. Haggerty was Chief Executive Officer and Chairman of
the Board of Western Digital Corporation, a maker of hard
4
disc drives, from July 1993 until he retired as Chief Executive Officer in
January 2000 and as Chairman in June 2000. Mr. Haggerty is also a director of
Beckman Coulter, Inc., Vixel Inc., and Deluxe Corporation.
RANDALL J. HOGAN, director since 1999, age 46
Since January 1, 2001, Mr. Hogan has been the Chief Executive Officer
of Pentair, Inc. The Board of Directors has announced that Mr. Hogan will become
Chairman of the Board effective as of May 1, 2002. From December 1999 through
December 2000, Mr. Hogan was 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 the Carrier Transicold Division of
United Technologies Corporation.
(TERM EXPIRING AT THE 2004 ANNUAL MEETING OF SHAREHOLDERS)
WILLIAM T. MONAHAN, director since 2001, age 54
Since November 1995, Mr. Monahan has been Chairman of the Board of
Directors and Chief Executive Officer of Imation Corp. Mr. Monahan is also a
director of Hutchinson Technology, Inc. (and a member of its Compensation
Committee).
KAREN E. WELKE, director since 1995, age 57
Ms. Welke retired from Minnesota Mining and Manufacturing Company
("3M") effective January 2002, after completing a two-year Loaned Executive
commitment to Project Hope, a non-government, non-profit organization dedicated
to achieving sustainable advances in health care around the world. From February
1995 to December 1999, Ms. Welke was Group Vice President, Medical Markets Group
for 3M.
DIRECTORS' ATTENDANCE
The Board of Directors held seven meetings in 2001. All directors
attended at least 75% of the aggregate of all the meetings of the Board and all
of the committees on which they served, with the exception of William Cadogan,
who attended 67% and William Hernandez, who attended two of the three meetings
(67%) of the Board and the Audit and Finance Committee held after his
appointment, but missed one Board and one Audit and Finance Committee meeting
(held on the same day) because of a death in the family.
COMMITTEES OF THE BOARD
The Audit and Finance Committee is responsible, among other things, for
selecting auditors, ensuring the fiscal integrity of the Company, and
establishing and reviewing internal controls. The Audit and Finance Committee
held five meetings in 2001. The members of the Audit and Finance Committee are
Karen E. Welke (Chair), William H. Hernandez (since July 2001), Stuart Maitland
and Augusto Meozzi.
The Compensation and Human Resource Committee 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 five meetings during 2001. The members of the
Compensation and Human Resources Committee are Charles A. Haggerty (Chair),
Barbara B. Grogan, Stuart Maitland and William T. Monahan.
The Nominating, Governance, Public Policy and Share Rights Committee is
responsible, among other things, for nominating candidates for vacancies on the
Board. The Nominating, Governance, Public Policy and Share Rights Committee
considers nominees recommended by shareholders under the procedures set forth in
the Company's By-Laws. The Nominating, Governance, Public Policy and Share
Rights Committee held four meetings in 2001. The members of the Nominating,
Governance, Public Policy and Share Rights Committee are William J. Cadogan
(Chair), Winslow H. Buxton (retiring from the Board effective as of April 30,
2002), Barbara B. Grogan, Charles A. Haggerty, and Randall J. Hogan.
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 2001,
non-employee directors were paid an annual retainer of $24,000 ($29,000 for the
Chair of the Compensation and Human Resource Committee), $68,341 of deferred
compensation in the form of share units under the Fourth Amended and Restated
Compensation Plan for Non-
5
Employee Directors (the "Non-Employee Director Plan"), $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. In recognition of his 25 years of service on the Board of
Directors, the Board made an award in 2001 of deferred compensation of $68,341
in the form of share units under the Non-Employee Director Plan to Quentin
Hietpas, who retired from the Board effective April 25, 2001. Under the
Non-Employee Director Plan, 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 1999 2000 2001 12/31/01
---------------------------------- -------- -------- --------- -----------
William J. Cadogan $ 53,000 $ 94,300 $ 108,591 11,914
Barbara B. Grogan 84,500 95,800 114,591 14,658
Charles A. Haggerty 91,000 95,800 122,424 19,563
William H. Hernandez* -- -- 3,750 80
Quentin J. Hietpas+ 53,000 59,800 72,091 15,247
Stuart Maitland 73,250 72,550 92,091 7,311
Augusto Meozzi 58,187 87,800 106,091 7,800
William T. Monahan* -- -- 105,716 3,670
Richard M. Schulze+ 94,000 89,800 13,250 --
Karen E. Welke 89,500 101,300 114,591 16,704
* Became a director in 2001
+ Retired effective April 25, 2001
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 may extend for a period of more than 10 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 1999 2000 2001
---------------------------------- -------- -------- ---------
William J. Cadogan 1,275 1,300 1,950
Barbara B. Grogan 1,275 1,300 1,950
Charles A. Haggerty 1,275 1,300 1,950
William Hernandez* -- -- --
Quentin J. Hietpas+ 1,275 1,300 1,950
Stuart Maitland -- 1,300 1,950
6
Augusto Meozzi -- 1,300 1,950
William T. Monahan* -- -- --
Richard M. Schulze+ 1,275 1,300 1,950
Karen E. Welke 1,275 1,300 1,950
* Became a director in 2001
+ Retired effective April 25, 2001
The exercise price and expiration dates for the above options are:
2001, $22.75 per share, expiration date January 2, 2011; 2000, $36.1875 per
share, expiration date January 3, 2010; 1999, $39.625 per share, expiration date
January 14, 2009.
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
expire 10 years after the date of grant. Three of the directors identified in
the table above, including two now retired directors, exercised options during
1999-2001 while in office; the net value of shares (market value less exercise
price) realized from these exercises was $149,313.
BUXTON RETIREMENT AND CONSULTING ARRANGEMENTS
Winslow H. Buxton, Chairman of the Board of Directors, retired as Chief
Executive Officer of the Company, effective January 1, 2001 and as an employee
of the Company effective April 30, 2001. He will retire from the Board effective
as of the 2002 Annual Meeting of the Shareholders. In connection with his
retirement the Company has entered into certain arrangements with Mr. Buxton.
In connection with his retirement and in exchange for a non-competition
and non-solicitation agreement and a standard release of any claims against the
Company, Mr. Buxton is receiving a supplemental benefit payment of $60,900 per
month, payable in the form of a life annuity, which includes his accrued benefit
under the Company's Supplemental Executive Retirement Plan. His awards under the
Omnibus Plan, including restricted stock (26,397 shares), stock options and
Incentive Compensation Units ("ICUs") were fully vested as of April 30, 2001 and
the value of the ICUs ($731,216) was paid to him as of such date. Mr. Buxton and
his spouse are also being provided medical and dental coverage, including
reimbursement of expenses, as well as life insurance. He may also have accrued
benefits through April 30, 2001, under other plans, such as the RSIP, Deferred
Compensation Plans or the Pentair Pension Plan, which are being paid out in
accordance with the terms of such plans.
Through April 30, 2001, Mr. Buxton was compensated at an annual rate of
$825,700 (the rate of compensation in effect on January 1, 2001, the effective
date of his retirement as CEO). Beginning May 1, 2001 and ending on April 30,
2002, the Company is compensating Mr. Buxton under a consulting arrangement for
services rendered as Chairman of the Board at sixty percent (60%) of his former
annual salary of $825,700. On February 27, 2002, Mr. Buxton was also awarded an
option to purchase 182,000 shares of the Company's Common Stock, at an exercise
price of $39.0781 per share (the closing price on the date of grant), which
option expires 10 years after the date of grant. The option vests in three equal
annual installments, commencing February 27, 2003. These payments are in lieu of
any compensation, fees or other benefits to which Mr. Buxton might otherwise be
entitled as a non-employee member of the Board. Mr. Buxton received a bonus in
2001 in the aggregate amount of $196,625. The Company has also agreed to
reimburse Mr. Buxton for all reasonable business expenses incurred by him in the
active performance of his duties as Chairman of the Board, provide him with
office space and secretarial services until December 31, 2005 and provide him
with a vehicle, including covering related expenses, and pay his membership dues
for certain clubs until December 31, 2010.
ITEM 2
AMENDMENTS TO ARTICLES OF INCORPORATION AND BY-LAWS
TO FIX THE SIZE OF THE BOARD AT TEN
The Board of Directors of the Company has unanimously approved, and is
requesting that the shareholders adopt, an amendment to the Company's Second
Restated Articles of Incorporation and the Company's Third Amended and
Superseding By-Laws to fix the size of the Board of Directors at 10 members.
7
BACKGROUND AND PURPOSE OF PROPOSAL
Section 1 of Article II of the By-Laws currently provides that the
Board of Directors will consist of not less than three nor more than 15
directors. However, neither Section 1 of Article II of the By-Laws nor the
Minnesota Business Corporation Act contains any specific procedure to fix the
number of directors of the Corporation within such limits. In addition, there
recently has been a general trend in corporate governance to have smaller
boards. The Company's historical practice has also been to have fewer directors
than fifteen. The number of directors was increased from nine to 11 at the 1996
Annual Meeting. Subsequently, the size of the Board of Directors has varied
between nine and 12 members. Board size has fluctuated from year to year as a
result of retirements, resignations and appointments to fill vacancies. The
Board currently has 10 members and, assuming the four nominees for director are
elected, following the Annual Meeting, with Mr. Buxton's retirement, there will
be nine members of the Board of Directors, leaving one vacancy. Keeping the
Board size at 10 members will maintain a Board that is flexible and responsive,
while keeping the Company's cost lower by not expanding the number of members on
the Board.
Accordingly, the Board of Directors believes it is in the best
interests of the shareholders to amend Section 1 of Article II of the By-Laws to
fix the number of directors of the Corporation at 10. The text of the
resolutions the shareholders are being asked to approve are set forth below:
RESOLVED, the second sentence of Section 1, Article XI of the Second
Restated Articles of Incorporation is hereby deleted in its entirety
and replaced with the following: "The number of directors is hereby
fixed at ten (10)."
RESOLVED, the second sentence of Section 1, Article II of the Third
Amended and Superseding By-Laws is hereby deleted in its entirety and
replaced with the following: "The Board of Directors shall consist of
ten (10) directors, who need not be shareholders of the Corporation."
RESOLVED, the last two sentences of Section 1, Article II of the Third
Amended and Superseding By-Laws are hereby deleted in their entirety.
The current and proposed text of the sections of the Second Amended and
Restated Articles of Incorporation and the Third Amended and Superseding By-Laws
to be amended is set forth in Appendix 2.
EFFECT OF PROPOSAL
The Board of Directors believes that it is desirable to reduce the
potential size of the Board and fix the number of directors at ten. The Board
believes this action will result in a more responsive membership and will
maintain a lower cost with fewer Board members. A smaller Board of Directors
also will enhance the likelihood of continuity and stability in its composition
and, therefore, in the strategic plans and long-term policies adopted by the
Board. Although this change could have the effect of deterring a change in
management in certain circumstances, since the Board could no longer be expanded
to more than 10 without shareholder approval, these changes are not being
proposed for that purpose or in response to any known efforts by any person to
acquire or change the control of the Company.
In addition, other provisions of the Company's Restated Articles of
Incorporation and By-Laws and the Company's shareholder rights plan may have the
effect of delaying or preventing a change in control of the Company. Although
the Board of Directors does not currently contemplate adopting or proposing for
shareholder approval any additional provisions that may have anti-takeover
effects, the Board does periodically review such provisions and reserves the
right to propose such further actions in the future if, in its view,
circumstances should so warrant. The Board of Directors is not aware of any
existing or planned effort on the part of any party to acquire control of the
Company by means of a tender offer, solicitation of proxies in opposition to
management or by other means.
If Item 2 is approved by the shareholders, then the amendment to the
Second Restated Articles of Incorporation would become effective upon the filing
of an executed amendment with the Secretary of State of Minnesota, which would
be filed promptly following the Annual Meeting, and the amendments to the
By-Laws would become effective as of the Annual Meeting of Shareholders.
8
VOTE REQUIRED
Because Item 2 would amend the Company's Second Restated Articles of
Incorporation, this proposal requires the affirmative vote of the holders of at
least 60% of the outstanding shares entitled to vote, provided that the proposal
does not receive a negative vote from holders of more than 25% of the
outstanding voting shares. Abstentions and broker non-votes would have the
effect of votes against the proposal with respect to the 60% approval
requirement, but they do not count as negative votes with respect to the 25%
limitation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2 TO AMEND THE ARTICLES AND
BY-LAWS TO FIX THE SIZE OF THE BOARD OF DIRECTORS AT TEN.
ITEM 3
APPROVAL OF THE OMNIBUS STOCK INCENTIVE PLAN
FOR SECTION 162(m) PURPOSES
Shareholders are asked to approve the Omnibus Stock Incentive Plan, as
amended and restated (the "Omnibus Plan") to ensure that performance-based
awards under the plan qualify as such for purposes of Section 162(m) of the
Internal Revenue Code and in order to satisfy New York Stock Exchange guidelines
relating to equity compensation for officers.
Following is a summary of the material features of the Omnibus Plan.
Capitalized terms have the meanings set forth in the Omnibus Plan, a copy of
which is attached as Appendix 3:
PURPOSE. To attract and retain top quality executives and key
employees, encourage innovation and growth, reward executives for attainment of
short-term performance objectives and long-term shareholder value, recognize
outstanding performance, encourage executive stock ownership and, in general, to
align management and shareholder interests.
ELIGIBILITY AND PARTICIPATION. Any key managerial, administrative or
professional employee of the Company (or an affiliate) generally in salary grade
25 or higher who is in a position to make a material contribution to the
continued profitable growth and long term success of the Company (or an
affiliate).
SHARES AUTHORIZED. The Omnibus Plan has 5,600,000 shares authorized for
issuance, of which no more than 1,120,000 (20%) may be issued as grants in a
form other than stock options. As of December 31, 2001, 2,446,236 shares
remained available for issuance under this plan. Unused shares, such as canceled
or expired options or forfeited shares of restricted stock, are eligible for
future grants.
OPTIONS. The exercise price of an option, whether incentive stock
options ("ISOs") or non-qualified stock options ("NQSOs"), cannot be less than
the Fair Market Value as of the date of grant. The term of the option is set by
the Compensation Committee at the time of grant, but may not be longer than 10
years. No one participant may receive options or SARS under the Omnibus Plan for
more than 150,000 shares in the aggregate in any calendar year.
SARS. Participants who have been awarded ISOs may also be award Stock
Appreciation Rights up to the total number of shares the participant could
acquire by exercise of the underlying ISOs, which must expire at the same time
as the underlying ISO and for which the payment amount cannot be more than 100%
of the difference between the exercise price and the Fair Market Value of the
shares subject to the option on the date the SAR is exercised.
RESTRICTED STOCK AWARDS. The Committee may make awards of restricted
stock (including rights to restricted stock), which are subject to a vesting
period before the participant is entitled to the shares. The Committee
determines the vesting period at the time of grant, but no more than 5% of the
maximum number of shares available under the Omnibus Plan may vest during a
period shorter than three years. The Committee also has the discretion to impose
additional conditions or restrictions on the grant. Beginning in 2001,
restricted stock awards also may be made to officers of the Company and certain
subsidiary presidents (who are nominated by the CEO and approved by the
Committee) under the Time Accelerated Restricted Stock Award Plan (TARSAP),
which has been added to the Omnibus Plan. TARSAP awards are made in addition to
other awards under the Omnibus Plan determined by using an eligibility factor
determined on an individual basis by the Committee. The
9
maximum award available will be an amount equal to the executive's award
eligibility under the Omnibus Plan. Restricted stock awards under the TARSAP
will vest in equal portions in the fifth, sixth and seventh years following the
date of grant. The award may vest earlier, if certain share price performance
goals, as established by the Committee are met, but in no event will more than
one-third of any award vest in any year.
INCENTIVE COMPENSATION UNITS. The Committee may make awards of ICUs
under the Omnibus Plan. In making an award, the Committee establishes the
specific targets with respect to the corporate performance factors to be met
over a specified Incentive Period (usually three years). The performance factors
currently being used by the Committee are return on invested capital and growth
in operating income. The calculation of the awards for 2001 is described on
pages 21 and 22. Performance factors that also may be used under the Omnibus
Plan include the growth in earnings per share, the average return on equity or
the change in Book Value per share of Stock, all measured over the specified
Incentive Period. The Committee has the discretion to designate additional
factors. The Committee uses the audited financial statements for the fiscal year
in which the Incentive Period ends to determine the value of the ICUs. The
payment may be made in cash, Stock, Restricted Stock or Rights to Restricted
Stock (or any combination), as determined by the Committee at the time of grant.
Shares of stock used in payment of an award are valued as of the date the
Incentive Period ends.
PERFORMANCE SHARES. The Compensation Committee may make awards of
Performance Shares and Performance Units. At the time of the award the Committee
establishes the terms and conditions applicable to the payment of the award,
including the achievement of target performance objectives. The performance
objectives shall include such financial measures as return on shareholders
equity, growth in earnings per share, return on sales, growth in income and
growth in sales. The achievement of the designated targets is measured over the
Performance Period specified at the date of the award. Awards are paid based on
the degree of attainment of the performance targets. The maximum amount of
compensation a Participant may be granted by reason of a performance award in
any one calendar year is $100,000 (based on the Fair Market Value of the award
on the date of grant). Payment of an award is made within four months following
the end of the Performance Period. The payment may be made in cash, Stock,
Restricted Stock or Rights to Restricted Stock (or any combination), as
determined by the Committee at the time of grant. Shares of stock used in
payment of an award are valued as of the date the Performance Period ends.
STOCK OWNERSHIP GUIDELINE AWARDS. Stock ownership guidelines for top
management have been established to motivate individual achievement and increase
ownership of the Company's 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 considers incentive grants of restricted stock or rights
to 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 stock during the year if
the annual ownership target is met, limited to 10% of the targeted ownership
level if the targeted ownership level has already been achieved.
PLAN AMENDMENT, SUSPENSION, MODIFICATION AND TERMINATION. The
Compensation Committee has the right to amend, suspend, modify or terminate the
Omnibus Plan at any time, subject to approval by the Board of Directors.
TERMINATION OF EMPLOYMENT. In the event a participant dies, becomes
disabled, retires or is otherwise terminated, for cause or otherwise (except for
a "Change of Control," which is described below), the outstanding options or
other awards may be subject to accelerated vesting, a shortening of the exercise
period or termination, all on the terms and conditions set forth in the Omnibus
Plan.
CHANGE IN CONTROL. If a "Change in Control" (as defined in the
Company's Key Executive Employment and Severance Agreement, effective August 23,
2000) occurs all Options granted to a Participant then employed by Pentair (or
an Affiliate) become fully vested and immediately exerciseable, restrictions on
Restricted Stock and Performance Share awards automatically lapse, rights to
Restricted Stock become fully vested and outstanding
10
ICUs and Performance Units are valued assuming all goals are met and all or a
portion of such award is paid based on when such award was granted. All payments
must be made within 10 days of the Change in Control.
MODIFICATION OF AWARDS. While the Committee has authority generally to
make modifications to individual awards, including accelerating vesting or
removing restrictions, the Committee does not have discretion to increase the
amount of compensation a Participant could earn by application of preestablished
performance goals and financial measurements relevant to the award, although the
Committee does have discretion to decrease such an award.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 3 TO APPROVE THE OMNIBUS
STOCK INCENTIVE PLAN FOR 162(M) PURPOSES.
ITEM 4
APPROVAL OF AN AMENDMENT TO THE EXECUTIVE OFFICER PERFORMANCE PLAN
Shareholders are asked to approve an amendment to the Executive Officer
Performance Plan ("EOPP") to ensure that awards under the plan continue to
qualify as "performance-based" for purposes of Section 162(m) of the Internal
Revenue Code and in order to satisfy New York Stock Exchange guidelines relating
to equity compensation for officers. The amendment modifies the criteria used to
measure achievement of the performance goals under the plan. The criteria as
amended are described in the paragraph entitled "Performance Goals" set forth
below. If shareholder approval of the amendment is not received, the
Compensation Committee will reconsider the amendment and reconsider the change
to the Performance Goals.
Following is a summary of the material features of the EOPP.
Capitalized terms have the meanings set forth in the EOPP, a copy of which is
attached as Appendix 4:
PURPOSE. A primary objective of the Company is to be a top-performing
company by consistently achieving profit performance that is higher than the
performance of comparable companies. The Company has also identified growth as a
key strategy for the long-term success of the business. The return on our
investments, whether to support internal growth and improvements or make
acquisitions, is also a key determinant of our business success and the return
to our shareholders. The Company expects to compensate executive officers for
their performance against key financial measurements in accordance with the
terms of the EOPP.
ELIGIBILITY AND PARTICIPATION. Key employees in executive positions are
eligible for participation at the discretion of the Compensation Committee.
Participants in the EOPP are not eligible to participate in the Management
Incentive Plan. Currently the Chief Executive Officer is the only participant.
The Compensation Committee may determine that additional executive officers
should be added as participants in the future.
AWARD AMOUNTS. Annual awards under the EOPP are determined by
multiplying the participant's base salary by his or her bonus opportunity
category percentage (a percentage of base salary based on position) and by the
corporate performance factor. The bonus opportunity category percentage for the
Chief Executive Officer is 100%. Other positions that may qualify in the future,
with the following bonus opportunity category percentages, include: President
and Chief Operating Officer, 80%, Executive Vice Presidents and operating
officers of business segments, 58.5%, and other senior officers, 52%. In
administering the EOPP and in establishing bonus awards, the Committee does not
have the discretion to pay participants more than the bonus amount indicated by
the pre-established goals. The Committee has the discretion and flexibility,
however, based on its business judgment, to reduce such amount.
PERFORMANCE GOALS. EOPP performance goals and factors are established
by the Compensation Committee prior to or early in each fiscal year. These
performance goals are used to calculate the corporate performance factor that,
in conjunction with the participant's bonus opportunity category percentage,
determines the amount of the bonus awarded to each participant.
The determination of the corporate performance factor for 2001 is
discussed in the "Compensation of the Chief Executive Officer" section of the
Report of the Compensation Committee.
For 2002, the Compensation Committee has amended the EOPP to increase
the emphasis on the importance of total capital management. The corporate
performance factor will be determined by multiplying
11
factors for Pentair Value Added ("PVA") and Free Cash Flow. The use of these two
factors reinforces the importance of balancing economically profitable growth
and cash generation.
For 2002, PVA will be calculated as a target percentage of Net
Operating Profit After Taxes ("NOPAT") less a surcharge against average invested
capital (which is defined as the total of net cash, debt and equity invested in
a relevant business unit, segment or the Company as a whole). For 2002, Free
Cash Flow is equal to net cash provided by operating activities, excluding net
tax-affected interest expense, less capital expenditures. Under the annual bonus
plan, the achievement of (a) Free Cash Flow equal to the target percentage of
NOPAT and (b) PVA generated that equates to the target percentage total business
return (which is defined as the increase in value, based on the annual
performance of a relevant business unit, segment or the Company as a whole),
results in a corporate performance factor of 1.00. The maximum corporate
performance factor is 4.50 and the minimum corporate performance factor is 0.10;
however, there is no bonus if the Company has an operating loss. If the
Company's performance results in a negative PVA the maximum performance factor
is capped at 2.00. Performance between the stated factors is interpolated.
The target percentages for 2002 established by the Compensation
Committee are discussed in the Report of the Compensation Committee. The
Compensation Committee may further refine the calculation of PVA and Free Cash
Flow in future years to measure the targets it sets in each year. Traditionally,
the achievement of the established targets is measured by applying generally
accepted accounting principles used by the Company in preparing its financial
statements. The EOPP gives the Compensation Committee discretion to use pro
forma results or to exclude the effects of significant transactions or changes
in accounting rules to achieve consistency in measuring results, in the
interests of fairness or to achieve the purposes of the EOPP.
MAXIMUM AWARD. The maximum annual award is 200% of annual base salary,
but in no event more than $3.5 million.
PAYMENT. Payment of the bonus amount is made in cash up to the amount
of the participant's annual base salary, with any excess amount awarded in
restricted shares under the Omnibus Plan.
SHARES AUTHORIZED. The Omnibus Plan, under which EOPP share awards are
issued, has 5,600,000 shares authorized for issuance, of which no more than
1,120,000 (20%) may be issued as grants in a form other than stock options. As
of December 31, 2001, 2,446,236 shares remained available for issuance under the
Omnibus Plan.
PLAN TERMINATION. The Compensation Committee has the right to terminate
the EOPP at any time, subject to approval by the Board of Directors.
CHANGE IN CONTROL. If a "Change in Control" (as defined in the
Company's Key Executive Employment and Severance Agreement, effective August 23,
2000) occurs, a participant in the EOPP as of the date of such change in control
is entitled to receive (i) payment of any outstanding but unpaid award for the
prior year and (ii) an award for the fiscal year in effect as of the Change in
Control using the annual base salary rate as in effect immediately before the
Change in Control and assuming the EOPP goals for such year have been attained.
Such amounts are payable within 10 days of the Change in Control. In addition,
certain other provisions or requirements applying to awards under the EOPP are
modified or eliminated in the event of a Change in Control, including the
authority of the Compensation Committee to reduce an award, the minimum
operating income requirement, the requirement of an annual audit and the
requirement that a participant remain employed through the end of the incentive
period.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 4 TO APPROVE THE AMENDMENT
TO THE EXECUTIVE OFFICER PERFORMANCE PLAN.
ITEM 5
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.
12
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.
Upon recommendation of the Audit and Finance Committee, and subject to
ratification by the shareholders at the 2002 Annual Meeting, the Board of
Directors has appointed Deloitte & Touche LLP as independent auditors to examine
the consolidated financial statements of the Company for 2002.
The enclosed proxy will be voted "For" the proposal to approve
retention of Deloitte & Touche LLP 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 5 TO APPROVE RETENTION OF
DELOITTE & TOUCHE LLP.
EXECUTIVE COMPENSATION
COMPENSATION AND HUMAN RESOURCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2001, the Compensation and Human Resource Committee of the Board
of Directors was comprised of Quentin J. Hietpas (Chair through 4/25/01),
Charles A. Haggerty (Chair since 4/25/01), Barbara B. Grogan, Stuart Maitland
and William T. Monahan (beginning 2/01). During 2001, none of the members of the
Committee were officers or employees of the Company and there were 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 (including stock awards granted under the Management Incentive
Plan ("MIP") and Time Accelerated Restricted Stock Award Program ("TARSAP")),
the Employee Stock Purchase and Bonus Plan, the Retirement Savings and Stock
Incentive Plan, the RSIP Sidekick Plan, the Supplemental Executive Retirement
Plan and the Executive Officer Performance Plan ("EOPP"). The Company also
maintains a defined benefit pension plan in which substantially all U.S.-based,
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 top short-term performance and
long-term shareholder value;
(c) to recognize outstanding performance;
(d) to attract and retain top-quality executives and key
employees;
(e) to encourage executive stock ownership; and thereby
(f) to align management and shareholder interests.
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
13
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 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, the indices included
in the Comparative Stock Performance Graph. The Committee typically retains an
independent compensation consulting firm, such as Towers Perrin, to assist in
the review of executive compensation every other year.
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
of these components are comparable to those of companies similar to the Company.
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 2001, the salaries of
the named executive officers identified in the Summary Compensation Table are
within the salary targets for each position.
BONUS
Generally, bonuses are considered for payment to executives and key
employees following the end of each year under the EOPP (see page 11 for
discussion of the EOPP) and the MIP. MIP awards are determined by applying the
following factors to base salary: a bonus opportunity category (40% for
Executive and Senior Vice Presidents; 30-35% for other officers), a corporate
performance factor and an individual performance factor.
For 2001, the corporate performance factor was determined by
multiplying factors for Simple Pentair Value Added ("SPVA") and Free Cash Flow
("FCF"). The use of these two factors reinforces the importance of balancing
economically profitable growth and cash generation. SPVA is calculated as
follows: earnings before interest and taxes less a 15% surcharge against average
receivables, inventory and payables. FCF for bonus calculation is equal to net
cash provided by operating activities, excluding net tax-affected interest
expense, less capital expenditures. Under the MIP, the achievement of (a) FCF
equal to 6.5% of sales and (b) SPVA generated that equates to a 15% total
business return, results in a corporate performance factor of 1.00. The maximum
corporate performance factor is 4.50 and the minimum corporate performance
factor is 0.21; however, there is no MIP bonus if the Company has an operating
loss. If the Company's performance results in a negative SPVA the maximum
performance factor is capped at 2.00. Performance between the stated factors is
interpolated. The maximum individual cash bonus is 100% of the participant's
annual base salary, with the remainder being paid in shares of restricted stock.
In addition to the corporate performance factor, for executives in charge of
operating segments, a segment performance factor is used and weighted at 75%
versus 25% for the corporate performance factor, to recognize contributions made
at the segment level.
For 2002, the Company has revised the MIP to emphasize the importance
of total capital management by substituting PVA (Pentair Value Added) for the
SPVA measure. PVA is calculated as follows: Net Operating Profit After Taxes
("NOPAT") less a 10% surcharge against average invested capital. The 2002
corporate performance factor will be a result of the multiplication of factors
for PVA and FCF. FCF for the 2002 bonus calculation will be equal to net cash
provided by operating activities, excluding net tax-affected interest expense,
less capital expenditures. Under the MIP as revised, the achievement of (a) FCF
of 65% of NOPAT and (b) PVA generated that equates to a 15% total business
return, will result in a corporate performance factor of 1.00. The use of these
two factors reinforces the importance of balancing economically profitable
growth and cash generation. The maximum corporate performance factor will remain
4.50 and the minimum corporate performance factor is 0.10
14
and there will be no bonus if the Company has an operating loss. If the
Company's performance results in a negative PVA the maximum bonus remains capped
at 2.00. Performance between the stated factors is interpolated. The maximum
individual cash bonus remains 100% of the participant's annual base salary, with
the remainder being paid in restricted stock.
In the first quarter of 1999, the Company recorded a special
restructuring charge against continuing operations of $23.0 million ($14.6
million after-tax or $0.34 per share). In the fourth quarter of 2000, the
Company recorded a special restructuring charge against continuing operations of
$24.8 million ($15.9 million after tax, or $0.33 per share). For purposes of the
MIP calculation, costs related to these 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. The bonus calculations for 2001 include a
portion of these restructuring charges. In the fourth quarter of 2001, the
Company recorded a restructuring charge of $41.1 million ($29.8 million
after-tax or $0.60 per share), which will be taken into account for MIP purposes
beginning in 2002.
The individual performance factor component of the MIP bonus
calculation is determined by the assignment of a numerical factor based on a
supervisor's judgment 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. The Committee approves all MIP awards and has the right to increase or
decrease awards to better accomplish the objectives of the MIP.
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.
The Committee has the discretion to make special awards to retain key
executives or to recognize extraordinary contributions to the welfare,
reputation and earnings of the Company. For 2001, the Company made five such
awards to executive officers, including the CEO and three of the named executive
officers, and each such bonus was made in addition to the MIP or EOPP award
earned by such individual.
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" below; as an award to a new
executive officer; as the form of payment of performance shares; or in payment
of MIP or EOPP bonuses in excess of annual base salary. Restricted stock awards
also may be made to officers of the Company and certain subsidiary presidents
(who are nominated by the CEO and approved by the Committee) under the TARSAP,
which has been added to the Omnibus Plan. TARSAP awards are made in addition to
other awards under the Omnibus Plan and are determined by using an eligibility
factor set on an individual basis by the Committee. The maximum award available
is an amount equal to the executive's award eligibility under the Omnibus Plan.
Restricted stock awards under the TARSAP vest in equal portions in the fifth,
sixth and seventh years following the date of grant. The award may vest earlier,
if certain performance goals, such as share price targets, are met, but in no
event will more than one-third of any award vest in any year.
The Committee is authorized to grant stock options and performance
share awards upon attainment of certain performance criteria that 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
15
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.
In addition, in 2001, the Committee determined that, in the interests
of retaining key management personnel, the Committee would provide additional
grants of option awards to certain executives, as determined by the Committee on
an individual basis. These individuals were eligible to receive options for
additional shares up to an amount equal to 50% of their grant eligibility for
2001.
The total Omnibus Plan awards for 2001 for all executive officers as a
group, including the CEO and named executive officers, amounted to 1,912,998
ICUs, 683,500 stock options, 5,584 restricted shares, which were awarded for
achievement of stock ownership guidelines, and 180,000 restricted shares, which
were awarded under the TARSAP. Grants for the named executive officers are shown
in the Summary Compensation Table (page 19) and the Option/SAR grant table (page
20).
PAYOUTS
Payouts on ICUs in 2001 which related to ICU grants in 1998 were based
upon the Company's three year average Return On Invested Capital (ROIC) and
three year average Operating Income. Payouts in 2001 for the named executive
officers are shown in the LTIP Payout column on the Summary Compensation Table
(page 19). For retention purposes, in 2001, the Compensation Committee increased
the dollar value of each ICU paid out from $.71 to $1.00.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The base salary, annual bonus and long-term equity incentives paid to
Mr. Hogan in 2001 were generally determined in accordance with the guidelines
described above, and his compensation is comprised of the same elements as for
all executive officers. Mr. Hogan became CEO effective January 1, 2001.
The Committee has a formal rating process for evaluating the
performance of the Chief Executive Officer. 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. The first such review for Mr. Hogan was
held in December 2001.
Mr. Hogan's base salary was $625,000 in accordance with the Committee's
guideline of establishing the base salary at the market compensation rate for
the CEO at the 50th percentile for companies at a comparable size as projected
based on the 2000 performance. This resulted in a 39% increase in Mr. Hogan's
base salary over 2000, reflecting his promotion from COO to CEO.
Mr. Hogan's bonus was determined under the EOPP. During 2001, the
Chairman and the Chief Executive Officer were the only eligible officers
participating in the EOPP. EOPP awards are determined based on the participant's
bonus opportunity and a corporate performance factor. For 2001, the maximum
individual bonus for the CEO was 200% of his annual base salary, but in no event
more than $3,500,000. 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 2001, the corporate performance factor was determined by
multiplying factors for SPVA and FCF. The use of these two factors reinforces
the importance of balancing economically profitable growth and cash generation.
SPVA is calculated as follows: earnings before interest and taxes less a 15%
surcharge against average receivables, inventory and payables. FCF for bonus
calculation is equal to net cash provided by operating activities, excluding net
tax-affected interest expense, less capital expenditures. Under the EOPP, the
achievement of (a) FCF equal to 6.5% of sales and (b) SPVA generated that
equates to a 15% total business return, results in a corporate performance
factor of 1.00. The maximum corporate performance factor is 4.50 and the minimum
corporate performance factor is 0.21; however, there is no EOPP bonus if the
Company has an operating loss. If the Company's performance results in a
negative PVA the maximum performance factor is capped at 2.00. Performance
between the stated factors is interpolated.
16
Mr. Hogan's bonus was calculated using the formula described above. For
2001, SPVA declined by $68.2 million (including the impact of amortizing the
1999 and 2000 restructuring charges) and FCF was 8.3% of net sales, resulting in
a corporate performance factor of 0.325. The Committee used his base salary of
$625,000, his bonus opportunity category of 100%, and the corporate performance
factor of 0.325 to obtain his bonus amount. In accordance with the terms of the
EOPP, the bonus amount of $203,125 was paid in cash. The Committee exercised its
discretion to make special awards to retain key executives or to recognize
extraordinary contributions to the welfare, reputation and earnings of the
Company and awarded a bonus of $200,000 to Mr. Hogan, in addition to the EOPP
bonus. Mr. Hogan'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 284,400 ICUs and 174,000 stock
options in 2001.
For 2002, the Company has revised the EOPP in the same manner as the
MIP described above to further emphasize the importance of capital management by
substituting PVA for the SPVA measure. PVA and FCF will be measured in the same
manner as described for the MIP.
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 stock 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 2001, restricted stock awards of
6,893 were granted under these guidelines to all key employees.
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 objectives of retaining
executives and maintaining competitive and motivational performance-based
compensation. The shareholders are being asked to approve the Omnibus Stock
Incentive Plan and an amendment to the EOPP this year, all to comply with
Section 162(m) requirements. Under current interpretations of Section 162(m),
EOPP bonus awards and most Omnibus Plan awards of stock options, SARs, ICUs,
performance shares and performance units should not be subject to the $1,000,000
deduction limit assuming receipt of shareholder approval and compliance with all
other aspects of Section 162(m); however, some awards may not meet the
requirements to be exempt from 162(m).
Charles A. Haggerty (Chair) Barbara B. Grogan
Stuart Maitland William T. Monahan
Compensation and Human Resource Committee of Pentair, Inc. Board of Directors
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, 1996 and the reinvestment of all dividends
since that date to December 31, 2001. 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
17
published indices, but has determined that 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]
12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001
---------- ---------- ---------- ---------- ---------- ----------
Pentair, Inc. 100 113.23 127.41 125.13 80.21 123.81
S&P 500 Index 100 133.36 171.48 207.56 188.66 166.24
S&P Midcap 400 Index 100 132.25 157.52 180.71 212.35 196.42
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 2001 exceeded $100,000.
18
Annual Compensation Long-Term Compensation
------------------------------ ----------------------------------
Awards Payouts
------------------------ -------
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Name and Salary Bonus(a) Compen- Awards(c) Options/ Payouts sation
Principal Position Year ($) ($) sation(b) ($) SARs ($) ($)(d)
------------------ ---- ------ -------- --------- --------- ---------- ------- ---------
Randall J. Hogan 2001 625,000 403,125 -- 1,766,772 174,000 164,962 8,856
CHIEF EXECUTIVE OFFICER 2000 450,000 400,000 -- 1,012,356 53,000 22,155 11,561
1999 312,500 312,500 -- 21,313 25,000 2,177 10,481
David D. Harrison(e) 2001 365,000 172,501 100,376(f) 476,637 45,000 12,621 11,129
EXECUTIVE VICE PRESIDENT, 2000 308,902 120,472 432,429(g) -- 60,000 -- 1,594
CHIEF FINANCIAL OFFICER 1999 -- -- -- -- -- -- --
Frank J. Feraco(h) 2001 350,000 175,000 268,863(i) 513,047 -- -- 1,311
PRESIDENT AND CHIEF 2000 11,891 25,000 -- -- 63,000 -- --
OPERATING OFFICER, TOOLS 1999 -- -- -- -- -- -- --
SEGMENT
Richard J. Cathcart 2001 365,000 75,920 46,397(j) 574,936 48,000 115,900 12,107
PRESIDENT AND CHIEF 2000 350,000 350,000 -- 94,117 32,000 201,282 13,803
OPERATING OFFICER, WATER 1999 310,000 296,608 -- 24,211 25,000 150,013 11,038
TECHNOLOGIES SEGMENT
Michael V. Schrock 2001 273,854 71,275 -- 188,486 38,500 59,108 14,332
PRESIDENT AND CHIEF 2000 242,500 242,494 -- 466,523 9,000 2,986 15,331
OPERATING OFFICER, 1999 210,000 167,684 -- 23,775 7,500 1,664 2,127
ENCLOSURES SEGMENT
(a) Represents bonuses accrued by the Company for the year even if paid
after December 31.
(b) Other annual compensation includes perquisites and other personal
benefits, securities or property. Disclosure is required only if the
amount exceeds the lesser of $50,000 or 10% of the total annual salary
and bonus reported for the named executive officer. Information has
been included only for those named executive officers who have met the
reporting threshold.
(c) The restricted stock awards 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, 2001, the following restricted stock awards
(not yet earned) were held by each of the named executives (based on
12/31/01 closing price of $36.5156): Hogan 87,575 shares or $3,197,854;
Harrison 15,794 shares or $576,727; Feraco, 15,000 shares or $547,734;
Cathcart 23,805 shares or $869,254; Schrock, 23,945 shares or $874,366.
(d) Includes Company contributions to the Retirement Savings and Stock
Incentive Plan, RSIP Sidekick Plan and the Employee Stock Purchase and
Bonus Plan and life insurance premiums paid by the Company on behalf of
the named executive officer.
(e) Mr. Harrison joined the Company in February 2000.
19
(f) Includes relocation expenses of approximately $32,991 and the balance
of this amount reflects the value of benefits provided under a flexible
perquisite program available to certain executives for the
reimbursement of certain business-related expenses, including
automobile expenses, membership fees, professional fees (including tax
preparation costs) and out-of-pocket medical expenses. The program
includes an annual benefit of up to $20,000, plus a one-time benefit of
up to $50,000 for certain membership fees.
(g) Approximately $416,000 of this amount represents reimbursement of
relocation expenses.
(h) Mr. Feraco joined the Company on December 23, 2000; the bonus paid in
2000 represents a hiring incentive bonus.
(i) Approximately $252,319 of this amount represents reimbursement of
relocation expenses.
(j) This amount reflects the value of benefits provided under a flexible
perquisite program available to certain executives for the
reimbursement of certain business-related expenses, including
automobile expenses, membership fees, professional fees (including tax
preparation costs) and out-of-pocket medical expenses. The program
includes an annual benefit of up to $20,000, plus a one-time benefit of
up to $50,000 for certain membership fees.
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize option and SAR grants and exercises
during 2001 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 2001. 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 2001 or
remain outstanding at the end of 2001.
Option and SAR Grants in 2001
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) 2001 Price Date 5% 10%
------------------------- ---------- -------- ------- ------- ------ ------
Randall J. Hogan 174,000 21.4% $22.75 1/02/11 $2,489,479 $6,308,830
David D. Harrison 45,000 5.5% $22.75 1/02/11 $ 643,831 $1,631,594
Frank J. Feraco -- -- -- -- $ -- $ --
Richard J. Cathcart 48,000 5.9% $22.75 1/02/11 $ 686,753 $1,740,367
Michael V. Schrock 13,500 1.6% $22.75 1/02/11 $ 193,149 $ 489,478
25,000 3.1% $33.125 10/22/11 $ 520,803 $1,319,818
------ --- ---------- ----------
38,500 4.7% $ 713,952 $1,809,296
(a) Generally 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.
20
Aggregate Option and SAR Exercises in 2001 and Value at End of 2001
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
End of 2001 End of 2001
Shares Acquired Value Exercisable (E) Exercisable (E)
Name on Exercise Realized Unexercisable (U) Unexercisable (U)
-------------------- --------------- --------- ----------------- -----------------
Randall J. Hogan -- -- E 59,332 E $ 5,796
U 217,668 U $2,406,807
David D. Harrison -- -- E 13,000 E $ 0
U 92,000 U $ 619,452
Frank J. Feraco -- -- E 21,000 E $ 325,828
U 42,000 U $ 651,655
Richard J. Cathcart 21,924 $100,028 E 52,332 E $ 41,390
U 77,668 U $ 667,748
Michael V. Schrock -- -- E 14,500 E $ 984
U 47,000 U $ 272,569
LONG-TERM INCENTIVE PLAN AWARDS
The following table reflects incentive compensation unit (ICU) awards
made under the Omnibus Plan during 2001 to the Chief Executive Officer and the
executive officers named in the Summary Compensation Table above.
Long-Term Incentive Plan Awards in 2001
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
---- ------------- -------------- --------- ------ -------
Randall J. Hogan 284,400 units 3 years $ 0 $492,012 $1,353,744
David D. Harrison 163,600 units 3 years $ 0 $283,028 $ 778,736
Frank J. Feraco 176,600 units 3 years $ 0 $305,518 $ 840,616
Richard J. Cathcart 176,600 units 3 years $ 0 $305,518 $ 840,616
Michael V. Schrock 81,898 units 3 years $ 0 $141,684 $ 389,834
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.
21
OPERATING INCOME (OI) GROWTH
RETURN ON INVESTED ------------------------------------------------------------------------
CAPITAL (ROIC) 0% 2% 6% 10% 12% 20% 30%
------------------ ------------------------------------------------------------------------
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
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.
The following estimated aggregate amounts are payable from the
qualified pension (as a life annuity), excess plan and SERP (as a fifteen year
term annuity) upon retirement to the named executive officers, assuming
retirement at age 65 and each final salary is the same as that at January 1,
2002: Hogan $397,361; Harrison $270,855; Feraco $120,345; Cathcart $369,038;
Schrock $226,859.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an Employment Agreement with Richard J.
Cathcart, the President and Chief Operating Officer of the Water Technologies
segment. The Employment Agreement provides that in the event Mr. Cathcart's
employment is terminated at any time prior to his normal retirement date (as
determined under the primary defined benefit pension plan applicable to Mr.
Cathcart), unless terminated "For Cause" as defined in the agreement, then Mr.
Cathcart is entitled to receive certain severance benefits. Prior to reaching
age 62, he is entitled to a payment of three times his annual cash compensation,
at age 62 he is entitled to an amount equal to his annual cash compensation and
from age 63 on there is no cash payment amount. The amount of this payment is
subject to reduction if the average performance of the Water Technologies
segment (or any other segment for which Mr. Cathcart has responsibility during
the applicable period) for the three fiscal years preceding termination does not
meet the specified criteria. Mr. Cathcart is also entitled to receive
outplacement services, medical benefits, full vesting in the accrued benefit
under the Supplemental Executive Retirement Plan plus any additional benefits he
would have received if employment had continued until age 62. In addition, the
agreement provides for the vesting of restricted stock awards and stock options,
as well as a formula for calculating payment of outstanding performance-based
awards. The agreement also contains a covenant against competition from Mr.
Cathcart.
Approximately 20 key corporate executives and business unit leaders
(including the executive officers) have entered into agreements with the Company
that provide for contingent benefits in the event of a change in control of the
Company (except in certain very limited circumstances). Such benefits include:
a. bonus awards for the year in question to be made under the
Management Incentive Plan;
22
b. immediate vesting of all unvested stock options, 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 any excise taxes triggered by payments to the
executive;
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);
i. severance pay equal to 300% (for the CEO), 250% (for the
Company's other executive officers and business unit
presidents) or 200% (for all other applicable executives) of
annual compensation;
j. guaranteed salary, benefit and bonus levels for continuing
employees for up to a three-year period; and
k. reimbursement of the executive's legal expenses in the event
of a dispute with the Company arising out of the agreement.
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. The agreement requires
the executive to devote his or her best efforts to the Company or its successor
during the three-year period, to maintain the confidentiality of Company
information during and following employment and to refrain from competitive
activities for a period of one year following termination of employment with the
Company or its successor.
REPORT OF THE AUDIT AND FINANCE COMMITTEE OF THE BOARD OF DIRECTORS
The Audit and Finance 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 and Finance
Committee adopted a Charter of its responsibilities on February 23, 2001, which
is attached as Appendix 1 to this Proxy Statement. The Audit and Finance
Committee is comprised of the following directors:
Name of Director Term Expires Director Since
---------------- ------------ --------------
Karen E. Welke, Chair 2004 1995
William H. Hernandez 2004* 2001
Stuart Maitland 2005* 1999
Augusto Meozzi 2005* 1999
*subject to election at the Annual Meeting
In accordance with the recently adopted SEC and NYSE standards for
independence of Audit and Finance Committee members, the Board of Directors
considers all of the members of the Audit and Finance Committee to be
independent. None of the members of the Audit and Finance Committee were
officers or employees of the Company during or prior to 2001, or had a
relationship with the Company that would, in the
23
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
and Finance Committee have substantial experience in financial matters and
business operations.
The Audit and Finance 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; (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; and (iv) considered whether the level of non-audit
services provided by Deloitte & Touche LLP is compatible with maintaining the
independence of its auditors.
AUDITOR INDEPENDENCE
During fiscal year 2001, Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their affiliates, provided various audit,
audit-related and non-audit services to the Company as follows (in thousands):
a) Audit Fees: Aggregate fees billed for
professional services rendered for the audit of
the Company's 2001 annual financial statements
and review of financial statements in the
Company's Form 10-Q Reports $ 798
b) Financial Information Systems Design and
Implementation Fees 0
c) All Other Fees: All other fees for 2001,
principally consisting of fees for tax
consulting, internal audit outsourcing and other
services were as follows:
* Audit-related services, including internal
audit, acquisitions and divestitures, SEC
registration statements, benefit plan
audits, and other accounting and auditing
services $ 2,145
* Tax services, including tax consulting and
tax return preparation 475
* Other consulting services, consisting
primarily of actuarial and human resources
consulting 1,185
-------
Total other fees 3,805
--------
Total Deloitte & Touche fees $ 4,603
========
Based on the review and discussions described above, the Audit and
Finance Committee recommended to the Board of Directors that the Company's
audited financial statements for the year ended December 31, 2001 be included in
the Company's 2001 Annual Report on Form 10-K for filing with the SEC. In
addition, the Audit and Finance Committee, through its Chair, reviewed the
Company's 2001 quarterly results prior to public release.
Karen E. Welke (Chair) William H. Hernandez
Stuart Maitland Augusto Meozzi
Audit and Finance 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 2003 Annual
Meeting of Shareholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is January 4, 2003. Unless a shareholder who wishes to bring a matter
before the shareholders at the Company's 2003 Annual Meeting notifies the
Company of such matter prior to March 20, 2003, the persons named in the proxy
for the 2003 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
24
Exchange Commission and the Company's By-Laws. 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 of Directors or the Nominating,
Governance, Public Policy and Share Rights 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, Governance, Public Policy and Share Rights
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.
2001 ANNUAL REPORT ON FORM 10-K
Any security holder wishing to receive, without charge, a copy of the
Company's 2001 Annual Report on Form 10-K (without exhibits) filed with the
Securities and Exchange Commission should write to Pentair, Inc., 1500 County
Road B2 West, Saint Paul, Minnesota 55113, Attention: Secretary.
REDUCE DUPLICATE MAILINGS
To reduce duplicate mailings, we are now sending only one copy of any
proxy statement, information statement or annual report to multiple shareholders
sharing an address unless we receive contrary instructions from one or more of
the shareholders.
If you wish to receive separate copies of each proxy statement,
information statement and annual report please notify us by writing or calling
Pentair, Inc., 1500 County Road B2 West, Saint Paul, Minnesota 55113, Attention:
Secretary, Telephone: (651) 636-7920 or (800) 328-9626.
If you are receiving duplicate mailings, you may authorize us to
discontinue mailings of multiple proxy and information statements, annual
reports and prospectuses. To discontinue duplicate mailings, notify us by
writing or calling Pentair, Inc., 1500 County Road B2 West, Saint Paul,
Minnesota 55113, Attention: Secretary, Telephone: (651) 636-7920 or (800)
328-9626.
25
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APPENDIX 1
CHARTER OF RESPONSIBILITIES
FOR
AUDIT AND FINANCE COMMITTEE
Of
Pentair, Inc.
Board of Directors
The Audit and Finance 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 and Finance 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.
Appendix 1 - 1
* 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.
Appendix 1 - 2
APPENDIX 2
TEXT OF AMENDMENTS TO ARTICLES AND BY-LAWS
PROPOSED AMENDMENT TO SECOND RESTATED ARTICLES OF INCORPORATION
Current version of Section 1, Article XI:
The business of this Corporation shall be managed by a Board of
Directors who shall be elected at the annual meeting of the
shareholders. The number of directors shall be fixed from time to time
by the By-Laws but the number thereof shall never be less than three.
The directors are hereby divided into three classes, each class to
consist as nearly as may be of one-third of the number of directors
then constituting the whole Board. The term of office of those of the
first class shall expire at the annual meeting in 1977. The term of
office of the second class shall expire in 1978. The term of office of
the third class shall expire in 1979. At each annual election
commencing in 1977, the directors elected shall be chosen for a full
term of three years to succeed those whose terms then expire. Vacancies
on the Board of Directors may be filled by the remaining directors and
each person so elected shall be a director until his successor is
elected at an annual meeting of shareholders or at a special meeting
duly called therefor.
SECTION 1, ARTICLE XI, AS AMENDED:
The business of this Corporation shall be managed by a Board of
Directors who shall be elected at the annual meeting of the
shareholders. The number of directors is hereby fixed at ten (10). The
directors are hereby divided into three classes, each class to consist
as nearly as may be of one-third of the number of directors then
constituting the whole Board. The term of office of those of the first
class shall expire at the annual meeting in 1977. The term of office of
the second class shall expire in 1978. The term of office of the third
class shall expire in 1979. At each annual election commencing in 1977,
the directors elected shall be chosen for a full term of three years to
succeed those whose terms then expire. Vacancies on the Board of
Directors may be filled by the remaining directors and each person so
elected shall be a director until his successor is elected at an annual
meeting of shareholders or at a special meeting duly called therefor.
PROPOSED AMENDMENTS TO BY-LAWS
Current version of Section 1, Article II:
GENERAL POWERS; NUMBER OF DIRECTORS; CLASSIFICATION. The business and
affairs of the Corporation shall be managed by or under the direction
of a Board of Directors, except as otherwise permitted by statute. The
Board of Directors shall consist of not less than three (3) nor more
than fifteen (15) directors, who need not be shareholders of the
Corporation. The Board of Directors has been divided into three
classes, as nearly equal in number as may be, with the terms of office
for each class staggered so that the term for only one class expires
each year. When the number of directors is changed, any newly created
directorships or decrease in directorships shall be apportioned among
the classes so as to make all classes as nearly equal in number as
possible. Such classification of any newly created directorship shall
be fixed by the Board of Directors.
SECTION 1, ARTICLE II, AS AMENDED:
GENERAL POWERS; NUMBER OF DIRECTORS; CLASSIFICATION. The business and
affairs of the Corporation shall be managed by or under the direction
of a Board of Directors, except as otherwise permitted by statute. The
Board of Directors shall consist of ten (10) directors, who need not be
shareholders of the Corporation.
Appendix 2 - 1
APPENDIX 3
PENTAIR, INC.
OMNIBUS STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED
SECTION 1. BACKGROUND AND PURPOSE
1.1. Background. Pentair, Inc. ("Pentair") maintains a comprehensive
equity compensation incentive plan to award long-term equity incentives which
tie the compensation of executives and key managerial employees to Pentair
operating results. In particular, this Plan is designed to attract and retain
top quality executives and key employees, encourage innovation and growth,
reward executives for attainment of short-term performance objectives and
long-term shareholder value, recognize outstanding performance, encourage
executive stock ownership and, in general, to align management and shareholder
interests. Pentair established the Plan in 1990 by combining its then separate
equity compensation plans into one plan to achieve administrative consistency
and greater flexibility in structuring equity compensation awards.
1.2. Restatement of Plan. Pentair amended and restated this Plan to
authorize additional shares of Stock and ICUs with which to make grants under
the Plan, clarify certain administrative practices and bring the Plan into
compliance with Code requirements enacted since the Plan's adoption. The amended
and restated Plan was adopted on February 14, 1996, subject to shareholder
approval, and applies to all equity compensation grants made after that date.
This amended and restated plan extends until February 14, 2006.
1.3. 2001 Amendments. Pentair is amending the Plan, effective February
14, 2001, to authorize additional shares of Stock with which to make grants
under the Plan, implement a cap on the amount of authorized shares of Stock
available for various types of Stock awards, other than Options, and clarify the
authority of the Committee to amend outstanding grants.
SECTION 2. DEFINITIONS
Unless the context requires otherwise, when capitalized the terms
listed below shall have the following meanings when used in this or any other
section of the Plan:
2.1. "Affiliate" is any corporation, business trust, division,
partnership or joint venture in which Pentair owns (either directly or
indirectly) fifty percent (50%) or more of the voting stock, or rights analogous
to voting stock, but only for the duration of such ownership.
2.2. "Board" is the Board of Directors of Pentair, Inc., as elected
from time to time.
2.3. "Book Value per Share" or "Book Value" is the total consolidated
shareholders' equity of Pentair at the close of a Fiscal Year, less the equity
attributable to preferred shares, divided by the number of shares of Stock
outstanding at the end of that Fiscal Year.
2.4. "Code" is the Internal Revenue Code of 1986, as amended.
2.5. "Committee" is the Compensation and Personnel Committee of the
Board, as appointed from time to time.
2.6. "Disabled" or "Disability" is a physical or mental incapacity
which qualifies an individual to collect a benefit under the long-term
disability plan of Pentair or an Affiliate, or such other condition which the
Committee may determine to be a Disability.
2.7. "Eligible Employee" is any key managerial, administrative or
professional employee of Pentair or an Affiliate, generally in salary grade 25
or higher, who is in a position to make a material contribution to the continued
profitable growth and long term success of Pentair or an Affiliate.
2.8. "Fair Market Value" is the closing price of a share of Stock on
the relevant date as reported on either the NASDAQ National Market System or the
New York Stock Exchange, depending on which exchange then lists Pentair stock,
or as otherwise determined using procedures established by the Committee.
Appendix 3 - 1
2.9. "Fiscal Year" is the twelve (12) consecutive month period
beginning January 1 and ending December 31.
2.10. "Incentive Compensation Unit" or "ICU" is a unit representing the
right to receive an amount determined by attainment of corporate performance
objectives over an applicable Incentive Period.
2.11. "Incentive Period" is a period of continuous employment fixed by
the Committee at the time of grant of an ICU after which such ICU may become
payable, provided all relevant performance objectives have been met.
2.12. "Incentive Stock Option" or "ISO" is an Option which is
designated as such by the Committee and intended to so qualify under Code
section 422.
2.13. "Nonqualified Stock Option" or "NQSO" is any Option which is not
an ISO.
2.14. "Option" is a right granted pursuant to the Plan to purchase
Stock subject to such terms and conditions as may be specified by the Committee
at the time of grant.
2.15. "Participant" is an Eligible Employee approved by the Committee
to receive a grant or award under the Plan.
2.16. "Pentair" is Pentair, Inc., a Minnesota corporation.
2.17. "Performance Period" is the period of time over which a
Participant must meet the relevant performance criteria established by the
Committee at the time of an award of Performance Shares or Performance Units.
2.18. "Performance Share" is a share of Stock, Restricted Stock, or a
Right to Restricted Stock, awarded by the Committee, subject to such performance
targets or other restrictions as are established by the Committee at the time of
award.
2.19. "Performance Unit" is an amount equal to the value of an ICU
determined on the date of award.
2.20. "Plan" is the Pentair, Inc. Omnibus Stock Incentive Plan, as
amended from time to time.
2.21. "Restricted Stock" is Stock issued or transferred to a
Participant by means of an award subject to such restrictions as may be imposed
at the time of grant by the Committee, and which will remain subject to said
restrictions until such time as the restrictions lapse.
2.22. "Retirement" is the time a Participant who is eligible to receive
retirement income benefits from the Pentair tax qualified pension plan separates
from employment.
2.23. "Right to Restricted Stock" is a right awarded to a Participant
to receive Stock or Restricted Stock which will vest at some future time and
which is subject to such restrictions as may be imposed at the time of grant by
the Committee, and which will remain subject to such restrictions until the
restrictions lapse.
2.24. "Significant Shareholder" is an employee who owns more than ten
percent (10%) of the total combined voting power of all classes of stock issued
by Pentair as of the date such employee is granted an Option. For this purpose,
the provisions of Code sections 422 and 424, as amended, shall apply.
2.25. "Stock" is Pentair common stock.
SECTION 3. SHARES SUBJECT TO THE PLAN
3.1. Shares. (a) Number of Shares. The maximum number of shares of
Stock which may be issued for any type of award or grant under the Plan shall be
5,600,000, subject to adjustment as provided in Sections 3.1(b) and 3.3. Not
more than twenty percent (20%) of such shares shall be available for various
types of grants, other than Options, which may be made under the Plan.
Appendix 3 - 2
(b) Unused Shares. Any shares of Stock subject to an Option which is
canceled, expires or otherwise terminates without having been exercised in full
(unless such cancellation is due to the exercise of a related SAR), or any
shares of Restricted Stock, Rights to Restricted Stock or Performance Shares
which are forfeited, shall again be available for grants or awards under the
Plan.
3.2. Incentive Compensation Units. The maximum number of Incentive
Compensation Units which may be awarded under the Plan is 4,000,000, subject to
adjustment as provided in this Section 3.2 and in Section 3.3. If an ICU is
awarded, but is forfeited or otherwise terminates without payment having been
made to the Participant, then such ICU shall again be available for awards under
the Plan.
3.3. Antidilution. In the event of a change in the number or class of
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, merger, consolidation, or other similar
corporate change, the number of shares of Stock as to which grants of Options or
other awards under the Plan may be made, and the number of ICUs available for
award under the Plan, shall be adjusted proportionately to the nearest whole
share or unit. Any such action shall be within the discretion of the Committee,
whose determination shall be conclusive.
If such an adjustment is made with respect to shares then subject to an
Option, the number of shares and the Option price per share shall be adjusted
proportionately so the aggregate exercise price of such Option shall not change.
SECTION 4. STOCK OPTIONS
4.1. Granting Options. Participants may be granted ISOs, SARs or NQSOs.
No one Participant shall be granted, in the aggregate, Options or SARs on more
than 150,000 shares in any calendar year. Solely for purposes of determining the
number of Options or SARs available for grant to an individual in any calendar
year, Options which are canceled or repriced shall be counted against this
annual maximum to the extent required by applicable regulations.
4.2. Option Terms and Conditions. (a) Grant of Option. Except as
otherwise limited by the Plan, the Committee shall have the discretion to grant
to a Participant any number or type of Options at any time, and subject to such
terms and conditions as the Committee may determine.
(b) Exercise Limit. With respect to Options designated as ISOs at the
time of grant, to the extent the aggregate Fair Market Value of Stock,
determined as of the date of grant, with respect to which ISOs are first
exercisable during any single calendar year exceeds $100,000, or such other
limit as shall be allowed under the Code, such Options shall be treated as
NQSOs. In applying this limit Options shall be taken into account in the order
granted.
(c) Option Price. The Option price of an ISO or NQSO shall be not less
than Fair Market Value as of the date of grant. If an ISO is granted to a
Significant Shareholder, the Option price shall be not less than 110% of Fair
Market Value on the date of grant.
(d) Term of Option. Each Option shall expire at the time specified by
the Committee when granting the Option. The Committee may not fix a term which
is shorter than required under any applicable state or federal law, nor longer
than ten (10) years from the date of grant. With respect to a Significant
Shareholder, the Committee may not fix a term which is longer than five (5)
years from the date of grant. An Option term may extend beyond the Plan's
termination date.
(e) Manner of Exercise. To exercise an Option, whether partially or
completely, the Participant shall give written notice to Pentair in such form
and manner as the Committee may prescribe. Payment for Stock to be acquired by
the exercise of an Option must accompany the written notice of exercise.
(f) Payment. (1) General. Full payment for all Stock to be acquired
upon the exercise of an Option, together with an amount sufficient to satisfy
applicable federal, state or local withholding taxes, shall be made at the time
such Option, or any part thereof, is exercised, and no Stock certificate shall
be issued until such payment has been made. Payment may be made in cash or in
such other form as is acceptable to the Committee, provided that in the case of
an ISO, no form of payment shall be allowed which would prevent the Option from
qualifying as such within the meaning of Code section 422.
Appendix 3 - 3
(2) Payment with Options. The Participant, in lieu of or in combination
with a payment in cash, may transfer to Pentair a sufficient number of
outstanding Options as will pay all applicable withholding tax liability
incurred on exercise of the Option. For this purpose, the Participant may use
only Options having an exercise price less than Fair Market Value on the date
such Options are transferred or exercised, and the value of such any Option so
transferred shall be the difference between its then exercise price and Fair
Market Value. Transfer of an Option for payment of taxes shall be considered
exercise of the Option.
(3) Payment with Stock. Subject to such Code requirements as are
relevant to ISOs, a Participant, in lieu of or in combination with a payment in
cash, may transfer to Pentair a sufficient number of shares of Stock to satisfy
all or any part of the Option price and applicable withholding taxes. Such Stock
may be Stock already owned by the Participant or, in the case of an NQSO, Stock
to be acquired by exercise of the Option. For this purpose, the value of the
Stock shall be Fair Market Value as of the date of exercise. Where payment is
made in whole or in part by Stock, the Participant may not transfer fractional
shares of Stock or shares of Stock with an aggregate Fair Market Value in excess
of the Option price plus applicable withholding taxes.
(4) Interim Broker Loan. The Committee may arrange through a stock
brokerage or other similar agent, a loan to a Participant of some or all of the
funds needed to exercise an Option. Upon application for such loan and receipt
of written notice of exercise of an Option from a Participant, the broker will
pay to Pentair the amount requested by the Participant to pay the Option
exercise price and applicable withholding taxes. Pentair will promptly deliver
to such broker a certificate representing the total number of shares of Stock to
be acquired by exercise of said Option. The broker will then sell part or all of
these shares and pay to the Participant the proceeds from the sale, less the
loan principal and any interest charged thereon from the date the broker
received the notice of exercise until the date the broker is repaid.
(5) Other Payment Methods. The Committee may, in its discretion,
authorize payment by other methods or forms within the limitations imposed by
the Plan and applicable state or federal law.
(g) No Tandem Options. No ISO granted under this Plan shall contain
terms which would limit or otherwise affect a Participant's right to exercise
any other Option, nor shall any NQSO contain terms which will limit or otherwise
affect the Participant's right to exercise any other Option in such a manner
that an Option intended to be an ISO would be deemed a tandem option.
4.3. Stock Appreciation Rights. (a) Grant of Stock Appreciation Rights.
The Committee may grant Stock Appreciation Rights ("SARs") to Participants who
have been granted ISOs. These SARs may relate to any number of shares, up to the
total number of shares the Participant could acquire by exercise of the
underlying ISOs. An SAR shall expire no later than the expiration date of the
underlying ISO, and the amount paid shall not be more than 100% of the
difference between the Option price and Fair Market Value of the Stock subject
to the Option, determined on the date the SAR is exercised.
(b) Exercise. Stock Appreciation Rights may be exercised at the same
time, to the same extent and subject to the same conditions as the related ISO,
and only when the Fair Market Value of the Stock subject to the ISO exceeds the
Option price. The exercise of an SAR shall cancel the related ISO; the exercise
of an ISO shall cancel a related SAR.
(c) Payment of Stock Appreciation Rights. Upon exercise of an SAR, the
Participant shall be paid in cash, Stock, Rights to Restricted Stock, Restricted
Stock, or a combination thereof, as the Committee shall determine at the time of
grant. If payment is made in Stock, Rights to Restricted Stock or Restricted
Stock, the shares shall be valued at Fair Market Value on the date the SAR is
exercised.
4.4. Issuance of Certificates. (a) Delivery. As soon as practicable
after either the exercise of an Option and the delivery of payment therefor, or
the exercise of an SAR which is to be paid in Stock, Rights to Restricted Stock
or Restricted Stock, Pentair shall:
(i) if Stock is to be issued due to the exercise of an Option,
record in the name of the Participant a number of certificated
or uncertificated shares equal to the number of shares
acquired by the Participant through exercise of the Option;
(ii) if payment is to be made in Restricted Stock, record in the
name of the Participant a number of nonnegotiable certificated
or uncertificated shares equal to the number of shares of
Restricted Stock acquired; and
Appendix 3 - 4
(iii) if payment is to be made in Rights to Restricted Stock,
establish and maintain a separate written account for each
Participant and record in such account the number of Rights to
Restricted Stock so acquired.
Consistent with applicable state or federal law, the Committee may fix
a minimum or maximum period of time during which a Participant may not sell any
such Stock or Restricted Stock, or obtain Restricted Stock in lieu of a Right to
Restricted Stock.
(b) Designation. Shares acquired pursuant to the exercise of an ISO
shall be designated as such on the stock transfer records of Pentair, to the
extent the value of such shares does not exceed the exercise limit contained in
Section 4.2(b). Shares acquired by exercise of an Option which exceed this
exercise limit shall be designated on Pentair's stock transfer records as shares
acquired pursuant to the exercise of an NQSO. For purposes of this exercise
limit, the designation of shares as acquired pursuant to the exercise of an ISO
or NQSO shall be subject to change as permitted by applicable Code provisions.
SECTION 5. RESTRICTED STOCK AND INCENTIVE COMPENSATION UNITS
5.1. Restricted Stock Awards (a) Written Agreement. Each award of
Restricted Stock or Rights to Restricted Stock shall be evidenced by a written
agreement, executed by the Participant and Pentair. Such agreement shall specify
the number of shares of Restricted Stock or the number of Rights to Restricted
Stock awarded and any terms and conditions the Committee may require on such
award.
(b) Restriction Period. At the time of an award of Restricted Stock or
Rights to Restricted Stock, the Committee shall fix a period of time
("Restriction Period") during which such restrictions as are imposed by the
Committee shall remain in effect; provided that the number of shares of Stock
with respect to which the Committee may make an award which fixes a Restriction
Period of less than three (3) years shall not exceed five percent (5%) of the
maximum number of shares available under the Plan. Such restrictions shall lapse
upon expiration of the Restriction Period, or sooner if otherwise provided in
the Plan.
(c) Restrictions. In addition to such other restrictions as the
Committee may impose at grant, each share of Restricted Stock or Right to
Restricted Stock shall be subject to the following restrictions:
(i) Neither Restricted Stock nor Rights to Restricted
Stock may be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of during a
Restriction Period.
(ii) Except as otherwise herein provided, unless the
Participant remains continuously employed by Pentair
or an Affiliate until the conditions for the removal
of such restrictions as the Committee may impose have
been satisfied, Restricted Stock and Rights to
Restricted Stock shall be forfeited and returned to
Pentair, and all rights of a Participant to receive
Restricted Stock or vest in Rights to Restricted
Stock shall terminate without any payment or
consideration by Pentair.
(d) Recordkeeping. As soon as practicable after the execution of the
written agreement required by Section 5.2(a), Pentair shall:
(i) for awards of Restricted Stock, record in the name of
the Participant a number of nonnegotiable,
certificated or uncertificated shares equal to the
number of shares of Restricted Stock awarded; and
(ii) for awards of Rights to Restricted Stock, establish
and maintain a separate written account for each
Participant and record in such account the number of
Rights to Restricted Stock awarded.
(e) Dividends. Dividends declared with respect to shares of Restricted
Stock shall be paid in cash to the Participant as and when declared, or as
otherwise determined by the Committee. Where Rights to Restricted Stock are
awarded, the Committee shall determine whether amounts equivalent to dividends
declared on Stock subject to an award of Rights to Restricted Stock shall be
paid when the dividends are declared, or as
Appendix 3 - 5
otherwise determined by the Committee. Dividends, regardless of when paid, shall
be subject to all applicable withholding taxes.
5.2. Incentive Compensation Units. (a) Award Agreements. Each ICU award
shall be evidenced by a written agreement, executed by the Participant and
Pentair, which shall specify the number of ICUs awarded and contain such other
terms and conditions as the Committee may require.
(b) ICU Account. Pentair shall establish and maintain a separate
account ("ICU Account") for each Participant and record in such accounts the
number of ICUs awarded to each Participant. The number of ICUs which may be
realized by each Participant may be adjusted by any conditions specified by the
Committee in the award agreement. The maintenance of an ICU Account is
principally a bookkeeping function and does not entitle a Participant to realize
on an ICU award.
(c) Earning an ICU Award. (1) General. The ability of a Participant to
realize on an ICU award shall be determined by achievement of specific corporate
performance factors over the designated Incentive Period. The maximum amount of
compensation per ICU payable to a Participant in any calendar year by reason of
an ICU award shall not exceed twice the growth in Book Value, determined
pursuant to Section 5.2(d), over the applicable Incentive Period.
(2) Incentive Period. At the time of award, the Committee shall fix the
Incentive Period during which the Participant must remain continuously employed
by Pentair or an Affiliate. The Incentive Period shall generally be three (3)
years, unless another expiration date is specified by the Committee or the Plan
provides otherwise.
(3) Corporate Performance Factors. The amount of compensation payable
to a Participant on account of an ICU award shall be determined by application
of the following factors:
(i) the change in Book Value per share of Stock over the
designated Incentive Period;
(ii) the growth in earning per share of Stock over the
designated Incentive Period;
(iii) the average return on equity of Stock over the
designated Incentive Period; or
(iv) such other factors as the Committee shall specify at
the time of grant.
(d) Valuation of Incentive Compensation Unit. (1) Valuation at
Expiration of Incentive Period. As soon as practicable after the Incentive
Period expires, Pentair's audited financial statements for the preceding Fiscal
Year shall be provided in final form to the Committee, which shall determine the
value of each ICU. Such value shall be based on the net increase in Book Value
over the Incentive Period, calculated by subtracting the beginning Book Value
(determined as of the December 31 immediately preceding the date the ICUs were
awarded) from the ending Book Value (determined on the December 31 immediately
following the end of the Incentive Period). The resulting number shall then be
subject to adjustment by a multiplier which takes into account average return on
equity, compounded growth in earnings per share, or any other corporate
performance factors established with respect to the award being valued.
(2) Valuation if Incentive Period Shortened. If for any reason an
Incentive Period is shortened, the Committee shall determine the value of an
affected Participant's ICUs as soon as practicable after the date such Period
prematurely ends, and for this purpose, the ending Book Value shall be
determined as of the December 31 immediately preceding the date the Incentive
Period ends, or as otherwise determined by the Committee.
(3) Adjustments to Valuation Formula. The Committee shall retain the
discretion to modify the factors or formula used to value an ICU award;
provided, however, that any such change shall be defined in the written
agreement executed pursuant to Section 5.2(a) at the time of grant. No such
modification shall in any event cause the value of an ICU award made to any one
Participant to exceed the maximum possible award as defined in Section
5.2(c)(1).
(e) Payment of ICU Account. Payment of the value of each ICU shall be
made to the Participant, or, if applicable, a designated beneficiary, as soon as
practicable after valuation. Such payment may be made in cash, Stock, Rights to
Restricted Stock, Restricted Stock or any combination thereof, as the Committee
shall determine at the time of grant. If payment is made in Stock, Rights to
Restricted Stock or Restricted Stock, the
Appendix 3 - 6
shares shall be valued at Fair Market Value (as adjusted for any restrictions)
on the date the Incentive Period expires.
SECTION 6. PERFORMANCE SHARES AND PERFORMANCE UNITS
6.1. Performance Awards. (a) Performance Agreement. Each award of
Performance Shares and Performance Units shall be evidenced by a written
agreement, executed by the Participant and Pentair. Such agreement shall
establish all terms and conditions applicable to the payment of a Performance
Share or Performance Unit as the Committee may determine, including the
achievement of relevant performance objectives. These performance objectives
shall include such financial measures as return on shareholders equity, growth
in earnings per share, return on sales, growth in income, growth in sales and
various techniques which compare actual returns with required returns based on
cost of capital criteria.
(b) Performance Accounts. At such time as a performance award is made,
Pentair shall establish an account ("Performance Account") for each Participant
and credit the Performance Units and Performance Shares awarded to such account.
Performance Shares shall be credited in the form of Restricted Stock or Rights
to Restricted Stock. The maintenance of Performance Accounts is principally a
bookkeeping function, and does not entitle a Participant to payment of any
awards hereunder.
(c) Dividends. Dividends or the equivalent paid with respect to
Restricted Stock shall be paid in cash to the Participant as and when declared,
or as other determined by the Committee. The Committee shall determine whether
dividends or the equivalent declared on Stock subject to Rights to Restricted
Stock shall be paid when declared, or as otherwise determined by the Committee.
Dividends, regardless of when paid, shall be subject to all applicable
withholding taxes.
6.2. Performance Period and Targets. (a) Performance Period. The
Performance Period shall be established by the Committee at the time of the
award. This period may differ for each award granted to any one Participant.
(b) Performance Targets. At the time a performance award is
established, the Committee shall establish such performance targets as it
determines to be relevant. Successful completion of performance targets within
the designated Performance Period shall be certified by the Committee, using
such measures of performance during the Performance Period as are specified in
the performance agreement.
6.3. Earning a Performance Award. The Committee shall pay a performance
award to a Participant based on the degree of attainment of the relevant
performance targets during the Performance Period, and in accordance with the
provisions of the performance agreement. The maximum amount of compensation a
Participant may be granted by reason of a performance award in any one calendar
year shall be $100,000, calculated by reference to Fair Market Value of the
award on date of grant.
6.4. Payment of Performance Awards. (a) Time for Payment. No
performance award shall be payable until after earned in accordance with the
terms and conditions of the performance agreement, unless otherwise provided in
the Plan or in the sole discretion of the Committee. Any Performance Shares,
Performance Units or other amounts credited to a Performance Account shall be
paid to the Participant only when, and to the extent, the Committee so
determines. All such determinations shall be made during the four (4) month
period immediately following the end of the Performance Period as established in
the performance agreement.
(b) Form of Payment. Payment of Performance Shares or Performance Units
shall be in the form of cash, Stock, Rights to Restricted Stock or Restricted
Stock, or a combination thereof as determined by the Committee at the time of
grant. If payment is made in Stock, Rights to Restricted Stock or Restricted
Stock, the shares shall be valued at Fair Market Value (as adjusted for any
restrictions) on the date the Performance Period expires.
6.5. Bonus Plans. (a) Executive Bonus Award. On February 14, 1996,
Pentair adopted the Executive Officer Performance Plan ("EOPP"), an annual bonus
plan designed to compensate participating executive officers for performance as
measured against the key financial measurements defined in the EOPP plan. Cash
awards under the EOPP are limited to an amount equal to an EOPP participant's
annual base salary, even though a total bonus award under the EOPP may exceed
that amount. To the extent an annual bonus award exceeds the amount which can be
paid in cash pursuant to the EOPP, the balance shall be considered an
Appendix 3 - 7
award of Performance Shares payable in the form of Restricted Stock under the
Plan. The performance targets applicable to such Performance Shares shall be the
same as the criteria established under the EOPP for purposes of earning the
award. The Performance Shares so granted shall be subject to any vesting
conditions the Committee may impose as of the date the Performance Shares are
issued. The maximum amount of compensation a Participant may be granted by
reason of a Performance Share award under the EOPP in any one calendar year is
equal to the maximum award available to such Participant under the EOPP, reduced
by the amount of such award payable to the Participant in cash.
(b) Management Incentive Plan. Pentair also maintains an annual bonus
plan (the "MIP") which provides incentive compensation for management employees
other than executive officers. Like the EOPP, cash awards under the MIP are
limited to an amount equal to a MIP participant's annual base salary, even
though a total bonus award under the MIP may exceed that amount. To the extent
such an annual bonus award exceeds the amount which can be paid in cash under
the MIP, the balance shall be considered an award of Performance Shares payable
in the form of Restricted Stock under the Plan. The Performance Shares so
granted shall be subject to any vesting conditions the Committee may impose as
of the date the Performance Shares are issued. The maximum amount of
compensation a Participant may be granted by reason of a Performance Share award
under the MIP in any one calendar year is equal to the maximum award available
to such Participant under the MIP reduced by the amount of such award payable to
the Participant in cash.
SECTION 7. TERMINATION OF EMPLOYMENT
7.1. General Rule. Except as otherwise provided herein, Options and
SARs may be exercised and Restricted Stock, Rights to Restricted Stock, ICUs,
Performance Share or Performance Unit awards paid to a Participant only in
accordance with the terms and conditions specified by the Committee at the time
of grant.
7.2. Exceptions for Death, Disability or Retirement. (a) Death of
Participant. If a Participant's employment terminates due to death, any benefits
under the Plan may be transferred to the beneficiary designated by the
Participant. If no beneficiary has been duly designated, said benefits shall
transfer pursuant to the provisions of such Participant's will, or if there is
no will, by the laws of intestate succession in the state in which the
Participant is domiciled on the date of death. The individual who succeeds to
the Participant's benefits under the Plan may:
(i) exercise any outstanding Options to the same extent the
Participant was entitled to exercise such Options, together
with any Options the Committee may accelerate, at any time
prior to the earlier of six (6) months from the date of the
Participant's death, or the date the Options would otherwise
expire by their terms;
(ii) receive payment of any shares of Restricted Stock or Rights to
Restricted Stock based on a deemed lapse of the restrictions,
or of any ICUs based on a deemed expiration of the Incentive
Period and attainment of the relevant performance goals,
provided that any such payment may be either prorated or
otherwise paid as determined by the Committee;
(iii) receive payment of a Performance Share or Performance Unit
award, as determined by the Committee, based on the degree to
which established performance targets had been attained as of
the Participant's death.
(b) Disability of Participant. A Participant who becomes Disabled may:
(i) exercise outstanding Options that are otherwise exercisable,
together with any Options the Committee may accelerate, at any
time prior to the earlier of twelve (12) months after the date
of Disability or the date the Options would otherwise expire
by their terms;
(ii) be paid a prorated amount of an award of Restricted Stock or
Rights to Restricted Stock or ICUs, determined by application
of the payment provisions in Section 7.2(a)(ii), based on a
deemed lapse of restrictions or a deemed expiration of an
Incentive Period and attainment of the relevant performance
goals;
(iii) be paid a Performance Share or Performance Unit award prior to
expiration of a Performance Period, as the Committee shall
determine by considering the degree of attainment of
established performance targets.
Appendix 3 - 8
(c) Retirement. At the time of Retirement, a Participant may:
(i) exercise outstanding Options which are otherwise exercisable,
together with any Options the Committee may accelerate, at any
time prior to the earlier of thirty (30) days following
Retirement, or the date the Options would otherwise expire by
their terms;
(ii) receive a prorated payment of an award of Restricted Stock,
Rights to Restricted Stock or ICUs, determined by application
of the payment provisions in Section 7.2(a)(ii), based on a
deemed lapse of restrictions or a deemed expiration of an
Incentive Period and, if applicable, attainment of relevant
performance goals;
(iii) receive a payment of Performance Shares or Performance Units
as the Committee shall determine by considering the degree to
which performance targets have been attained.
(d) Other Termination of Employment. (1) Termination Not for Cause. If
a Participant's employment ends for reasons other than those listed in Sections
7.2 or 7.3, outstanding Options may be exercised no later than the earlier of
thirty (30) days following such termination, or the date the Options would, by
their terms, expire. Any other outstanding awards under the Plan, to the extent
not then earned and paid to the Participant, shall terminate unless accelerated
by the Committee, subject to the provisions of Section 8.1.
(2) Termination for Cause. If a Participant's services are terminated
for cause, as determined by the Committee, all Options or other benefits granted
under the Plan, to the extent not already exercised or otherwise earned or paid,
shall terminate.
7.3. Change in Control. (a) Definitions. Unless the context requires
otherwise, when capitalized the terms listed below shall have the following
meanings when used in this or any other section of the Plan:
(1) "Change in Control" is a change in control of
Pentair, as that term is defined in the KEESA.
(2) "KEESA" is the Key Executive Employment and Severance
Agreement between Pentair and key executives, as
approved by the Board effective August 23, 2000.
(b) Treatment of Options. Upon the occurrence of a Change in Control,
all Options granted to a Participant who is then employed by Pentair or an
Affiliate shall, to the extent not then vested or exercised, become fully vested
and immediately exercisable without regard to the terms and conditions attached
to such Options at the time of grant. To the extent such Options are then
exercised under circumstances which would otherwise result in a grant of Reload
Options to the Participant, no such Reload Options will be granted.
(c) Treatment of Restricted Stock. Upon the occurrence of a Change in
Control the restrictions then applicable to all outstanding shares of Restricted
Stock awarded under the Plan shall automatically lapse. If on the Change in
Control date any dividends declared with respect to such Restricted Stock have
not been paid to the Participant, then all such amounts shall be paid within ten
(10) days of the Change in Control date.
(d) Treatment of Rights to Restricted Stock. Upon the occurrence of a
Change in Control, all Rights to Restricted Stock shall be fully and immediately
vested and the participant shall be paid within ten (10) days the cash value of
the shares of Stock which otherwise would have been issued based on the Fair
Market Value of the Stock on the Change in Control date, together with any then
unpaid dividends which have been declared on the Stock subject to the award of
Rights to Restricted Stock.
(e) ICUs. Outstanding ICUs shall be valued by assuming the corporate
performance goals for the applicable Incentive Period have been met and shall be
paid in cash within ten (10) days of the Change in Control date, as follows:
(i) one-third of the ICUs awarded less than one (1) year prior to
the Change in Control date shall be paid;
(ii) two-thirds of the ICUs awarded one (1), but less than two (2)
years prior to the Change in Control date shall be paid;
Appendix 3 - 9
(iii) all of the ICUs awarded two (2) or more years prior to the
Change in Control date shall be paid.
(f) Performance Shares. Upon the occurrence of a Change in Control the
restrictions then applicable to all outstanding Performance Shares shall lapse
and any dividends declared with respect to such shares which have not been paid
shall be paid within ten (10) days of the Change in Control date.
(g) Performance Units. Outstanding Performance Units shall be valued by
assuming all performance targets for the applicable Performance Period have been
fully met and shall be paid as cash within ten (10) days of the Change in
Control date, as follows:
(i) one-third of the Performance Units granted less than one (1)
year prior to the Change in Control date shall be paid;
(ii) two-thirds of the Performance Units granted one (1) but less
than two (2) years prior to the Change in Control date shall
be paid;
(iii) all of the Performance Units granted two (2) or more years
prior to the Change in Control date shall be paid.
(h) Participants Covered under a KEESA. The provisions of this Section
7.3 shall also apply to a Participant who terminates employment before a Change
in Control if the Participant has entered into a KEESA and is entitled to
benefits thereunder pursuant to Section 2(b) of the KEESA.
(i) Governing Documents. In the case of any conflict between the
provisions of this Section 7.3 and any other provision of the Plan, this Section
7.3 will control. In the case of any conflict between the terms of this Plan and
the terms and provisions of a Participant's KEESA, the terms of such KEESA shall
control to the extent more beneficial to such Participant, and the obligations
of Pentair under such KEESA shall be in addition to any of its obligations under
the Plan.
SECTION 8. CHANGES TO AWARDS
8.1. Acceleration of Benefits. The Committee shall have the discretion
to accelerate the exercise date of an Option or SAR or the time at which
restrictions on Stock or Rights thereto lapse, to remove any Stock restrictions
or to accelerate the expiration of an Incentive Period or Performance Period due
to changes in applicable tax or other laws, or such other changes of
circumstances as may arise after the date of an award under the Plan, or to take
any such similar action it may decide, in its absolute discretion, is in the
best interests of Pentair and equitable to a Participant (or such Participant's
heirs or beneficiaries). Notwithstanding the above, however, the Committee shall
have no discretion to increase the amount of compensation a Participant could
earn by application of the preestablished performance goals and financial
measurements relevant to the award, although the Committee shall retain the
discretion to decrease any such award. Any action by the Committee to accelerate
a grant or award for reasons other than death, disability or change in control
of Pentair shall include application of a commercially reasonable discount to
the compensation payable to reflect the value of accelerated payment.
8.2. Accounting Standards. Calculation of changes to any performance
goal established for purposes of making awards under the Plan shall be without
regard to changes in accounting methods used by Pentair or in accounting
standards that may be required by the Financial Accounting Standards Board after
the goal is established and prior to the time compensation earned on account of
achievement of the relevant performance goal is paid to the Participant.
8.3. Amendment of Awards. The Committee shall have the discretion to
amend the terms of any grant or award made under the Plan. Any such amendment
may be made either prospectively or retroactively, as necessary, provided that
no such amendment shall either impair the rights of an affected Participant
without the consent of such Participant or amend the terms of an Option so as to
reduce the Option price. Absent shareholder approval, the Committee may not
cancel any outstanding Option and replace it with a new Option which has a lower
Option price, if such action would have the same economic effect as reducing the
Option price of such a canceled Option.
Appendix 3 - 10
SECTION 9. MISCELLANEOUS PROVISIONS
9.1. Stockholder Privileges. (a) Options. Until such time as a Stock
certificate is issued, a Participant, or other person entitled to exercise an
Option under the Plan, shall have none of the privileges of a stockholder with
respect to Stock covered by an Option granted under this Plan.
(b) Other Awards. Upon delivery of Restricted Stock to a Participant
(or to an escrow holder, if applicable) such Participant shall have all of the
rights of a shareholder with respect to the Restricted Stock, subject to the
restrictions imposed, including the right to receive dividends and vote the
shares of Restricted Stock. Participants for whom an account is established to
record an award of Rights to Restricted Stock shall not have the rights of a
shareholder until such time as the Rights to Restricted Stock vest, but may, in
the discretion of the Committee, receive payment of or credit for the equivalent
of dividends otherwise payable with respect to the number of shares of Stock to
which such Rights to Restricted Stock relate.
In the event of forfeiture, the certificate or certificates, if any,
representing such Restricted Stock shall be delivered to Pentair, accompanied by
executed instruments of transfer. If the Restricted Stock is held in escrow,
Pentair shall be entitled to have the certificates representing the Restricted
Stock redelivered to it out of escrow.
(c) Interest. The Committee may provide for the crediting of earnings
interest with respect to Performance Units or ICUs credited to a Participant's
account. Any rate of earnings credited hereunder shall be determined by the
Committee.
(d) Sale of Stock or Restricted Stock. The Committee may fix a period
during which any Stock, Right to Restricted Stock or Restricted Stock acquired
under the Plan may not be sold, provided that the Committee may not fix any
period which is less than or which exceeds such requirements as may be imposed
by applicable state or federal law.
9.2. Amendment, Suspension, Modification and Termination of Plan. The
Committee, subject to approval by the Board, may amend or modify the Plan at any
time to conform to changes in applicable laws or in any other respect deemed to
be in the best interests of Pentair. Pursuant to Code section 422, however, no
such amendment shall, without shareholder approval (i) materially increase the
number of shares of Stock as to which ISOs may be granted under the Plan, (ii)
materially modify the requirements as to eligibility to receive Options under
the Plan, (iii) materially increase the benefits accruing to Participants
receiving ISOs under the Plan, (iv) reduce an ISO Option price below Fair Market
Value on the day the Option is granted, (v) permit the award of SARs other than
in tandem with an ISO, (vi) extend the period during which an Option may be
granted or exercised, or (vii) extend the termination date of the provisions of
the Plan which permit the granting of ISOs. No amendment or modification of the
Plan shall adversely affect any Participant under the Plan, or any section
thereof, without such Participant's consent.
9.3. Administration. The Plan shall be administered by the Committee.
Pursuant to this delegation, the Committee is authorized to (i) interpret and
construe the Plan, (ii) adopt, amend, or rescind rules and regulations relating
to the Plan, and (iii) make all other determinations necessary or advisable for
the administration of the Plan, to the extent not contrary to the express
provisions of the Plan. Any actions, determinations or other interpretations
made by the Committee within the scope of its authority shall be final, binding
and conclusive for all purposes.
9.4. Indemnification. To the extent permitted by law, members of the
Committee and the Board shall be indemnified and held harmless by Pentair with
respect to any loss, cost, liability or expense that may reasonably be incurred
in connection with any claim, action, suit or proceeding which arises by reason
of any act or omission under the Plan, taken within the scope of the authority
delegated herein.
9.5. Expenses. The expenses of maintaining and administering this Plan
shall be borne by Pentair.
9.6. Rights of Participants. Nothing in this Plan shall interfere with
or limit in any way the right of Pentair or an Affiliate to terminate any
individual's employment at any time, with or without notice or cause. This Plan
does not, nor is it intended to, confer upon any employee the right to continue
in the employment of Pentair or an Affiliate.
Appendix 3 - 11
9.7. Transferability. (a) Nontransferability. Except as otherwise
specified in the Plan, Options, SARs, Restricted Stock, Rights to Restricted
Stock, ICUs, Performance Shares and Performance Units granted or awarded under
the Plan shall not be transferrable.
(b) Designation of Beneficiary(ies). A Participant may designate a
person or persons to receive his or her Plan benefits in the event of death.
Such designation shall be on forms as prescribed by the Committee and may be
modified or revoked only in writing.
9.8. Governing Law. To the extent not preempted by applicable federal
law, this Plan shall be construed and interpreted in accordance with the
substantive laws of the State of Minnesota.
Appendix 3 - 12
APPENDIX 4
PENTAIR, INC.
EXECUTIVE OFFICER PERFORMANCE PLAN,
AS AMENDED AND RESTATED
PURPOSE
A primary objective of Pentair, Inc. ("Pentair" or the "Company") is to be a
top-performing company by consistently achieving profit performance that is
higher than the performance of comparable companies. The Company has also
identified growth as a key strategy for the long-term success of the business.
The return on our investments, whether to support internal growth and
improvements or make acquisitions, is also a key determinant of our business
success and the return to our shareholders. The Company expects to compensate
executive officers for their performance against key financial measurements in
accordance with the terms of the EOPP.
ELIGIBILITY AND PARTICIPATION
Key employees in executive positions will be considered for participation.
Participation is determined by the magnitude and scope of the employee's
position and is subject to Pentair Inc. Compensation Committee nomination. An
employee who participates in this program is not eligible for the Pentair
Management Incentive Plan.
QUALIFYING POSITIONS AND BOC PERCENTAGES
Bonus Opportunity Category ("BOC") percentages are assigned to each qualifying
position by the Compensation Committee based on competitive market data. Annual
awards under the EOPP are determined by multiplying the participant's base
salary by his or her Bonus Opportunity Category percentage (a percentage of base
salary based on position) and by the Corporate Performance Factor.
The current designated Qualifying Position and BOC percentage is:
QUALIFYING POSITION BOC PERCENTAGE
------------------- --------------
Chairman, CEO 100%
The BOC percentage for other positions that may qualify for future participation
at the discretion of the Compensation Committee are:
President, Chief Operating Officer 80.0%
Executive VP's and Operating Officers 58.5%
Other Senior Officers 52.0%
INCENTIVE AWARDS
Incentive Awards under the EOPP are determined according to the following
formula:
INCENTIVE AWARD = BASE SALARY X BOC% X CPF
Base Salary = Actual base salary earned during the year
BOC% = Bonus Opportunity Category Percentage
CPF = Corporate Performance Factor
CASH PAY-OUT LIMIT
The cash incentive award for the fiscal year will be limited to one
times the participant's annual base salary. The portion in excess of
one times the participant's annual base salary will be awarded as
shares of
Appendix 4 - 1
restricted stock. The restricted stock will be subject to the terms and
provisions of the Omnibus Stock Incentive Plan.
MAXIMUM AWARD
No participant will receive an Incentive Award (cash plus stock)
greater than $3.5 million or 200% of annual base salary.
TIMING OF PAY-OUT
Incentive Awards for a fiscal year shall be paid as soon as
administratively possible after the annual audit is complete and the
Compensation Committee has reviewed and approved the payment.
MINIMUM OPERATING INCOME REQUIREMENT
If Pentair's operating income (after corporate charges) is zero or
less, there will be no bonus payouts.
ESTABLISHMENT OF COMPANY GOALS AND FACTORS
EOPP performance goals are a reflection of the overall financial goals for
Pentair and are based on the comparative market data and the historical and
expected performance of the Company. These performance goals are used in
calculating the Corporate Performance Factor. The performance goals that make up
the Corporate Performance Factor are Pentair Value Added ("PVA") and Free Cash
Flow. The use of these two factors reinforces the importance of balancing
economically profitable growth and cash generation. The achievement of these
goals will add to shareholder value and move Pentair toward its top performance
objectives.
Specific EOPP performance targets with respect to these goals are established by
the Compensation Committee of the Board of Directors prior to or early in each
fiscal year. The EOPP targets established for a fiscal year are measured against
Pentair's performance for that fiscal year. The performance goals have been
designed to be used over multiple fiscal years, although the specific targets
will be determined annually by the Compensation Committee.
CORPORATE PERFORMANCE FACTOR
The Corporate Performance Factor is determined by multiplying factors for PVA
and Free Cash Flow. PVA is calculated as a target percentage of Net Operating
Profit After Taxes ("NOPAT") less a surcharge against average invested capital.
Free Cash Flow is equal to net cash provided by operating activities, excluding
net tax-affected interest expense, less capital expenditures. The achievement of
(a) Free Cash Flow equal to the target percentage of NOPAT and (b) PVA generated
that equates to the target percentage total business return, results in a
Corporate Performance Factor of 1.00. The maximum Corporate Performance Factor
is 4.50 and the minimum Corporate Performance Factor is 0.10; however, there is
no bonus if the Company has an operating loss. If the Company's performance
results in a negative PVA, the maximum performance factor is capped at 2.00.
The following grid shows the range of performance factors for each measure that
when multiplied together give the total Corporate Performance Factor.
PERFORMANCE MULTIPLIER GRID
PERFORMANCE FACTOR GRID
Minimum On Goal Maximum
------- ------- -------
PVA Factor .20 1.00 3.00
Free Cash Flow Factor .50 1.00 1.50
CPF (PVA x Cash Flow) .10 1.00 4.50
*Performance falling between stated factors will be interpolated.
Appendix 4 - 2
The Compensation Committee may further refine the calculation of PVA and Free
Cash Flow in future years to measure the targets it sets in each year. The
achievement of the established targets is measured by applying generally
accepted accounting principles used by the Company in preparing its financial
statements.
CONSIDERATION FOR ACQUISITIONS/DIVESTITURES
In the case of acquisitions and divestitures generally, no special adjustment
will be necessary because they flow into the calculations and impact the results
and payouts.
In the event of a significant acquisition or divestiture, however, the Committee
has discretion to use pro forma results or to exclude the effect of a
transaction, if the Committee determines it is necessary to achieve consistency
in measuring year-over-year results or it is otherwise advisable in the
interests of fairness or to achieve the purposes of the Plan.
APPROVAL OF FINAL AWARDS
The Compensation Committee will review and approve all goals and final Incentive
Awards granted under this plan. The Compensation Committee has the flexibility
to reduce or eliminate the award based on its business judgment. The
Compensation Committee does not have the authority or discretion to award more
than the incentive award generated by the formula, subject to the stated limits.
GENERAL PROVISIONS
1. Nothing contained herein shall be construed to limit or affect in any
manner or degree the normal and usual powers of management, including
the right to terminate the employment of any participant or remove
him/her from participating in the EOPP at any time.
2. The judgment of the Compensation Committee in administering the EOPP
will be final, conclusive and binding upon all officers and employees
of Pentair and its subsidiaries, whether or not selected as
participants hereunder, and their heirs, executors, personal
representatives and assigns.
3. The Compensation Committee has the authority and duties to:
a. Determine the rights and benefits under the EOPP of
participants and other persons;
b. Interpret the terms of the EOPP and apply them to different
situations;
c. Approve, process and direct the payment of EOPP benefits, and
d. Adopt rules, procedures and forms which are appropriate for
the smooth and proper operation of the EOPP.
4. In the event of death, a participant's designated beneficiary will be
entitled to the participant's Plan benefits. If a participant does not
designate a beneficiary, the participant's beneficiary(ies) will be
determined according to the participant's will. If there is no will,
the beneficiary(ies) shall be determined by the laws of descent and
distribution of the state in which the participant is a resident on the
date of death.
5. A participant does not have the right to assign, transfer, encumber or
dispose of any award under the Plan until it is distributed to the
participant. Also, no award is liable to the claims of any creditor of
the participant until it is distributed to him or her.
6. The Compensation Committee subject to approval by the Pentair, Inc.
Board of Directors, has the right to terminate the Plan at any time.
7. Calculations may exclude or otherwise take into account the impact of
changes in accounting methods used by Pentair or required by the
Financial Accounting Standards Board if the Committee determines it is
necessary to achieve consistency in measuring year-over-year results or
it is otherwise advisable in the interests of fairness or to achieve
the purposes of the Plan.
Appendix 4 - 3
CHANGE IN CONTROL
For purposes of the EOPP, a "Change in Control" is a change in control of
Pentair as defined in the KEESA, and the "KEESA" is the Key Executive Employment
and Severance Agreement, as approved by the Pentair Board of Directors effective
August 23, 2000.
If an EOPP participant is employed by Pentair on the date of a Change in
Control, or if an EOPP participant who has entered into a KEESA terminates
employment before a Change in Control but is entitled to benefits under Section
2(b) of the KEESA, then the following provisions shall apply.
1. If the Change in Control occurs prior to the end of the fiscal year to
which an Incentive Award relates, the Incentive Award for such fiscal
year shall be (i) determined by using the participant's annual base
salary rate as in effect immediately before the Change in Control and
by assuming the EOPP Goals for such fiscal year have been attained, and
(ii) paid to the participant in cash within ten (10) days of the Change
in Control.
2. If the Change in Control occurs at such time as the participant has not
received payment of an Incentive Award for a prior fiscal year, then
the cash portion of such Incentive Award allocated to the participant,
based upon the attainment of the EOPP Goals for such fiscal year, shall
be paid to the participant within ten (10) days of the Change in
Control.
3. The requirement that the participant remain employed through the end of
the incentive period to which the Incentive Award relates shall not
apply.
4. The requirement that an Incentive Award be paid after completion of an
annual audit and completion of a review and approval by the
Compensation Committee shall not apply.
5. The Minimum Operating Income Requirement provision of the EOPP shall
not apply to the Incentive Award described in paragraph 1 immediately
preceding.
6. The Compensation Committee shall not have the discretion to reduce the
amount of, or eliminate, an Incentive Award.
7. The Maximum Award provision of the EOPP shall remain in effect.
8. If an Incentive Award for a fiscal year referenced in paragraph 2
immediately preceding exceeds one times the participant's annual base
salary for such year, then immediately upon a Change in Control such
excess shall be paid to the participant in restricted shares and such
shares shall be subject to the terms and provisions of the Pentair
Omnibus Stock Incentive Plan upon a Change in Control.
9. To the extent any provision of the EOPP may be in conflict with this
Change in Control provision, the provisions of this section shall
apply. In the case of any conflict between the terms and provisions of
this Plan and the terms and provisions of the KEESA entered into by an
EOPP participant, the terms of such KEESA shall control to the extent
more beneficial to such participant, and the obligations of Pentair
under such KEESA shall be in addition to any of its obligations under
the EOPP.
Appendix 4 - 4
[LOGO] PENTAIR
PLEASE SIGN AND RETURN PROMPTLY
TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 1, 2002
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 below, at the Annual Meeting of Shareholders
of Pentair, Inc. to be held at 10:00 a.m., Wednesday, May 1, 2002, 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 March 4, 2002. I
understand that this card must be received by Wells Fargo Bank Minnesota, N.A.,
acting as tabulation agent for the Trustee, by April 24, 2002.
SEE REVERSE FOR VOTING INSTRUCTIONS.
----------------------
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. (CT) on April 30, 2002.
* 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
THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
1. ELECTION OF 01 Barbara B. Grogan 03 Stuart Maitland [ ] FOR all [ ] WITHHOLD AUTHORITY
DIRECTORS: 02 William H. Hernandez 04 Augusto Meozzi nominees listed to vote for all
(except as marked) nominees listed
_____________________________________________
(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. APPROVAL OF AMENDMENTS OF ARTICLES OF INCORPORATION
AND BYLAWS fixing the number of directors at ten. [ ] For [ ] Against [ ] Abstain
3. APPROVAL OF THE OMNIBUS STOCK INCENTIVE PLAN for
Section 162(m) purposes. [ ] For [ ] Against [ ] Abstain
4. APPROVAL OF AMENDMENT TO THE EXECUTIVE OFFICER
PERFORMANCE PLAN. [ ] For [ ] Against [ ] Abstain
5. PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as
independent public accountants for the current fiscal year. [ ] For [ ] Against [ ] Abstain
6. 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 _____________________________, 2002
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.)
[LOGO] PENTAIR
PLEASE SIGN AND RETURN PROMPTLY
TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 1, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENTAIR, INC.
The undersigned hereby appoints Randall J. Hogan and David D. Harrison, 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
March 4, 2002 at the Annual Meeting of Shareholders of Pentair, Inc. to be held
at 10:00 a.m., Wednesday, May 1, 2002, 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 Wells Fargo 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, May 1, 2002, 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 March 4, 2002. I understand
that this card must be received by Wells Fargo Bank Minnesota, N.A., acting as
tabulation agent for the Pentair ESOP Trustee and F-H ESOP Trustee, by April 24,
2002. 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 Wells Fargo
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.
----------------------
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 11:00 a.m. (CT) on April 30, 2002.
* 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. (CT) on April 30, 2002.
* 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
THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
1. ELECTION OF 01 Barbara B. Grogan 03 Stuart Maitland [ ] FOR all [ ] WITHHOLD AUTHORITY
DIRECTORS: 02 William H. Hernandez 04 Augusto Meozzi nominees listed to vote for all
(except as marked) nominees listed
_____________________________________________
(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. APPROVAL OF AMENDMENTS OF ARTICLES OF INCORPORATION
AND BYLAWS fixing the number of directors at ten. [ ] For [ ] Against [ ] Abstain
3. APPROVAL OF THE OMNIBUS STOCK INCENTIVE PLAN for
Section 162(m) purposes. [ ] For [ ] Against [ ] Abstain
4. APPROVAL OF AMENDMENT TO THE EXECUTIVE OFFICER
PERFORMANCE PLAN. [ ] For [ ] Against [ ] Abstain
5. PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as
independent public accountants for the current fiscal year. [ ] For [ ] Against [ ] Abstain
6. 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 _____________________________, 2002
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.)
[LOGO] PENTAIR
PLEASE SIGN AND RETURN PROMPTLY
TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 1, 2002
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 below, at the Annual Meeting of Shareholders
of Pentair, Inc. to be held at 10:00 a.m., Wednesday, May 1, 2002, 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 March 4, 2002. I
understand that this card must be received by Wells Fargo Bank Minnesota, N.A.,
acting as tabulation agent for the Trustee, by April 24, 2002.
SEE REVERSE FOR VOTING INSTRUCTIONS.
----------------------
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. (CT) on April 30, 2002.
* 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
THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
1. ELECTION OF 01 Barbara B. Grogan 03 Stuart Maitland [ ] FOR all [ ] WITHHOLD AUTHORITY
DIRECTORS: 02 William H. Hernandez 04 Augusto Meozzi nominees listed to vote for all
(except as marked) nominees listed
_____________________________________________
(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. APPROVAL OF AMENDMENTS OF ARTICLES OF INCORPORATION
AND BYLAWS fixing the number of directors at ten. [ ] For [ ] Against [ ] Abstain
3. APPROVAL OF THE OMNIBUS STOCK INCENTIVE PLAN for
Section 162(m) purposes. [ ] For [ ] Against [ ] Abstain
4. APPROVAL OF AMENDMENT TO THE EXECUTIVE OFFICER
PERFORMANCE PLAN. [ ] For [ ] Against [ ] Abstain
5. PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as
independent public accountants for the current fiscal year. [ ] For [ ] Against [ ] Abstain
6. 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 _____________________________, 2002
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.)
[LOGO] PENTAIR
PLEASE SIGN AND RETURN PROMPTLY TO REDUCE SOLICITATION EXPENSES
PENTAIR, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 1, 2002
The undersigned hereby appoints Randall J. Hogan and David D. Harrison, 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
March 4, 2002 at the Annual Meeting of Shareholders of Pentair, Inc. to be held
at 10:00 a.m., Wednesday, May 1, 2002, 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.
Barbara B. Grogan William H. Hernandez Stuart Maitland Augusto Meozzi
2. APPROVAL OF AMENDMENTS OF ARTICLES OF
INCORPORATION AND BYLAWS fixing the number
of directors at ten. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED ON REVERSE SIDE)
(CONTINUED FROM REVERSE SIDE)
3. APPROVAL OF THE OMNIBUS STOCK INCENTIVE PLAN for
Section 162(m) purposes. [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. APPROVAL OF AMENDMENT TO THE EXECUTIVE OFFICER
PERFORMANCE PLAN. [ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as
independent public accountants for the current fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. 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.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF PENTAIR, INC.
____________________________________________
Signature
____________________________________________
Signature if held jointly
Dated: _______________________________, 2002
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.)
PENTAIR, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 1, 2002
YOUR HOUSEHOLD WILL RECEIVE ONLY ONE COPY OF OUR
SUMMARY ANNUAL REPORT
ANNUAL REPORT ON FORM 10K AND PROXY STATEMENT
If you share the same address and last name as other shareholders residing
in your household and did not object, only one copy of Pentair's Summary Annual
Report, Annual Report on Form 10K and Proxy Statement has been mailed to your
address, with each Pentair shareholder residing at your address receiving a
separate proxy card in its own envelope. This procedure is referred to as
"householding." Shareholders who objected to householding will receive a
complete set of the Annual Meeting Materials.
If you wish to receive separate copies of the Annual Meeting Materials,
please notify us by writing or calling Pentair, Inc., 1500 County Road B2 West,
St. Paul, Minnesota 55113, Attention: Secretary, Telephone: (651) 636-7920 or
(800) 328-9626.