-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pjv43KmYFUHiImllW9K8KQHxT8Cac3wR+oCUa2yaan1l08Wt8nw7FYZGZK3kjRIi 6AUFcLLYW53CbdIK8C0eOg== 0000077360-95-000029.txt : 19950814 0000077360-95-000029.hdr.sgml : 19950814 ACCESSION NUMBER: 0000077360-95-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTAIR INC CENTRAL INDEX KEY: 0000077360 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 410907434 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04689 FILM NUMBER: 95561981 BUSINESS ADDRESS: STREET 1: 1500 COUNTY RD - B2 WEST STREET 2: SUITE 400 CITY: ST PAUL STATE: MN ZIP: 55113-3105 BUSINESS PHONE: 6126367920 FORMER COMPANY: FORMER CONFORMED NAME: PENTAIR INDUSTRIES INC DATE OF NAME CHANGE: 19790327 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission File No. 0-4689 PENTAIR, INC. (Exact name of Registrant as specified in its charter) Minnesota 41-0907434 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1500 County B2 West, Suite 400 St. Paul, Minnesota 55113-3105 (Address of principal executive offices) (Zip Code) (612) 636-7920 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of Registrant's only class of common stock on June 30, 1995 was 18,429,913. PENTAIR, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Management's Discussion and Analysis of Results of Operations and Financial Condition PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K Signature Page Exhibit Index PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS PENTAIR, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited) ($ expressed in thousands except per share amounts)
Six Months Ended Quarter Ended June 30 June 30 1995 1994 1995 1994 Net sales $672,039 $597,293 $338,216 $300,358 Operating costs: Cost of goods sold 471,899 420,687 239,275 211,103 Selling, general and administrative 144,297 129,236 72,326 64,323 Total operating costs 616,196 549,923 311,601 275,426 Operating income 55,843 47,370 26,615 24,932 Interest expense - net (9,843) (10,844) (4,077) (5,431) Income from continuing operations before income taxes 46,000 36,526 22,538 19,501 Provision for income taxes 18,800 14,663 9,189 7,566 Income from continuing operations 27,200 21,863 13,349 11,935 Discontinued operations: Income from operations of discontinued Paper Products and Joint Venture segments (net of applicable income taxes of $2,740 and $637, and $1,841 and ($67), respectively) 4,566 1,062 3,067 (110) Gain on sale of discontinued operations (less applicable income taxes of $7,734) 12,134 0 12,134 0 Net income 43,900 22,925 28,550 11,825 Preferred dividend requirements 2,657 2,731 1,327 1,365 Earnings applicable to common stock $41,243 $20,194 $27,223 $10,460 Earnings per share: Primary - Income from: continuing operations $1.32 $1.04 $.64 $.57 discontinued operations .90 .06 .82 .00 Net Income $2.22 $1.10 $1.46 $.57 Diluted - Income from: continuing operations $1.27 $1.03 $.62 $.56 discontinued operations .79 .05 .72 .00 Net Income $2.06 $1.08 $1.34 $.56 Weighted average common and common equivalent shares: Primary 18,584 18,376 18,616 18,380 Diluted 21,160 21,004 21,176 21,003
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED BALANCE SHEET (Unaudited) ($ expressed in thousands)
June 30, December 31, 1995 1994 ASSETS Current assets Cash and cash equivalents $32,271 $32,677 Accounts receivable - net 253,043 219,527 Notes receivable 99,426 0 Inventories Finished goods 160,680 114,875 Work in process 42,050 41,283 Raw materials and supplies 42,011 36,929 Total inventory 244,741 193,087 Deferred income taxes 28,366 23,087 Other current assets 10,444 8,701 Net assets of discontinued operations 0 240,136 Total current assets 668,291 717,215 Property, plant and equipment 407,456 378,732 Less accumulated depreciation 167,457 147,581 Property, plant and equipment - net 239,999 231,151 Marketable securities - insurance subsidiary 24,366 23,655 Goodwill - net 177,583 170,965 Other assets 18,374 18,156 TOTAL ASSETS $1,128,613 $1,161,142 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $76,129 $78,065 Compensation and other benefits accruals 53,476 48,657 Income taxes 11,837 2,708 Accrued product claims and warranties 24,729 24,324 Accrued expenses and other liabilities 84,557 61,277 Current maturities of debt 4,529 3,566 Total current liabilities 255,257 218,597 Long-term debt 246,430 408,503 Other liabilities 17,461 17,944 Deferred income taxes 22,917 366 Pensions and other retirement compensation 32,566 21,796 Postretirement medical and other benefits 46,128 40,878 Reserves - insurance subsidiary 24,444 21,084 Commitments and contingencies Shareholders' equity Preferred stock - at liquidation value Authorized: 2,500,000 shares Outstanding: 1995 - 1,901,836 66,720 68,444 1994 - 1,953,243 Unearned compensation relating to ESOP (23,368) (27,528) Common stock - par value, $.16 2/3 Authorized: 72,500,000 shares Outstanding: 1995 - 18,429,913 3,072 3,041 1994 - 18,248,155 Additional paid-in capital 170,374 166,314 Cumulative translation and pension adjustments 18,581 8,033 Retained earnings 248,031 213,670 Total shareholders' equity 483,410 431,974 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,128,613 $1,161,142
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ expressed in thousands)
Six Months Ended June 30 June 30 1995 1994 Cash flows from operating activities Net income $43,900 $22,925 Adjustment for discontinued operations (16,700) (1,062) Adjustments to reconcile net income to cash provided from operating activities Depreciation 20,508 17,544 Amortization 3,166 2,852 Deferred income taxes (619) 1,786 Changes in assets and liabilities, net of effects of acquisitions and dispositions Accounts receivable (33,516) (14,788) Inventories (51,654) (24,138) Accounts payable (1,936) (6,235) Accrued compensation and benefits 4,819 12,203 Income taxes (1,619) 697 Pensions and other retirement compensation 10,770 10,354 Reserves - insurance subsidiary 3,360 3,634 Other assets/ liabilities - net 9,139 1,848 Cash from continuing operations (10,382) 27,620 Cash from discontinued operations (525) 2,198 Cash from operating activities (10,907) 29,818 Cash flows from investing activities Capital expenditures (22,571) (21,655) Purchase of marketable securities - net (711) (236) Proceeds from sale of discontinued operations 206,459 0 Acquisition - net of cash acquired 0 (140,116) Cash provided by (used for) investing activities - continuing operations 183,177 (162,007) Cash used for investing activities - discontinued operations 0 (11,566) Cash provided by (used for) investing activities 183,177 (173,573) Cash flows from financing activities Borrowings 24,621 158,235 Debt payments (196,863) (6,193) Unearned ESOP compensation decrease 4,160 2,220 Employee stock plans and other 2,817 1,731 Dividends paid (9,989) (9,276) Cash provided by (used for) financing activities - continuing operations (175,254) 146,717 Cash used for financing activities - discontinued operations 0 0 Cash (used for) provided by financing activities (175,254) 146,717 Effect of currency exchange rate changes 2,578 4,298 Increase (decrease) in cash and cash equivalents (406) 7,260 Cash and cash equivalents - beginning of period 32,677 10,327 - end of period $32,271 $17,587
See Notes to Consolidated Financial Statements. PENTAIR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Accounting Policies. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. These statements should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, previously filed with the Commission. Certain reclassifications have been made to prior year's financial statements to conform to the current year presentation. Note 2. Discontinued Operations. On April 1, 1995 the company sold its Cross Pointe Paper Corporation subsidiary for $203.3 million, of which $100 million was received in cash and a promissory note due January 2, 1996 was given for the remainder. Effective May 1, 1995 the company decided to report its Paper Products and Joint Venture segments as discontinued operations. On June 30, 1995 the company sold its Niagara of Wisconsin Paper Corporation, its 50% share of Lake Superior Paper Industries (LSPI) joint venture and its 12% share of Superior Recycled Fiber Industries (SRFI) for approximately $103 million cash. The gain on the sale was $12.1 million after income tax expense of $7.7 million. The transaction added 57 cents to earnings per share in 1995. The prior year has been restated to include the company's former paper businesses (Paper Products and Joint Venture segments) as discontinued operations. Summarized results of operations and financial position data of discontinued operations were as follows: Results of Operations
Period Ended June 30 1995 1994 Net Sales $187.1 $183.9 Operating Income 27.2 4.4 Net Earnings 4.6 1.1 Gain on Sale 12.1 0.0
Financial Position
December 31, 1994 Current assets $92.1 Net property, plant and equipment 179.8 Other assets 88.5 Current liabilities (67.1) Other liabilities (53.2) Net assets of discontinued operations $240.1
Note 3. Long-Term Debt. The long-term debt is summarized as follows ($ millions):
6/30/95 12/31/94 Revolving credit facilities: US $ revolvers $14 $157 DM revolvers 96 74 Private placement debt 125 160 Other 16 23 TOTAL 251 414 Current maturities (5) (6) Total long-term debt $246 $408
Debt agreements contain various restrictive covenants, including a limitation on the payment of dividends and certain other restricted payments. Under the most restrictive covenants, $151 million of the June 30, 1995 retained earnings were unrestricted for such purposes. Note 4. Statement of Cash Flows - supplemental information. The following is supplemental information relating to the Statement of Cash Flows ($000's):
Six Months Ended June 30 1995 1994 Interest paid (net of capitalized interest) $16,615 $15,294 Income tax payments 24,382 15,281
Non-cash Items: Gross amounts to be realized from the sale of the Paper Products and Joint Venture segments are approximately $316 million. Of this amount $206 million was received in cash, a promissory note was received for $100 million which is due January 2, 1996 and the remainder is recorded as a miscellaneous account receivable. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS SEGMENT INFORMATION Selected information for business segments for the six months ended June 30, 1995 and 1994 follows ($ millions):
General Specialty Industrial General Products Equipment Corporate Total 1995 Net Sales $228.3 $443.7 $0.0 $672.0 Operating Income 22.5 43.2 (9.9) 55.2 Identifiable Assets 237.0 703.4 188.2 1,128.6 Depreciation 6.2 14.3 0.0 20.5 Capital Expenditures 6.5 16.0 0.1 22.6 1994 Net Sales $216.3 $381.0 $0.0 $597.3 Operating Income 21.4 35.4 (9.4) 47.4 Identifiable Assets 209.0 621.2 288.4 1,118.6 Depreciation 4.5 13.0 0.0 17.5 Capital Expenditures 4.6 17.0 0.1 21.7
RESULTS OF OPERATIONS Consolidated Continuing Operations. Pentair reported income from continuing operations of $27.2 million, or $1.27 per fully diluted share, on consolidated net sales from continuing operations of $672.0 million for the six months ended June 30, 1995. This represented a 24.4 percent increase in income from continuing operations and a 12.5 percent increase in sales from continuing operations over the first half of 1994. The first half 1994 income from continuing operations was $21.9 million, or $1.03 per fully diluted share, on consolidated net sales from continuing operations of $597.3 million. Specialty Products Segment. Net sales increased $12.0 million or 5.6% and operating income increased $1.2 million or 5.5%. The increases reflect further expansion into major home center distribution channels, tempered somewhat by a general economic slowing of retail sales activity in the second quarter. Order rates, supported by new product introductions, remain strong in this segment. General Industrial Equipment Segment. Sales increased $62.7 million or 16.5% and operating income increased $7.7 million or 21.8%. Hoffman and Schroff were major contributors to the increased sales and operating income for the first half of 1995. Electrical and electronic enclosure sales continued strong into 1995, assisted by the strength in durable goods spending in both the United States and Western European markets. Sporting ammunition sales and margins were down due to a less favorable product mix, competitive pricing pressures, and higher raw material costs. The Lincoln group of companies continued their strong recovery with year to year sales up 13% and operating income up 121%. Reported sales in this segment were increased by $18-20 million due to the year to year strengthening of the Deutsche mark relative to the US dollar. However, foreign exchange rates had no material effect on the operating income of this segment. Discontinued Operations. Results from the Paper Products and Joint Venture segments have been restated as discontinued operations. See Note 2 to the financial statements for details of these discontinued operations. Interest Expense. Interest expense for continuing operations was $1.0 million lower than the same period in the prior year. The reduction in interest expense was primarily the result of reduced allocations of interest costs in connection with a reduction of debt via the proceeds received from the sale of Cross Pointe Paper Corporation in early April 1995. FINANCIAL CONDITION Through the first half of 1995, increases in accounts receivable due to increased sales volume, combined with seasonal and temporary build-ups of finished goods inventories resulted in negative cash from continuing operations of $10.4 million, compared to a positive cash from continuing operations of $27.6 million in the same period of the prior year. Capital expenditures of continuing operations for the first six months were $22.6 million in 1995 and $21.7 million in 1994. The percentage of long-term debt to total capital was reduced to 34% at June 30, 1995 compared to 49% at December 31, 1994, largely due to the use of proceeds from the disposition of the paper businesses to pay down outstanding debt. As a result, substantially all of the US$ revolving credit facilities and the $35 million portion of the private placement debt that was to mature in June 1996 was paid down. The average interest rate on the redeemed debt was 8.81%. A make-whole premium of approximately $950,000 was required to be paid to redeem the private placement debt. The average interest rate on the remaining private placement debt of $125 million is 7.31%. Management believes that cash flows from continuing operations will be positive by the end of 1995. The company's continuing operations should generate sufficient cash from operations to provide for their recurring capital needs. Capital expenditures of continuing operations are expected to be about $70 million in 1995 as compared to $57.8 million in 1994. Credit available under revolving credit facilities is adequate to provide for working capital, capital expenditure, and acquisition requirements. OUTLOOK In general, the Company is strong and well-positioned to continue its growth. Given a continued steady GNP growth in the United States and Europe, the company expects to continue to grow sales and earnings of its continuing businesses in 1995. With the completion of the paper business sales on June 30, the company became entirely a diversified manufacturer of industrial products. The performance of the company will be less influenced by economic cycles, and capable of returning consistent value in both the near and long term. With its strengthened capital structure, the company has sufficient resources to pursue both internal and external expansion into profitable industrial business segment opportunities. PART II - OTHER INFORMATION ITEM 1 - Legal Proceedings Federal-Hoffman, Inc. Federal Cartridge, a division of Federal-Hoffman, Inc., and 79 manufacturers, distributors and retailers of ammunition and/or firearms were sued in July 1995 by a private environmental group pursuant to California Health and Safety Code Section 25249 (Proposition 65) and the Business and Professions Code Section 17200. Basic information concerning this matter was previously reported in the Company's Form 10-K for the year ending December 31, 1994. The lawsuit alleges violations of California law arising from exposure to lead from the discharge or cleaning of firearms. Claims have been made for injunctive relief, statutory penalties and attorneys fees. Based on the information currently known, the Registrant believes that this matter is unlikely to result in material liability. ITEM 2 - Changes in Securities On July 21, 1995, the Board of Directors of Pentair, Inc. (the "Company") declared a dividend of one common share purchase right (a "Right") for each outstanding share of common stock, par value $.16-2/3 per share (the "Common Shares"), of the Company. The dividend is effective July 31, 1995 for shareholders of record on such date (the "Record Date"). Each Right entitles the registered holder to purchase from the Company one Common Share at a price of $160.00 per Common Share, subject to adjustment (the "Purchase Price"). The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Norwest Bank Minnesota, National Association, as Rights Agent (the "Rights Agent"). Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (other than the Company, a subsidiary of the Company or an employee benefit plan of the Company or a subsidiary) (an "Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding Common Shares (the "Shares Acquisition Date") or (ii) 10 business days (or such later date as may be determined by action of the Company's Board of Directors prior to such time as any person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group (other than the Company, a subsidiary of the Company or an employee benefit plan of the Company or a subsidiary) of 15% or more of such outstanding Common Shares (the earlier of such dates being called the "Distribution Date"), the Rights will be evidenced, with respect to any of the Common Share certificates outstanding as of the Record Date, by such Common Share certificate. The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with the Common Shares. Until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Share certificates issued after the Record Date, upon transfer or new issuance of Common Shares, will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Shares, outstanding as of the Record Date, even without such notation, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on July 31, 2005 (the "Final Expiration Date"), unless the Rights are earlier redeemed or exchanged by the Company, in each case, as described below. The Purchase Price payable, and the number of Common Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Shares, (ii) upon the grant to holders of the Common Shares of certain rights or warrants to subscribe for or purchase Common Shares at a price, or securities convertible into Common Shares with a conversion price, less than the then current market price of the Common Shares or (iii) upon the distribution to holders of the Common Shares of evidences of indebtedness or assets (excluding regular quarterly cash dividends or dividends payable in Common Shares) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares will be issued. In lieu thereof, an adjustment in cash will be made based on the market price of the Common Shares on the last trading day prior to the date of exercise. The Purchase Price is payable by certified check, cashier's check, bank draft or money order or, if so provided by the Company, the Purchase Price following the occurrence of a Flip-In Event (as defined below) and until the first occurrence of a Flip-Over Event (as defined below) may be paid in Common Shares having an equivalent value. In the event that any person becomes an Acquiring Person (a "Flip-In Event"), the holders of Rights will thereafter have the right to receive upon exercise that number of Common Shares (or, in certain circumstances cash, property or other securities of the Company or a reduction in the Purchase Price) having a market value of two times the then current Purchase Price. Notwithstanding any of the foregoing, following the occurrence of a Flip-In Event all Rights will be null and void to the extent they are, or (under certain circumstances specified in the Rights Agreement) were, or subsequently become beneficially owned by an Acquiring Person, related persons and transferees. In the event that, at any time following the Shares Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction or (ii) 50% or more of its consolidated assets or earning power are sold (the events described in clauses (i) and (ii) are herein referred to as "Flip-Over Events"), proper provision will be made so that the holders of Rights will thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the then current Purchase Price. At any time after a person becomes an Acquiring Person and prior to the acquisition by such Acquiring Person of 50% or more of the outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such Acquiring Person which have become void), in whole or in part, at an exchange ratio of one Common Share (or of a share of a class or series of the Company's preferred stock having equivalent rights, preferences and privileges) per Right (subject to adjustment). At any time prior to the close of business on the tenth day following the Shares Acquisition Date, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption Price"). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Other than the Redemption Price, the Purchase Price and the Final Expiration Date, the terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, including an amendment to lower the threshold for exercisability of the Rights from 15% to 10%, with appropriate exceptions for any person then beneficially owning a percentage of the number of Common Shares then outstanding equal to or in excess of the new threshold, except that from and after the Distribution Date no such amendment may adversely affect the interests of the holders of the Rights. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A12G filed with respect to the Rights. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are included with this Form 10-Q Report as required by Item 601 of Regulation S-K. Exhibit Description Number 3.1 Restated Articles of Incorporation of Pentair, Inc. as amended through April 19, 1995 3.2 Second Amended and Superseding Bylaws of Pentair, Inc. as amended through July 21, 1995 4.1 Rights Agreement dated as of July 21, 1995 between Norwest Bank Minnesota, N.A. and Pentair, Inc. 11 Calculation of Earnings per Common and Common Equivalent Share (b) Reports on Form 8-K. A report on Form 8K was filed on April 17, 1995 disclosing the completion of the sale of Cross Pointe Paper Corporation to Noranda Forest, Inc. A report on Form 8K/A (Amendment to form 8K which was filed on April 17, 1995) was filed on May 30, 1995 disclosing the proforma financial information of the Pentair, Inc. excluding the Paper Products and Joint Venture segments which were classified as discontinued operations as of May 1, 1995. The filing also announced the proposed disposition on June 30, 1995 of the company's Niagara of Wisconsin Paper subsidiary and the disposition of the company's shares in its paper-related joint ventures Lake Superior Paper Industries and Superior Recycled Fiber Industries. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. /s/ David D. Harrison Senior Vice President and Chief Financial Officer August 11, 1995 EXHIBIT INDEX Exhibit Number 3.1 Restated Articles of Incorporation of Pentair, Inc. as amended through April 19, 1995 3.2 Second Amended and Superseding Bylaws of Pentair, Inc. as amended through July 21, 1995 4.1 Rights Agreement dated as of July 21, 1995 between Norwest Bank Minnesota, N.A. and Pentair, Inc. 11 Calculation of Earnings per Common and Common Equivalent Share EX-3.1 2 RESTATED ARTICLES OF INCORPORATION OF PENTAIR, INC. ADOPTED ON SEPTEMBER 4, 1981 As Amended Through April 19, 1995 All Such Amendments Are Specifically Identified ARTICLE I. The name of this Corporation shall be PENTAIR, INC. ARTICLE II. The duration of this Corporation shall be perpetual. ARTICLE III. Section 1. This Corporation has general business purposes. Section 2. In amplification but not in limitation of the provisions and legal effect of Section 1 hereof or of any other provision in these Articles, and in amplification but not in limitation of the purposes, powers and authority this Corporation would have in the absence from these Articles of this Section 2 hereof, the nature of the business, or objects or purposes to be transacted, promoted or carried on are: to manufacture, purchase or otherwise dispose of, and to deal generally in and with paper and paper products and related products, of every type and description; to manufacture, purchase or otherwise acquire, invest in, own, mortgage, sell, assign and transfer, or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description; to carry on any other business in connection with any one or more of the foregoing purposes; and to do any and all acts and things necessary or convenient to accomplish or implement any one or more of the foregoing purposes. ARTICLE IV. This Corporation shall have all the powers granted to private corporations organized for profit by said Minnesota Business Corporation Act and, in furtherance, and not in limitation, of the powers conferred by the laws of the State of Minnesota upon corporations organized for the foregoing purposes, the Corporation shall have the power: (a) To issue bonds, debentures or other obligations of the Corporation, and to contract indebtedness without limit as to amount for any of the objects and purposes of the Corporation, and to secure the same by mortgage or mortgages, deed or deeds of trust, or pledge, or lien, or any or all of the real or personal property, or both, of the Corporation. (b) To acquire, hold, mortgage, pledge or dispose of the shares, bonds, securities or other evidences of indebtedness of the United States of America or of any domestic or foreign corporation, and while the holder of such shares, to exercise all the privileges of ownership, including the right to vote thereon, to the same extend as a natural person might or could do, by the president of this Corporation or by proxy appointed by him, unless some other person, by resolution of the Board of Directors, shall be appointed to vote such shares. (c) To purchase or otherwise acquire on such terms and in such manner as the By-Laws of this Corporation from time to time provide, and to own and hold, shares of the capital stock of this Corporation, and to reissue the same from time to time. (d) When and as authorized by the vote of the holders of not less than a majority of the shares entitled to vote, at a shareholders' meeting called for that purpose or when authorized upon the written consent of the holders of a majority of such shares, to sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property and assets, including its good will, upon such terms and for such considerations, which may be money, shares, bonds, or other instruments for the payment of money or other property, as the Board of Directors deems expedient or advisable. (e) To acquire, hold, lease, encumber, convey or otherwise dispose of, either alone or in conjunction with others, real and personal property within or without the state; and to take real and personal property by will or gift. (f) To acquire, hold, take over as a going concern and thereafter to carry on, mortgage, sell or otherwise dispose of, either alone or in conjunction with others, the rights, property and business of any person, entity, partnership, association, or corporation heretofore or hereafter engaged in any business, the purpose of which is similar to the purposes set forth in Article III of these Articles of Incorporation. (g) To enter into any lawful arrangement for sharing of profits, union of interest, reciprocal association, or cooperative association with any corporation, association, partnership, individual, or other legal entity, for the carrying on of any business, the purpose of which is similar to the purposes set forth in Article III of these Articles of Incorporation, and, insofar as it is lawful, to enter into any general or limited partnership, the purpose of which is similar to such purposes. ARTICLE V. An agreement for consolidation or merger with one or more foreign or domestic corporations may be authorized by vote of the shareholders entitled to exercise at least two-thirds of the shares entitled to vote unless the necessary affirmative vote to authorize any particular merger or consolidation is reduced by the Board of Directors, which reduction shall be to not less than a majority of the shares entitled to vote. ARTICLE VI. The location and post office address of the registered office of this Corporation shall be Rosedale Towers, 1700 West Highway 36, St. Paul, Minnesota. ARTICLE VII. (As Amended through April 19, 1995) The aggregate number of shares which this Corporation shall have authority to issue is 125,000,000 shares, of which not more than 15,000,000 shares shall be "Preferred Shares." a. All classes of Preferred and Common shares may be issued as and when and for such consideration as the Board of Directors shall determine, and, to the full extent permitted by the Minnesota Business Corporation Act, the Board of Directors shall have the power to establish any classes or series of Preferred Shares or Common Shares, with such par value, rights and priorities it deems appropriate, and to fix or alter, from time to time, in respect of any Preferred Shares then unissued, the rights and preferences of such shares, including without limitation, any or all of the following: dividend rate and dividend cumulation rights; voting rights; redemption rights and price; liquidation rights and price; conversion rights and sinking or purchase fund rights; or the number of shares constituting any class or series. The Board of Directors shall also have the power to fix the terms and provisions of options, rights and warrants to purchase or subscribe for shares of any class or classes and to authorize the issuance thereof. Dividends payable in shares of any class may be paid to shareholders of any other class as and when determined by the Board of Directors. b. The voting rights of the shares of this Corporation shall be vested in the holders of all shares presently outstanding, with one vote per share. The voting rights of unissued shares shall be fixed by the Board of Directors, but no such share shall be entitled to more than one vote. No holder of any shares shall be entitled to any cumulative voting rights. c. No shareholder of this Corporation shall have any pre-emptive right to subscribe for or purchase any shares of any class or series of the Corporation, whether now or hereafter established or authorized, or any securities or obligations convertible into any such shares, or any options or warrants or rights to purchase any such shares. ARTICLE VIII. (As Amended on April 22, 1986) Section 1. If any person has become an Acquiring Person as defined in Section 2, each holder of Voting Shares, other than the Acquiring Person or a transferee of the Acquiring Person, until and including the ninetieth day following the date the notice to holders of Voting Shares referred to in Section 3 herein is mailed, shall have the right to have the Voting Shares held by such holder redeemed by the Corporation at the Redemption Price determined as provided in Section 4 herein, and each holder of securities convertible into Common Shares or of options, warrants, or rights exercisable to acquire Common Shares prior to such ninetieth day, other than the Acquiring Person or a transferee of the Acquiring Person, shall have the right simultaneously with the conversion of such securities or exercise of such options, warrants, or rights to have the Common Shares to be received thereupon by such holder redeemed by the Corporation at the Redemption Price; provided that no holder of Voting Shares shall have any right to have Voting Shares redeemed by the Corporation pursuant to this Article if the Corporation acting through a majority of its Board of Directors shall either (a) recommend to the holders of Voting Shares that a pending tender offer be accepted by the holders of Voting Shares or (b) if no tender offer is pending it announces that it does not oppose any accumulation of shares by an Acquiring Person; provided, however, that such recommendation or announcement is made within ten days following either (i) the announcement or publication of such tender offer made by an Acquiring Person, (ii) any amendment to such tender offer, (iii) a vote by shareholders of the Corporation for approval of the acquisition of shares by the Acquiring Person (iv) receipt by the Board of Directors of credible notice that an Acquiring Person exists, or (v) receipt by the Board of Directors of credible notice that an Acquiring Person has increased ownership of Voting Shares by more than three percent (3%) of the Voting Shares outstanding. Section 2. For purposes of this Article: (a) The term "person" shall include an individual, a corporation, partnership, trust or other entity. (b) An "Acquiring Person" shall be any person who becomes the beneficial owner, directly or indirectly, of more than twenty percent (20%) of the voting shares outstanding and becomes the beneficial owner, directly or indirectly, of any additional Voting Shares pursuant to a tender offer or otherwise or (ii) becomes the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the Voting Shares outstanding whether such shares were acquired by market purchases, a tender offer or otherwise. (c) For the purpose of determining whether a person is an Acquiring Person, such person shall be deemed to beneficially own (i) all Voting Shares with respect to which such person has the capability to control or influence the voting power in respect thereof and (ii) all Voting Shares which such person has the immediate or future right to acquire, directly or indirectly, pursuant to agreements, through the exercise of options, warrants or rights or through the conversion of convertible securities or otherwise; and all Voting Shares which such person has the right to acquire in such manner shall be deemed to be outstanding shares, but Voting Shares which any other person has the right to acquire in such manner shall not be deemed to be outstanding shares. (d) The term "Voting Shares" shall mean such of the Common Shares and the Preferred Shares of the Corporation as shall have been granted voting rights. (e) The acquisition of Voting Shares by the Corporation or by any person controlling, controlled by or under common control with the Corporation shall not affect the right to have Voting Shares redeemed pursuant to this Article. (f) The right to have Voting Shares redeemed pursuant to this Article shall attach to such shares and shall not be personal to the holder thereof. (g) The term "tender offer" shall mean an offer to acquire or an acquisition of Voting Shares pursuant to a request or invitation for tenders or an offer to purchase such shares for cash, securities or any other consideration. (h) The term "market purchases" shall mean the acquisition of Voting Shares from holders of such shares in privately negotiated transactions or in transactions effected through a broker or dealer. (i) Subject to the provisions of Section 2(c) herein, "outstanding shares" shall mean Voting Shares which at the time in question have been issued by the Corporation and not reacquired and held or retired by it or held by any subsidiary of the Corporation. Section 3. If Voting Shares are subject to redemption in accordance with Section 1: (a) Not later than sixty (60) days following the date on which the Corporation receives credible notice that any person has become an Acquiring Person, the Corporation shall give written notice, by first class mail, postage prepaid, at the addresses shown on the records of the Corporation, to each holder of record of Voting Shares (and to any other person known by the Corporation to have rights to demand redemption pursuant to Section 2 of this Article) as of a date not more than seven (7) days prior to the date of the mailing pursuant to this Section 3 and shall advise each such holder of the right to have shares redeemed and the procedure for such redemption. (b) If the Corporation fails to give notice as required by this Section 3, any holder entitled to receive such notice may within twenty (20) days thereafter serve written demand upon the Corporation to give such notice. If within twenty (20) days after the receipt of the written demand the Corporation fails to give the required notice, such holder may at the expense and on behalf of the Corporation take such reasonable action as may be appropriate to give notice or to cause notice to be given pursuant to this Section 3. (c) The Directors of the Corporation shall designate a Redemption Agent, which shall be a corporation or association (i) organized and doing business under the laws of the United States or any State, (ii) subject to supervision or examination by Federal or State authority, (iii) having combined capital and surplus of at least $20 million, and (iv) having the power to exercise corporate trust powers. (d) For a period of ninety (90) days from the date of the mailing of the notice to the holders of Voting Shares referred to in this Section 3, holders of Voting Shares and other persons entitled to have Voting Shares redeemed pursuant to this Article may, at their option, deposit certificates representing all or less than all Voting Shares held of record by them with the Redemption Agent together with written notice that the holder elects to have such shares redeemed pursuant to this Article. Redemption shall be deemed to have been effected at the close of business on the day such certificates are deposited in proper form with the Redemption Agent. (e) The Corporation shall promptly deposit in trust with the Redemption Agent cash in an amount equal to the aggregate Redemption Price of all of the Voting Shares deposited with the Redemption Agent for purposes of redemption. (f) As soon as practicable after receipt by the Redemption Agent of the cash deposit by the Corporation referred to in this Section 3, the Redemption Agent shall issue its checks payable to the order of the persons entitled to receive the Redemption Price of the Voting Shares in respect of which such cash deposit was made. Section 4. (a) The Redemption Price shall be the amount payable by the Corporation in respect of each Voting Share with respect to which redemption has been demanded pursuant to this Article and shall be the greater amount determined on either of the following bases, but in no event shall the Redemption Price be less than the amount of shareholders' equity in respect of each outstanding Voting Share as determined in accordance with generally accepted accounting principles and as reflected in any published report by the Corporation as at the fiscal year quarter ending immediately preceding the notice to shareholders referred to in Section 3 herein: (i) The highest price per Voting Share, including any commission paid to brokers or dealers for solicitation or whatever, at which Voting Shares held by the Acquiring Person were acquired pursuant to a tender offer regardless of when such tender offer was made or were acquired pursuant to any market purchase or otherwise within eighteen months prior to the notice to holders of Voting Shares referred to in Section 3 herein. For purposes of this subsection (i) if the consideration paid in any such acquisition of Voting Shares consisted, in whole or in part, of consideration other than cash, the Board of Directors of the Corporation shall take such action, as in its judgment it deems appropriate, to establish the cash value of such consideration, but such valuation shall not be less than the cash value, if any, ascribed to such consideration by the Acquiring Person. (ii) The highest sale price per Voting Share for any trading day during the eighteen months prior to the notice to holders of Voting Shares referred to in Section 3 herein. For purposes of this subsection (ii), the sale price for any trading day shall be the last sale price per Voting Share traded on the New York Stock Exchange, any or other national securities exchange or the National Market System or, if Voting Shares are not then traded on the foregoing, the mean of the closing bid and asked price per Voting Share. (b) The determination to be made pursuant to this Section 4 shall be made by the Board of Directors not later than the date of the notice to holders of Voting Shares referred to in Section 3 herein. In making such determination the Board of Directors may engage such persons, including investment banking firms and the independent accountants who have reported on the most recent financial statements of the Corporation, and utilize employees and agents of the Corporation, who will, in the judgment of the Board of Directors, be of assistance to the Board of Directors. (c) The determinations to be made pursuant to this Section 4, when made by the Board of Directors acting in good faith on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its shareholders, including any person referred to in Section 2 herein. (d) Notwithstanding the foregoing provisions of this Section 4, each such holder of Voting Shares shall have the right to have the Redemption Price to be paid determined under and pursuant to the appraisal provisions of the Minnesota Statutes then in effect. Section 5. This Article may be amended or repealed only by the affirmative vote of the holders of 85% of each class of shares of the Corporation entitled to exercise the voting power of the Corporation; provided, however, that if no person holds more than twenty percent (20%) of the Voting Shares and there is no tender offer pending or threatened of which the Board of Directors has credible notice, the necessary vote for amendment or repeal may be reduced by the Board of Directors to not less than the requirements of Article XII of these Articles of Incorporation; provided, further that no amendment or repeal adopted after the notice to holders of Voting Shares referred to in Section 3 herein shall affect any Voting Shares theretofore or thereafter deposited with the Redemption Agent for redemption under this Article pursuant to such notice. ARTICLE IX. The amount of stated capital with which this Corporation shall commence business will be at least $1,000. ARTICLE X. Meetings of the shareholders, whether annual or special, shall be held at the principal place of business of the Corporation at such time and date as may be fixed in the By-Laws, or at any other place designated by the Board of Directors pursuant to the By-Laws or consented to in writing by all of the shareholders entitled to vote thereat. ARTICLE XI. Section 1. 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 2. The Board of Directors shall have all of the powers of the Corporation, subject to such action restricting said powers as may legally be taken from time to time by the shareholders either at an annual meeting or at a special meeting duly called therefor. Section 3. The Board of Directors shall have authority to make and alter By-Laws, subject to the power of the shareholders to change or repeal such By-Laws, provided, however, that the Board shall not make or alter any By-Law fixing the number, qualifications, or term of office of Directors. Section 4. Any contract or other transaction between the Corporation and one or more of its directors, or between the Corporation and any corporation, association or firm of which one or more of its directors are shareholders, members, directors, officers or employees, or in which they are interested, shall be valid for all purposes, notwithstanding the presence and participation of such director or directors at the meeting of the Board of Directors of the Corporation which acts upon or in reference to such contract or transaction, if the fact of such interest shall be disclosed or known to the Board of Directors, and the Board of Directors shall, nevertheless, authorize, approve and ratify such contract or transaction by a vote of a majority of the directors present, such interested director or directors to be counted in determining whether a quorum is present, but not to be counted in calculating the majority necessary to carry such vote. This section shall not be construed to invalidate any contract or transaction which would otherwise be valid under the laws applicable thereto. Section 5. The annual meeting of the Board of Directors shall be held immediately following the annual meeting of the shareholders, and at the same place. Section 6. The names and post office addresses of the directors at the time of adoption of these Restated Articles of Incorporation are as follows: John Baird 28210 Woodside Road Excelsior, Minnesota 55331 Murray J. Harpole 2223 Marion Road St. Paul, Minnesota 55113 George N. Butzow 421 Bushaway Road Wayzata, Minnesota 55391 Quentin J. Hietpas 1853 Hillcrest Avenue St. Paul, Minnesota 55116 Henry M. Conor 16351 South Hillcrest Ct. Eden Prairie, Minnesota 55343 D. Eugene Nugent 4 Aspen Lane North Oaks, Minnesota 55110 Kenneth L. Wallace No. 2 Falmouth Lane Bella Vista, Arkansas 72712 Section 7. (As Added on April 26, 1988) A Director of this Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under Section 302A.251 of the Minnesota Statutes. If Chapter 302A of the Minnesota Statutes hereafter is amended to authorize the further elimination or limitation of the liability of directors, then, in addition to the limitation on personal liability provided herein, the liability of a Director of the Corporation shall be limited to the fullest extent permitted by the amended Chapter 302A of the Minnesota Statutes. Any repeal or modification of this Section 7 by the shareholders of the Corporation shall be prospective only and shall not adversely affect any limitation of the personal liability of a Director of the Corporation existing at the time of such repeal or modification. ARTICLE XII. These articles may be amended by resolution setting forth such amendment or amendments adopted at any meeting of the shareholders by the affirmative vote of the holders of 60% of the voting power of all shareholders entitled to vote, provided such amendment or amendments shall not receive the negative vote of the holders of more than 25% of the voting power of all shareholders entitled to vote. Each share of stock shall entitle the holder thereof to one vote. ARTICLE XIII. These Restated Articles of Incorporation supersede and take the place of existing Articles of Incorporation and all amendments thereto. EX-3.2 3 SECOND AMENDED AND SUPERSEDING BY-LAWS OF PENTAIR, INC. ADOPTED ON JANUARY 15, 1982 As Amended Through July 21, 1995 All Such Amendments Are Specifically Identified ARTICLE I Shareholders' Meetings Section 1. Place of Meeting. The meetings of the shareholders shall be held at the principal place of business of the Corporation or at any other place designated by the Board of Directors or consented to in writing by all of the shareholders entitled to vote thereat. Section 2. Annual Meeting. Each year, commencing in 1982, the annual meeting of shareholders shall be held on such date after March 1 and prior to June 1 and at such place as the Board of Directors shall select by appropriate resolution. This meeting shall be the only regular meeting of the shareholders in any one calendar year. Section 3. Special Meetings. (Amended on July 21, 1995.) Special meetings of the shareholders may be called for any purpose or purposes at any time by: (a) the Chief Executive Officer; (b) the Chief Financial Officer; (c) two or more members of the Board of Directors; (d) the Chairman of the Board; or (e) a shareholder or shareholders holding ten percent (10%) or more of the voting power of all shares entitled to vote except that a special meeting for the purpose of considering any action to directly or indirectly facilitate or effect a business combination, including any action to change or otherwise effect the composition of the Board of Directors for that purpose, must be called by twenty five percent (25%) or more of the voting power of all shares entitled to vote. Any shareholder or shareholders demanding a special meeting of shareholders in accordance with the foregoing may demand a special meeting only by written notice of demand given to the Chief Executive Officer or Chief Financial Officer, which written notice shall set forth the specific purposes of the meeting. Section 4. Notice of Meeting. Written notice stating the place, day and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be mailed or personally delivered not less than ten days nor more than sixty days prior to the date of the meeting, by the Secretary, to each shareholder of record entitled to vote at such meeting. Waiver by a shareholder of notice of a shareholders' meeting, signed by him, whether before or after the time of such meeting, or attendance at such meeting, shall be equivalent to the giving of such notice. In case of adjournment of a meeting from time to time, no further notice of the adjourned meeting shall be necessary if an announcement is made at the meeting where the adjournment is had, specifying the place, day and hour of the adjourned meeting. Section 5. Voting Rights. (Amended on April 21, 1987.) Every holder of record, as provided below, of common stock or preferred stock having voting rights shall be entitled to vote, in person or by proxy executed in writing and delivered to the Secretary at or before the meeting, and he shall be entitled to such vote for each share of stock standing in his name as shall be fixed by the Articles of Incorporation or by resolution of the Board of Directors; provided that no revocable proxy shall be voted if executed more than three years prior to the date of a meeting. Except as may otherwise be provided by the Board of Directors from time to time, only voting shareholders of record at the close of business on a day ten days prior to the date of a meeting shall be entitled to vote at such meeting. Section 6. Quorum; Action by Shareholders. (a) The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote at the meeting shall constitute a quorum for the transaction of business. In the absence of a quorum any meeting may be adjourned from time to time. The shareholders present at a duly called or held meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. (b) The shareholders shall take action by the affirmative vote of the holders of a majority of the voting power of the shares present at a meeting, except where the articles of incorporation or statute shall otherwise provide. ARTICLE II Directors Section 1. Number of Directors; Classification. (Amended on April 23, 1991.) The business of the Corporation shall be managed by a Board of not less than three (3) nor more than fifteen (15) directors, who need not be shareholders of the Corporation; and the decisions of the Board shall be by a majority of the members present. 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. Section 2. Tenure. At each annual meeting the shareholders shall elect directors to fill the vacancies of such directors whose terms have expired. Each newly elected director shall hold office for a term expiring at the third succeeding annual meeting or until his successor is elected and qualifies. Section 3. Vacancies. (Amendment approved by Board on July 20, 1990 and Ratified by Shareholders on April 23, 1991.) Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors or by election at a meeting of shareholders. Any director who is elected to fill a vacancy by the remaining directors shall be required to stand for election at the next regular or special meeting of the shareholders, regardless of whether the class of directors into which such director has been placed will otherwise be elected at such meeting. Section 4. Meetings of the Board; Notice. (Amended on October 18, 1985.) The Board of Directors shall meet each year immediately after the annual meeting of shareholders, at the same place. No notice of any kind to either old or new members shall be necessary for such annual meeting or for any regular meeting of the directors fixed from time to time by resolution of a majority of the Board of Directors. Other meetings of the Board of Directors may be held upon three (3) days' written notice upon the call of the Chairman, the Chief Executive Officer, President or any directors. Notice may be waived in writing before or after the time of such meeting, and attendance of a director at a meeting shall constitute a waiver of notice thereof. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in the notice of such meeting. Section 5. Quorum. A majority of the directors shall constitute a quorum for the transaction of business; provided, however, that if any vacancies exist for any reason, the remaining directors shall constitute a quorum for the filling of such vacancies. Section 6. Removal of Directors. (Amended on April 22, 1986.) (a) A director may be removed by the Board at any time, but only with good cause shown therefor, if (1) the director was appointed by the board to fill a vacancy and shareholders have not since such appointment elected directors in such director's class; and (2) a majority of the other directors present affirmatively vote to remove the director. (b) Any one or all of the directors may be removed with good cause shown therefor, at any meeting of the shareholders called for that purpose, by the affirmative vote of 60% of the voting power of the shares entitled to vote provided that removal is not opposed by more than 25% of the voting power of the shares entitled to vote. (c) "Good cause" for the purpose of this section shall mean (i) conviction of a crime involving moral turpitude, (ii) dishonesty in dealings with the Corporation or with respect to its assets or (iii) engaging in competition, directly or indirectly, with the Corporation, usurping any corporate opportunity or advantage or knowingly violating Section 302A.255 of Minnesota Statutes, as amended, with respect to director conflicts of interest, without the prior consent of the Board of Directors after complete disclosure of all material facts with respect thereto. (d) This section 6 may be amended or repealed at any annual or special meeting of the shareholders by the affirmative vote of the holders of 60% of the voting power of all shareholders entitled to vote, provided such amendment or repeal shall not receive the negative vote of the holders of more than 25% of the voting power of all shareholders entitled to vote. Section 7. Committee of Disinterested Persons. (a) The board may establish a committee composed of two or more disinterested directors or other disinterested persons to determine whether it is in the best interests of the Corporation to pursue a particular legal right or remedy of the Corporation and whether to cause the dismissal or discontinuance of a particular proceeding that seeks to assert a right or remedy on behalf of the Corporation. (b) For purposes of this Section 7, a director or other person is "disinterested" if the director is not the owner of more than one percent of the outstanding shares of, or a present or former officer, employee, or agent of, the Corporation or of a related corporation and has not been made or threatened to be made a party to the proceeding in question. (c) The committee, once established, is not subject to direction, control, or termination by the Board. A vacancy on the committee may be filled by a majority vote of the remaining members. The good faith determinations of the committee are binding upon the Corporation and its directors, officers and shareholders. The committee's existence shall terminate upon issuance of the final written report of its determinations. (d) A disinterested person appointed to a committee so established is deemed to be a director for the period of existence of the committee but has no power to act as a director except in conjunction with the activities of the committee. Section 8. Executive Committee. (Adopted on April 26, 1983.) The Board of Directors may by resolution or resolutions, passed by a majority of the total number of directors, designate an Executive Committee of three directors, one of whom shall be an executive of the Company (an "inside" board member) and one of whom shall be independent of management (an "outside" board member). The Board shall designate one member of this Committee as Chairman. The Executive Committee shall not have authority to alter or amend the By-Laws, but shall exercise all other powers of the Board of Directors between the meetings of said Board, except the power to fill vacancies in the Board and in their own membership, which vacancies shall be filled by the Board of Directors. The Board of Directors shall have the power at any time to change the membership of or to dissolve the Executive Committee. The Committee shall take no action except by unanimous approval of all its members. The Committee shall meet at the request of the Chairman or any member with proper notice. Regular minutes will be kept of Executive Committee proceedings and shall be reported at the next following meeting of the Board of Directors to become a part of the record at that Board meeting at which they are presented. Section 9. Nominations. (Adopted on October 18, 1985.) No candidate may be nominated for election as a director at the annual meeting of shareholders, and no votes cast in his or her name for election shall be counted, unless the nomination of such person has been previously submitted to the Board of Directors or its nominating committee in accordance with the provisions of this Article II. If such nomination has been duly submitted, the nominee may be nominated for election at any meeting held within twelve months thereafter, notwithstanding the fact that such nominee is not listed as an alternate candidate in the proxy furnished by management. Section 10. Designation of Nominees. (Adopted on October 18, 1985 and Amended on March 6, 1990.) The Board of Directors, or a nominating committee duly appointed by the Board and composed of directors not candidates for election at the annual meeting, shall have the sole authority to designate candidates to be nominated by management for election as directors of the Corporation by the shareholders. Any holder of voting shares of the Corporation may submit the nomination of a candidate or candidates for election as director at the next meeting of shareholders at which an election is to be held. Section 11. Information Required. (Adopted on October 18, 1985 and Amended on March 6, 1990.) Each nomination for the office of director must be submitted to the Secretary of the Corporation no later than sixty (60) days following the end of the Corporation's fiscal year. Nominations shall only be deemed to have been submitted on the date on which all of the following has been received by the Corporation: (a) all information about the nominee which may be required to be provided with any proxy or information statement pursuant to the Securities Exchange Act of 1934, as amended, and rules promulgated thereunder; (b) a completed copy of the questionnaire required by the Corporation for all director nominees, executed by the nominee; (c) a statement signed by the nominee consenting to his nomination and agreeing, if elected, to serve as a director of the Corporation; and (d) if submitted by a shareholder, appropriate evidence that the person submitting the nomination is a shareholder of the Corporation. Copies of all appropriate forms for nomination required hereunder shall be made available by the Secretary of the Corporation upon request of, and without charge to, any shareholder. Section 12. Alternate Nominees. (Adopted on October 18, 1985.) The Board of Directors, or its duly appointed nominating committee, may designate one or more nominees submitted by shareholders in accordance with Section 11 hereof, to appear as alternate candidates on any proxy solicited by, or in any proxy or information statement furnished by, management in connection with such annual meeting. The number of alternate candidates for election shall not exceed the number of directors to be elected at the annual meeting for which nominations are made. The Board of Directors, or its duly appointed nominating committee, may use any means it deems reasonably appropriate to determine which shareholder nominees, if any, may be listed as alternate candidates on management's proxy and in any proxy or information statement supplied by the Corporation in connection with such annual meeting of shareholders. ARTICLE III Officers Section 1. Number of Officers. (Amended on April 21, 1987.) The officers of the Corporation shall consist of a Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Secretary, Treasurer, and such other officers and assistant officers and agents as may be chosen by the Board of Directors from time to time. Any two offices may be held by one person. Section 2. Election; Vacancies; Tenure. Officers shall be chosen at the annual meeting of the Board of Directors, to hold office until the next annual meeting or until their successors are chosen and qualified. Any officer may be removed with or without cause by the affirmative vote of a majority of the Board of Directors. Any vacancy shall be filled by the affirmative vote of a majority of the directors, and an officer so chosen shall hold office until his successor is chosen and qualified. In the absence of an election or appointment of a Chief Executive Officer or Chief Financial Officer by the board, the person or persons exercising the principal functions of those offices are respectively deemed to have been elected to those offices. Section 3. Chairman of the Board. The Chairman of the Board of Directors shall preside at all meetings of shareholders and directors and shall perform such other duties as may be prescribed from time to time by these By-Laws or by the Board of Directors. Section 4. Chief Executive Officer. The Chief Executive Officer shall: (a) Have general active management of the business of the Corporation; (b) When present, and in absence of the Chairman, preside at all meetings of the board and of the shareholders; (c) See that all orders and resolutions of the board are carried into effect; (d) Perform such duties as shall be delegated by the board; and (e) Render to the Board, whenever requested, an account of all transactions by the Chief Executive Officer. Section 5. President. The President shall: (a) Perform such duties as shall be delegated by the Board or by the Chief Executive Officer; and (b) Render to the Chief Executive Officer or the Board, whenever requested, an account of all transactions by the President. Section 6. Chief Financial Officer. The Chief Financial Officer shall: (a) Keep accurate financial records for the Corporation; (b) Deposit all money, drafts, and checks in the name of and to the credit of the Corporation in the banks and depositories designated by the Board; (c) Endorse for deposit all notes, checks, and drafts received by the Corporation as ordered by the Board, making proper vouchers therefor; (d) Disburse corporate funds and issue checks and drafts in the name of the Corporation, as ordered by the Board; (e) Render to the Chief Executive Officer or the Board, whenever requested, an account of all transactions by the Chief Financial Officer and of the financial condition of the Corporation; and (f) Perform such duties as shall be delegated by the Board or by the Chief Executive Officer. Section 7. Treasurer. The Treasurer shall: (a) Perform such duties as shall be delegated by the Board, the Chief Executive Officer or the Chief Financial Officer; and (b) Render to the Chief Financial Officer, the Chief Executive Officer or the Board, whenever requested, an account of all transactions by the Treasurer. Section 8. Vice President. Each Vice President shall perform such duties as may be prescribed from time-to-time by these By-Laws, the Board of Directors or the Chief Executive Officer. Section 9. Secretary. The Secretary shall give proper notice of meetings of shareholders and Board of Directors and other notices required by law or by these By-Laws. He shall attend all meetings of the shareholders and Board of Directors and shall maintain records of, and, whenever necessary, certify all proceedings of the Board and the shareholders. He shall also perform all duties as these By-Laws, the Board of Directors, or the Chief Executive Officer may from time to time prescribe. Section 10. Salaries. The salaries of all officers shall be fixed by the Board of Directors and the fact that any officer is a director shall not preclude him from receiving a salary or from voting upon the resolution providing same. Section 11. Contracts. (Amended on July 18, 1986.) Except as otherwise provided by the Board of Directors from time-to-time, all formal contracts of this Corporation shall be executed on its behalf by the Chief Executive Officer, the President, or the Chief Financial Officer. Section 12. Expenses and Unreasonable Compensation. In the event any expenses authorized to be reimbursed to an officer of this Corporation shall be disallowed as a deduction to this Corporation, such expenses shall be deemed to be additional compensation to such officers for the period in which received; provided, further, that if in the event the treatment of such expenses as additional compensation, or any other payments of salaries, bonuses, medical reimbursements or other benefits paid to an officer of the Corporation shall be deemed unreasonable compensation and disallowed as a deduction to this Corporation, then such officer shall be obligated to immediately repay to the Corporation the full amount of any such disallowance and the Board of Directors shall take whatever action as, in the opinion of counsel to the Corporation, may be deemed necessary to collect such disallowance. Section 13. Indemnity. Each present or future director or officer, whether or not then in office, and the executors, administrators, or other legal representative of any such director or officer, shall be fully indemnified by the Corporation, in the manner and to the extent allowed by Minnesota Statutes 302A.521, or any amendment thereto. ARTICLE IV Capital Stock Section 1. Issuance of Shares. The capital stock, including both authorized but previously unissued shares, may be issued for such consideration, not less than the par value thereof in the case of shares having par value, as shall be fixed from time to time by the Board of Directors. Section 2. Transfer of Shares. (Adopted on January 19, 1993.) The shares of the Corporation shall be transferable on the books of the Corporation: (a) in the case of those shares represented by certificates, only upon surrender of each certificate representing the same or with separate written assignment accompanying the certificates, or (b) in the case of shares without certificates, by delivery of written assignment in respect of the shares being transferred. In either case, such certificate or written assignment shall be properly endorsed by the registered holder or by his duly authorized attorney, and any written assignment shall be in form and substance satisfactory to the Corporation. Within a reasonable time after the issue or transfer of shares without certificates, the Corporation shall send the shareholder a written statement of any information required by Section 302A.417, Subd. 7 of the Minnesota Business Corporation Act and by Section 336.8-408 of the Minnesota Uniform Commercial Code, as each may be amended from time to time. Section 3. Certificates of Stock. (Adopted on January 19, 1993.) Each holder of the shares of the Corporation shall be entitled to a certificate signed by the Chairman, Chief Executive Officer or President and by the Chief Financial Officer, Treasurer or Secretary of the Corporation and sealed with the seal of the Corporation, if any, or a facsimile thereof. The certificates shall be in such form as shall be approved by the Board of Directors. However, unless the Board of Directors shall provide otherwise, and except for shares which are subject to any restriction as to transfer, all of the shares of any or all of the Corporation's classes or series may be issued without certificates. Shares represented by certificates shall not be re-issued without certificates except upon the request of the shareholder and until the certificate is surrendered to the Corporation. A holder of such uncertificated shares may request that a certificate be provided to such holder by giving notice to the Secretary of the Corporation. For the purposes of Section 3(d) of Article VIII of the Articles of Incorporation relating to redemption of the Corporation's shares, the term "certificates" shall mean certificates or, in the case of shares without certificates, written assignment. Section 4. Transfer Agent and Registrar. (Adopted on January 19, 1993.) The Board of Directors may appoint a transfer agent and registrar and may require that any stock certificates issued bear the countersignature of said transfer agent and registrar. The Board of Directors shall have authority to make and alter such rules and regulations as they may deem expedient concerning issue, transfer and registration of shares of the stock of the Corporation and rights or options relating thereto. Section 5. Record Date. The Board of Directors may fix a time, not exceeding sixty (60) days preceding the date of any meeting of shareholders, as the record date for determination of shareholders entitled to notice of and to vote at such meeting and not exceeding forty (40) days preceding the date fixed for payment of any dividends, delivery of any rights, or other distribution allowed by law. Section 6. Lost Certificates. Any person claiming a certificate of stock to be lost, stolen, or destroyed shall furnish an affidavit of such fact and shall furnish an appropriate bond of indemnity in form, substance, amount and with surety satisfactory to legal counsel for the Corporation, in which bond the Corporation and the Transfer Agent and Registrar shall be named as obligees. Section 7. Definitions. (Adopted on October 18, 1985.) The following definitions shall apply herein: (a) "Acquiring person" means a person, corporation or other entity proposing to make a control share acquisition, but does not include a licensed broker/dealer or underwriter who (i) purchases shares of the Corporation solely for purposes of resale to the public, and (ii) is not acting in concert with an acquiring person. (b) "Beneficial owner" includes, but is not limited to, any person who directly or indirectly through any contract, arrangement, understanding, relationship, or otherwise has or shares the power to vote or direct the voting of any shares of the Corporation and the power to dispose of, or direct the disposition of, such shares. "Beneficial ownership" includes, but is not limited to, the right, exercisable within 60 days, to acquire securities through the exercise of options, warrants, or rights or the conversion of convertible securities, or otherwise. The shares subject to these options, warrants, rights, or conversion privileges held by a person shall be deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by this person, but shall not be deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person. A person is the beneficial owner of securities beneficially owned by any relative or spouse or relative of the spouse residing in the home of this person, any trust or estate in which this person owns ten percent or more of the total beneficial interest or serves as trustee or executor, any corporation or entity in which this person owns ten percent or more of the equity, and any affiliate or associate of this person. (c) "Control share acquisition" means an acquisition of shares of the Corporation resulting in beneficial ownership by an acquiring person of a new range of voting power specified in Section 8(d), but does not include any of the following: (1) an acquisition before, or pursuant to an agreement entered into before, the date of adoption of this section of Article IV of the By-Laws; (2) an acquisition by a donee pursuant to an inter vivos gift not made to avoid the provisions of Sections 7 through 14 of Article IV or by a distributee as defined in Minn. Stat. Section 524.2-201, clause (10); (3) an acquisition pursuant to a security agreement not created to avoid the provisions of Sections 7 through 14 of Article IV; (4) an acquisition of shares of the Corporation pursuant to a merger or exchange of shares, if the Corporation is a party to the transaction; or (5) an acquisition of shares from the Corporation. Section 8. Information Statement. (Adopted on October 18, 1985.) An acquiring person shall deliver to the Corporation at its principal executive office an information statement containing all of the following: (a) The identity of the acquiring person; (b) a reference that the statement is made under this section of the By-Laws; (c) the number of shares of the Corporation beneficially owned by the acquiring person; (d) a specification of which of the following ranges of voting power in the election of directors would result from consummation of the control share acquisition: (1) at least 20 percent but less than 33-1/3 percent; (2) at least 33-1/3 percent but not more than 50 percent; and (3) over 50 percent. (e) the terms of the proposed control share acquisition, including, but not limited to, the source of funds or other consideration and the material terms of the financial arrangements for the control share acquisition, plans or proposals of the acquiring person to liquidate the Corporation, to sell all or substantially all of its assets, or merge it or exchange its shares with any other person, to change the location of its principal executive office or of a material portion of its business activities, to change materially its management or policies of employment, to alter materially its relationship with suppliers or customers or the communities in which it operates, or make any other material change in its business, corporate structure, management or personnel, and such other objective facts as would be substantially likely to affect the decision of a shareholder with respect to voting on the proposed control share acquisition. Section 9. Special Meeting. (Adopted on October 18, 1985.) Within 5 days after receipt of an information statement pursuant to Section 8, the Corporation shall call a special meeting of the shareholders to vote on the proposed control share acquisition. The meeting shall be held no later than 55 days after receipt by the Corporation of the information statement, unless the acquiring person agrees to a later date, and no sooner than 30 days after receipt of the information statement, if the acquiring person so requests in writing when delivering the information statement. The notice of the meeting shall be, at a minimum, accompanied by a copy of the information statement and a statement disclosing that the Board of Directors of the Corporation (i) recommends acceptance of, (ii) expresses no opinion and is remaining neutral toward, (iii) recommends rejection of, or (iv) is unable to take a position with respect to, the proposed control share acquisition. The notice of meeting shall be given within 20 days after receipt of the information statement. Section 10. Consummation of Acquisition. (Adopted on October 18, 1985.) The acquiring person may consummate the proposed control share acquisition if and only if both of the following occur: (a) the proposed control share acquisition is approved by the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote under applicable Minnesota law; and (b) the proposed control share acquisition is consummated within 180 days after shareholder approval. Section 11. Failure to Comply. (Adopted on October 18, 1985.) All shares of the Corporation acquired by an acquiring person in violation of Section 10 shall be: (a) denied voting rights for one year after acquisition; (b) nontransferable on the books of the Corporation for one year after acquisition; and (c) subject to the Corporation's option, during such one-year period, to call the shares for redemption at the price at which the shares were acquired. Such redemption shall occur on the date set in the call notice, which shall not be later than 60 days after the call notice is given. Section 12. Proxy Solicitation. (Adopted on October 18, 1985.) Notwithstanding any contrary provision of these By-Laws, a proxy relating to a meeting of shareholders required under Section 9 of this Article IV must be solicited separately from the offer to purchase or solicitation of an offer to sell shares of the Corporation. Except for irrevocable proxies appointed in the regular course of business and not in connection with a control share acquisition, all proxies appointed for or in connection with the shareholder authorization of a control share acquisition pursuant Sections 7 through 14 of Article IV shall be at all times terminable at will prior to the obtaining of the shareholder authorization, whether or not the proxy is coupled with an interest. Without affecting any vote previously taken, the proxy may be terminated in any manner permitted by Minnesota statutes or by giving oral notice of the termination in the open meeting of shareholders held pursuant to Section 9 hereof. The presence at a meeting of the person appointing a proxy does not revoke the appointment. Section 13. Amendments or Repeal. (Adopted on October 18, 1985.) Notwithstanding any contrary provision of these By-Laws, the provisions of Sections 7 through 14 of this Article may be amended or repealed by the shareholders only by the affirmative vote of the holders of 85% of each class of shares of the Corporation entitled to exercise the voting power of the Corporation; provided, however, that if no person holds more than twenty percent (20%) of the Voting Shares and there is no control share acquisition of which the Board of Directors has credible notice, the necessary vote for amendment or repeal may be reduced by the Board of Directors to not less than a majority of the outstanding shares in each class; and provided further that no amendment or repeal of Sections 7 through 14 of this Article adopted after the notice to shareholders referred to in Section 9 herein is given shall affect the rights of any shareholder under said Sections 7 through 14. Section 14. Dissenting Shareholders. (Adopted on October 18, 1985.) Shareholders dissenting from a control share acquisition for which approval of shareholders is sought shall have the right to obtain fair value of their shares, pursuant to the provisions of Minnesota Statutes 302A.473 (1985), as amended. ARTICLE V Miscellaneous Section 1. Seal. The corporate seal, if any, shall be circular in form and have inscribed thereon the name of the Corporation, the State in which it is incorporated and the words "corporate seal." Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board of Directors. ARTICLE VI Amendments These By-Laws may be altered, amended or repealed by the Board of Directors, subject to the power of the shareholders, by the affirmative vote of a majority of the shareholders entitled to vote, at any meeting, to change or repeal such By-Laws; provided that notice of such proposed amendment shall have been given in the notice of such meeting. The Board of Directors shall not make or alter any By-Law fixing their number, qualifications, classifications or terms of office. EX-4.1 4 PENTAIR, INC. and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION Rights Agent Rights Agreement Dated as of July 21, 1995 TABLE OF CONTENTS Page Section 1. Certain Definitions. . . . . . 1 Section 2. Appointment of Rights Agent. . 3 Section 3. Issue of Right Certificates. . 3 Section 4. Form of Right Certificates . . 4 Section 5. Countersignature and Registration 5 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates . . . . . . 5 Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. . . 6 Section 8. Cancellation and Destruction of Right Certificates . . . . . . . . . 7 Section 9. Reservation and Availability of Common Shares. . . . . . . . . 7 Section 10. Common Shares Record Date . . 8 Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights 8 Section 12. Certificate of Adjusted Purchase Price or Number of Shares . . 13 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power 14 Section 14. Fractional Rights and Fractional Shares. . . . . . . . . . . . 15 Section 15. Rights of Action. . . . . . . 16 Section 16. Agreement of Right Holders. . 16 Section 17. Right Certificate Holder Not Deemed a Shareholder . . . . . . . . 17 Section 18. Concerning the Rights Agent . 17 Section 19. Merger or Consolidation or Change of Name of Rights Agent. . . . . 17 Section 20. Duties of Rights Agent. . . . 18 Section 21. Change of Rights Agent. . . . 19 Section 22. Issuance of New Right Certificates 20 Section 23. Redemption. . . . . . . . . . 20 Section 24. Exchange. . . . . . . . . . . 21 Section 25. Notice of Certain Events. . . 22 Section 26. Notices . . . . . . . . . . . 22 Section 27. Supplements and Amendments. . 23 Section 28. Successors. . . . . . . . . . 23 Section 29. Benefits of this Agreement. . 24 Section 30. Severability. . . . . . . . . 24 Section 31. Governing Law . . . . . . . . 24 Section 32. Counterparts. . . . . . . . . 24 Section 33. Descriptive Headings. . . . . 24 Exhibit A - Form of Right Certificate Exhibit B - Summary of Rights to Purchase Common Shares RIGHTS AGREEMENT This Agreement, dated as of July 21, 1995, between Pentair, Inc., a Minnesota corporation (the "Company"), and Norwest Bank Minnesota, National Association (the "Rights Agent"). WHEREAS, the Board of Directors of the Company has authorized and declared a dividend of one common share purchase right (a "Right") for each Common Share (as hereinafter defined) of the Company outstanding on July 31, 1995 (the "Record Date") payable on July 31, 1995 (the "Payment Date"), and has authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined), each Right representing the right to purchase one Common Share of the Company, subject to adjustment as hereinafter provided, and upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the Common Shares of the Company then outstanding, but shall not include the Company, any Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, any entity holding Common Shares for or pursuant to the terms of any such plan, or any trustee, administrator or fiduciary of such a plan. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; provided, however, that if a Person becomes the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares (other than Common Shares acquired solely as a result of corporate action of the Company not caused, directly or indirectly, by such Person) of the Company, then such Person shall be deemed to be an "Acquiring Person." (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement. (c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the Company. Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding," when used with reference to a Person's Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to beneficially own hereunder. (d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of Minnesota are authorized or obligated by law or executive order to close. (e) "Close of business" on any given date shall mean 5:00 P.M., St. Paul, Minnesota time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., St. Paul, Minnesota time, on the next succeeding Business Day. (f) "Common Shares" when used with reference to the Company shall mean the shares of common stock, par value $.16-2/3 per share of the Company, or shares having equivalent rights, privileges and preferences to common stock. "Common Shares" when used with reference to any Person other than the Company shall mean the capital stock (or equivalent equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person. (g) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (h) "Final Expiration Date" shall have the meaning set forth in Section 7 hereof. (i) "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. (j) "Redemption Date" shall have the meaning set forth in Section 7 hereof. (k) "Shares Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall includes, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such. (l) "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of Common Shares) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth Business Day (or such later date as may be determined by action of the Company's Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement of, or of the first public announcement of the intention of any Person to commence, a tender or exchange offer the consummation of which would result in any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, any entity holding Common Shares for or pursuant to the terms of any such plan, or any trustee, administrator or fiduciary of such a plan) becoming the Beneficial Owner of Common Shares of the Company aggregating 15% or more of the then outstanding Common Shares (including in either case any such date which is after the date of this Agreement and prior to the Payment Date; the earlier of such dates being herein referred to as the "Distribution Date"; provided, however, that if the tenth day or Business Day, as the case may be, after the pertinent date occurs before the Record Date, "Distribution Date" shall mean the Record Date), (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, a Right Certificate, in substantially the form of Exhibit A hereto (a "Right Certificate"), evidencing one Right for each Common Share so held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (b) The Company has prepared a Summary of Rights to Purchase Common Shares, attached as Exhibit B hereto (the "Summary of Rights"), a copy of which is available free of charge from the Company. With respect to certificates for Common Shares outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such stock certificates registered in the names of the holders thereof. Until the Distribution Date (or the earlier of the Redemption Date or the Final Expiration Date), the surrender for transfer of any certificate for Common Shares outstanding on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. (c) Certificates for Common Shares which become outstanding (including, without limitation, reacquired Common Shares referred to in the last sentence of this paragraph (c)) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend (provided, however, that certificates for Common Shares in existence on the Record Date may bear the legend required by the Company's predecessor rights agreement): This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Pentair, Inc. and Norwest Bank Minnesota, National Association (the "Rights Agent"), dated as of July 21, 1995, as such agreement may be amended (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Pentair, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Pentair, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether held by such Person or any subsequent holder, shall become null and void. With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. In the event that the Company purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date, any Rights associated with such Common Shares shall be deemed cancelled and retired. Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to purchase Common Shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit A hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 22 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of Common Shares as shall be set forth therein at the price per Common Share set forth therein (the "Purchase Price"), but the amount and type of securities purchasable upon exercise of each Right and the Purchase Price shall be subject to adjustment as provided herein. Section 5. Countersignature and Registration. (a) The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer or any Vice President, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the individual who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such individual was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date and certificate number of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a) Subject to the provisions of Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of Common Shares as the Right Certificate or Right Certificates surrendered then entitle such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each Common Share as to which the Rights are exercised, at or prior to the earliest of (i) the close of business on July 31, 2005 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date"), and (iii) the time at which such Rights are exchanged as provided in Section 24 hereof. (b) The Purchase Price for each Common Share pursuant to the exercise of Rights shall initially be $160.00, shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America or in Common Shares of the Company in accordance with paragraph (c) below. (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the Common Shares to be purchased as set forth below and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof, as set forth below, the Rights Agent shall thereupon promptly (i) requisition from any transfer agent of the Common Shares certificates for the number of Common Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional Common Shares in accordance with Section 14 hereof, (iii) after receipt of such certificates, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder, and (iv) when appropriate, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified check, cashier's check, bank draft or money order payable to the order of the Company, except that, if so provided by the Board of Directors of the Company, the payment of the Purchase Price following the occurrence of a Section 11(a)(ii) Event (as such term is hereinafter defined) and until the first occurrence of a Section 13 Event (as such term is hereinafter defined) may be made wholly or in part by delivery of a certificate or certificates (with appropriate stock powers executed in blank attached thereto) evidencing a number of Common Shares of the Company equal to the then Purchase Price divided by the closing price (as determined pursuant to Section 11(d) hereof) per Common Share on the Trading Day (as such term is hereinafter defined) immediately preceding the date of such exercise. If the Company is obligated to issue other securities of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to take any action with respect to a registered holder of a Right Certificate upon the occurrence of any purported transfer, assignment or exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate following the form of assignment or election to purchase set forth on the reverse of the Right Certificate surrendered for such transfer, assignment or exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company or shall, at the written request of the Company, destroy such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Common Shares. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Common Shares the number of Common Shares that will be sufficient to permit the exercise in full of all outstanding Rights in accordance with Section 7. (b) If the Common Shares issuable upon the exercise of Rights are then listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all Common Shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Common Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares (except as otherwise provided by any corporation law applicable to the Company). (d) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any Common Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates for the Common Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates for Common Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. Section 10. Common Shares Record Date. Each Person in whose name any certificate for Common Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Shares transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Shares transfer books of the Company are open. Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights. The Purchase Price, the number of Common Shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (A) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Common Shares payable in Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding Common Shares into a smaller number of Common Shares or (D) issue any shares of its capital stock in a reclassification of the Common Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Common Shares transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. If an event occurs which would require an adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii). (i) Subject to Section 24 of this Agreement, in the event any Person shall become an Acquiring Person, other than pursuant to any transaction set forth in Section 13(a), each holder of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then current Purchase Price multiplied by the number of Common Shares for which a Right is then exercisable, in accordance with the terms of this Agreement, such number of Common Shares of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of Common Shares for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Common Shares (determined pursuant to Section 11(d)) on the date the Person became an Acquiring Person (such number of shares, the "Adjustment Shares"). From and after such time as a Person becomes an Acquiring Person (a "Section 11(a)(ii) Event"), any Rights that are or were acquired or beneficially owned by such Acquiring Person (or any Associate or Affiliate of such Acquiring Person) shall be void and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Agreement. No Right Certificate shall be issued pursuant to Section 3 that represents Rights beneficially owned by an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof; no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be void pursuant to the preceding sentence shall be cancelled. (ii) In the event that there shall not be sufficient Common Shares of the Company authorized but unissued (and not reserved for issuance for purposes other than upon exercise of the Rights) to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Company shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value") over (2) the Purchase Price (such excess, the "Spread"), and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock which the Board of Directors of the Company has deemed to have the same value as Common Shares (such shares of preferred stock, hereinafter referred to as ("common stock equivalents")), (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, if the Company shall not have made adequate provision to substitute for the Adjustment Shares pursuant to clause (B) above within thirty (30) days following the occurrence of a Section 11(a)(ii) Event (the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, Common Shares (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional Common Shares might be authorized for issuance for exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to the last paragraph of Section 11(a)(ii) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Shares shall be the current per share market price (as determined pursuant to Section 11(d) hereof) of the Common Shares on the Section 11(a)(ii) Trigger Date and the value of any "common stock equivalent" shall be deemed to have the same value as the Common Shares on such date. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a price per Common Share (or having a conversion price per share, if a security convertible into Common Shares) less than the then current per share market price of the Common Shares (as defined in Section 11(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date plus the number of Common Shares which the aggregate offering price of the total number of Common Shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Common Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the making of a distribution to all holders of the Common Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Common Shares) or subscription rights or warrants (excluding those referred to in Section 11(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Common Shares (as defined in Section 11(d)) on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Common Share and the denominator of which shall be such current per share market price of the Common Shares; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) For the purpose of any computation hereunder, the "current per share market price" of the Common Shares on any date shall be deemed to be the average of the daily closing prices per Common Share for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Common Shares is determined during a period following the announcement by the issuer of such Common Shares of (i) a dividend or distribution on such Common Shares payable in Common Shares or securities convertible into Common Shares, or (ii) any subdivision, combination or reclassification of Common Shares and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per Common Share. The closing price for each Trading Day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("Nasdaq") or such other system then in use, or, if on any such date the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading or Nasdaq, as the case may be, is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange or Nasdaq, as the case may be, a Business Day. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights. (f) If, as a result of an adjustment made pursuant to Section 11(a), the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Common Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Shares contained in Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 with respect to the Common Shares shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of Common Shares purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Common Shares (calculated to the nearest ten-thousandth of a Common Share) obtained by (i) multiplying (x) the number of Common Shares covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of Common Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of Common Shares for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates to be so distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of Common Shares issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of Common Shares which were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the par value, if any, of the Common Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable (except as otherwise provided by any corporation law applicable to the Company) Common Shares at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Shares, issuance wholly for cash of any Common Shares at less than the current market price, issuance wholly for cash of Common Shares or securities which by their terms are convertible into or exchangeable for Common Shares, dividends on Common Shares payable in Common Shares or issuance of rights, options or warrants referred to hereinabove in Section 11(b), hereafter made by the Company to holders of Common Shares shall not be taxable to such shareholders. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights. (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23, Section 24 or Section 27 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) In the event that, following the Shares Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding Common Shares shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof), then, and in each such case, proper provision shall be made so that: (i) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then current Purchase Price multiplied by the number of Common Shares for which a Right is then exercisable (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of any of the events described in clauses (x), (y) or (z) above (a "Section 13 Event"), the Purchase Price in effect immediately prior to the first occurrence of a Section 11(a)(ii) Event multiplied by the number of Common Shares for which a Right was exercisable immediately prior to such first occurrence), in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, nonassessable (except as otherwise required by any corporation law applicable to the Principal Party (as such term is hereinafter defined)) and freely tradeable Common Shares of the Principal Party, not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of Common Shares for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such shares for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by (2) 50% of the current market price (determined pursuant to Section 11(d) hereof) per Common Share of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event. (b) "Principal Party" shall mean (i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which Common Shares are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; provided, however, that in any such case, (1) if the Common Shares of such Person are not at such time and have not been continuously over the preceding twelve (12) month-period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Shares of which are and have been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Shares of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Shares having the greatest aggregate market value. (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized Common Shares which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will: (i) prepare and file a registration statement under the Securities Act of 1933, as amended (the "Act"), with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best effort to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Final Expiration Date; and (ii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a). Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by Nasdaq or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of Common Shares upon exercise of the Rights or to distribute certificates which evidence fractional Common Shares. In lieu of fractional Common Shares, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Common Share. For purposes of this Section 14(b), the current market value of a Common Share shall be the closing price of a Common Share (as determined pursuant to the second sentence of Section 11(d) hereof) for the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided above). Section 15. Rights of Action. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement. Section 16. Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. Right Certificate Holder Not Deemed a Shareholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or other distributions or be deemed for any purpose the holder of the Common Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Right Certificate or certificate for the Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons, or otherwise upon the advice of counsel as set forth in Section 20 hereof. Section 19. Merger or Consolidation or Change of Name of Rights Agent. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer or corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the ascertaining of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Common Shares or other securities to be issued pursuant to this Agreement or any Right Certificate or as to whether any Common Shares or other securities will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be by required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. (h) The Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in, or act as the transfer agent for, any of the Rights, Common Shares or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or of the State of Minnesota or the State of New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of Minnesota or the State of New York), in good standing, having an office in the State of Minnesota or the State of New York, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million, or (b) an Affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. Section 23. Redemption. (a) The Rights may be redeemed by action of the Board of Directors pursuant to subsection (b) of this Section 23 and shall not be redeemed in any other manner. (b) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) the close of business on the tenth day following the Shares Acquisition Date (or, if the Shares Acquisition Date shall have occurred prior to the Record Date, the close of business on the tenth day following the Record Date), or (ii) the Final Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $.01 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company's right of redemption hereunder has expired. (c) Immediately upon the effectiveness of the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to subsection (b) of this Section 23 and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after the effectiveness of the action of the Board of Directors ordering the redemption of the Rights pursuant to subsection (b), the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 or Section 30 hereof, and other than in connection with the purchase of Common Shares prior to the Distribution Date. Section 24. Exchange. (a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares of the Company at an exchange ratio of one Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, any entity holding Common Shares for or pursuant to the terms of any such plan, or any trustee, administrator or fiduciary of such a plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Shares then outstanding. (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to subsection (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights. (c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute common stock equivalents (as such term is defined in Section 11(a)(iii) hereof) for some or all of the Common Shares exchangeable for Rights. (d) In the event that there shall not be sufficient Common Shares or common stock equivalents authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional Common Shares or common stock equivalents for issuance upon exchange of the Rights. (e) The Company shall not be required to issue fractions of Common Shares or to distribute certificates which evidence fractional Common Shares. In lieu of such fractional Common Shares, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional Common Shares would otherwise be issued an amount in cash equal to the same fraction of the current market value of a whole Common Share. For the purposes of this paragraph (e), the current market value of a whole Common Share shall be the closing price of a Common Share (as determined pursuant to the second sentence of Section 11(d) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24. Section 25. Notice of Certain Events. (a) In case the Company shall propose, after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Common Shares or to make any other distribution to the holders of Common Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of Common Shares rights or warrants to subscribe for or to purchase any additional Common Shares or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of Common Shares (other than a reclassification involving only the subdivision of outstanding Common Shares), (iv) to effect any consolidation or merger into or with (other than a merger of a Subsidiary into or with the Company), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of Common Shares for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares, whichever shall be the earlier. (b) In case any Section 11(a)(ii) Event or Section 13 Event shall occur, then the Company shall as soon as practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall include a brief summary of the Section 11(a)(ii) Event or Section 13 Event, as the case may be, and the consequences thereof to holders of Rights. Section 26. Notices. (a) Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Pentair, Inc. 1700 West Highway 36 St. Paul, Minnesota 55113 Attention: Corporate Secretary (b) Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Norwest Bank Minnesota, National Association P. O. Box 738 161 North Concord Exchange South St. Paul, Minnesota 55075 Attention: _____________________ (c) Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. Prior to the Distribution Date and subject to the penultimate sentence of this Section 27, the Company may and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing Common Shares. Without limiting the foregoing, the Company may at any time prior to such time as any Person becomes an Acquiring Person amend this Agreement to lower the thresholds set forth in Sections 1(a) and 3(a) hereof from 15% to not less than 10%, with appropriate exceptions for Persons then beneficially owning Common Shares of the Company constituting a percentage of the number of Common Shares then outstanding equal to or in excess of the new threshold. From and after the Distribution Date and subject to the penultimate sentence of this Section 27, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Right Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, (iii) to shorten or lengthen any time period hereunder, or (iv) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Right Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided, that from and after the Distribution Date this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Rights are not then redeemable, or (B) any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price, the Purchase Price or the Final Expiration Date. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Shares. Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares). Section 30. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board of Directors. Section 31. Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Minnesota and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State and shall be subject to the exclusive jurisdiction of the courts of, and United States Federal Courts sitting in, such State. Section 32. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. PENTAIR, INC. Attest: By: ______________________________ By: _______________________________ Title: ______________________ Title: _______________________ NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION Attest: By: _____________________________ By: ______________________________ Title: _____________________ Title: ______________________ Exhibit A [Form of Right Certificate] Certificate No. R- _______ Rights NOT EXERCISABLE AFTER JULY 31, 2005 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. Right Certificate PENTAIR, INC. This certifies that ________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of July 21, 1995, and as such agreement may be amended (the "Rights Agreement"), between Pentair, Inc., a Minnesota corporation (the "Company"), and Norwest Bank Minnesota, National Association (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., St. Paul, Minnesota time, on July 31, 2005, at the principal office of the Rights Agent, or at the office of its successor as Rights Agent, one fully paid nonassessable share of common stock, par value $.16-2/3 per share ("Common Shares"), of the Company, at a purchase price of $160.00 per Common Share (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of Common Shares which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of July 21, 1995, based on the Common Shares as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of Common Shares which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the above-mentioned offices of the Rights Agent. This Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Common Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Right or (ii) may be exchanged in whole or in part for Common Shares. The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, but prior to such Person's acquisition of 50% or more of the outstanding Common Shares, exchange the Rights evidenced by this Certificate for Common Shares, at an exchange ratio of one Common Share per Right, subject to adjustment, as provided in the Rights Agreement. No fractional Common Shares will be issued upon the exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Common Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends, distributions or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ____________, ____. ATTEST: PENTAIR, INC. By Title: Countersigned: By Authorized Signature [Form of Reverse Side of Right Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificate.) FOR VALUE RECEIVED ______________________________ hereby sells, assigns and transfers unto ________________ (Please print name and address of transferee) __________________ this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________________, ____ _____________________________ Signature Signature Guaranteed: The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). _________________________ Signature - ---- [Form of Reverse Side of Right Certificate -- continued] FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Right Certificate.) To PENTAIR, INC.: The undersigned hereby irrevocably elects to exercise ____________________ Rights represented by this Right Certificate to purchase the Common Shares issuable upon the exercise of such Rights and requests that certificates for such Common Shares be issued in the name of: Please insert social security or other identifying number ______________________ (Please print name and address) ____________ If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number ________________ (Please print name and address) _______________________ Dated: ___________________, ____ _____________________________ Signature Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. [Form of Reverse Side of Right Certificate -- continued] - ----------------- The undersigned hereby certifies that the Rights evidenced by this Right Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). _____________________________ Signature - ----- NOTICE The signature in the foregoing Forms of Assignment and Election must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or Election to Purchase will not be honored. Exhibit B PENTAIR, INC. SUMMARY OF RIGHTS TO PURCHASE COMMON SHARES On July 21, 1995, the Board of Directors of Pentair, Inc. (the "Company") declared a dividend of one common share purchase right (a "Right") for each outstanding share of common stock, par value $.16-2/3 per share (the "Common Shares"), of the Company. The dividend is effective July 31, 1995 for shareholders of record on such date (the "Record Date"). Each Right entitles the registered holder to purchase from the Company one Common Share at a price of $160.00 per Common Share, subject to adjustment (the "Purchase Price"). The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Norwest Bank Minnesota, National Association, as Rights Agent (the "Rights Agent"). Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (other than the Company, a subsidiary of the Company or an employee benefit plan of the Company or a subsidiary) (an "Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding Common Shares (the "Shares Acquisition Date") or (ii) 10 business days (or such later date as may be determined by action of the Company's Board of Directors prior to such time as any person becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group (other than the Company, a subsidiary of the Company or an employee benefit plan of the Company or a subsidiary) of 15% or more of such outstanding Common Shares (the earlier of such dates being called the "Distribution Date"), the Rights will be evidenced, with respect to any of the Common Share certificates outstanding as of the Record Date, by such Common Share certificate. The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with the Common Shares. Until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Share certificates issued after the Record Date, upon transfer or new issuance of Common Shares, will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Shares, outstanding as of the Record Date, even without such notation, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on July 31, 2005 (the "Final Expiration Date"), unless the Rights are earlier redeemed or exchanged by the Company, in each case, as described below. The Purchase Price payable, and the number of Common Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Shares, (ii) upon the grant to holders of the Common Shares of certain rights or warrants to subscribe for or purchase Common Shares at a price, or securities convertible into Common Shares with a conversion price, less than the then current market price of the Common Shares or (iii) upon the distribution to holders of the Common Shares of evidences of indebtedness or assets (excluding regular quarterly cash dividends or dividends payable in Common Shares) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares will be issued. In lieu thereof, an adjustment in cash will be made based on the market price of the Common Shares on the last trading day prior to the date of exercise. The Purchase Price is payable by certified check, cashier's check, bank draft or money order or, if so provided by the Company, the Purchase Price following the occurrence of a Flip-In Event (as defined below) and until the first occurrence of a Flip-Over Event (as defined below) may be paid in Common Shares having an equivalent value. In the event that any person becomes an Acquiring Person (a "Flip-In Event"), the holders of Rights will thereafter have the right to receive upon exercise that number of Common Shares (or, in certain circumstances cash, property or other securities of the Company or a reduction in the Purchase Price) having a market value of two times the then current Purchase Price. Notwithstanding any of the foregoing, following the occurrence of a Flip-In Event all Rights will be null and void to the extent they are, or (under certain circumstances specified in the Rights Agreement) were, or subsequently become beneficially owned by an Acquiring Person, related persons and transferees. In the event that, at any time following the Shares Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction or (ii) 50% or more of its consolidated assets or earning power are sold (the events described in clauses (i) and (ii) are herein referred to as "Flip-Over Events"), proper provision will be made so that the holders of Rights will thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the then current Purchase Price. At any time after a person becomes an Acquiring Person and prior to the acquisition by such Acquiring Person of 50% or more of the outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such Acquiring Person which have become void), in whole or in part, at an exchange ratio of one Common Share (or of a share of a class or series of the Company's preferred stock having equivalent rights, preferences and privileges) per Right (subject to adjustment). At any time prior to the close of business on the tenth day following the Shares Acquisition Date, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption Price"). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Other than the Redemption Price, the Purchase Price and the Final Expiration Date, the terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, including an amendment to lower the threshold for exercisability of the Rights from 15% to 10%, with appropriate exceptions for any person then beneficially owning a percentage of the number of Common Shares then outstanding equal to or in excess of the new threshold, except that from and after the Distribution Date no such amendment may adversely affect the interests of the holders of the Rights. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A filed with respect to the Rights. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. EX-11 5 EXHIBIT 11 PENTAIR, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Six Months Ended Quarter Ended June 30 June 30 1995 1994 1995 1994 INCOME ($ thousands) Net income $43,900 $22,925 $28,550 $11,825 Preferred dividend requirements 2,657 2,731 1,327 1,365 Earnings available to common and common equivalent shares - Primary 41,243 20,194 27,223 10,460 Preferred dividends assuming conversion of Preferred Stock: Series 1988 497 511 247 255 Series 1990 2,160 2,220 1,080 1,110 Tax benefit on preferred ESOP dividend eliminated due to conversion into common (646) (527) (314) (263) Tax benefit on ESOP dividend assuming conversion to common, at common dividend rate 250 184 122 92 Earnings for fully diluted computation $43,504 $22,582 $28,358 $11,654 SHARES (thousands) Weighted average number of shares outstanding during the period 18,340 18,181 18,377 18,194 Shares issuable on exercise of stock options less shares repurchaseable from proceeds 244 195 239 186 Common and Common Equivalent Shares - Primary 18,584 18,376 18,616 18,380 Shares issuable on conversion of: $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988 496 511 494 510 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990 2,080 2,117 2,066 2,113 Common and Common Equivalent Shares - Fully Diluted 21,160 21,004 21,176 21,003 Earnings per share: Primary - Income from continuing operations $1.32 $1.04 $.64 $.57 discontinued operations .90 .06 .82 .00 Net Income $2.22 $1.10 $1.46 $.57 Diluted - Income from continuing operations $1.27 $1.03 $.62 $.56 discontinued operations .79 .05 .72 .00 Net Income $2.06 $1.08 $1.34 $.56
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