-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IYPo22XosGrJIqT7MXZBg26zOWMEqoW7mF1olZVLXr6keY57WNcs1es4wCwAfmWh DRCJiRF7epq+nwfk7AXzXw== 0000077360-99-000003.txt : 19990308 0000077360-99-000003.hdr.sgml : 19990308 ACCESSION NUMBER: 0000077360-99-000003 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990428 FILED AS OF DATE: 19990305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTAIR INC CENTRAL INDEX KEY: 0000077360 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY (NO METALWORKING MACHINERY) [3550] IRS NUMBER: 410907434 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: SEC FILE NUMBER: 001-11625 FILM NUMBER: 99558163 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 PRE 14A 1 SCHEDULE 14A - Information Required in Proxy Statement SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by Registrant [ X ] Filed by a Party other than Registrant [ ] Check appropriate box: [X] Preliminary Proxy Statement [ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e))2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to section 240.14a-11 (c) or section 240.14a-12 Pentair, Inc. (Name of Registrant as Specified in its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee previously paid with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: March 19, 1999 Dear Shareholder: Please join us at 10 a.m. on Wednesday, April 28, 1999, for Pentair's Annual Shareholders Meeting at the Northland Inn, Brooklyn Park, Minnesota. During the meeting, we will elect directors to the Company's board, appoint auditors, and conduct other business as described in the Proxy Statement. In addition, Pentair officers will provide a summary report on the Company's operations and financial performance in 1998, as well as expectations for 1999. There also will be opportunities for shareholders to ask questions. This year, we have included the detailed financial information relating to our business and operations during 1998 in an appendix to the Proxy Statement instead of in a separate annual report to shareholders. In our continuing effort to improve communications with our shareholders, we have prepared a new Summary Annual Report, which is also enclosed. We hope you will be able to attend the Annual Meeting. Whether or not you expect to attend, you are urged to vote your shares either by telephone (via the toll free number indicated on the accompanying proxy card), via the Internet, or by mail. If you choose to vote by mail, please complete, sign, date and return the accompanying proxy card in the enclosed envelope in order to ensure that your shares will be represented at the Annual Meeting. I look forward to discussing Pentair's performance with our shareholders and hope you will join us on April 28th. Sincerely, Winslow H. Buxton Chairman, President and Chief Executive Officer PENTAIR, INC. 1500 County Road B2 West Saint Paul, Minnesota 55113 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held April 28, 1999 To our Shareholders: The Annual Meeting of Shareholders of Pentair, Inc. (the "Company") will be held at the Northland Inn and Conference Center, 7025 Northland Drive, Brooklyn Park, Minnesota, on Wednesday, April 28, 1999, at 10:00 a.m., for the following purposes: 1. To elect five directors. 2. To vote on a proposal to ratify the selection of Deloitte & Touche LLP as independent auditors of the Company for 1999. 3. To amend the Restated Articles of Incorporation increasing the total number of shares authorized to be issued from 125,000,000 to 250,000,000. 4. To amend the restated Articles of Incorporation to increase from 15,000,000 to 30,000,000 the number of authorized shares that may be designated as preferred shares. 5. To amend the Restated Articles of Incorporation to eliminate all currently authorized series of preferred shares of the Company. 6. To transact such other business as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on March 1, 1999 as the record date for determining the shareholders entitled to vote at the Annual Meeting. Accordingly, only shareholders of record at the close of business on that date will be entitled to vote. The Company's transfer books will not be closed. By Order of the Board of Directors Roy T. Rueb, Secretary Saint Paul, Minnesota March 19, 1999 IMPORTANT: For the Annual Meeting to be legally held, there must be a quorum (50% plus 1 vote). Accordingly, you are urged to SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. This will not prevent you from voting in person if you so desire. TABLE OF CONTENTS FOR PROXY STATEMENT Page Solicitation 1 Revocation and Voting of Proxy 1 Outstanding Shares and Voting Rights 1 Security Ownership of Management and Beneficial Ownership 2 Proposals to be Acted Upon at the Annual Meeting Election of Directors 3 Approval of Auditors 7 Approval of Amendment to Restated Articles Increasing the Total Shares Authorized to be Issued 7 Approval of Amendment to Restated Articles to Eliminate All Currently Authorized Series of Preferred Shares 10 Executive Compensation 11 Future Proposals 20 Other Business 20 PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 28, 1999 PENTAIR, INC. 1500 County Road B2 West Saint Paul, Minnesota 55113 March 19, 1999 The following statement is furnished in connection with the solicitation of proxies by the Board of Directors of Pentair, Inc. (the "Company") to be voted at the Annual Meeting of Shareholders of the Company to be held on Wednesday, April 28, 1999, or at any adjournment or adjournments of such meeting. Distribution of this proxy statement and proxy to shareholders began on or about March 19, 1999. SOLICITATION The cost of soliciting proxies and the notices of the meeting, including the preparation, assembly and mailing of proxies and this statement, will be borne by the Company. In addition to this mailing, proxies may be solicited personally or by telephone by regular employees of the Company. Assistance in the solicitation of proxies is also being rendered by Morrow & Co., 445 Park Avenue, New York, New York, at a cost to the Company of $7,000 plus expenses. Furthermore, arrangements may be made with brokers, banks and similar organizations to send proxies and proxy materials to beneficial owners for voting instructions, for which the Company will reimburse such organizations for their expense in so doing and will pay all costs of soliciting the proxies. REVOCATION AND VOTING OF PROXY Any shareholder giving a proxy may revoke it prior to its use at the meeting by (1) delivering a written notice expressly revoking the proxy to the Secretary at the Company's offices, (2) signing and forwarding to the Company at its offices a later dated proxy, or (3) attending the Annual Meeting and casting his or her votes personally. A majority of the outstanding shares will constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business. Pursuant to Minnesota law and the Company's Articles of Incorporation, abstentions are counted in determining the total number of the votes cast on proposals presented to shareholders, but will not be treated as votes in favor of the proposals. Broker non-votes are not counted for purposes of determining the total number of votes cast on proposals presented to shareholders. Unless otherwise directed in the accompanying proxy, the persons named therein will vote FOR the directors and the other proposals set forth in this Notice of Annual Meeting of Shareholders. As to any other business which may properly come before the meeting, they will vote in accordance with their best judgment. The Company does not presently know of any other business. OUTSTANDING SHARES AND VOTING RIGHTS At the close of business on March 1, 1999, the record date, there were 42,700,179 shares of the Company's Common Stock par value $.16 2/3 per share (the "Common Stock") outstanding. Each share of Common Stock entitles the holder to one vote. There is no cumulative voting for directors. SECURITY OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERSHIP The following table contains information concerning the beneficial ownership of the Company's Common Stock as of March 1, 1999 by each director, by each executive officer listed in the Summary Compensation Table, by all directors and executive officers as a group and, as of December 31, 1998, by one person known to the Company to "beneficially own" more than 5% of its Common Stock.
Name of Obtainable % of Beneficial Common Share within Restricted ESOP Class Owner Stock(a) Units(b) 60 days(c) Stock(d) Stock(e) Total (f) George N. 18,619 31,597 7,890 0 0 58,106 Butzow Winslow H. 184,287 0 240,970 26,112 5,294 456,663 1.1% Buxton William J. 0 3,128 1,890 0 0 5,018 Cadogan Richard J. 19,616 0 58,049 4,642 1,371 83,678 Cathcart Joseph R. 85,194 0 71,549 5,850 4,940 167,533 Collins Barbara B. 2,400 5,437 1,890 0 0 9,727 Grogan Charles A. 4,000 9,757 7,890 0 0 21,647 Haggerty Harold V. 7,980 4,949 2,890 0 0 15,819 Haverty Quentin J. 21,069 13,369 6,890 0 0 41,328 Hietpas Richard W. 34,012 0 40,271 1,149 4,634 80,066 Ingman Walter 3,013 12,293 7,890 0 0 23,196 Kissling Richard M. 2,000 7,651 7,890 0 0 17,541 Schulze Karen E. 0 7,063 4,890 0 0 11,953 Welke James A. 28,956 0 26,044 1,827 4,129 60,956 White Directors and executive officers as a group 485,919 95,244 565,453 50,420 33,076 1,230,112 2.8% Brinson Partners, Inc.(g) 2,990,512 0 0 0 0 2,990,512 6.8% 209 South LaSalle St. Chicago, IL 60604-1295
(a)Unless otherwise noted, all shares are held either directly or indirectly by individuals possessing sole voting and investment power with respect to such shares. Beneficial ownership has been disclaimed of certain shares held by children which are not material. Amounts listed do not include 891,570 shares held by the Pentair, Inc. Master Trust for various pension plans of the Company and it subsidiaries. The Trust Investment Committee of such Master Trust includes Winslow H. Buxton, Richard W. Ingman and two other officers. Although these individuals could be deemed under applicable Securities and Exchange Commission rules to "beneficially own" all of the shares held by these Plans because of their shared voting and investment power with respect to those shares, they disclaim beneficial ownership of such shares. (b)Represents share units paid under the Fourth Amended and Restated Compensation Plan for Non- Employee Directors as to which the beneficial owner has no voting or investment power. (c)Represents stock options exercisable under the Omnibus Plan within 60 days from March 1, 1999. (d)Restricted shares issued pursuant to incentive plans as to which the beneficial owner has sole voting power but no investment power. (e)Represents common shares owned as a participant in the Pentair Employee Stock Ownership Plan (Pentair ESOP) and, for one officer, common shares owned as a participant in the Federal-Hoffman Employee Stock Ownership Plan (F-H ESOP). As of March 1, 1999, the Trustee of the Pentair ESOP held 3,265,266 common shares and the Trustee of the F-H ESOP 754,691 common shares. The Pentair ESOP and F-H ESOP participants have the right to direct the Trustee to vote their shares although participants have no investment power over such shares. (f)Less than 1% unless otherwise indicated. (g)According to its 13G dated February 3, 1999, as of December 31, 1998, Brinson Partners and its affiliate UBS AG, as investment advisors, have shared voting power and shared dispositive power over all 2,990,512 shares. They disclaim beneficial ownership of all 2,990,512 shares. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors, and greater than ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms furnished to the Company and written representations from the Company's officers and directors, the Company believes all persons subject to these reporting requirements filed the required reports on a timely basis except Barbara B. Grogan, a director of the Company, did not timely file required Form 4, Statement of Changes in Beneficial Ownership. A report has now been filed. PROPOSALS TO BE ACTED UPON AT THE ANNUAL MEETING ITEM 1 ELECTION OF DIRECTORS The Company's By-Laws provide for a Board of Directors (sometimes referred to herein as the "Board") of not fewer than three members and not more than fifteen members. The Board is divided into three classes with directors serving three- year terms but with the beginning date for each term staggered so that the term of only one class expires in any particular year. Vacancies may be filled by the Board of Directors or by election at a special meeting of shareholders. Any director elected to fill a vacancy by the remaining directors is required to stand for election at the next meeting of shareholders. At the forthcoming Annual Meeting, five persons are nominated to be elected to the Company's Board of Directors. Two incumbent directors, Winslow H. Buxton and Barbara B. Grogan, and two new directors, Stuart "Chuck" Maitland and Augusto Meozzi, have been nominated for three-year terms, expiring at the 2002 Annual Meeting. In addition, Joseph R. Collins has been nominated for a two- year term expiring at the 2001 Annual Meeting. Six other directors have terms of office that do not expire at this time, and each will continue to serve his or her full term. Proxies cannot be voted for a greater number of directors than the number nominated. Unless you direct otherwise, proxies will be voted FOR the election of all nominees listed below. Should any nominee decline or be unable to accept such nomination or to serve as director (an event management does not now expect to occur), proxies will be voted FOR a substitute nominee or nominees in accordance with the best judgment of the person or persons acting under them. Information concerning the persons nominated for election as directors, as well as those continuing in office, is set forth on the following pages. DIRECTORS STANDING FOR ELECTION (FOR A THREE-YEAR TERM EXPIRING AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS) Winslow H. Buxton, director since 1990, age 59 Since January 1993, Mr. Buxton has been the Chairman of the Board of Directors of Pentair, Inc. Mr. Buxton has been President and Chief Executive Officer of the Company since August 1992. Mr. Buxton was Chief Operating Officer of the Company from August 1990 through August 1992. Mr. Buxton was also Vice President - Paper Group of the Company from January 1989 through August 1990. Mr. Buxton is also a director of Bemis Company, Inc., The Toro Company and Willamette Industries, Inc. Barbara B. Grogan, director since 1996, age 51 Ms. Grogan is Chairman and President of Western Industrial Contractors, Inc., a company specializing in machinery erection and installation. Ms. Grogan founded Western Industrial Contractors, Inc. in September, 1982. She was Chairman of the Board of Directors of the Federal Reserve Bank of Kansas City, Denver Branch, from 1989 to 1994, and at present is a member of the Board of Directors of Deluxe Corporation, Apogee, Inc., Committee for Economic Development, New York City and Volunteers of America, Colorado. Stuart "Chuck" Maitland, nominee, age 53 Augusto Meozzi, nominee, age 59 Since January 1, 1998, Mr. Meozzi has been the Chief Operating Officer of the German ISOLA Group, a world-wide producer of base materials. From November 1992 to January 1998, Mr. Meozzi was Corporate Executive Vice President of the German ISOLA Group. (FOR A TWO-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS) Joseph R. Collins, nominee, age 57 In November 1998, Mr. Collins was promoted to the position of Vice Chairman of Pentair, Inc. As an executive officer of the Company since August 1991, Mr. Collins has been responsible for the Tools and Equipment businesses. From March 1995 to October 1998 he was Executive Vice President, President, Professional Tools and Equipment Group and from August 1991 to February 1995 he was Senior Vice President - Specialty Products. He also served as Acting Chief Financial Officer of the Company from June 1993 to March 1994. Mr. Collins is a director of Remmele Engineering Corp. DIRECTORS CONTINUING IN OFFICE (TERM EXPIRES AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS) William J. Cadogan, director since 1996, age 50 Since November 1993, Mr. Cadogan has been the Chairman of the Board of Directors of ADC Telecommunications, Inc., a designer and manufacturer of products and systems for broadband telecommunications networks. Mr. Cadogan has been Chief Executive Officer of ADC Telecommunications since November, 1991 and was President from June 1990 to November 1991. He is also a director of Banta Corporation, Excel Switching Corporation, Vice Chairman of the Telecommunications Industry Association and serves on the Board of Governors of the Electronics Industry Association. Charles A. Haggerty, director since 1994, age 57 In June 1992, Mr. Haggerty was appointed President and subsequently in July 1993 appointed Chairman of the Board of Directors and Chief Executive Officer of Western Digital Corporation, a manufacturer of hard disk drives. Prior to that, he held various positions with IBM Corporation including Vice President-General Manager, Worldwide OEM Storage Marketing (1991-1992); and Vice President-General Manager, Low-end Storage Products (1989-1990). Mr. Haggerty is also a director of Sync Research, Inc. and Beckman Instruments, Inc. Harold V. Haverty, director since 1991, age 68 Mr. Haverty was Chairman Emeritus of the Board of Directors of Deluxe Corporation, a manufacturer of bank checks and internal bank forms, from 1996 until 1998 when he retired, and was Chairman of Deluxe from 1992 until 1996 and Chief Executive Officer and President of Deluxe from 1986 until 1995. (TERM EXPIRES AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS) Quentin J. Hietpas, director since 1976, age 68 Since 1983, Mr. Hietpas has been the Senior Vice President of External Affairs of the University of St. Thomas, St. Paul, Minnesota. Richard M. Schulze, director since 1994, age 58 Since 1983, Mr. Schulze has been Founder, Chairman and Chief Executive Officer of Best Buy Company, Inc. a consumer electronics, personal computer, media software and major appliance chain. Karen E. Welke, director since 1995, age 54 Since February 1995, Ms. Welke has been Group Vice President, Medical Markets Group for Minnesota Mining and Manufacturing Company (3M). Prior to that, she held various positions with 3M including Managing Director, 3M France (July 1991 to February 1995); and Division Vice President, Medical-Surgical Division (March 1989 to July 1991). Directors' Attendance The Board of Directors held seven meetings in 1998. All directors attended at least 73% of the aggregate of all the meetings of the Board and its committees on which they served. Committees of the Board The Audit Committee, which presently consists of Richard M. Schulze (Chair), Barbara B. Grogan, Charles A. Haggerty and Karen E. Welke, is responsible for selecting auditors, ensuring the fiscal integrity of the Company, and establishing and reviewing internal controls. The Audit Committee held two meetings in 1998. The Compensation and Human Resource Committee, which presently consists of Quentin J. Hietpas (Chair), George N. Butzow, William J. Cadogan and Harold V. Haverty, is responsible for developing a broad plan of compensation for the Company that is competitive and rewarding to the degree that it will attract, hold, and inspire performance of executive, managerial, and other key personnel. The Compensation and Human Resource Committee held five meetings during 1998. The Nominating and Governance Committee, which presently consists of George N. Butzow (Chair), Winslow H. Buxton, William J. Cadogan and Quentin J. Hietpas, is responsible for nominating candidates for vacancies on the Board. The Nominating and Governance Committee considers nominees recommended by shareholders under the procedures set forth in the Company's By-Laws. The Nominating and Governance Committee held one meeting in 1998. Directors' Compensation It is the Company's philosophy that a significant portion of directors' compensation should be tied to long-term growth in shareholder value. In 1998, non-employee directors were paid an annual retainer of $23,000, ($28,000 for the Chair of the Compensation and Human Resource Committee), $28,150 of deferred compensation in the form of share units under the Fourth Amended and Restated Compensation Plan for Non-Employee Directors, $1,500 for attendance at each Board meeting, $1,000 ($2,000 for committee chairs) for attendance at each committee meeting, and $500 for participation in a telephone conference in lieu of a meeting. Under the Fourth Amended and Restated Compensation Plan for Non-Employee Directors, non- employee directors of the Company may elect to defer payment of all or a portion of their annual retainer and meeting fees in the form of share units. The Plan provides for a Company match of 25% on the first $750 per month deferred in the form of share units. The value of a share unit is equal to the market value of a share of Common Stock. Share units carry no voting or investment power. Participants and amounts deferred under the Plan are shown below:
$ Amount Deferred Share Units 1996 1997 1998 12/31/98 Butzow $43,550 $76,100 $69,400 31,376 Cadogan 9,104 40,913 39,400 3,067 Grogan 25,833 71,600 68,400 5,244 Haggerty 37,450 73,100 69,400 9,522 Haverty - 29,850 28,150 4,928 Hietpas 9,000 40,913 39,400 13,266 Kissling 32,750 69,600 65,900 12,083 Schulze 36,250 67,100 64,900 7,449 Welke 34,750 67,100 62,900 6,888
The Outside Directors Nonqualified Stock Option Plan provides for the granting of options to purchase Common Stock to directors who are not employees of the Company. The Plan provides for automatic annual grants to the directors and offers alternative forms of payment of the exercise price including surrender of Common Stock. The persons to receive options, the number of options granted, and the terms of the options are determined by the Plan. No option granted under the Plan, however, may extend for a period of more than ten years from the date of the grant and no option exercise price may be less than the current market price of Common Stock on the date of award of such option. For stock options granted in 1998, if the option holder exercises the stock option during the first five years of the option term by tendering to the Company common shares owned by that person, the Company can grant to such person, an option ("Reload Option") to purchase common shares equal to the number of shares tendered. The Reload Option may be exercised during the remaining term of the original stock option period. The Reload Option exercise price is equal to the market price per share on the date the shares are tendered.
Options Granted Name 1996 1997 1998 George N. Butzow 3,000 2,200 1,275 William J. Cadogan - 2,200 1,275 Barbara B. Grogan - 2,200 1,275 Charles A. Haggerty 3,000 2,200 1,275 Harold V. Haverty 3,000 2,200 1,275 Quentin J. Hietpas 3,000 2,200 1,275 Walter Kissling 3,000 2,200 1,275 Richard M. Schulze 3,000 2,200 1,275 Karen E. Welke 3,000 2,200 1,275
The exercise price and expiration dates for the above options are: 1998, $40.4375 per share, expiration date February 25, 2008; 1997, $31.375 per share, expiration date February 26, 2002; 1996, $25.00 per share, expiration date January 22, 2001. One-third of the options granted to each recipient become exercisable on each of the first three anniversaries of the date of grant. The options granted in 1996 and 1997 expire five years after the date of grant. The options granted in 1998 expire ten years after the date of grant. Three current directors exercised options during 1996-1998; the net value of shares (market value less exercise price) realized from these exercises was $460,582. ITEM 2 APPROVAL OF AUDITORS Deloitte & Touche LLP, independent certified public accountants have been the auditors for the Company since 1977. They have been retained by the Board of Directors as the Company's auditors for the current fiscal year, and shareholder approval of such retention is requested. Representatives of Deloitte & Touche LLP are expected to attend the Annual Meeting with the opportunity to make a statement if they so desire, and they will be available to respond to appropriate questions. The Board of Directors recommends that the shareholders vote "For" the proposal to approve retention of Deloitte & Touche LLP, and the enclosed proxy will be so voted unless a contrary vote or abstention is indicated. If retention of Deloitte & Touche LLP is not approved by the shareholders, the Board of Directors will make another appointment effective at the earliest practicable date. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2 TO APPROVE RETENTION OF DELOITTE & TOUCHE LLP. ITEMS 3 AND 4 AMENDMENT TO RESTATED ARTICLES INCREASING THE TOTAL NUMBER OF SHARES AUTHORIZED TO BE ISSUED FROM 125,000,000 TO 250,000,000 AND INCREASE FROM 15,000,000 TO 30,000,000 THE NUMBER OF AUTHORIZED SHARES THAT MAY BE DESIGNATED AS PREFERRED SHARES The Board of Directors of the Company has approved and is requesting that the shareholders adopt two amendments to the Company's Restated Articles of Incorporation relating to increases in the Company's authorized shares. Background Article VII of the Company's Restated Articles of Incorporation currently authorizes the issuance of up to 125,000,000 shares, not more than 15,000,000 of which may be preferred shares. Adoption of Item 3 would increase from 125,000,000 to 250,000,000 the total number of authorized shares of the Company. Adoption of Item 4, which is conditional upon passage of Item 3, would increase from 15,000,000 to 30,000,000 the total number of shares that the Board of Directors could designate as preferred shares. If both Item 3 and Item 4 are adopted, Article VII of the Restated Articles of Incorporation will read as follows: The aggregate number of shares which this Corporation shall have authority to issue is 250,000,000 shares, of which not more than 30,000,000 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 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 preemptive 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. As of March 1, 1999, the Company had outstanding 42,700,179 shares of Common Stock and 5,000,000 shares have been designated from time to time as preferred shares of the Company. (See Item 5 below.) In addition, 50,999,403 common shares were reserved for future issuance upon exercise of outstanding stock options granted under various stock option plans, and under the Company's Rights Agreement. As a result, a total of 26,300,418 common shares were authorized but unissued and not reserved for issuance as of March 1, 1999. Purpose of Proposals The purpose for increasing the total number of authorized shares and the number that may be designated as preferred shares is to provide additional flexibility to the Company's authorized capital structure (including its ability to effect future stock splits and stock dividends). The increase will give the Board additional flexibility and efficiency in responding to future investment and financing opportunities and needs such as future acquisitions of other businesses, employee benefit plans, equity financing, stock dividends or splits, and other general corporate purposes. In 1995, the Company's shareholders approved the increase in the number of authorized shares from the former level of 75,000,000 common shares and 10,000,000 preferred shares to the current level of 125,000,000 shares, not more than 15,000,000 of which may be preferred shares. Historically, increases in authorized shares have been used principally to provide for stock dividends. In 1993, the Company paid a 50% stock dividend and in 1996 the Company paid a 100% stock dividend. As discussed in Item 5, the Company has utilized preferred shares for acquisition financing and employee benefit programs. Effect of Proposal Adoption of Item 3 would increase the number of authorized but unissued and unreserved shares by 125,000,000. Adoption of Item 4 would increase by 15,000,000 the number of shares that can be designated by the Board as preferred shares. No further action or authorization by the shareholders would be necessary prior to the issuance of the additional shares authorized thereby, unless required for a particular transaction by applicable law, regulatory agencies, or the rules of any stock exchange on which the Company's securities are then listed. Any additional authorized shares that may be issued following the adoption of Item 3 (if not designated by the Board as either preferred shares or as a different class of common shares) would be shares identical to the existing Common Stock and would have the same rights and privileges as the existing Common Stock. The shareholders of the Company do not, and will not as a result of either of the proposed amendments, have preemptive rights to subscribe for or purchase any newly issued shares of stock. New preferred shares, or a new class of common shares, may be issued following adoption of these proposals by the Board of Directors without further action by the shareholders. The present authority of the Board would not change in this respect. At present, the terms of each series could include, without limitation, the following: (a) the designation and name of such series and number of shares which shall constitute such series; (b) the dividend rate and dividend accumulation rights, payment dates, and the participating or other special rights with respect to payment of such dividends; (c) whether the Company would have the right to redeem shares of such series, and the terms of any such redemption; (d) the terms of sinking fund or other retirement provisions, if any, for the redemption or purchase of shares of such series; (e) the amounts payable for shares of such series, and the priority of payment upon voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; (f) the terms and conditions of conversion rights, if any; (g) the voting powers, if any, of the shares of such series (subject to the requirement that each share be entitled to no more than one vote); and (h) any other relative rights and preferences of the shares of such series. The proposed increase in the total number of authorized shares and the number that may be designated as preferred shares is not designed to deter or to prevent a change in control of the Company. Unissued shares, however, could be used by the incumbent Board of Directors to make such a change in control more difficult. In the event of an unfriendly attempt to gain control of the company, the Board could issue additional shares or options to acquire additional shares in an effort to dilute the stock ownership and voting power of persons seeking to obtain control of the Company, which might have the effect of discouraging or making less likely such a change in control. Such shares also could be privately placed with purchasers who might be expected to side with the Board in opposing a hostile takeover bid. Shares also could be issued with rights and preferences that might impede such a takeover proposal by, for example, authorizing a class vote, either separately or with the holders of Common Stock, on any merger, sale or exchange of assets by the Company, or any other extraordinary corporate transaction. To the extent any such actions could have the effect of making a hostile takeover less likely, they also could assist incumbent management in retaining their positions. It should be noted, however, that the proposed amendment would not enlarge the already existing power of the Board of Directors to take any of the foregoing actions, but would increase the number of shares which could be used by the Board for such purposes. The amendments contained in Item 3 and Item 4 are not the first action taken by the Company that could have the effect of deterring a hostile takeover. Not only do the Company's Restated Articles and By-Laws contain several provisions that could make the consummation of a hostile takeover more difficult, but the Company has taken other actions, including adopting a Rights Agreement and agreeing to certain contract provisions, that may have such an effect. Although the Board does not currently contemplate adopting or proposing for shareholder approval any further anti-takeover measures, it continues to study such measures and reserves the right to propose such further amendments or actions in the future if, in its view, circumstances should so warrant. The Board is not now aware of any effort to effect a change in control or takeover of the Company. If either Item 3, or both Item 3 and Item 4, are approved by the shareholders, the amendments would become effective upon the filing with the Secretary of State for the State of Minnesota of the Articles of Amendment to the Company's Restated Articles of Incorporation, which would take place shortly after the Annual Meeting of Shareholders. Vote Required Because Item 3 (increasing the number of authorized shares from 125,000,000 to 250,000,000) and Item 4 (increasing the number of shares which may be designated as preferred shares by the Board from 15,000,000 to 30,000,000) would amend the Company's Restated Articles, adoption of these proposals requires the affirmative vote of the holders of 60% of the outstanding common shares, provided that the proposal does not receive a negative vote from holders of more than 25% of the common shares. Abstentions and broker non-votes will have the effect of votes against a proposal. Adoption of Item 4 is conditioned upon approval by the shareholders of Item 3. Therefore, unless the proposal to increase the number of authorized shares to 250,000,000 is approved by shareholders, the proposal to increase the number of preferred shares to 30,000,000 will not be adopted, regardless of the vote. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 3 TO AMEND THE RESTATED ARTICLES OF INCORPORATION TO INCREASE THE TOTAL NUMBER OF SHARES AUTHORIZED TO BE ISSUED FROM 125,000,000 TO 250,000,000 AND ITEM 4 TO INCREASE FROM 15,000,000 TO 30,000,000 THE NUMBER OF AUTHORIZED SHARES THAT MAY BE DESIGNATED AS PREFERRED SHARES. ITEM 5 AMENDMENT TO RESTATED ARTICLES ELIMINATING CURRENTLY AUTHORIZED SERIES OF PREFERRED SHARES OF THE COMPANY Background The Board of Directors has approved and is requesting that the shareholders adopt an amendment to the Company's Restated Articles of Incorporation eliminating the currently authorized series of preferred shares. The Company previously established three series of preferred shares, in 1987, 1988 and 1990, respectively, in accordance with the then existing provisions of Article VII of the Company's Restated Articles of Incorporation and in accordance with the Minnesota Business Corporation Act ("MBCA"). The Board of Directors established a series of $1.50 Cumulative Convertible Preferred Stock, $.10 par value, (the "1987 Preferred Stock"), which consisted of 2,200,000 shares issued in a public offering in March 1987. The 1987 Preferred Stock was called for redemption in March 1993, at which time all shares were either redeemed or converted into shares of Common Stock. There are no shares of 1987 Preferred Stock currently outstanding. The Board of Directors established a series of $7.50 Callable Cumulative Convertible Preferred Stock, $.10 par value, (the "1988 Preferred Stock"), which consisted of 300,000 shares issued in connection with the acquisition by Pentair of the Federal Cartridge and Hoffman Engineering businesses in December 1988. The 1988 Preferred Stock was called for redemption in January 1999, at which time all shares were converted into shares of Common Stock. There are no shares of 1988 Preferred Stock currently outstanding. The Board of Directors established a series of 8% Callable Cumulative Voting Convertible Preferred Stock, $.10 par value, with a liquidation price of $30.25 per share (the "1990 Preferred Stock"), which consisted of 2,500,000 shares issued in connection with the establishment of the Company's employee stock ownership plan in March 1990. The 1990 Preferred Stock was called for redemption in January 1999, at which time all shares were converted into shares of the Company's Common Stock. There are no shares of 1990 Preferred Stock currently outstanding. Purpose of Proposal The purpose for eliminating the three series of preferred shares currently authorized is to simplify the Company's capital structure by removing outdated series of stock that are no longer useful. Approval of Item 3 and Item 4 would provide additional flexibility in responding to future financing opportunities by increasing the number of preferred shares which can be issued by the Board of Directors of the Company with rights and preferences that can be determined at the time of issuance. Effect of Proposal Adoption of Item 5 would eliminate all existing series of preferred shares. Under the terms of the Company's Restated Articles of Incorporation and the MBCA, the 5,000,000 shares of preferred stock currently authorized but not outstanding would no longer be designated as specific series of preferred shares. Instead, those shares would revert to authorized but unissued shares and would be available for future issuance as either common or preferred shares as determined by the Board. If Item 5 is adopted, up to 15,000,000 preferred shares (30,000,000 if Item 4 is also adopted) may be issued in the future, having such terms as the Board of Directors may deem appropriate. The present authority of the Board to issue preferred shares would not change as a result of the adoption of this proposal, except for the increase in the number of new preferred shares which could be issued. If Item 5 is not adopted, the Board would have the ability to issue up to 10,000,000 new preferred shares (25,000,000 if Item 4 is adopted). New preferred shares which could be issued by the Board need not contain any particular term, other than the requirement that no preferred share may have more than one vote. This flexibility in setting terms for new preferred shares allows the Board to tailor the shares to achieve a particular purpose for which they would be issued. The authority of the Board to establish new series of common and preferred shares is discussed in Items 3 and 4 above. It is important to note that Item 5 would not enlarge the already existing power of the Board of Directors; the proposed amendment would simply increase the number of shares of preferred stock which could be issued by the Board for the purposes described above. If Item 5 is approved by the shareholders, the amendment would become effective upon the filing with the Secretary of State for the State of Minnesota of the Articles of Amendment to the Company's Restated Articles of Incorporation, which is intended to take place promptly after the Annual Meeting of Shareholders. Vote Required Because Item 5 would amend the Company's Restated Articles of Incorporation, adoption of this proposal requires the affirmative vote of the holders of at least 60% of the outstanding shares entitled to vote, provided that the proposal does not receive a negative vote from holders of more than 25% of the outstanding voting shares. Abstentions and broker non-votes would have the effect of votes against the proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 5 TO AMEND THE RESTATED ARTICLES OF INCORPORATION TO ELIMINATE ALL CURRENTLY DESIGNATED SERIES OF PREFERRED SHARES OF THE COMPANY. EXECUTIVE COMPENSATION Compensation and Human Resource Committee Interlocks and Insider Participation The Compensation and Human Resource Committee of the Board of Directors was comprised of Quentin J. Hietpas (Chair), George N. Butzow, William J. Cadogan and Harold V. Haverty during 1998. None of the members of the Committee were officers or employees of the Company during 1998. There are no interlock relationships. Compensation and Human Resource Committee Report on Executive Compensation Overview The Compensation and Human Resource Committee of the Board of Directors (the"Committee") is responsible for supervising the development of, and making recommendations to the Board with respect to, the Company's executive compensation policies. In addition, the Committee makes annual recommendations to the Board concerning compensation to be paid to the Chief Executive Officer ("CEO") and each of the other executive officers of the Company. The Committee also oversees all aspects of the Company's executive compensation program, including many of the Company's employee benefit plans. The Company currently maintains a variety of compensation and benefit plans in which its executive officers may participate including the Omnibus Stock Incentive Plan, the Employee Stock Purchase and Bonus Plan, the Retirement Savings and Stock Incentive Plan, the RSIP Sidekick Plan, the Supplemental Executive Retirement Plan, the Executive Officer Performance Plan, and the Management Incentive Plan. The Company also maintains a defined benefit pension plan in which substantially all non-bargaining employees, including the Company's executive officers, participate. Pentair's Compensation Philosophy The principles guiding the executive compensation program are designed to ensure a proper linkage between executive compensation and creation of shareholder value. Goals of the program are: (a)to encourage innovation and growth; (b)to reward executives for short-term top performance and long-term shareholder value; (c)to recognize outstanding performance; (d)to attract and retain top quality executives and key employees; (e)to encourage executive stock ownership; and thereby (f)to align management and shareholder interests. The Company has maintained the philosophy that compensation of the executive officers should be directly and materially linked to operating results and stock price performance. To achieve this, compensation is heavily leveraged through the annual bonuses and long-term equity incentives. The mix of base salary, bonuses and other benefits reflects the Company's goal of providing average compensation for average performance and above average compensation for above average performance. In order to make its recommendations to the Board concerning executive officer compensation, the Committee annually reviews and evaluates the Company's corporate performance and the compensation and equity ownership of its executive officers. This is done by reviewing salary practices for comparable positions at other major industrial organizations as disclosed in the Towers Perrin compensation database, as well as a review of other nationally recognized pay surveys. These major organizations include companies that the Corporation competes with for business or executive talent. Many of the companies which are included in the Towers Perrin compensation database and national pay surveys are also listed in the S&P 500 Index and the S&P 400 MidCap Index included in the Comparative Stock Performance Graph. The Committee has retained Towers Perrin, an independent compensation consulting firm, to assist in the review of executive compensation. Executive Compensation Program The components of the Company's executive compensation program, which are subject to the discretion of the Committee on an individual basis, include (a) base salaries, (b) annual cash performance-based bonuses, (c) long-term performance-based equity incentives, and (d) miscellaneous fringe benefits. All components are comparable to those of similar companies. Base Salary The CEO submits a performance appraisal and recommendation to the Committee with respect to annual salaries of the executive officers. The Committee discusses and evaluates the salaries and makes its recommendation to the Board. Base salary targets for executive positions are set at the 50th percentile of competitive compensation. An individual performance and experience factor is applied to the target midpoint to determine each executive's actual base salary, within a range of + or - 20% of midpoint. For 1998, the salaries of the named executive officers identified in the Summary Compensation Table are within the salary targets for each position. Bonus Bonuses are considered for payment to executives and key employees following the end of each year under the Executive Officer Performance Plan (see pages 14 for discussion of Executive Officer Performance Plan) and Management Incentive Plan (MIP). MIP awards are determined by applying the following three factors to base salary: bonus opportunity category (45% for the Vice Chairman; 40% for Executive Vice Presidents), company performance factor and individual performance factor. The company performance factor is the result of the multiplication of factors for earnings per share (EPS) growth, return on invested capital (ROIC) and return on sales (ROS). The use of three multiplicative factors reinforces the importance of balancing financial oriented goals in terms of growth, earnings quality and an acceptable return on investment. Under the MIP, achievement of EPS growth of 12%, ROIC of 20% and ROS of 10% results in a company performance factor of 1.00. The maximum company performance factor is 2.81 and the minimum company performance factor is .32; however, there is no MIP bonus if the Company has an operating loss. Performance between the stated factors is interpolated. For 1998, EPS growth was 16.6%, ROIC was 19.5% and ROS was 10.0%, resulting in a company performance factor of 1.542. The individual performance factor is determined by the assignment of a numerical factor based on a supervisor's judgement on attainment of expectations relative to the employee's function. The CEO submits a performance appraisal and recommendation to the Committee for executive officers with respect to the individual performance factor. Bonus awards that exceed an amount equal to base salary are paid as a performance share award under the Omnibus Stock Incentive Plan. The performance share award is paid in restricted stock, subject to any vesting condition the Committee may impose. A special award may be granted at the discretion of the Committee to any person who has made an extraordinary contribution to the welfare, reputation and earnings of the Company. The Committee approves all MIP awards and has the right to adjust awards that are not in keeping with the objectives of the MIP Plan. Long-Term Equity Incentives Grants Long-term incentive compensation is awarded in the form of restricted shares, incentive compensation units (ICUs), performance shares and stock options under the Omnibus Stock Incentive Plan (Omnibus Plan). All awards are proposed by the CEO and approved by the Committee. Long-term incentives are determined by using the average of the 50th and 60th percentile of comparable grant practices as compiled by the Towers Perrin compensation database. Annual awards are granted in the form of ICUs (10% for the CEO and 20% for executive officers) and stock options (90% for the CEO and 80% for executive officers). Restricted stock may be awarded to such individuals as described in the section entitled "stock ownership guidelines"; as an award to a new executive officer; as the form of payment of performance shares; or in payment of the Management Incentive Plan or Executive Officer Performance Plan bonus in excess of annual base salary. The Committee is authorized to grant stock options and performance share awards upon attainment of certain performance criteria which are based on the Company's long-term objectives. The Black-Scholes Model is used to determine stock option grant values. Stock options can be granted for terms up to 10 years. For stock options granted in 1998, if the option holder exercises the stock option during the first five years of the option term by tendering to the Company common shares owned by that person, the Committee can grant to such person, an option ("Reload Option") to purchase common shares equal to the number of shares tendered. The Reload Option may be exercised during the remaining term of the original stock option period. The Reload Option exercise price is equal to the market price per share on the date the shares are tendered. The total Omnibus Plan awards for 1998 for all executive officers as a group, including the CEO and named executive officers, amounted to 841,297 incentive compensation units (ICUs), 286,250 stock options, and 8,420 restricted shares of which 1,909 restricted shares were awarded for achievement of stock ownership guidelines, 4,500 restricted shares were awarded to a new officer, and 2,011 restricted shares were awarded under the Executive Officer Performance Plan. Grants for the named executive officers are shown in the Summary Compensation Table (page 16) and the Option/SAR grant table (page 17). Payouts Payouts on ICUs in 1998 which related to ICU grants in 1995 were based upon growth in the Company's net book value over the life of the ICUs, as leveraged upward or downward depending on the Company's return on equity and growth in earnings per share over that period. Payouts in 1998 for named executive officers are shown in the LTIP Payout column on the Summary Compensation Table (page 16). Compensation of the Chief Executive Officer The base salary, annual bonus and long-term equity incentives paid to Mr. Buxton are generally determined in accordance with the guidelines described above, and his compensation is comprised of the same elements as for all executive officers. The Committee has a formal rating process for evaluating Mr. Buxton's performance as the CEO. The rating process includes a self evaluation rating by the CEO, after which each Board member completes an evaluation and rating with commentary. The Chairman of the Committee provides a consolidated rating report and chairs a discussion with the Board members without the CEO present. From that discussion, the performance rating is finalized and the Committee Chairman is instructed to review the final rating results and commentary with the CEO. This then translates into a personal development plan for the following year. Mr. Buxton's base salary was increased to $683,250 in accordance with the Committee's guideline of establishing the base salary at the market compensation rate for the CEO at the 50th percentile. This resulted in a 4% increase in Mr. Buxton's base salary over 1997. Mr. Buxton's bonus was determined under the Executive Officers Performance Plan ("EOPP"). Currently, the CEO is the only participant in the EOPP. EOPP awards are determined based on the participant's bonus opportunity and a company performance factor. Under the EOPP, achievement of EPS growth of 12%, ROIC of 20% and ROS of 10% results in a company performance factor of 1.00. The maximum company performance factor is 2.81 and the minimum company performance factor is .32; however, there is no EOPP bonus if the Company has an operating loss. Performance between the stated factors is interpolated. The maximum individual bonus is 200% of the participant's annual base salary, but in no event more than $1,500,000. In administering the EOPP and in establishing bonus awards thereunder, the Committee does not have the discretion to pay participants more than the bonus amount indicated by the preestablished goals. The Committee has the discretion and flexibility, however, based on its business judgment, to reduce this amount. Mr. Buxton's bonus was calculated using the formula described above. The Committee used his base salary of $683,250, his bonus opportunity category rate of 71.5% and the company performance factor of 1.542 to obtain his bonus amount. In accordance with the terms of the EOPP, the cash bonus was $683,250 and the bonus amount in excess of one times base salary was paid in the form of 2,011 restricted shares which vest in equal increments on the third, fourth and fifth anniversaries of the grant. Mr. Buxton's Omnibus Plan grants were computed based on the average of the 50th and 60th percentile of the Towers Perrin compensation database for comparable grant practices. He was granted 157,922 ICUs and 89,000 stock options in 1998. Stock Ownership Guidelines Stock ownership guidelines for top management have been established to motivate individual achievement and increase ownership of Pentair Common Stock. The Committee determined that over a period of five years, its top management should accumulate and hold Company stock equal to the following values: Chief Executive Officer -- three to five times base salary; Senior Corporate Officers -- two to three times base salary; and other corporate officers and subsidiary presidents - -- one to two times base salary. In the opinion of the Committee, the achievement of ownership levels set forth will result in executive management being significant shareholders and will further encourage long-term performance and Company growth. The Committee will consider making incentive grants of restricted stock based on the increase in ownership during the preceding year. These restricted stock grants (made under the Omnibus Plan) vest in equal increments on the third, fourth, and fifth anniversaries of the grant. The size of the grant is equal to 10% of the increase in common shares during the year if the annual ownership target is met, limited to 10% of the targeted ownership level if the targeted ownership level has been achieved. In 1998, restricted stock awards of 3,191 were granted under these guidelines to all key employees. Compliance with Internal Revenue Code Section 162(m) Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1 million paid to each of the corporation's Chief Executive Officer and the four other most highly compensated officers. Qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. The Company's policy is to maximize the deductibility of executive compensation so long as the deductibility is compatible with the more important objective of maintaining competitive and motivational performance-based compensation. In 1996, the shareholders approved the adoption of the EOPP and approved amendments to the Omnibus Plan to comply with Internal Revenue Code Section 162(m). Under current interpretations of Section 162(m), EOPP bonus awards and Omnibus Plan awards of stock options, SARs, ICUs, performance shares and performance units will not be subject to the $1,000,000 deduction limit assuming compliance with all other aspects of Section 162(m). Quentin J. Hietpas, Chair George N. Butzow William J. Cadogan Harold V. Haverty Compensation and Human Resource Committee of Pentair, Inc. COMPARATIVE STOCK PERFORMANCE GRAPH The following graph sets forth the cumulative total shareholder return on the Company's Common Stock for the last five fiscal years, assuming the investment of $100 on December 31, 1993 and the reinvestment of all dividends since that date to December 31, 1998. The graph also contains for comparison purposes the S&P 500 Index and the S&P MidCap 400 Index. By virtue of its market capitalization, Pentair is a component of the S&P MidCap 400 Index. On the basis of the Company's size and diversification of businesses, a readily identifiable peer group has not been found. It is our opinion the S&P MidCap 400 Index is an appropriate comparison. The Company has evaluated other published indices, but the results are skewed by one or two large companies included in the indices. We believe such a comparison would not be meaningful.
POINTS 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 Pentair, Inc. 100 132.06 156.41 206.67 234.00 263.31 S&P 500 100 101.32 139.40 171.40 228.59 293.91 S&P MidCap 400 100 96.42 126.25 150.49 199.03 237.05
Summary Compensation Table The following table sets forth the cash and noncash compensation awarded to or earned by the Chief Executive Officer of the Company and the four other highest paid executive officers of the Company whose salary and bonus earned in 1998 exceeded $100,000.
Annual Compensation Long-Term Compensation Awards Payouts Restricted Securities All Other Name and Stock Underlying LTIP Compen- Principal Salary Bonus(a) Awards(b) Options/ Payouts sation Position Year ($) ($) ($) SARs(c) ($)(d) ($)(e) Winslow H. Buxton 1998 $683,250 $683,250 $103,903 89,000 $646,974 $ 7,940 Chairman, President 1997 656,250 656,250 196,315 76,731 607,931 11,074 & Chief Executive 1996 625,000 625,000 314,882 81,200 609,303 16,244 Officer Joseph R. Collins 1998 $332,500 $323,010 $ 7,980 48,250 $175,983 $ 7,940 Vice Chairman 1997 294,000 284,494 8,680 32,124 165,815 12,668 1996 279,000 279,000 138,867 22,400 178,071 18,494 Richard J. Cathcart 1998 $290,000 $250,421 $ 10,535 25,000 $123,469 $ 10,190 Executive Vice 1997 268,054 214,358 12,307 21,924 3,355 13,324 President, President, 1996 235,000 235,000 107,843 22,400 4,349 17,744 Water and Fluid Technologies Group Richard W. Ingman 1998 $280,000 $215,880 $ 9,625 22,000 $72,208 $ 7,940 Executive Vice 1997 260,000 207,917 3,379 22,338 75,716 11,074 President, Chief 1996 211,656 227,568 19,028 8,694 83,732 10,155 Financial Officer James A. White 1998 $262,500 $226,674 $ 3,255 21,000 $67,255 $ 8,440 Executive Vice 1997 220,334 217,448 20,615 8,505 74,442 12,289 President, President, Professional Tools & Equipment
(a) Represents bonuses accrued by the Company for the year even if paid after December 31. The 1996 bonus amount for Mr. Ingman includes $62,000 which was awarded based on achievement of performance objectives related to the integration of Schroff, Inc. which was acquired by the Company in 1994. (b) The restricted share grants reflected in the table were made pursuant to the Company's executive compensation programs. The restricted stock awards are subject to vesting, in three equal installments on the third, fourth and fifth anniversaries of the grant, based solely on the continued employment of the recipient by the Company. The value of restricted stock awards reflected in the table is based on the closing market price of the Common Stock on the date of grant. As of December 31, 1998, the following restricted stock awards were held by each of the named executives (based on 12/31/98 closing price of $39.8125): Buxton 31,149 shares or $1,240,120; Collins 7,676 shares or $305,601; Cathcart 4,909 shares or $195,440; Ingman 1,446 shares or $57,569; White 2,342 shares or $93,241. (c) The share amounts for Mr. Collins include 23,250 stock options in 1998, and 10,200 stock options in 1997, awarded based on achievement of performance objectives pursuant to a special incentive plan for the Professional Tools and Equipment Group. (d) Includes payouts for ICUs and dividends on restricted shares. (e) Includes Company contributions to the Retirement Savings and Stock Incentive Plan, RSIP Sidekick Plan and match contribution to the Employee Stock Purchase and Bonus Plan. Options and Stock Appreciation Rights The following tables summarize option and SAR grants and exercises during 1998 to or by the Chief Executive Officer and the executive officers named in the Summary Compensation Table above, and the values of the options and SARs held by such persons at the end of 1998. Option grants shown in the table below include both incentive stock options and non-qualified stock options. No SARs have been granted since 1983 and no SARs were exercised during 1998 or remain outstanding at the end of 1998. Option and SAR Grants in 1998
Number % of Total Potential of Options/ Realizable Value at Securities SARs Assumed Annual Underlying Granted to Rates of Stock Price Options/ Employees Exercise Expira- Appreciation SARs in Fiscal or Base tion for Option Term Name Granted(a) 1998 Price Date 5% 10% Winslow H. Buxton 89,000 22.2% $35.00 1/22/08 $1,959,007 $4,964,508 Joseph R. Collins 25,000 6.2% $35.00 1/22/08 $550,283 $1,394,525 23,250 5.8% $39.625 1/14/04 $254,533 $562,451 Richard J. Cathcart 25,000 6.2% $35.00 1/22/08 $550,283 $1,394,525 Richard W. Ingman 22,000 5.5% $35.00 1/22/08 $484,249 $1,227,182 James A. White 21,000 5.2% $35.00 1/22/08 $462,238 $1,171,401
(a) One-third of each grant becomes exercisable on each of the first three anniversaries of the date of grant. The exercise price for the options granted was the closing market price of the Common Stock as of the date of grant. Aggregate Option and SAR Exercises in 1998 and Value at End of 1998
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs Shares at End of 1998 at End of 1998 Acquired Value Exercisable E Exercisable E Name on Exercise Realized Unexecisable U Unexercisable U Winslow H. Buxton 81,718 $1,786,950 E158,659 E $2,472,999 U167,222 U $1,280,052 Joseph R. Collins 7,844 $166,685 E60,308 E $1,039,957 U80,534 U $413,183 Richard J. Cathcart 8,300 $155,106 E34,940 E $519,738 U47,084 U $359,736 Richard W. Ingman 10,732 $244,485 E30,694 E $501,436 U39,790 U $280,037 James A. White 12,550 $252,521 E13,527 E $202,007 U29,352 U $190,756
Long-Term Incentive Plan Awards The following table reflects incentive compensation unit (ICU) awards made under the Omnibus Plan during 1998 to the Chief Executive Officer and the executive officers named in the Summary Compensation Table above. Long-Term Incentive Plan Awards in 1998
Number of Performance or Estimated Future Share, Units Other Period Payouts Under Non- or Other Until Matur- Stock Based Plans Name Rights ity or Payout Threshold Target Maximum Winslow H. Buxton 157,922 units 3 years $0 $273,205 $751,709 Joseph R. Collins 97,662 units 3 years $0 $168,955 $464,871 Richard J. Cathcart 97,662 units 3 years $0 $168,955 $464,871 Richard W. Ingman 88,571 units 3 years $0 $153,228 $421,598 James A. White 84,416 units 3 years $0 $146,040 $401,820
The ultimate payout value of each ICU is determined based on the Company's operating income (OI) growth and return on invested capital (ROIC) averaged over the three-year period. The target payout shown in the table is based on annual OI growth of 10% and annual ROIC of 20% which results in a value per ICU of $1.73. If over the three- year period there is no OI growth or ROIC is less than 15%, the value per ICU will be $0. The maximum value per ICU is $4.76. The following matrix shows the ICU values based on the OI growth and ROIC.
Return on Invested Operating Income (OI) Growth Capital (ROIC) 0% 2% 6% 10% 12% 20% 30% 15% 0.13 0.14 0.18 0.22 0.24 0.33 0.46 16% 0.44 0.47 0.53 0.60 0.64 0.79 1.00 18% 0.96 1.01 1.12 1.23 1.29 1.54 1.89 19% 1.17 1.23 1.36 1.49 1.56 1.86 2.27 20% 1.37 1.44 1.58 1.73 1.81 2.15 2.61 30% 2.61 2.73 2.98 3.24 3.38 3.96 4.76
Retirement Benefit Plans The Company maintains a tax-qualified defined benefit pension plan covering substantially all nonbargaining U.S. employees and an excess benefit plan covering highly-paid employees. Benefits under each plan are based on a participant's high five year average eligible earnings which generally include salary and bonus. The Company maintains an unfunded, nonqualified Supplemental Executive Retirement Plan (SERP) for corporate officers and subsidiary presidents. The annual retirement benefit payable under the SERP at age 65 is equal to 50% of the participant's high three year average eligible earnings reduced by 100% of the annual primary Social Security benefit and further reduced by age 65 benefits payable under qualified pension plans sponsored by the Company and previous employers of the participant. Effective January 1, 1999 the Company has amended the SERP to provide an annual retirement benefit which, expressed as a lump sum, is equal to the product of 15 percentage points for each year of service times the high five year average eligible earnings with no reductions for Social Security or qualified pension benefits. SERP benefits are payable as early as the attainment of age 55 and completion of five years of service and are converted into and received in the form of a term certain or joint and survivor annuity. Five SERP participants are grandfathered under the old SERP formula (including named executive officers Buxton and Collins). The following estimated aggregate amounts are payable, from the qualified pension, excess plan and SERP, annually upon retirement to the named executive officers over their lifetime: Buxton $713,042; Cathcart $286,518; Collins $285,801; Ingman $208,432 and White $205,210. Change in Control Arrangements Approximately 76 key corporate executives have entered into agreements with the Company that provide for contingent benefits if the executive leaves the employ of the Company within one year after an unfriendly change in control. Such benefits include: a. bonus awards for the year in question to be made under the Management Incentive Plan; b. termination of all restrictions on shares issued under the Omnibus Plan, and payment for ICU's and performance units without regard to the plans' forfeiture provisions; c. reimbursement of income taxes incurred in connection with the exercise of certain nonqualified options, as well as termination of all restrictions on transfer and termination of any right of the Company to repurchase shares received upon exercise of such options; d. the cost of an executive search agency; e. directors and officers liability insurance coverage; f. short-term replacement coverage for Company- provided group medical, dental, and life insurance policies; g. amount of non-vested benefits under any of the Company's tax-qualified deferred compensation plans; h. the accelerated accrual and vesting of benefits under the Supplemental Executive Retirement Plan (for those executives who have been made participants of such plan); and i. severance pay equal to 300% of annual compensation or, for employees other than executive officers of the Company, such amount reduced to the extent necessary to avoid federal excise taxes under Section 280G of the Internal Revenue Code. In addition, the Omnibus Plan permits the Compensation and Human Resource Committee, upon a change in control of the Company, to cancel all outstanding options granted under the plan, whether or not exercisable, and authorize payment of the "spread" between the exercise price of the options and the then current market value of the underlying stock. Based upon compensation levels as of December 31, 1998, the dollar value of the benefits payable upon an unfriendly change in control to the named executive officers in the Summary Compensation Table by virtue of the agreements and the Omnibus Plan provision discussed above (excluding amounts that otherwise would be payable upon a termination of employment not involving an unfriendly change in control) would be: Buxton, $8,877,610; Collins, $5,176,044; Cathcart $3,243,709; Ingman, $3,079,234; and White, $2,574,634. FUTURE PROPOSALS The deadline for submitting a shareholder proposal for inclusion in the Company's proxy statement and form of proxy for the Company's 2000 Annual Meeting of Shareholders pursuant to Rule 14a-8 of the Securities and Exchange Commission is November 20, 1999. Unless a shareholder who wishes to bring a matter before the shareholders at the Company's 2000 Annual Meeting notifies the Company of such matter prior to January 24, 2000, the persons named in the proxy for the 2000 Annual Meeting will have discretionary authority to vote for or against or to abstain from voting on such proposal in accordance with their best judgment, if the proposal is actually presented at the meeting. Such proposals also must comply with the requirements of the Securities and Exchange Commission and the Company's bylaws. Any shareholder proposal should be sent to the Company at its principal executive offices: 1500 County Road B2 West, Saint Paul, Minnesota 55113, Attention: Secretary. In addition, with respect to nomination of directors, sections 9 through 12 of Article II of the By-Laws provide that a candidate may not be nominated for election as a director at the Annual Meeting of Shareholders unless the nomination was previously submitted to the Board or its Nominating and Governance Committee. A shareholder wishing to nominate a candidate for director at an Annual Meeting of Shareholders must do so no later than the sixtieth day after the end of the fiscal year preceding the year in which such Annual Meeting will be held. Nominations are deemed made when the Secretary of the Company receives all of the following: (1) all information about the nominee that may be required to be provided in any proxy statement pursuant to the Securities Exchange Act of 1934 and regulations promulgated thereunder; (2) an executed directors' questionnaire provided by the Company and completed by the nominee; (3) the nominee's statement consenting to his or her nomination and agreeing to serve, if elected; and (4) evidence that the person making the nomination is a shareholder. After reviewing the submission, the Board or the appointed Nominating and Governance Committee may, but need not, designate one or more of the nominees to appear as an alternate candidate on any proxy solicited by management or any proxy statement furnished by management. The number of such alternate candidates may not exceed the number of directors to be elected at that Annual Meeting. Exclusion of any eligible candidate from a proxy solicited by management does not affect the right of shareholders to nominate, vote for, or elect such candidate at any shareholders meeting held within twelve months after submission of the nomination material described above. OTHER BUSINESS Management does not know of any other business that will be presented for consideration at the Annual Meeting; however, if any other business does properly come before the Annual Meeting, proxies will be voted in accordance with the best judgment of the person or persons acting under them. PENTAIR, INC. PLEASE SIGN AND RETURN PROMPTLY TO REDUCE SOLICITATION EXPENSES PENTAIR, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS April 28, 1999 The undersigned hereby appoints Winslow H. Buxton and Richard W. Ingman, or either of them, as Proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of Common Stock of Pentair, Inc. held of record by the undersigned on March 1, 1999 at the Annual Meeting of Shareholders of Pentair, Inc. to be held at 10:00 a.m., Wednesday, April 28, 1999, at the Northland Inn and Conference Center, 7025 Northland Drive, Brooklyn Park, Minnesota, and any adjournment or adjournments thereof. Furthermore, if I am a participant in the Pentair, Inc. Employee Stock Ownership Plan (Pentair ESOP) or the Federal-Hoffman Employee Stock Ownership Plan (F-H ESOP), as appropriate, I hereby direct Fidelity Management Trust Company as ESOP Trustee, or Norwest Bank Minnesota, N.A. as F- H ESOP Trustee, to vote at the Annual Meeting of Shareholders of Pentair, Inc. to be held at 10:00 a.m., Wednesday, April 28, 1999, at the Northland Inn and Conference Center, 7025 Northland Drive, Brooklyn Park, Minnesota, and any adjournment or adjournments thereof, all shares of Common Stock of Pentair, Inc. allocated to my account in the Pentair ESOP or F-H ESOP as of March 1, 1999. I understand that this card must be received by Norwest Bank Minnesota, N.A., acting as tabulation agent for the Pentair ESOP Trustee and F-H ESOP Trustee, by April 21, 1999. THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL. 1.ELECTION OF DIRECTORS: FOR all nominees listed below except those I have struck by a line through their names. WITHHOLD AUTHORITY to vote for all nominees listed below. Winslow H. Buxton Barbara B. Grogan Joseph R.Collins Stuart Maitland Augusto Meozzi 2.PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as independent public accountants for the current fiscal year. FOR AGAINST ABSTAIN 3.To amend the Restated Articles of Incorporation increasing the total number of shares authorized to be issued from 125,000,000 to 250,000,000. FOR AGAINST ABSTAIN 4.To amend the Restated Articles of Incorporation increasing from 15,000,000 to 30,000,000 the number of authorized shares that may be designated as preferred shares. FOR AGAINST ABSTAIN 5.To amend the Restated Articles of Incorporation to eliminate all currently authorized series of preferred shares of the Company. FOR AGAINST ABSTAIN 6.To transact such other business as may properly come before the meeting or any adjournment thereof. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY, BUT IF THIS PROXY IS RETURNED SIGNED WITH NO DIRECTION MADE, THEY WILL BE VOTED "FOR" EACH OF THE DIRECTORS AND PROPOSALS. The undersigned hereby ratifies and confirms all that the Proxies shall lawfully do or cause to be done by virtue hereof and hereby revokes all proxies heretofore given to vote such shares. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENTAIR, INC. Signature Signature if held jointly Dated: ,1999 THIS CARD MUST BE DATED. (Please sign exactly as your name appears to the left. When shares are held by joint tenants, both should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by an authorized person.) PENTAIR, INC. PLEASE SIGN AND RETURN PROMPTLY TO REDUCE SOLICITATION EXPENSES PENTAIR, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS April 28, 1999 The undersigned hereby appoints Winslow H. Buxton and Richard W. Ingman, or either of them, as Proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of Common Stock of Pentair, Inc. held of record by the undersigned on March 1, 1999 at the Annual Meeting of Shareholders of Pentair, Inc. to be held at 10:00 a.m., Wednesday, April 28, 1999, at the Northland Inn and Conference Center, 7025 Northland Drive, Brooklyn Park, Minnesota, and any adjournment or adjournments thereof. THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL. 1.ELECTION OF DIRECTORS: FOR all nominees listed below except those I have struck by a line through their names. WITHHOLD AUTHORITY to vote for all nominees listed below. Winslow H. Buxton Barbara B. Grogan Joseph R.Collins Stuart Maitland Augusto Meozzi 2.PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as independent public accountants for the current fiscal year. FOR AGAINST ABSTAIN 3.To amend the Restated Articles of Incorporation increasing the total number of shares authorized to be issued from 125,000,000 to 250,000,000. FOR AGAINST ABSTAIN 4.To amend the Restated Articles of Incorporation increasing from 15,000,000 to 30,000,000 the number of authorized shares that may be designated as preferred shares. FOR AGAINST ABSTAIN 5.To amend the Restated Articles of Incorporation to eliminate all currently authorized series of preferred shares of the Company. FOR AGAINST ABSTAIN 6.To transact such other business as may properly come before the meeting or any adjournment thereof. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY, BUT IF THIS PROXY IS RETURNED SIGNED WITH NO DIRECTION MADE, THEY WILL BE VOTED "FOR" EACH OF THE DIRECTORS AND PROPOSALS. The undersigned hereby ratifies and confirms all that the Proxies shall lawfully do or cause to be done by virtue hereof and hereby revokes all proxies heretofore given to vote such shares. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENTAIR, INC. Signature Signature if held jointly Dated: , 1999 THIS CARD MUST BE DATED. (Please sign exactly as your name appears to the left. When shares are held by joint tenants, both should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by an authorized person.) PENTAIR, INC. PLEASE SIGN AND RETURN PROMPTLY TO REDUCE SOLICITATION EXPENSES PENTAIR, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS April 28, 1999 The undersigned hereby appoints Winslow H. Buxton and Richard W. Ingman, or either of them, as Proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of Common Stock of Pentair, Inc. held of record by the undersigned on March 1, 1999 at the Annual Meeting of Shareholders of Pentair, Inc. to be held at 10:00 a.m., Wednesday, April 28, 1999, at the Northland Inn and Conference Center, 7025 Northland Drive, Brooklyn Park, Minnesota, and any adjournment or adjournments thereof. Furthermore, as a participant in the Pentair, Inc. International Employee Stock Purchase and Bonus Plan (Plan), I hereby direct ABN AMRO Trust Company (Jersey) Limited as Trustee, to vote, as designated below, at the Annual Meeting of Shareholders of Pentair, Inc. to be held at 10:00 a.m., Wednesday, April 28, 1999, at the Northland Inn and Conference Center, 7025 Northland Drive, Brooklyn Park, Minnesota, and any adjournment or adjournments thereof, all shares of Common Stock of Pentair, Inc. allocated to my account in the Plan as of March 1, 1999. I understand that this card must be received by Norwest Bank Minnesota, N.A., acting as tabulation agent for the Trustee, by April 21, 1999. THE BOARD RECOMMENDS A VOTE "FOR" EACH PROPOSAL. 1.ELECTION OF DIRECTORS: FOR all nominees listed below except those I have struck by a line through their names. WITHHOLD AUTHORITY to vote for all nominees listed below. Winslow H. Buxton Barbara B. Grogan Joseph R.Collins Stuart Maitland Augusto Meozzi 2.PROPOSAL TO RATIFY the retention of Deloitte & Touche LLP as independent public accountants for the current fiscal year. FOR AGAINST ABSTAIN 3.To amend the Restated Articles of Incorporation increasing the total number of shares authorized to be issued from 125,000,000 to 250,000,000. FOR AGAINST ABSTAIN 4.To amend the Restated Articles of Incorporation increasing from 15,000,000 to 30,000,000 the number of authorized shares that may be designated as preferred shares. FOR AGAINST ABSTAIN 5.To amend the Restated Articles of Incorporation to eliminate all currently authorized series of preferred shares of the Company. FOR AGAINST ABSTAIN 6.To transact such other business as may properly come before the meeting or any adjournment thereof. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY, BUT IF THIS PROXY IS RETURNED SIGNED WITH NO DIRECTION MADE, THEY WILL BE VOTED "FOR" EACH OF THE DIRECTORS AND PROPOSALS. The undersigned hereby ratifies and confirms all that the Proxies shall lawfully do or cause to be done by virtue hereof and hereby revokes all proxies heretofore given to vote such shares. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENTAIR, INC. Signature Signature if held jointly Dated: , 1999 THIS CARD MUST BE DATED. (Please sign exactly as your name appears to the left. When shares are held by joint tenants, both should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If a corporation please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by an authorized person.) -----END PRIVACY-ENHANCED MESSAGE-----