<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
PALL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PALL CORPORATION
2200 NORTHERN BOULEVARD
EAST HILLS, NEW YORK 11548
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 19, 1996
---------------------
To the Holders of Common Stock:
PLEASE TAKE NOTICE that the annual meeting of shareholders of Pall
Corporation, a New York corporation (the "Company"), will be held at The Garden
City Hotel, 45 Seventh Street, Garden City, New York 11530, on Tuesday, November
19, 1996 at 2:30 P.M. for the following purposes:
(1) to elect four directors for a three-year term; and
(2) to transact such other business as may properly come before the
meeting.
The close of business on October 10, 1996 has been fixed as the record date
for the meeting; only shareholders of record at that time are entitled to notice
of and to vote at the meeting.
Peter Schwartzman,
Secretary
October 16, 1996
<PAGE> 3
PALL CORPORATION
2200 NORTHERN BOULEVARD
EAST HILLS, NEW YORK 11548
October 16, 1996
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Pall
Corporation, a New York corporation (the "Company"), for use at the annual
meeting of shareholders to be held on Tuesday, November 19, 1996, at 2:30 P.M.
at The Garden City Hotel, 45 Seventh Street, Garden City, New York 11530, and at
any adjournments thereof (the "meeting"). Shareholders are requested to date and
execute the enclosed form of proxy and return it in the enclosed postage-paid
return envelope, whether or not they plan to attend the meeting.
The approximate date on which this proxy statement and the enclosed proxy
will be first sent to shareholders is October 16, 1996. The cost of the
solicitation of proxies in the enclosed form (estimated not to exceed $150,000)
will be borne by the Company. The solicitation is to be made primarily by mail,
but will be supplemented by telephone calls and personal solicitation by
full-time regular employees of the Company, who will not be specially
compensated therefor, and by the firm of Georgeson & Company Inc., which has
been retained for this purpose by the Company and which is to be paid the sum of
$7,500 as a fee for its services plus disbursements estimated at $110,000, such
fee and estimated disbursements being included in the total cost estimate given
above.
VOTING
The shares represented by each properly signed and returned proxy will be
voted in accordance with the instructions marked thereon. In the event that
voting instructions are not marked on any such proxy, the shares represented by
such proxy will be voted for the election as directors of the nominees proposed
herein. The Board of Directors is not aware of any other matters to be presented
for action at the meeting, but in the event that other matters are properly
brought before the meeting, shares represented by properly signed and returned
proxies will be voted in accordance with the judgment of the persons named as
proxies.
Shareholders have the right to revoke their proxies at any time before a
vote is taken, by notifying the Corporate Secretary of the Company in writing at
the address given above. In addition, a shareholder may revoke a proxy (1) by
executing a new proxy card bearing a later date, provided the new proxy is
received by Wachovia Bank of North Carolina, N.A. (which will have a
representative present at the meeting) before the vote, (2) by attending the
meeting and voting in person, or (3) by any other method available to
shareholders by law.
The close of business on October 10, 1996 has been fixed as the record date
for the meeting, and only shareholders of record at that time will be entitled
to vote. The only capital stock of the Company outstanding is Common Stock, par
value $.10 per share (the "Common Stock"). There were 115,116,755 shares of
Common Stock outstanding and entitled to vote on the record date. Each
shareholder is entitled to one vote for each share held.
ELECTION OF DIRECTORS
Four directors are to be elected at the meeting, each for a three-year
term. The Board of Directors, on the recommendation of its Nominating Committee,
has nominated Abraham Appel, Ulric Haynes, Jr., Jeremy Hayward-Surry and Edwin
W. Martin, Jr., all of whom are presently directors of the Company. The Board of
Directors recommends that shares represented by the enclosed proxy be voted for
the election of Messrs. Appel, Haynes, Hayward-Surry and Martin. Although it is
not anticipated that any of the nominees will become unavailable before the
meeting, in that event the persons named as proxies on the enclosed proxy card
will have the right, at their discretion, to vote all properly executed proxies
for such substitute candidate, if any, as may be nominated by the Board of
Directors.
<PAGE> 4
Directors will be elected by a plurality of the votes properly cast (in
person or by proxy) at the meeting. Thus, shareholders who do not vote, or who
withhold their vote from one or more of the nominees named above and do not vote
for another person, will not affect the outcome of the election provided that a
quorum is present at the meeting. A broker who is the record owner of shares of
Common Stock beneficially owned by a customer will have discretionary authority
to vote such shares if the broker has not received voting instructions from the
beneficial owner by the tenth day before the meeting, provided that this proxy
statement has been transmitted to the beneficial owner at least 15 days before
the meeting.
Information with respect to the nominees and each other present director of
the Company is set forth below. The principal occupations of each director
during at least the past five years is shown in the fourth column and the notes
thereto.
<TABLE>
<CAPTION>
SERVICE AS PRESENT
POSITIONS AND OFFICES DIRECTOR TERM
NAME AGE WITH THE COMPANY PRINCIPAL OCCUPATIONS SINCE EXPIRES
- ---------------------- ---- --------------------- ----------------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Abraham Appel*........ 81 Director** President, Appel 1969 1996
Consultants, Inc.,
consultants on
financing and foreign
trade, Toronto, Canada
Ulric Haynes, Jr.*.... 65 Director** Dean of the School of 1994 1996
Business, Hofstra Uni-
versity, Hempstead,
N.Y.(a)
Jeremy
Hayward-Surry*...... 53 President, Treasurer Officer of the Com- 1993 1996
and Chief Financial pany(b)
Officer and Direc-
tor**
Eric Krasnoff......... 44 Chairman and Chief Officer of the Com- 1994 1997
Executive Officer pany(c)
and Director**
Edwin W. Martin,
Jr.*................ 65 Director** (d) 1993 1996
David B. Pall......... 82 Founder Chairman and (e) 1946 1997
Director**
Katharine L.
Plourde............. 44 Director** Principal and Analyst, 1995 1998
Donaldson, Lufkin &
Jenrette, Inc.,
investment banking
firm,
New York, N.Y.
Chesterfield F.
Seibert............. 71 Director** (f) 1971 1997
Heywood Shelley....... 69 Director Attorney (g) 1990 1998
Alan B. Slifka........ 67 Director (h) 1964 1998
James D. Watson....... 68 Director** (i) 1988 1997
Derek T.D. Williams... 64 Executive Vice Presi- Officer of the Com- 1994 1998
dent and Chief Op- pany(j)
erating Officer and
Director
</TABLE>
- ---------------
* Nominee for election at the meeting.
** Mr. Appel is a member of the Audit, Compensation and Nominating
Committees of the Board of Directors. Mr. Haynes is a member of the Compensation
Committee. Messrs. Krasnoff and Hayward-Surry and Dr. Pall are members of the
Executive Committee. Dr. Martin is a member of the Compensation and Nominating
Committees. Mr. Seibert is a member of the Audit and Nominating Committees. Ms.
Plourde and Dr. Watson are members of the Audit Committee.
(a) Mr. Haynes, who was the U.S. Ambassador to Algeria in 1977-1981, is
also a director of Marine Midland Bank, N.A.
2
<PAGE> 5
(b) Mr. Hayward-Surry has been President, Treasurer and Chief Financial
Officer of the Company since July 1994. Prior thereto, he was Executive Vice
President, Treasurer and Chief Financial Officer from November 1992 to July 1994
and Senior Vice President and Controller from July 1989 to November 1992.
(c) Mr. Krasnoff has been Chairman and Chief Executive Officer of the
Company since July 1994. Prior thereto, he was President and Chief Operating
Officer from October 1993 to July 1994, Executive Vice President -- Worldwide
Sales and Marketing and Corporate Administration -- from November 1991 to
October 1993 and Group Vice President -- Biomedical and BioSupport and Corporate
Administration -- from July 1989 to November 1991.
(d) Dr. Martin was President and Chief Executive Officer until September
1994, and since then has been President Emeritus, of the National Center for
Disability Services, a non-profit education, rehabilitation and research agency
located in Albertson, N.Y.
(e) Until July 31, 1992, Dr. Pall's principal occupation was as a senior
officer of the Company; since that date, his principal occupation has been as
senior scientist of the Company under the Consulting Agreement described below.
(f) Mr. Seibert was retired until February 1994, when he became Chief
Executive Officer of Marietta Corporation, a manufacturer of amenities for the
hotel industry and a packager for cosmetic manufacturers. Mr. Seibert resigned
as an officer and director of Marietta Corporation effective December 31, 1994,
and has been retired since that date.
(g) Mr. Shelley is a member of the firm of Carter, Ledyard & Milburn, New
York, N.Y., which firm acts as legal counsel to the Company.
(h) Mr. Slifka is Managing Principal of Halcyon/Alan B. Slifka Management
Company, LLC, formerly Alan B. Slifka and Company, L.P., which Mr. Slifka
founded in 1982. The firm, headquartered in New York City, provides financial
asset management through Halcyon Partnerships, of which it is managing general
partner. In addition, since October 1993 Mr. Slifka has been Chairman of the
Board of Global Telesystems Group, Inc. (GTS), an operator of long distance and
access telecommunications networks and a provider of voice and data
telecommunications services to business customers and other telecommunications
service providers in Western Europe, the Commonwealth of Independent States,
Central Europe, India and China.
(i) Dr. Watson was Director until January 1994, and since then has been
President, of the Cold Spring Harbor Laboratory, a biomedical research
institution specializing in genetics, located in Cold Spring Harbor, N.Y. Dr.
Watson is also a director of Diagnostic Products Corporation and SIBIA
Neurosciences, Inc.
(j) Mr. Williams has been an Executive Vice President of the Company since
November 1991 and also Chief Operating Officer since July 1994. Prior to
becoming an Executive Vice President, Mr. Williams was Group Vice
President -- Manufacturing and Engineering.
------------------------
There were five meetings of the Board of Directors of the Company during
fiscal 1996. The Executive Committee of the Board is authorized to act on most
Board matters during the intervals between meetings of the full Board. There
were ten meetings of the Executive Committee during fiscal 1996.
The duties and responsibilities of the Audit Committee include, among other
things, review of the Company's financial statements, consideration of the
nature and scope of the work to be performed by the Company's independent
auditors, oversight of the results of such work, review of such auditors'
letters to management which evaluate (as part of their annual audit of the
Company's financial statements) the internal control systems of the Company,
discussions with representatives of management of particular areas of the
Company's operations, and meeting with the Company's internal audit managers to
review their plans and to discuss internal audit reports. The Audit Committee
met twice during fiscal 1996.
The Compensation Committee has the power and duty to fix the compensation
of officers of the Company and to authorize and approve the making of employment
contracts between the Company and its officers. The Committee also administers
the Company's stock option plans and selects the employees to
3
<PAGE> 6
whom options are to be granted and the number of shares to be optioned to each.
The Compensation Committee met once in fiscal 1996 and in addition took certain
actions by unanimous written consent.
The Nominating Committee has the power and duty to develop policy on the
size and composition of the Board of Directors and criteria for director
nomination, to establish procedures for the nomination process, to identify and
recommend candidates for election to the Board, and to evaluate the
participation and contribution of current Board members. The Nominating
Committee met once in fiscal 1996. The Nominating Committee will consider
nominees for director recommended by shareholders. The procedure to be followed
in submitting such recommendations is for the shareholder making the
recommendation to send the Corporate Secretary a letter making the
recommendation and describing fully the education, business experience and other
qualifications of the person recommended.
During fiscal 1996, each presently incumbent director attended more than
75% of the aggregate number of meetings of the Board and of the Board committee
or committees on which he or she served, except for Messrs. Haynes and Slifka.
Mr. Haynes attended two-thirds (4 of 6) of such meetings. Mr. Slifka attended
three-fifths (3 of 5) of such meetings.
For serving on the Board of Directors, each director of the Company who is
not also an employee of the Company is paid $2,000 a month plus $1,500 for each
meeting of the Board and Board committees attended (other than meetings by
conference telephone). Each member of the Audit Committee is paid an additional
$500 a month. Directors who are employees receive no additional compensation.
During fiscal 1996, the Company paid compensation to Dr. Pall in the amount
of $207,000 under a Consulting Agreement which has been effective since his
retirement as a full-time officer of the Company in July 1992. By the terms of
the Consulting Agreement, Dr. Pall agrees to perform consulting services for the
Company for not less than 30 hours a week (subject to his right to take time off
for vacations and personal matters), and the Company agrees to pay for such
services at the rate of $1,500 a day. This Agreement remains in effect
indefinitely until terminated by either party on six months notice. During the
term of the Consulting Agreement, Dr. Pall is entitled to receive, at the
Company's expense, private office space and furnishings, secretarial services, a
Company car and appropriate laboratory space and equipment and, on request,
automobile transportation and personal accounting services.
The Company and its officers and directors are insured under an insurance
policy dated August 1, 1996 with Chubb Group of Insurance Companies with respect
primarily to liability arising from the performance by officers and directors of
their corporate duties. The policy also includes certain other coverage and the
Company pays the premium, which is at present $149,248 per year.
Under the Company's Stock Option Plan for Non-Employee Directors as adopted
at the 1995 annual meeting of the Company's shareholders (the "Director Plan"),
a maximum of 300,000 shares of Common Stock are reserved for issuance upon
exercise of options which are granted automatically each year, on the date of
and immediately following the annual meeting of the Company's shareholders, to
each member of the Board of Directors who is elected or re-elected at such
annual meeting and who is not at that time an employee of the Company or any of
its subsidiaries (a "Non-Employee Director"). There are currently nine
Non-Employee Directors. The exercise price of each option granted under the
Director Plan is the fair market value (as defined in the Director Plan) on the
date of grant of the shares of Common Stock subject to such option. Each option
granted under the Director Plan becomes exercisable in three substantially
equal, cumulative installments on each of the first three anniversary dates of
the date of grant, and expires on the fifth anniversary of the date of grant.
Under the Director Plan, on the date of each annual meeting of the
Company's shareholders each Non-Employee Director who is elected a director of
the Company by the shareholders for the first time at such annual meeting is
granted an option to purchase 20,000 shares of Common Stock for election to a
three-year term, 16,667 shares of Common Stock for election to a two-year term,
and 13,333 shares for election to a one-year term. Thus, Ms. Plourde, who was
elected by the shareholders for the first time at the 1995 annual meeting, and
for a three-year term, was granted an option on the date of such meeting to
purchase 20,000 shares of Common Stock. Also on the date of each annual meeting
of shareholders, each Non-Employee
4
<PAGE> 7
Director who is re-elected at such meeting is granted an option to purchase
10,000 shares for a three-year term, 6,667 shares for a two-year term, and 3,333
shares for a one-year term. Thus, Mr. Shelley, who was re-elected at the 1995
annual meeting for a three-year term, was granted an option on that date to
purchase 10,000 shares of Common Stock. In addition, on the date of the 1995
annual meeting, Messrs. Appel and Slifka, who prior to that date had been
ineligible for option grants under the Company's existing option plans by reason
of their service on the Stock Option Committee, were granted special options to
purchase 10,000 shares and 20,000 shares, respectively. The grant to Mr. Slifka
was in lieu of an option to purchase 10,000 shares to which he would otherwise
have been entitled under the Director Plan by virtue of his re-election at the
1995 annual meeting for a three-year term. All of the options granted to
Non-Employee Directors under the Director Plan on the date of the 1995 annual
meeting were at an exercise price of $24.25 per share.
COMPENSATION AND OTHER BENEFITS OF SENIOR MANAGEMENT
The following table sets forth information concerning the total
compensation of the Chief Executive Officer of the Company and the four other
executive officers who had the highest individual aggregates of salary and bonus
during the Company's fiscal year ended August 3, 1996. These five persons are
hereinafter referred to collectively as the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND FISCAL --------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(A)
- ------------------------------------ ------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Eric Krasnoff....................... 1996 $491,787 $491,787 120,000 $72,525
Chairman and Chief Executive 1995 410,020 410,020 -0- 65,444
Officer 1994 289,241 231,855 160,000 30,282
Jeremy Hayward-Surry................ 1996 336,762 252,572 75,000 48,316
President, Treasurer and Chief 1995 280,020 210,015 -0- 40,286
Financial Officer 1994 204,568 133,552 100,000 20,258
Derek T.D. Williams................. 1996 233,611 101,232 50,000 9,824
Executive Vice President and 1995 222,320 100,044 -0- 10,197
Chief Operating Officer 1994 173,416 31,354 80,000 6,501
Gerhard Weich....................... 1996 298,971 74,743 30,000 844
Group Vice President 1995 288,503 72,127 -0- -0-
1994 245,802 42,278 35,000 -0-
Samuel T. Wortham................... 1996 207,018 144,913 30,000 27,109
Group Vice President 1995 195,312 136,718 -0- 27,078
1994 189,644 95,907 35,000 14,344
</TABLE>
- ---------------
(a) Includes amounts which, under regulations of the Securities and
Exchange Commission, are deemed to be compensation by reason of interest-free
loans made by the Company for the payment of the exercise price of options under
the Company's employee stock option plans. See Indebtedness of Officers and
Directors under Stock Option Plans below. Such amounts, computed under rates
prescribed by the IRS to determine "imputed interest", were as follows in fiscal
1996: Mr. Krasnoff -- $17,760; Mr. Hayward-Surry -- $15,502; Mr.
Williams -- $9,824; Mr. Weich -- $844; and Mr. Wortham -- $7,513. Also includes
contributions to the Company's Profit-Sharing Plan and Supplementary
Profit-Sharing Plan, which contributions for fiscal 1996 were as follows: Mr.
Krasnoff -- $54,765; Mr. Hayward-Surry -- $32,814; and Mr. Wortham -- $19,596.
5
<PAGE> 8
OPTIONS
The following tables set forth information concerning grants of stock
options to and exercises of stock options by the Named Executive Officers during
fiscal 1996, and the number and value of unexercised options held by each of
them at August 3, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS IN FISCAL EXERCISE EXPIRATION -------------------------
NAME GRANTED(1) YEAR PRICE(2) DATE 5% 10%
- ---------------------------- ---------- ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eric Krasnoff............... 120,000 5.0% $24.25 11/21/00 $804,000 $1,776,600
Jeremy Hayward-Surry........ 75,000 3.1 24.25 11/21/00 502,500 1,110,375
Derek T.D. Williams......... 50,000 2.1 24.25 11/21/00 335,000 740,250
Gerhard Weich............... 30,000 1.3 24.25 11/21/00 201,000 444,150
Samuel T. Wortham........... 30,000 1.3 24.25 11/21/00 201,000 444,150
</TABLE>
- ---------------
(1) The options in this table become exercisable in four cumulative installments
on each of the first through fourth anniversary dates of the date of grant.
(2) Fair market value of a share of the Company's Common Stock on the date of
grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric Krasnoff............. -0- -0- 113,333 200,000 $ 809,998 $ 657,499
Jeremy Hayward-Surry...... 25,524 $ 245,996 57,808 125,000 443,526 431,249
Derek T.D. Williams....... 30,000 270,000 83,333 50,000 524,998 25,000
Gerhard Weich............. 10,000 77,969 25,000 50,000 156,250 140,000
Samuel T. Wortham......... -0- -0- 37,500 47,500 236,874 124,374
</TABLE>
- ---------------
(1) Value realized is the aggregate market value, on the date of exercise, of
the shares acquired less the aggregate exercise price paid for such shares.
(2) Value of unexercised options is the difference between the aggregate market
value of the underlying shares (based on the closing price on August 2,
1996, which was $24.75 per share) and the aggregate exercise price for such
shares.
CONTRACTS WITH NAMED EXECUTIVE OFFICERS
The Company has employment contracts with the three U.S.-based Named
Executive Officers. (The Company's U.K.-based subsidiary, Pall Europe Limited,
has an employment contract with Mr. Williams, and the Company's subsidiary based
in Germany, Pall Deutschland GMBH Holding, has an employment contract with Mr.
Weich, each of which is described separately below.) These three contracts
provide for minimum annual salaries, adjusted annually for changes in the
consumer price index. The minimum annual salaries payable for fiscal 1997 are as
follows: Mr. Krasnoff -- $516,300; Mr. Hayward-Surry -- $353,500, and Mr.
Wortham -- $211,200. These contracts also provide for incentive bonuses
determined by a formula under
6
<PAGE> 9
which a bonus equal in amount to a percentage of base salary becomes payable if
the Company's return on equity (after-tax consolidated net income (as defined)
as a percentage of average shareholders' equity (as defined)) exceeds a certain
percentage (the "Bonus Threshold"); the bonus increases to reflect increases in
return on equity up to a maximum bonus payable when return on equity equals or
exceeds a certain percentage (the "Maximum Bonus Percentage"). For fiscal 1997,
the Bonus Threshold is 12.5% and the Maximum Bonus Percentage is 20%. For fiscal
years after fiscal 1997, the Compensation Committee of the Board of Directors
will determine the Bonus Threshold and the Maximum Bonus Percentage, consistent
in each case with expected results based upon the Company's normal projection
procedures, or based on statistical or trend data. The maximum bonus payable
under this formula is 100% of base salary for Mr. Krasnoff, 75% of base salary
for Mr. Hayward-Surry, and 42% of base salary for Mr. Wortham. In addition, Mr.
Wortham, who is in charge of a separate segment of the Company's business, may
receive an additional bonus based on the results of operations of the business
segment for which he is responsible. Under Mr. Wortham's employment contract,
the Chief Executive Officer has discretion to determine the amount of this
additional bonus, up to a maximum amount of 28% of Mr. Wortham's base salary.
The formula currently used by the Chief Executive Officer in determining the
business segment component of bonuses for executive officers is described below
under Compensation Committee Report on Executive Compensation -- Annual
Incentive Bonuses.
Each of these three employment contracts is for a term of employment which
will continue until terminated by either party on not less than two years notice
except that (1) the effective date of termination cannot be earlier than March
31, 1999 as to Mr. Krasnoff and July 31, 1999 as to Mr. Hayward-Surry and (2)
unless the parties agree otherwise, the term of employment ends at age 65. In
addition, Mr. Krasnoff has the right to terminate his employment agreement if at
any time he no longer has the title, authority and duties of chief executive
officer. Under each of these three employment contracts, in the event of a
"change of control" of the Company (as defined), the officer has the right to
terminate his employment effective immediately or effective on a date specified
in his notice of termination that is not more than one year from the date of
giving of such notice. Upon any such termination, the officer would be entitled
to his salary and bonus compensation prorated to the effective date of
termination.
The employment contract between Pall Europe Limited and Mr. Williams
provides for an annual salary for fiscal 1997 which will be 155,800 pounds
sterling (equal to approximately $240,400 at August 2, 1996). This contract also
provides for an incentive bonus determined under the return on equity formula
described above, with a maximum bonus of 45% of base salary. The contract with
Mr. Williams is for a term of employment which will continue until terminated by
either party on not less than two years notice except that there is no minimum
notice period in the event of a termination by the Company after age 65. In the
event of a change in control of Pall Europe Limited, Mr. Williams has the right
to terminate on not less than three months or more than 24 months notice given
not more than two years after the change in control.
The employment contract between Pall Deutschland GMBH Holding and Mr. Weich
provides for an annual salary for fiscal 1997 which will be 453,600 Deutsche
Marks ("DM") (equal to approximately $307,400 at August 2, 1996). This contract
also provides for an incentive bonus determined under the return on equity
formula described above, with a maximum bonus of 15% of base salary. Also, Mr.
Weich, who is in charge of a separate segment of the Company's business, may
receive an additional bonus based on the results of operations of that business
segment. Under Mr. Weich's employment contract, the Chief Executive Officer of
the Company has discretion to determine the amount of this additional bonus, up
to a maximum amount of 10% of Mr. Weich's base salary. The formula currently
used by the Chief Executive Officer in determining the business segment
component of bonuses for executive officers is described below under
Compensation Committee Report on Executive Compensation -- Annual Incentive
Bonuses. The contract with Mr. Weich is for a term of employment which will
continue until terminated by either party on not less than two years notice
until the executive reaches age 65 and thereafter on one years notice. In the
event of a change in control of Pall Deutschland GMBH Holding, Mr. Weich has the
right to terminate on not less than three months or more than 24 months notice
following such change in control.
7
<PAGE> 10
PENSION PLANS
Messrs. Krasnoff, Hayward-Surry and Wortham are participants in the Pall
Corporation Pension Plan (the "Pension Plan"), a defined benefit plan qualified
under the Internal Revenue Code (the "Code"). Benefits under the Pension Plan
are determined pursuant to a benefit formula under which, in general, for each
fiscal year of credited service, a participant accrues an annual benefit equal
to 1% of the participant's covered compensation for that fiscal year, plus .5%
of the excess of the participant's covered compensation for that fiscal year
over the Social Security Wage Base for that year ($61,200 in fiscal 1996).
Covered compensation under the Pension Plan is total compensation, including
bonuses and overtime but excluding stock options and contributions to all
benefit programs. For fiscal 1996, the maximum amount of any participant's
covered compensation which could be taken into account under the Pension Plan
for the purpose of computing that participant's benefits was limited by the Code
to $150,000.
Under the Company's Supplementary Pension Plan (which is not a qualified
plan under the Code), additional pension benefits are provided to certain
employees, including Messrs. Krasnoff, Hayward-Surry and Wortham. The
Supplementary Pension Plan provides lifetime pension payments which, when added
to primary Social Security benefits and payments from the Pension Plan, will on
an annual basis equal 50% of a participant's "Final Average Compensation", which
is defined as the average of the three highest of a participant's last five
years of cash compensation. If a participant vested under the Supplementary
Pension Plan dies before retirement, his surviving spouse receives a lifetime
pension equal to 50% of the straight-life-annuity pension which the participant
would have been entitled to receive upon retirement. Currently, Final Average
Compensation (based on fiscal years through fiscal 1996) for the Named Executive
Officers who participate in the Supplementary Pension Plan would be as follows:
Mr. Krasnoff -- $774,903; Mr. Hayward-Surry -- $472,496, and Mr.
Wortham -- $323,201.
Mr. Williams is a participant in the Pall (UK) Pension Fund (the "Pension
Fund"). The annual retirement pension that would be provided to a participant
under the Pension Fund is determined according to the following formula: 1/60 X
Pensionable Salary X Period of Pensionable Service, where Pensionable Salary is
defined as the average of the three highest of the last ten years' base salary
and Period of Pensionable Service is defined as the period of full-time
permanent continuous service with the Company while a participant in the Pension
Fund. Benefits under the Fund are normally payable monthly as determined by the
actuaries for the Fund. However, a participant has the option of receiving a
portion of his or her pension in the form of a lump sum payment on retirement,
with a resulting reduction in the monthly payment.
In addition, Mr. Williams is also eligible for participation in one of two
versions of The Pall U.K. Supplementary Pension Scheme (the "Supplementary
Scheme"). The Supplementary Scheme provides pension benefits in addition to any
benefits earned as a participant in the Pension Fund. The version of the
Supplementary Scheme in which Mr. Williams participates provides pension
payments which, when added to payments from the Pension Fund and any other
occupational pension to which he is entitled, will on an annual basis equal
two-thirds of his Pensionable Salary (as defined for the Pension Fund). The
Supplementary Scheme provides for annual inflationary increases to a maximum of
5% of total pension. Currently, Mr. Williams' Pensionable Salary (based on
fiscal years through fiscal 1996) would be 133,482 pounds sterling (equal to
approximately $206,000 at August 2, 1996).
Mr. Weich is a participant in pension plans and supplementary executive
pension arrangements provided by certain of the Company's European subsidiaries.
His pension benefits as so supplemented are based upon Pensionable Service and
Pensionable Income, where Pensionable Service is generally defined as up to 40
years of uninterrupted full-time employment between ages 20 and 65, and
Pensionable Income is defined as the average of 13 times monthly average base
salary for the three years ended the July 1 preceding retirement. Mr. Weich's
benefit formula for each year of Pensionable Service is (i) 0.3% of Pensionable
Income up to the German Social Security Salary Ceiling as of the July 1
preceding his retirement (DM 96,000 -- approximately $64,000 -- as of July 1,
1996), plus (ii) 1.5% of Pensionable Income above such Ceiling. In case of
termination of employment by reason of disability before normal retirement age
of 65, Mr. Weich's years of Pensionable Service would include those which would
have been credited to him had he continued to work until age 65, and his
Pensionable Income would be calculated as if he had retired on the date of
disability
8
<PAGE> 11
termination. If Mr. Weich had retired at the end of the Company's last fiscal
year and had been age 65 at that time, he would have had 31 years of Pensionable
Service and would have been entitled to a total annual pension of DM 154,923
(approximately $103,000). Had he then retired by reason of disability, he would
have been credited with 35 years of Pensionable Service and would have been
entitled to a total annual pension of DM 174,913 (approximately $116,600). In
addition, if Mr. Weich's spouse should survive him, she would receive a lifetime
pension after his death equal to 60% of Mr. Weich's pension. Under German law, a
pension is subject to cost-of-living adjustments every three years if the
economic situation of the paying company permits.
BENEFITS PROTECTION TRUST
The Company has established a Benefits Protection Trust to which it makes
voluntary contributions to fund the Company's obligations under the
Supplementary Pension Plan and the Supplementary Profit-Sharing Plan (see
Compensation Committee Report on Executive Compensation -- Supplementary
Profit-Sharing and Pension Plans) and the Company's obligation to pay the
"Annual Contract Pension" provided for under the employment agreements formerly
in effect with Dr. Pall and two other former chief executive officers of the
Company. In the event of a "change in control" of the Company (as defined in the
trust agreement), the trust fund must thereafter be used to satisfy the
above-mentioned obligations.
INDEBTEDNESS OF OFFICERS AND DIRECTORS UNDER STOCK OPTION PLANS
As permitted by the Company's stock option plans, optionees may elect to
make installment payments of the purchase price of the Common Stock upon their
exercise of options, and thereby become indebted to the Company. The following
table sets forth certain information with respect to all executive officers and
directors who were indebted to the Company under the stock option plans in an
amount in excess of $60,000 at any time from July 30, 1995, the start of the
Company's most recently completed fiscal year, to October 1, 1996. The second
column of the table shows the largest amount of indebtedness outstanding during
that period by each of such executive officers and directors, and the last
column shows the principal amount outstanding as of October 1, 1996. All of the
indebtedness shown in the table is non-interest-bearing and payable on demand.
<TABLE>
<CAPTION>
AMOUNT OF INDEBTEDNESS
----------------------
NAME LARGEST 10/1/96
-------------------------------------------------------------- -------- --------
<S> <C> <C>
Robert Festa.................................................. $138,047 $138,047
Jeremy Hayward-Surry.......................................... 369,104 365,658
Paul Kohn*.................................................... 137,438 137,438
Eric Krasnoff................................................. 298,125 298,125
David B. Pall................................................. 168,743 168,743
Robert Simkins................................................ 75,579 75,579
Donald B. Stevens............................................. 134,091 134,091
Gerhard Weich................................................. 96,563 96,563
Derek T.D. Williams........................................... 129,609 -0-
Samuel T. Wortham............................................. 126,094 126,094
</TABLE>
- ---------------
* Mr. Kohn became an executive officer on August 5, 1996.
9
<PAGE> 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation program for executive officers consists of four
parts:
1. base salary;
2. annual incentive bonuses;
3. stock options; and
4. supplementary profit-sharing and pension plans.
The program is based on the Company's overall philosophy of providing a
balanced, competitive total compensation package. It is believed that such a
program enables the Company to attract and retain highly qualified professionals
and to reward sustained corporate performance, with the attendant benefit to
shareholders.
Base Salary
The Company maintains a conservative policy on base salaries. Overall, base
salaries are targeted at the median, or 50th percentile, of those paid by other
high technology and general industry companies of similar size (hereinafter
referred to as the "market" or "marketplace").
For the last several years the Company has retained the services of Watson
Wyatt Worldwide ("Wyatt"), an independent executive compensation consultant, to
evaluate the cash compensation levels of the Company's worldwide executive
officers (currently nine U.S.-based and four overseas). Wyatt makes detailed
evaluations biennially, in the spring of every second year, utilizing published
compensation survey data in assessing compensation competitiveness relative to
the marketplace. Wyatt determines the marketplace by extracting data cuts from
broad-based surveys, including several conducted by Wyatt and a number conducted
by other executive compensation consulting firms. These surveys provide data
specific to companies in high technology industries such as the aerospace
(including military), electronic communications and biomedical fields, as well
as information on a broad group of general industry companies. In some cases,
regression analysis is used to arrive at compensation levels for different
executive positions in a company with annual revenues comparable to the
Company's revenues. The biennial Wyatt report issued in June 1994 was used by
the Compensation Committee in July 1995 in connection with the fixing of base
salaries for fiscal 1996. That report indicated that the Company was paying base
salaries that were overall approximately 3% below the marketplace median for
domestic executive positions and approximately 4% above the marketplace median
for overseas executive positions.
Employment contracts with executive officers call for a minimum annual
increase in base salary equal to the June-to-June percentage increase in the
consumer price index (the CPI). For fiscal 1996, this minimum mandatory increase
was 2.8%, based on the CPI increase from June 1994 to June 1995. With the CPI
increase as a floor, the Compensation Committee adjusted base salaries for
fiscal 1996, as it does each year, to reflect individual performance for the
past year, internal relationships and marketplace practices as shown by the
Wyatt report. In general, executive base salaries were increased by 4% for
fiscal 1996, with greater increases (approximately 15%) for Messrs. Krasnoff and
Hayward-Surry, whose fiscal 1995 base salaries had been set in July 1994 at
approximately 15% below the marketplace medians for their current positions, as
determined by Wyatt, because they had just been promoted to these positions.
Annual Incentive Bonuses
The principal method by which total cash compensation of executive officers
is tied to the Company's current financial performance is the Incentive Bonus
Plan.
In fiscal 1995 and prior years, the sole measure of performance under the
Incentive Bonus Plan was after-tax consolidated net income as a percentage of
average shareholders' equity, i.e., return on equity or "R.O.E." (For the
purpose of the Incentive Bonus Plan, R.O.E. is determined by utilizing the fixed
amount of $3,744,000 as the equity adjustment from foreign currency
translation.) On the recommendation of Wyatt,
10
<PAGE> 13
and consistent with prevailing marketplace practice, the Compensation Committee
determined that, beginning in fiscal 1996, bonus awards for each executive
officer whose primary responsibilities relate to a particular subsidiary,
division or other segment of the overall operations of the Company (a "Business
Segment") would be based on two separate measures: (1) Company-wide R.O.E. and
(2) results of operations of the appropriate Business Segment. In fiscal 1996,
the bonus awards of five executive officers, including Messrs. Krasnoff,
Hayward-Surry and Williams, were calculated solely on the basis of R.O.E., and
the bonus awards of eight executive officers (including Messrs. Weich and
Wortham) were calculated on the basis of both R.O.E. and Business Segment
performance. Wyatt had determined that six of the nine companies other than the
Company (the "Peer Group") comprising the Standard & Poor's
Manufacturing -- Diversified Industries Index in July 1995 (see Performance
Graph below) used both a Business Segment-type component and an overall
corporate performance component (such as R.O.E.) in calculating their annual
incentive compensation.
The Business Segment component of a bonus is designed to tie an officer's
compensation in part to the performance of the Business Segment for which such
officer is responsible. The maximum Business Segment bonus is equal to 28% of
base salary for U.S.-based executive officers and 10% to 14% of base salary for
overseas-based executive officers. Subject to these maximums, the Chief
Executive Officer has discretion to determine the amount of the Business Segment
component of the incentive bonus for each executive officer having
responsibility for a particular Business Segment. In the exercise of that
discretion, Mr. Krasnoff establishes annually, for each Business Segment, the
dollar amount of profit below which no bonus is earned (the bonus threshold) and
the dollar amount of profit at which the maximum bonus is earned. These dollar
amounts are fixed in light of the results of operations of the Business Segment
during the preceding fiscal year and the profit projections of that Business
Segment for the current year. If the profits achieved exceed the bonus threshold
and are less than the amount at which the officer becomes entitled to a maximum
bonus, the bonus amount is determined pro rata, on a sliding scale, in the same
manner as the R.O.E. bonus component as described in the following paragraph.
The R.O.E. component of the Incentive Bonus Plan is sensitive to
Company-wide performance in that no bonuses are earned thereunder if R.O.E. is
below a specified percentage. Under the bonus formula set by the Compensation
Committee for fiscal 1996, no bonus was payable unless R.O.E. for fiscal 1996
exceeded 12.5% (the "Bonus Threshold"), and the maximum bonus was payable if
R.O.E. equaled or exceeded 20% (the "Maximum Bonus Percentage"), which was
increased from 19% in fiscal 1995 and 1994. If R.O.E. was more than 12.5% but
less than 20%, the bonus would increase pro rata from zero at R.O.E. of 12.5% to
the maximum bonus at R.O.E. of 20%. The maximum bonus was 100% of base salary
for Mr. Krasnoff, 75% of base salary for Mr. Hayward-Surry and 55% of base
salary for the only other U.S.-based executive officer whose bonus calculation
did not include a Business Segment component. Thus, if fiscal 1996 R.O.E. was
16.25% -- the mid point between the Bonus Threshold and the Maximum Bonus
Percentage -- a "target" bonus would be payable in the amount of 50% of base
salary for Mr. Krasnoff, 37.5% for Mr. Hayward-Surry and 27.5% for the other
U.S.-based executive officer whose bonus was based solely on R.O.E. Prior to the
commencement of each fiscal year, the Bonus Threshold and the Maximum Bonus
Percentage are reviewed by the Compensation Committee and set for such fiscal
year.
With respect to the U.S.-based executive officers whose fiscal 1996 bonuses
were based in part on a Business Segment component, the maximum bonus based on
R.O.E. was 42% of base salary and the maximum bonus based on Business Segment
performance was 28% of base salary, so that the aggregate maximum bonus of these
officers was 70% of base salary. The employment arrangements for fiscal 1996
with the Company's five executive officers based outside the U.S. provided for
aggregate maximum bonuses ranging from 25% to 45% of base salary. In the case of
three of these overseas-based officers, the bonus included a Business Segment
component, the maximum amount of which ranged from 10% to 14% of base salary.
The Incentive Bonus Plan formula is structured so that (i) the target bonus
award in any given year would result in total cash compensation (base salary
plus annual bonus) which is 5% above the marketplace median, and (ii) the
maximum bonus award would result in total cash compensation which approximates
the market 75th percentile. In recent years, due to the Company's strong
financial performance, actual awards
11
<PAGE> 14
made under the bonus formula have been at or near maximum bonus levels. Awards
for fiscal 1996, which resulted from R.O.E. of 20.136%, were at the maximum
levels, i.e., 100% of base salary for Mr. Krasnoff, as Chief Executive Officer,
75% of base salary for Mr. Hayward-Surry, as President, and 55% of base salary
for the other U.S.-based executive officer whose bonus was based solely on
R.O.E. As to each of the five U.S.-based executive officers whose bonus for 1996
included a Business Segment component, his bonus for fiscal 1996 was 42% of base
salary (the R.O.E. component) plus such additional amount, up to 28% of base
salary, as was determined by the Chief Executive Officer in his discretion, as
described above.
Stock Options
The Company's stock option grant program, under plans approved by
shareholders, was administered by the Stock Option Committee of the Board of
Directors until November 1995, when this Committee was merged into the
Compensation Committee. All option grants in fiscal 1996 were made by the
Compensation Committee.
The Stock Option Plans, although not exclusively for the benefit of
executive officers (about 600 other employees of the Company are eligible to
participate), are intended to complement the Incentive Bonus Plan and are
currently the sole means of providing long-term incentive compensation to the
Company's executive officers. Stock option grants provide executive officers
with opportunities for capital accumulation, promote long-term executive
retention and, by fostering in executive officers a proprietary interest in the
Company, align their interests with those of the Company's shareholders.
The Compensation Committee may, in its discretion, grant options to
purchase shares of Common Stock of the Company to any officer or other employee
who, in the judgment of the Committee, is in a position to contribute
significantly to the Company's success. Grants are made at an option price of
100% of the fair market value of the Common Stock on the date of grant. All
options heretofore granted have had a five-year term. The Compensation Committee
determines the number of shares to be covered by options granted to executive
officers at each level, e.g., chief executive officer, president and chief
financial officer, chief operating officer, group vice president, etc. With
respect to options granted in fiscal 1996, these grant levels were fixed after
review of marketplace practice and on the basis of recommendations by Wyatt.
Prior to fiscal 1996, it had been the policy of the Stock Option Committee
to make across-the-board option grants at intervals of approximately three years
with interim grants only for promotions and new hires. Effective for the 1996
fiscal year, the Stock Option Committee, on the recommendation of Wyatt, revised
the grant policy to provide for across-the-board grants approximately every two
years, without significantly changing the average per annum size of grants. A
more frequent grant schedule makes it easier to respond to special situations
and is more consistent with the practice of companies comprising the market,
which typically make annual grants.
The only option grant to an executive officer in fiscal 1995 was a grant
covering 15,000 shares to an officer upon his promotion to Senior Vice
President. In fiscal 1996, option grants to executive officers were in the
following respective amounts: 120,000 shares to Mr. Krasnoff as Chairman and
Chief Executive Officer; 75,000 shares to Mr. Hayward-Surry as President and
Chief Financial Officer; 50,000 shares to Mr. Williams as Executive Vice
President and Chief Operating Officer; 25,000 or 30,000 shares to each of 13
Group Vice Presidents and Senior Vice Presidents; and 10,000 shares to the
Secretary. All of these grants were within the range of biennial option grants
recommended by Wyatt in July 1995 and were designed to provide "total direct
compensation" in fiscal 1996 (base salary plus bonus plus the two-year average
of the present value of option grants) which approximates the market 75th
percentile in the event that "target" bonuses are paid under the Incentive Bonus
Plan. Total direct compensation is the sum of base salary, short-term incentive
compensation and the present value of long-term incentive compensation.
In view of the Company's policy of not granting options to executive
officers each year, the significance of option grants is better understood by
taking an average over a period of years. During the five-year period from the
beginning of fiscal 1992 to the end of fiscal 1996, the average per annum option
grants to all executive officers as a group were for 397,664 shares,
representing about one-third of one percent (0.35%) of the shares of Common
Stock outstanding at the end of fiscal 1996.
12
<PAGE> 15
Supplementary Profit-Sharing and Pension Plans
In addition to providing tax-qualified profit-sharing and pension plans for
its employees including executive officers, the Company also maintains
non-tax-qualified supplementary plans and arrangements for executive officers.
The Supplementary Profit-Sharing Plan provides an annual benefit to U.S.-based
executives with respect to annual cash compensation in excess of the maximum
compensation that, under the Internal Revenue Code (the "Code"), can be taken
into account for the qualified Profit-Sharing Plan. An executive officer's
annual benefit under the Supplementary Profit-Sharing Plan is the product of (1)
such excess annual earnings and (2) the ratio, for the year, of the Company's
aggregate contributions under the qualified Profit-Sharing Plan to the aggregate
compensation (as limited by the Code) of all qualified Profit-Sharing Plan
participants. Also, the Supplementary Profit-Sharing Plan credits each
participant with earnings on his or her account balance based on the investment
of an amount equal to the account balance in the Fidelity Asset Manager Fund.
The purpose of the Supplementary Profit-Sharing Plan is to provide to executive
officers affected by the limitations under the qualified Profit-Sharing Plan a
capital accumulation, on a percentage of compensation basis, equal to that
provided to other employees of the Company. The Company's annual contributions
to the Profit-Sharing Plan and the Supplementary Profit-Sharing Plan for the
benefit of the Named Executive Officers are included in the column "All other
compensation" in the Summary Compensation Table above.
The supplementary pension plan arrangements for executive officers are
described above under the caption Pension Plans. The purpose of these
supplementary arrangements is to assure executives a specified level of
retirement benefit over and above what would be payable under the Company's
general pension plans.
Discussion of Fiscal 1996 Compensation of the Chief Executive Officer
Mr. Krasnoff's base salary for fiscal 1996 was $491,787, which was
approximately 3.5% below the market median rate for chief executive officers as
determined by Wyatt as of June 1, 1996. Mr. Krasnoff's incentive bonus for
fiscal 1996 was 100% of base salary (the maximum bonus). By reason of the fact
that the Company's R.O.E. of 20.136% exceeded the Maximum Bonus Percentage
(20%), Mr. Krasnoff's total cash compensation (base salary plus incentive bonus)
for the fiscal year was 33% above the market median and 6% above the market 75th
percentile, as determined by Wyatt as of June 1, 1996.
The factors and criteria upon which the Chief Executive Officer's
compensation was based, including the relationship of the Company's performance
to his compensation for fiscal 1996, are set forth in the preceding sections of
this Committee Report and are applicable to the total compensation package of
the Chief Executive Officer as well as other executive officers.
Policy Regarding $1,000,000 Limit on Deductible Compensation
The Internal Revenue Code limits the deductibility for federal income tax
purposes of executive compensation paid by public companies to their senior
officers. Under Section 162(m) of the Code, the Company would not be able to
deduct compensation of a Named Executive Officer (generally the Chief Executive
Officer and the four other highest paid executive officers) in excess of
$1,000,000 for any fiscal year except to the extent that the compensation in
excess of that amount meets the statutory definition of "performance-based
compensation." Nondeductibility would result in additional tax cost to the
Company.
In light of Section 162(m), the Company tailored its 1993 and 1995 Stock
Option Plans so that gains on options granted thereunder would meet the
statutory definition of "performance-based compensation." Accordingly, such
gains would not be included in compensation subject to the $1,000,000 limit on
deductibility. With respect to fiscal years through 1996, the Company did not
deem it necessary to take any other steps in response to Section 162(m) on the
assumption that no Named Executive Officer's compensation would exceed the
$1,000,000 deductibility limitation for any such fiscal year, and this
assumption proved to be substantially correct. The only exception was that the
amount of Mr. Krasnoff's fiscal 1996 compensation exceeded the $1,000,000 limit
on deductibility by about $1,100, in part because the amount of "imputed
interest" on Mr. Krasnoff's stock option loans was about $1,500 greater in
fiscal 1996 than in fiscal 1995 even though the loan amount outstanding was the
same throughout both fiscal years. Imputed interest, which is
13
<PAGE> 16
deemed taxable income to the employee-optionee and is deductible by the
employer, fluctuates with changes in interest rates prescribed by the IRS.
With respect to fiscal 1997, Mr. Krasnoff's compensation could have
exceeded $1,000,000 by a modest amount inasmuch as Mr. Krasnoff's base salary
for fiscal 1997 is $516,300 and his maximum incentive bonus is 100%. However,
prior to the start of fiscal 1997, the Company and Mr. Krasnoff entered into an
agreement pursuant to which to the extent that Mr. Krasnoff's fiscal 1997
compensation would (but for such agreement) exceed $1,000,000, payment of the
excess will be deferred until fiscal 1998. With respect to fiscal 1998 and
future years, the Company intends to adopt an incentive bonus plan for executive
officers which meets the criteria for performance-based compensation under the
Code. The terms of the Company's present Incentive Bonus Plan for executive
officers essentially comply with the Code requirements for performance-based
compensation. However, in order to qualify as performance-based compensation for
purposes of Code Section 162(m), the plan under which such compensation is paid
must be approved by shareholders.
Summary
The Compensation Committee believes that the total compensation for fiscal
1996 to Mr. Krasnoff and the other executive officers of the Company was fair
both to them and to the Company and its shareholders. The Committee bases this
conclusion on the following factors:
1. target cash compensation levels approximate the marketplace median
and rise above that level only when Company performance warrants, and
therefore fixed compensation costs have been relatively low;
2. corporate financial performance has been good, therefore
justifying total cash compensation (base salary plus incentive bonus) above
market median levels;
3. the grant of stock options has been judicious; and
4. the compensation program, while conservative, has enabled the
Company to retain and attract top executive talent.
Respectfully submitted,
Abraham Appel
Ulric Haynes, Jr.
Edwin W. Martin, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Mr. Seibert, a member of the Compensation Committee until November 1995, is
a former officer of the Company, having retired as an executive vice president
in 1980.
14
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the annual change in the cumulative total
return on the Company's Common Stock during the Company's last five fiscal years
with the annual change in the cumulative total return of the Standard & Poor's
Composite-500 Index and the Standard & Poor's Manufacturing-Diversified
Industries Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
MEASUREMENT PERIOD PALL S&P
(FISCAL YEAR COVERED) CORPORATION S&P 500 MANUFACTURING
--------------------- ----------- ------- -------------
<S> <C> <C> <C>
1991 $100.00 $100.00 $100.00
1992 $112.54 $112.79 $104.39
1993 $ 92.88 $122.64 $118.46
1994 $ 89.09 $128.96 $137.81
1995 $131.96 $162.64 $188.82
1996 $141.73 $189.58 $223.42
</TABLE>
- ---------------
* Assumes that the value of the investment in the Company's Common Stock and the
two S&P indices was $100 on August 3, 1991 (the last day of the Company's 1991
fiscal year), and that all dividends were reinvested.
15
<PAGE> 18
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information with respect to beneficial
ownership of Common Stock by (a) the only shareholder who, to the Company's
knowledge, is the beneficial owner of more than 5% of the outstanding Common
Stock, (b) each current director of the Company; (c) each Named Executive
Officer included in the Summary Compensation Table above, and (d) all directors
and executive officers of the Company as a group. The stock ownership
information in the table is as of the record date for the meeting except as to
FMR Corp. and affiliates, as to which see note (a). The percentages in the last
column are based on the number of shares outstanding on the record date. In each
case, except as otherwise indicated in the footnotes to the table, the shares
shown in the second column are owned directly by the individual or members of
the group named in the first column and such individual or group members have
sole voting and dispositive power with respect to the shares shown. For purposes
of this table, beneficial ownership is determined in accordance with the federal
securities laws and regulations; inclusion in the table of shares not owned
directly by the named officer or director does not constitute an admission that
such shares are beneficially owned by the officer or director for any other
purpose.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED* OF CLASS
----------------------------------------------------------- ---------------- --------
<S> <C> <C>
FMR Corp. and affiliates................................... 11,849,025(a) 10.2%
Abraham Appel.............................................. 5,037,312(b) 4.3
Ulric Haynes, Jr. ......................................... 20,000 --
Jeremy Hayward-Surry....................................... 109,273(c) .1
Eric Krasnoff.............................................. 211,463(d) .2
Edwin W. Martin, Jr. ...................................... 25,312 --
David B. Pall.............................................. 642,641(e) .6
Katharine L. Plourde....................................... 7,666 --
Chesterfield F. Seibert.................................... 117,772 .1
Heywood Shelley............................................ 36,833(c) --
Alan B. Slifka............................................. 36,662 --
James D. Watson............................................ 38,300(f) --
Gerhard Weich.............................................. 75,330 .1
Derek T.D. Williams........................................ 136,985 .1
Samuel T. Wortham.......................................... 60,268 .1
22 current directors and executive officers of the Company
as a group............................................... 6,902,800(g) 6.0
</TABLE>
- ---------------
* Includes shares covered by stock options exercisable within 60 days of
the record date as follows: Mr. Appel -- 3,333 shares; Mr. Haynes -- 20,000
shares; Mr. Hayward-Surry -- 76,558 shares; Mr. Krasnoff -- 143,333 shares; Dr.
Martin -- 25,000 shares; Ms. Plourde -- 6,666 shares; Mr. Seibert -- 50,000
shares; Mr. Shelley -- 33,333 shares; Mr. Slifka -- 6,666 shares; Dr.
Watson -- 35,000 shares; Mr. Weich -- 32,500 shares; Mr. Williams -- 95,833
shares; Mr. Wortham -- 45,000 shares; and the 22 current directors and executive
officers of the Company as a group -- 724,230 shares.
(a) The information as to the beneficial ownership of Common Stock by FMR
Corp., certain of its wholly-owned subsidiaries and affiliated investment
companies, its Chairman, Edward C. Johnson 3d, and Abigail P. Johnson, was
obtained from their joint statement on Schedule 13G as amended March 8, 1996,
filed with the Securities and Exchange Commission. Such statement discloses that
(i) FMR Corp. (through its wholly-owned subsidiary Fidelity Management &
Research Company ("Fidelity")) and certain investment companies for which
Fidelity acts as investment advisor ("Fidelity Funds") together have sole
dispositive power, but no voting power, with respect to an aggregate of
11,376,165 shares of Common Stock held by a number of Fidelity Funds (such
shares are voted by Fidelity in accordance with written guidelines established
by the Boards of Trustees of the several Fidelity Funds), (ii) Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR Corp., has sole
voting power with respect to 412,860 shares of Common Stock and sole dispositive
power with respect to 160,160 shares of Common Stock held in institutional
investment accounts at Fidelity Management Trust Company, and (iii) Fidelity
International Limited, an investment advisor to various investment companies and
institutional investors, has sole voting and dispositive power with respect to
60,000 shares of Common Stock.
16
<PAGE> 19
(b) These shares are held of record by Canmont Investment Corp. which is
wholly-owned by Mr. Appel and members of his immediate family. Mr. Appel has
sole voting and dispositive power with respect to these shares.
(c) Does not include 100,000 shares beneficially owned by the Estate of
Maurice G. Hardy. Messrs. Hayward-Surry and Shelley are two of the three
executors of Mr. Hardy's will; the executors have sole voting and dispositive
power with respect to the shares owned by the Estate.
(d) Includes 7,970 shares owned by Mr. Krasnoff's wife, as to which Mr.
Krasnoff disclaims voting or dispositive power, and 20,323 shares owned by two
trusts established for the benefit of his children; Mr. Krasnoff is trustee of
these trusts and has sole voting and dispositive power with respect to these
shares.
(e) Includes 27,769 shares owned by Dr. Pall's wife and as to which Dr.
Pall disclaims voting or dispositive power.
(f) Includes 300 shares owned by Dr. Watson's wife and as to which Dr.
Watson disclaims voting or dispositive power.
(g) Includes 100,000 shares beneficially owned by the Estate of Maurice G.
Hardy (see note (c) above), the 20,323 shares beneficially owned by Mr. Krasnoff
as trustee (see note (d) above) and an aggregate of 36,039 shares owned by
spouses and other close relatives and as to which the directors and executive
officers in the group disclaim voting or dispositive power.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules thereunder of the Securities and Exchange Commission (the
"Commission") require the Company's directors and officers to file reports of
their ownership and changes in ownership of Common Stock with the Commission.
Personnel of the Company generally prepare these reports on the basis of
information obtained from each director and officer. Based on such information,
the Company believes that all reports required by Section 16(a) of the Exchange
Act to be filed by its directors and officers during the fiscal year ended
August 3, 1996 were filed on time except as follows: (1) Ulric Haynes, Jr., a
director of the Company, did not timely file one report for the exercise of a
director option and subsequent open market sale of the Common Stock acquired
upon such exercise; (2) Akio Satake, a Senior Vice President of the Company, did
not timely file one report for an open market sale of Common Stock; and (3)
Donald B. Stevens, a Senior Vice President of the Company, did not timely file
one report for the grant of an employee stock option. All of the foregoing
transactions in Common Stock, although not reported timely, have been duly
reported.
INFORMATION CONCERNING INDEPENDENT AUDITORS
KPMG Peat Marwick LLP ("Peat Marwick") acted as the Company's independent
auditors for the fiscal year ended August 3, 1996 and have been selected to act
in that capacity in fiscal 1997. It is anticipated that representatives of Peat
Marwick will be present at the meeting to respond to appropriate questions and
will have an opportunity, if they desire, to make a statement.
ANNUAL REPORTS
THE COMPANY'S ANNUAL REPORT ON FORM 10-K WILL BE FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION BEFORE THE END OF OCTOBER, AS REQUIRED BY LAW.
SHAREHOLDERS MAY OBTAIN A COPY OF THE FORM 10-K REPORT UPON WRITTEN REQUEST TO
DIANE FOSTER, INVESTOR COMMUNICATIONS MANAGER, PALL CORPORATION, 25 HARBOR PARK
DRIVE, PORT WASHINGTON, N.Y. 11050-4630, FAX 516-484-3649. IN RESPONSE TO SUCH
REQUEST, THE COMPANY WILL FURNISH WITHOUT CHARGE THE FORM 10-K REPORT INCLUDING
FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES AND A LIST OF EXHIBITS. COPIES OF
EXHIBITS WILL BE FURNISHED ON REQUEST; THE COMPANY RESERVES THE RIGHT TO CHARGE
A REASONABLE FEE FOR EXHIBITS.
The Company's Annual Report to shareholders for the fiscal year ended
August 3, 1996 is concurrently being furnished to shareholders of record at the
record date for the meeting. Additional copies of the Annual Report may be
obtained upon request to Diane Foster by telephone at 516-484-3600 or in writing
at the address or fax number in the preceding paragraph.
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<PAGE> 20
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
In order to be considered for inclusion in the Company's proxy statement
and form of proxy for the 1997 annual meeting of shareholders, any shareholder
proposal must be received by the Corporate Secretary of the Company prior to
June 18, 1997.
October 16, 1996
18
<PAGE> 21
PALL CORPORATION
P
R
O
X
Y
ANNUAL MEETING OF SHAREHOLDERS, NOVEMBER 19, 1996
The undersigned hereby appoints DAVID B. PALL, ERIC KRASNOFF and JEREMY
HAYWARD-SURRY, and each of them, with full power of substitution, proxies of the
undersigned to vote all shares of the Common Stock of Pall Corporation (the
"Company") which the undersigned would be entitled to vote if present at, and to
act for the undersigned at, the annual meeting of shareholders of the Company
to be held on Tuesday, November 19, 1996, at 2:30 P.M., and at any adjournment
thereof, on the matters indicated on the reverse side hereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY AND, WHEN
PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SPECIFIED
ON THE REVERSE SIDE. IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR NAMED ON THE REVERSE SIDE HEREOF
(OR FOR A SUBSTITUTE NOMINEE IF ANY OF THOSE NAMED SHOULD BECOME UNAVAILABLE).
ON ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED ABOVE AS
PROXIES.
(Continued, and to be signed, on the other side)
<PAGE> 22
1. Election of Directors:
ABRAHAM APPEL, ULRIC HAYNES, JR., JEREMY HAYWARD-SURRY AND EDWIN W. MARTIN, JR.
/ / FOR ALL / / WITHHOLD ALL / / FOR ALL EXCEPT
If you wish to withhold authority for any particular nominee(s), mark
the "For All Except" box and print the name(s) of such nominee(s)
below.
----------------------------------------------------------------------
2. The transaction of such other business as may properly come before the
meeting or any adjournment thereof.
SIGNATURE(S):
----------------------------
----------------------------
DATE: , 1996
The signer(s) hereby revoke(s) all proxies
heretofore given by the signer(s) to vote at
said meeting or any adjournment thereof.
NOTE: Please sign exactly as your name appears hereon. Joint owners should
each sign. When signing as attorney-in-fact, executor, administrator,
trustee, guardian or corporate officer, please give full title as such.
