<PAGE> 1
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 2, 1997
Commission File Number 1-4311
PALL CORPORATION
2200 Northern Boulevard, East Hills, N.Y. 11548
(516) 484-5400
Incorporated in New York State I.R.S. Employer Identification
Number 11-1541330
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange
Title of Class on Which Registered
-------------- -------------------
Common Stock $.10 par value New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $2,698,000,000, based on the closing price on October 7, 1997.
The number of common shares, $.10 par value outstanding of the registrant was
127,420,359 shares on October 7, 1997.
Total number of pages - 205 Exhibit index located on page 19
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the 1997 annual meeting of shareholders are
incorporated by reference into Items 10, 11 and 12.
Portions of the Annual Report to Shareholders for the year ended August 2, 1997
are incorporated by reference into items 1, 5, 7 and 8.
<PAGE> 2
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PART I
ITEM 1. BUSINESS.
(a) General development of business.
Pall Corporation, incorporated in July 1946, and its subsidiaries
(hereinafter collectively called "the Company" unless the context requires
otherwise) is a leading supplier of fine filters mainly made by the Company
using its proprietary filter media, and other fluid clarification and
separations equipment for the removal of solid, liquid and gaseous contaminants
from a wide variety of liquids and gases. On February 3, 1997 the Company
acquired Gelman Sciences Inc. ("Gelman"). The acquisition was effected through
the exchange of 1.3047 shares of Company common stock for each share of Gelman
common stock. The Company issued 10,607,000 shares of its common stock for the
acquisition. The transaction was accounted for as a pooling-of-interests and,
accordingly, all financial data for periods presented have been restated.
The Company's business is best analyzed by the following three principal
markets, or industry segments, in which it sells its products:
(1) Health care.
(2) Aeropower.
(3) Fluid processing.
During the past five years, the Company has continued its development of fluid
clarification and separations products and of their sale in a wide variety of
markets.
(b) Financial information about industry segments.
Reference is made to page 30 of the registrant's 1997 Annual Report to
Shareholders.
(c) Narrative description of business.
1) The Company sells its products in three principal markets. The products
sold are mainly filters made with proprietary Pall filter media produced by
chemical film casting, melt-blowing of polymer fibers, papermaking and
metallurgical processes. Metal and plastic housings and a wide variety of
appurtenant devices, are also made.
(A) Health Care Segment:
The Health Care Segment includes the following markets: Laboratory,
Diagnostic, Pharmaceutical, Food & Beverage and Patient Protection. For a
description of these markets refer to pages 6, 7, 10 - 15 of the registrant's
1997 Annual Report which is incorporated herein by reference. Sales of Health
Care products in fiscal 1997 were $555,378,000 or 52% of total sales. Sales in
this market are made through the Company's own personnel and through
distributors. Backlog information is omitted, as it is not considered meaningful
to an understanding of this segment of the Company's business. The Company feels
that safety, efficacy, ease of use, technical support, as well as price, are the
principal competitive factors in this market, although economy of use is
important. A principal list of competitors is included on page 7 of the 1997
Annual Report to Shareholders.
<PAGE> 3
3
(B) Aeropower Segment:
The Aeropower segment includes the following markets: Airborne, Military Land
and Marine and Industrial and Mobile Fluid Power. For a description of these
markets refer to pages 6, 7 and 16-17 of the registrant's 1997 Annual Report
which is incorporated herein by reference. Sales in fiscal 1997 were
$243,207,000 or 23% of total sales. Backlog at August 2, 1997 was $65,350,000.
The backlog at August 2, 1997 is equal to about three months of sales. The
Company's sales to aerospace and military customers are made principally through
its own personnel; sales to industrial customers are made through Company
personnel and through distributors and manufacturers' representatives. The
Company believes that product performance and quality, and service to the
customer, as well as price, are the principal competitive factors in this market
segment. A principal list of competitors is included on page 7 of the 1997
Annual Report to Shareholders.
(C) Fluid Processing Segment:
The Fluid Processing Segment encompasses the following markets:
Microelectronics, Data Storage and Photographic Film, Oil/Gas,
Chemical/Petrochemical and Power Generation. For a description of these markets
refer to pages 6, 7, 10, 11 and 18-21 of the registrant's 1997 Annual Report
which is incorporated herein by reference. Sales in this market in fiscal 1997
were $263,423,000 or 25% of total sales. The Company's products are sold to
customers in these markets through its own personnel, and through distributors
and manufacturers' representatives. Backlog information is omitted, as it is not
considered material for an understanding of this segment of the Company's
business. The Company believes that performance and quality of product and
service, as well as price, are determinative in most sales. A principal list of
competitors is included on page 7 of the 1997 Annual Report to Shareholders.
(D) The following comments relate to the three segments discussed above:
(i) Raw materials:
Most raw materials used by the Company are available from multiple
sources of supply. A limited number of materials are proprietary products of
major chemical companies. The Company believes that it could find satisfactory
substitutes for these materials if they should become unavailable, and has in
fact done so several times in the past.
(ii) Patents:
The Company owns a broad range of patents covering its filter media,
filter designs and other products, but it considers these to be mainly
defensive, and relies on its proprietary manufacturing methods and engineering
skills. However, it does act against infringers when it believes such action is
economically justified.
2) The following comments relate to the Company's business in general:
(a) With limited exceptions, research activities conducted by the Company
are company-sponsored. Such expenditures totaled $53,747,000 in 1997,
$53,772,000 in 1996 and $50,640,000 in 1995.
(b) There was no one customer to whom sales were made totaling 10% or more
of consolidated sales in fiscal 1997, 1996 or 1995.
(c) The Company is in substantial compliance with federal, state and local
laws regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. To date there
has not been a material effect upon the Company's capital expenditures
or competitive position.
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4
In May 1997, the Company's newly acquired subsidiary, Gelman Sciences
received a permit from the State of Michigan which requires that all
processed water discharged meet the standards set by the State. Based
on the permit obtained from the State and upon review of environmental
issues at its other facilities, the Company decided to record a pre-tax
charge of $10,000,000 in the third quarter. In the opinion of
management, the Company is in substantial compliance with applicable
environmental laws. Because regulatory standards under environmental
laws are becoming increasingly stringent, there can be no assurance
that future developments will not cause the Company to incur material
environmental liabilities or costs. For a further description of the
environmental issues see Item 3, Legal Proceedings.
(d) At August 2, 1997, the Company employed approximately 8,500 persons.
(d) Financial information about foreign and domestic operations and export
sales.
Reference is made to page 31 of the registrant's 1997 Annual Report to
Shareholders.
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ITEM 2. PROPERTIES.
<TABLE>
<CAPTION>
Location Type Industry Segment Size (square feet)
- -------- ---- ---------------- ------------------
OWNED:
<S> <C> <C> <C>
Glen Cove, NY Office & laboratory Research Center 65,000
East Hills, NY Office, plant & Executive Office &
warehouse All Segments 326,000
Pt. Washington, NY Office, laboratory All 215,000
& training center
Hauppauge, NY Plant, office Health Care & Fluid
& laboratory Processing 75,000
Cortland, NY Plants, office Health Care & Fluid
Processing 338,000
Putnam, CT Plant All 62,000
Pinellas Park, FL Plant, office Aeropower 152,000
Ft. Myers, FL Plant, warehouse Aeropower 114,000
New Port Richey, FL Plant Aeropower 160,000
Pensacola, FL Plant Health Care & Fluid
Processing 58,000
Covina, CA Plant, office &
laboratory Health Care 176,000
Ann Arbor, MI Plant & office Health Care & Fluid
Processing 180,000
Fajardo, Puerto Rico Plants Health Care & Fluid
Processing 259,000
Portsmouth, U.K. Plant, office, warehouse All 331,000
Ilfracombe, U.K. Plant & office Health Care & Fluid
Processing 112,000
Redruth, U.K. Plant, warehouse Aeropower 111,000
Newquay, U.K . Plant & office Health Care & Fluid
Processing 106,000
Tipperary, Ireland Plant Health Care 178,000
Frankfurt, Germany Office & warehouse All 72,000
Paris, France Office & warehouse All 65,000
Limay, France Warehouse All 23,000
Tsukuba, Japan Plant, laboratory &
warehouse All 109,000
LEASED:
New Iberia, LA Plant Fluid Processing 60,000
Northborough, MA Plant & office Health Care 38,000
Ann Arbor, MI Plant & office Health Care 32,000
Exton, PA Office Fluid Processing 13,000
Pleasanton, CA Plant & office Health Care 24,000
Toronto, Canada Office & warehouse Health Care & Fluid
Processing 12,000
Frankfurt, Germany Office & warehouse All 46,000
Milan, Italy Office & warehouses All 62,000
Vienna, Austria Office & warehouse All 13,000
Basel, Switzerland Office & warehouse All 13,000
Madrid, Spain Office & warehouse All 28,000
Warsaw, Poland Office All 4,000
Tokyo, Japan Offices All 33,000
Singapore Office & warehouse All 17,000
Seoul, South Korea Office All 7,000
Beijing, China Office & warehouse All 9,000
Melbourne, Sydney Office & warehouse
& Brisbane, Australia All 24,000
Hong Kong Office All 2,000
</TABLE>
In the opinion of management, these premises are suitable and adequate to meet
the Company's requirements.
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ITEM 3. LEGAL PROCEEDINGS.
In February 1988, an action was filed in the Circuit Court for Washtenaw
County, Michigan ("Court") by the State of Michigan ("State") against Gelman
Sciences Inc. ("Gelman") (a subsidiary acquired by the Company in February 1997)
requesting reimbursement of costs the State had expended in investigating
contamination near Gelman's Ann Arbor facility, which the State alleged was
caused by Gelman's disposal of waste water from its manufacturing process.
Pursuant to a consent judgement entered into by Gelman and the State in October
1992 and amended in September 1996, which resolved that litigation, Gelman is
remediating the contamination without admitting wrongdoing. In July 1997 and in
October 1997 the State notified Gelman that it believes that Gelman is not in
full compliance with the consent judgement and that Gelman is potentially
liable for stipulated penalties of more than $100,000, which penalties may
continue to accrue. Gelman disputes these assertions and will vigorously
contest them.
Reference is also made to Commitments and Contingencies on page 39 of the
registrant's 1997 Annual Report to Shareholders incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of shareholders during the fourth
quarter of fiscal year 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Reference is made to page 40 of the registrant's 1997 Annual Report to
Shareholders.
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7
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended
Aug. 2, Aug. 3, July 29, July 30, July 31,
1997(a) 1996(b) 1995(c) 1994(d) 1993(e)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of operations:
Net sales $1,062,008 $1,072,433 $ 926,326 $ 795,811 $ 773,431
Net earnings 67,318 142,834 125,058 103,859 81,014
Earnings per share 0.53 1.14 1.00 0.84 0.66
Cash dividends per share 0.54 0.47 0.41 0.36 0.31
Financial position:
Total assets 1,265,624 1,291,186 1,156,703 1,031,266 965,768
Long-term debt 62,126 54,416 74,307 75,917 47,030
</TABLE>
(a) Fiscal 1997 includes a pre-tax charge of $95,930 related to the Gelman
merger, restructuring and other charges.
(b) Fiscal 1996 includes a pre-tax charge of $2,800 related to Gelman's
environmental remediation costs.
(c) Fiscal 1995 includes a charge of $780 after income taxes ($1,200 pre-tax)
reflecting the initial effect of the adoption of Financial Standards Board
Statement No. 112 (Employers' Accounting for Postemployment Benefits).
(d) Fiscal 1994 includes a pre-tax charge of $3,696 due principally to the
restructuring of the German operations and to the write-off of a bad debt in
the Aerospace operations.
(e) Fiscal 1993 includes a pre-tax charge of $26,710 representing the cost of
downsizing and further integrating the military portion of the Aeropower
business with the Industrial Fluid Power business, and also writing off
certain excess corporate leasehold improvements.
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8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Reference is made to pages 23-25 of the registrant's 1997 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to pages 26-29 and 32-40 of the registrant's 1997 Annual
Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of directors:
Reference is made to "Election of Directors" on page 3 of the registrant's
Proxy Statement for the 1997 annual meeting of shareholders, previously
filed.
None of the persons listed in the section of the Proxy Statement referred to
in the preceding paragraph has been involved in those legal proceedings
required to be disclosed by Item 401(f) of Regulation S-K during the past
five years.
(b) Identification of executive officers:
<TABLE>
<CAPTION>
Year in which
Service as
Age at Officer of
Oct. 15 Pall Corp.
Name 1997 Position Held Began
- ---- ---- ------------- -----
<S> <C> <C> <C>
Eric Krasnoff* 45 Chairman and Chief
Executive Officer 1986
Jeremy Hayward-Surry* 54 President and Treasurer -
Chief Financial Officer 1989
Derek T.D. Williams 65 Executive Vice President
and Chief Operating Officer 1985
Peter S. Cope 43 Group Vice President 1994
Clifton Hutchings 59 Group Vice President 1993
Donald B. Stevens 52 Group Vice President 1994
Gerhard Weich 61 Group Vice President 1993
Arnold Weiner 60 Group Vice President 1986
Samuel T. Wortham 50 Group Vice President 1990
Kim A. Davis 46 Senior Vice President 1997
Paul Kohn 51 Senior Vice President 1996
Akio Satake 60 Senior Vice President 1995
Robert Simkins 53 Senior Vice President 1994
</TABLE>
* Member of the Executive Committee of the Board of Directors.
None of the persons listed above is related.
Messrs. Krasnoff, Hayward-Surry and Williams are directors of Pall Corporation.
For more than the past five years, the principal occupation of each person
listed above has been in the employ of the registrant with the exception of Mr.
Davis. Before joining the Company in February 1997, Mr. Davis served as
President and Chief Operating Officer of Gelman Sciences Inc., Ann Arbor,
Michigan since 1993 and as a director since 1995. From 1991 until 1993, Mr.
Davis was Chief Operating Officer of Promega Corporation, a Wisconsin based
biotechnology company.
Executive officers are elected by the Board of Directors annually, to serve
until the next annual organizational meeting of the Board.
None of the above persons has been involved in those legal proceedings required
to be disclosed by Item 401(f) of Regulation S-K, during the past five years.
<PAGE> 10
10
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to "Compensation and Other Benefits of Senior Management"
on page 6 of the registrant's Proxy Statement for the 1997 annual meeting of
shareholders, previously filed.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to "Beneficial Ownership of Common Stock" on page 17 of the
registrant's Proxy Statement for the 1997 annual meeting of shareholders,
previously filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
Disclosure of information relating to delinquent filers required by Item 405
of Regulation S-K is set forth on the last page of the registrant's Proxy
Statement for the 1997 annual meeting of shareholders, previously filed, and is
incorporated herein by reference.
<PAGE> 11
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a. Certain documents filed as part of the Form 10-K:
(l) The following documents are incorporated by reference to the indicated
pages of the 1997 Annual Report to Shareholders, filed as Exhibit 13
hereto.
<TABLE>
<CAPTION>
Item
<S> <C>
Consolidated Statements of Earnings - years
ended August 2, 1997, August 3, 1996 and July 29, 1995 26
Independent Auditors' Report 26
Consolidated Balance Sheets - as at August 2, 1997,
and August 3, 1996 27
Consolidated Statements of Stockholders' Equity -
years ended August 2, 1997, August 3, 1996 and July 29, 1995 28
Consolidated Statements of Cash Flows - years ended
August 2, 1997, August 3, 1996 and July 29, 1995 29
Notes to Consolidated Financial Statements 32-39
(2) The following schedules are filed herewith:
Name of Schedule
II Valuation and qualifying accounts 16
Independent auditors' report on schedules 17
</TABLE>
Schedules not listed above have been omitted either because they are not
applicable or the required information is shown in the financial
statements or in the notes thereto.
<PAGE> 12
(3) Exhibits filed herewith: 12
<TABLE>
<CAPTION>
Page
Exhibit of 1997
Number Description of Exhibit Form 10-K
<S> <C> <C>
2* Agreement and Plan of Reorganization and Merger made on October 27,
1996, by and among the Registrant, Pall Acquisition Corporation and
Gelman Sciences Inc., filed as Exhibit A to The Proxy Statement
Prospectus constituting Part I of the Registrant's Registration
Statement on Form S-4 (Registration No. 333-17417).
3(i)* Restated Certificate of Incorporation of the Registrant as amended
through November 23, 1993, filed as Exhibit 3(i) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 30, 1994
(the "1994 10-K").
3(ii)* By-Laws of the Registrant as amended on November 21, 1995 filed as
Exhibit 3(ii) to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended October 28, 1995.
4 Note: The exhibits filed herewith do not include the instruments
with respect to long-term debt of the Registrant and its
subsidiaries, inasmuch as the total amount of debt authorized under
any such instrument does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The
Registrant agrees, pursuant to Item 601(b) (4) (iii) of Regulation
S-K, that it will furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
10.1*(a) Agreement made as of July 31, 1992 with David B. Pall, filed as
Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 1, 1992 (the "1992 10-K").
10.2*(a) Agreement made as of March 17, 1995 with David B. Pall, filed as
Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 29, 1995 (the "1995 10-K").
10.3(a) Amended And Restated Employment Agreement dated October 6, 1997 with
Eric Krasnoff. 23-45
10.4(a) Letter agreement dated July 17, 1997 with Eric Krasnoff. 46-47
10.5(a) Amended And Restated Employment Agreement dated October 6, 1997 with
Jeremy Hayward-Surry. 48-69
10.6*(a) Service Agreement dated November 28, 1995 with Derek Thomas Donald
Williams, filed as Exhibit 10.7 to the 1996 10-K.
10.7*(a) Service Agreement dated November 28, 1995 with Clifton Stanley
Hutchings, filed as Exhibit 10.9 to the 1996 10-K
</TABLE>
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 13
13
<TABLE>
<CAPTION>
Page
Exhibit of 1997
Number Description of Exhibit Form 10-K
<S> <C> <C>
10.8*(a) Service Agreement dated November 28, 1995 with Gerhard Friedrich
Weich, filed as Exhibit 10.10 to the 1996 10-K.
10.9*(a) Employment Agreement dated February 1, 1992 with Arnold Weiner,
filed as Exhibit 10.32 to the 1992 10-K.
10.10*(a) Amendment dated July 19, 1993 to Employment Agreement dated February
1, 1992 with Arnold Weiner, filed as Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993 (the "1993 10-K").
10.11*(a) Second Amendment dated August 1, 1995 to Employment Agreement dated
February 1, 1992 with Arnold Weiner, filed as Exhibit 10.13 to the
1996 10-K.
10.12(a) Third Amendment dated October 6, 1997 to Employment Agreement dated
February 1, 1992 with Arnold Weiner. 70
10.13*(a) Employment Agreement dated February 1, 1992 with Samuel Wortham,
filed as Exhibit 10.15 to the 1992 10-K.
10.14*(a) Amendment dated July 19, 1993 to Employment Agreement dated February
1, 1992 with Samuel Wortham, filed as Exhibit 10.4 to the 1993 10-K.
10.15*(a) Second Amendment dated August 1, 1995 to Employment Agreement dated
February 1, 1992 with Samuel Wortham, filed as Exhibit 10.16 to the
1996 10-K.
10.16*(a) Employment Agreement dated August 1, 1994 with Peter Cope, filed as
Exhibit 10.13 to the 1994 10-K.
10.17*(a) Amendment dated August 1, 1995 to Employment Agreement dated August
1, 1994 with Peter Cope, filed as Exhibit 10.18 to the 1996 10-K.
10.18*(a) Employment Agreement dated August 1, 1994 with Robert Simkins, filed
as Exhibit 10.14 to the 1994 10-K.
10.19*(a) Amendment dated August 1, 1995 to Employment Agreement dated August
1, 1994 with Robert Simkins, filed as Exhibit 10.20 to the 1996
10-K.
10.20*(a) Employment Agreement dated September 26, 1994 with Donald B.
Stevens, filed as Exhibit 10.17 to the 1994 10-K.
10.21*(a) Amendment dated August 1, 1995 to Employment Agreement dated
September 26, 1994 with Donald B. Stevens, filed as Exhibit 10.24 to
the 1996 10-K.
10.22*(a) Employment Agreement dated August 5, 1996 with Paul Kohn, filed as
Exhibit 10.25 to the 1996 10-K.
</TABLE>
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 14
14
<TABLE>
<CAPTION>
Page
Exhibit of 1997
Number Description of Exhibit Form 10-K
<S> <C> <C>
10.23*(a) Employment Agreement dated October 27, 1996 among the Registrant,
Gelman Sciences Inc. and Kim A. Davis, filed as Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended February 1, 1997.
10.24*(a) Pall Corporation Supplementary Profit Sharing Plan as amended and
restated February 15, 1995, filed as Exhibit 10.26 to the 1996 10-K.
10.25(a) Pall Corporation Supplementary Pension Plan (As Amended Effective
October 6, 1997). 71-99
10.26(a) Pall Corporation Profit Sharing Plan, as amended and restated as of
January 1, 1997. 100-157
10.27*(a) Pall Corporation 1993 Stock Option Plan, filed as Exhibit 10.22 to
the 1993 10-K.
10.28*(a) Pall Corporation 1991 Stock Option Plan, filed as Exhibit 10.42 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 3, 1991 (the "1991 10-K").
10.29*(a) Pall Corporation 1988 Stock Option Plan, as amended through October
8, 1991, filed as Exhibit 10.32 to the 1991 10-K.
10.30*(a) Pall Corporation Stock Option Plan for Non-Employee Directors filed
as Exhibit 10.26 to the Registrant's Form 10-Q for the quarterly
period ended October 28, 1995.
10.31*(a) Pall Corporation 1995 Employee Stock Option Plan filed as Exhibit
10.27 to the Registrant's Form 10-Q for the quarterly period ended
October 28, 1995.
10.32*(a) Principal Rules of the Pall Supplementary Pension Scheme, filed as
Exhibit 10.25 to the 1995 10-K.
10.33*(a) Pall Deutschland GMBH, Dreieich, Concept Of An Additional Pension
Plan For Senior Executives, filed as Exhibit 10.35 to the 1996 10-K.
</TABLE>
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 15
15
<TABLE>
<CAPTION>
Page
Exhibit of 1997
Number Description of Exhibit Form 10-K
<S> <C> <C>
13 Annual Report to Shareholders for the year ended August 2, 1997 158-203
21 Subsidiaries of Pall Corporation. 204
23 Consent of Independent Auditors. 205
27 Financial Data Schedule (only filed electronically).
</TABLE>
b. Reports on Form 8-K:
The registrant filed no reports on Form 8-K during the three months ended
August 2, 1997.
<PAGE> 16
16
PALL CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED AUGUST 2, 1997, AUGUST
3, 1996 AND JULY 29, 1995
<TABLE>
<CAPTION>
Balance at Charged to Write-off of Balance
Beginning Costs and Uncollectible at End
Description of Year Expenses Accounts of Year
----------- ------- -------- -------- -------
<S> <C> <C> <C> <C>
Year ended August 2, 1997:
Allowance for doubtful
accounts $5,998,000 $1,417,000 $ 813,000 $6,602,000
Year ended August 3, 1996:
Allowance for doubtful
accounts $6,318,000 $1,851,000 $2,171,000 $5,998,000
Year ended July 29, 1995:
Allowance for doubtful
accounts $5,566,000 $1,549,000 $ 797,000 $6,318,000
</TABLE>
<PAGE> 17
[KPMG Peat Marwick LLP Letterhead]
Independent Auditors' Report on Schedule
----------------------------------------
The Board of Directors
Pall Corporation:
Under date of September 2, 1997, we reported on the consolidated balance sheets
of Pall Corporation and subsidiaries as of August 2, 1997 and August 3, 1996,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period ended August 2, 1997,
as contained in the Company's fiscal 1997 annual report to stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the Company's annual report on Form 10-K for fiscal year 1997. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedule as
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects the information set forth therein.
As discussed in the Accounting Policies note to the consolidated financial
statements, the Company adopted Statement of Financial Accounting Standards
No. 112. "Employers' Accounting for Postemployment Benefits" in fiscal year
1995.
/s/ KPMG PEAT MARWICK LLP
--------------------------
KPMG PEAT MARWICK LLP
Jericho, New York
September 2, 1997
<PAGE> 18
18
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
/s/ Jeremy Hayward-Surry
-----------------------------------------
PALL CORPORATION
October 24, 1997 By: Jeremy Hayward-Surry
President and Treasurer -
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Eric Krasnoff Chairman of the Board and October 24, 1997
- ------------------------------- Chief Executive Officer
Eric Krasnoff
/s/ Jeremy Hayward-Surry President and Treasurer - Chief October 24, 1997
- ------------------------------- Financial Officer and Director
Jeremy Hayward-Surry
/s/ Viraj J. Patel Chief Accountant (Chief October 24, 1997
- ------------------------------- Accounting Officer)
Viraj J. Patel
/s/ Abraham Appel Director October 24, 1997
- -------------------------------
Abraham Appel
/s/ Ulric S. Haynes, Jr. Director October 24, 1997
- -------------------------------
Ulric S. Haynes, Jr.
/s/ Edwin W. Martin Director October 24, 1997
- -------------------------------
Edwin W. Martin
/s/ David B. Pall Director October 24, 1997
- -------------------------------
David B. Pall
/s/ Katharine Plourde Director October 24, 1997
- -------------------------------
Katharine L. Plourde
/s/ Chesterfield F. Seibert Director October 24, 1997
- -------------------------------
Chesterfield F. Seibert
/s/ Heywood Shelley Director October 24, 1997
- -------------------------------
Heywood Shelley
/s/ Alan B. Slifka Director October 24, 1997
- -------------------------------
Alan B. Slifka
/s/ James D. Watson Director October 24, 1997
- -------------------------------
James D. Watson
/s/ Derek T.D. Williams Director October 24, 1997
- -------------------------------
Derek T.D. Williams
</TABLE>
<PAGE> 19
19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
Exhibit of 1997
Number Description of Exhibit Form 10-K
<S> <C> <C>
2* Agreement and Plan of Reorganization and Merger made on October 27,
1996, by and among the Registrant, Pall Acquisition Corporation and
Gelman Sciences Inc., filed as Exhibit A to The Proxy Statement-
Prospectus constituting Part I of the Registrant's Registration
Statement on Form S-4 (Registration No. 333-17417).
3(i)* Restated Certificate of Incorporation of the Registrant as amended
through November 23, 1993, filed as Exhibit 3(i) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 30, 1994
(the "1994 10-K").
3(ii)* By-Laws of the Registrant as amended on November 21, 1995 filed as
Exhibit 3(ii) to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended October 28, 1995.
4 Note: The exhibits filed herewith do not include the instruments
with respect to long-term debt of the Registrant and its
subsidiaries, inasmuch as the total amount of debt authorized under
any such instrument does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The
Registrant agrees, pursuant to Item 601(b) (4) (iii) of Regulation
S-K, that it will furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
10.1*(a) Agreement made as of July 31, 1992 with David B. Pall, filed as
Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 1, 1992 (the "1992 10-K").
10.2*(a) Agreement made as of March 17, 1995 with David B. Pall, filed as
Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 29, 1995 (the "1995 10-K").
10.3(a) Amended And Restated Employment Agreement dated October 6, 1997 with
Eric Krasnoff. 23-45
10.4(a) Letter agreement dated July 17, 1997 with Eric Krasnoff. 46-47
10.5(a) Amended And Restated Employment Agreement dated October 6, 1997 with
Jeremy Hayward-Surry. 48-69
10.6*(a) Service Agreement dated November 28, 1995 with Derek Thomas Donald
Williams, filed as Exhibit 10.7 to the 1996 10-K.
10.7*(a) Service Agreement dated November 28, 1995 with Clifton Stanley
Hutchings, filed as Exhibit 10.9 to the 1996 10-K
</TABLE>
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 20
20
<TABLE>
<CAPTION>
Page
Exhibit of 1997
Number Description of Exhibit Form 10-K
<S> <C> <C>
10.8*(a) Service Agreement dated November 28, 1995 with Gerhard Friedrich
Weich, filed as Exhibit 10.10 to the 1996 10-K.
10.9*(a) Employment Agreement dated February 1, 1992 with Arnold Weiner,
filed as Exhibit 10.32 to the 1992 10-K.
10.10*(a) Amendment dated July 19, 1993 to Employment Agreement dated February
1, 1992 with Arnold Weiner, filed as Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993 (the "1993 10-K").
10.11*(a) Second Amendment dated August 1, 1995 to Employment Agreement dated
February 1, 1992 with Arnold Weiner, filed as Exhibit 10.13 to the
1996 10-K.
10.12(a) Third Amendment dated October 6, 1997 to Employment Agreement dated
February 1, 1992 with Arnold Weiner. 70
10.13*(a) Employment Agreement dated February 1, 1992 with Samuel Wortham,
filed as Exhibit 10.15 to the 1992 10-K.
10.14*(a) Amendment dated July 19, 1993 to Employment Agreement dated February
1, 1992 with Samuel Wortham, filed as Exhibit 10.4 to the 1993 10-K.
10.15*(a) Second Amendment dated August 1, 1995 to Employment Agreement dated
February 1, 1992 with Samuel Wortham, filed as Exhibit 10.16 to the
1996 10-K.
10.16*(a) Employment Agreement dated August 1, 1994 with Peter Cope, filed as
Exhibit 10.13 to the 1994 10-K.
10.17*(a) Amendment dated August 1, 1995 to Employment Agreement dated August
1, 1994 with Peter Cope, filed as Exhibit 10.18 to the 1996 10-K.
10.18*(a) Employment Agreement dated August 1, 1994 with Robert Simkins, filed
as Exhibit 10.14 to the 1994 10-K.
10.19*(a) Amendment dated August 1, 1995 to Employment Agreement dated August
1, 1994 with Robert Simkins, filed as Exhibit 10.20 to the 1996
10-K.
10.20*(a) Employment Agreement dated September 26, 1994 with Donald B.
Stevens, filed as Exhibit 10.17 to the 1994 10-K.
10.21*(a) Amendment dated August 1, 1995 to Employment Agreement dated
September 26, 1994 with Donald B. Stevens, filed as Exhibit 10.24 to
the 1996 10-K.
10.22*(a) Employment Agreement dated August 5, 1996 with Paul Kohn, filed as
Exhibit 10.25 to the 1996 10-K.
</TABLE>
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 21
21
<TABLE>
<CAPTION>
Page
Exhibit of 1997
Number Description of Exhibit Form 10-K
<S> <C> <C>
10.23*(a) Employment Agreement dated October 27, 1996 among the Registrant,
Gelman Sciences Inc. and Kim A. Davis, filed as Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended February 1, 1997.
10.24*(a) Pall Corporation Supplementary Profit Sharing Plan as amended and
restated February 15, 1995, filed as Exhibit 10.26 to the 1996 10-K.
10.25(a) Pall Corporation Supplementary Pension Plan (As Amended Effective
October 6, 1997). 71-99
10.26(a) Pall Corporation Profit Sharing Plan, as amended and restated as of
January 1, 1997. 100-157
10.27*(a) Pall Corporation 1993 Stock Option Plan, filed as Exhibit 10.22 to
the 1993 10-K.
10.28*(a) Pall Corporation 1991 Stock Option Plan, filed as Exhibit 10.42 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 3, 1991 (the "1991 10-K").
10.29*(a) Pall Corporation 1988 Stock Option Plan, as amended through October
8, 1991, filed as Exhibit 10.32 to the 1991 10-K.
10.30*(a) Pall Corporation Stock Option Plan for Non-Employee Directors filed
as Exhibit 10.26 to the Registrant's Form 10-Q for the quarterly
period ended October 28, 1995.
10.31*(a) Pall Corporation 1995 Employee Stock Option Plan filed as Exhibit
10.27 to the Registrant's Form 10-Q for the quarterly period ended
October 28, 1995.
10.32*(a) Principal Rules of the Pall Supplementary Pension Scheme, filed as
Exhibit 10.25 to the 1995 10-K.
10.33*(a) Pall Deutschland GMBH, Dreieich, Concept Of An Additional Pension
Plan For Senior Executives, filed as Exhibit 10.35 to the 1996 10-K.
</TABLE>
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 22
22
<TABLE>
<CAPTION>
Page
Exhibit of 1997
Number Description of Exhibit Form 10-K
<S> <C> <C>
13 Annual Report to Shareholders for the year ended August 2, 1997 158-203
21 Subsidiaries of Pall Corporation. 204
23 Consent of Independent Auditors. 205
27 Financial Data Schedule (only filed electronically).
</TABLE>
<PAGE> 1
Exhibit 10.3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated October 6, 1997,
between PALL CORPORATION, a New York corporation (the "Company"), and ERIC
KRASNOFF ("Executive").
WHEREAS, the parties hereto are parties to an Employment Agreement
dated April 1, 1994 providing for a Term of Employment beginning on that date
and ending not earlier than March 31, 1999 (the "Original Agreement"); and
WHEREAS, the Original Agreement has heretofore been amended by
Amendment Dated July 11, 1994, and the parties desire to extend the term of and
make certain other amendments to the Original Agreement; and
WHEREAS, for convenience, the parties desire to restate the Original
Agreement as heretofore amended and as proposed to be amended so that, as thus
restated, there will be a single document embodying and constituting the
Original Agreement as amended to and including the date hereof,
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth, the parties hereto agree that from and after
the date hereof the Employment Agreement between them reads and provides as
follows:
Section 1. Employment and Term.
The Company hereby employs Executive, and Executive hereby agrees to
serve, as an executive employee of the Company, with the duties set forth in
Section 2, for a term (hereinafter called the "Term of Employment") which began
April 1, 1994 (the "Term Commencement
<PAGE> 2
Date") and ending, unless sooner terminated under Section 2 or Section 4, on the
effective date specified in a notice of termination given by either party to the
other except that such effective date shall not be earlier than the later of (i)
July 31, 2003 and (ii) the second anniversary of the date on which such notice
is given.
Section 2. Duties.
(a) As used herein, the term "chief executive officer" means the person
who has the title of chief executive officer of the Company and also has such
authority and duties as are customarily possessed by and assigned to a chief
executive officer. If at any time during the Term of Employment--
(i) the Board of Directors shall fail to elect Executive to,
or shall remove him from, the office which, in accordance with the
by-laws as then in effect or any resolution or resolutions of the Board
of Directors, carries with it the title, authority and duties of chief
executive officer, or
(ii) the by-laws are amended in such a way that, or the Board
of Directors takes any action the effect of which is that, Executive no
longer has the title of and the authority and duties which are
customarily possessed by and assigned to a chief executive officer,
then in either such event Executive shall have the right at his option to
terminate the Term of Employment by not less than 30 days' notice to the
Secretary of the Company given at any time thereafter. During any period of time
when Executive has the right to terminate under
-2-
<PAGE> 3
this paragraph but elects not to do so, he shall hold such office or offices in
the Company, and perform such duties and assignments relating to the business of
the Company, as the Board of Directors and/or the chief executive officer shall
direct except that Executive shall not be required to hold any office or perform
any duties or assignment inconsistent with his experience and qualifications or
not customarily performed by a senior executive corporate officer. So long as
Executive is performing or stands ready to perform duties and assignments in
accordance with the preceding sentence, the Term of Employment shall continue
until it thereafter terminates or is terminated pursuant to any applicable
provision hereof (including but not limited to termination at Executive's option
under this paragraph).
(b) During the Term of Employment, Executive shall, except during
customary vacation periods and periods of illness, devote substantially all of
his business time and attention to the performance of his duties hereunder and
to the business and affairs of the Company and its subsidiaries and to promoting
the best interests of the Company and its subsidiaries, and he shall not, either
during or outside of such normal business hours, engage in any activity inimical
to such best interests.
Section 3. Compensation and Benefits During Term of Employment.
(a) Base Salary. With respect to the period beginning on the Term
Commencement Date and ending on July 31, 1997, the Company paid Executive a Base
Salary in accordance with the provisions of Section 3(a) of the Original
Agreement. With respect to the Contract Year beginning on August 1, 1997 and
ending on July 31, 1998, the Company
-3-
<PAGE> 4
shall pay to Executive a Base Salary (in addition to the compensation provided
for elsewhere in this Agreement) at the rate of $537,000 per annum (hereinafter
called the "Original Base Salary"). With respect to each Contract Year beginning
with the Contract Year which starts August 1, 1998, the Company shall pay
Executive a Base Salary at such rate as the Board of Directors may determine but
not less than the Original Base Salary adjusted as follows: The term "Contract
Year" as used herein means the period from August 1 of each year through July 31
of the following year. For each Contract Year during the Term of Employment
beginning with the Contract Year which starts August 1, 1998, the minimum
compensation payable to Executive under this Section 3(a) (hereinafter called
the "Minimum Base Salary") shall be determined by increasing (or decreasing) the
Original Base Salary by the percentage increase (or decrease) of the Consumer
Price Index (as hereinafter defined) for the month of June immediately preceding
the start of the Contract Year in question over (or below) the Consumer Price
Index for June 1997. The term "Consumer Price Index" as herein used means the
"Consumer Price Index for all Urban Consumers" compiled and published by the
Bureau of Labor Statistics of the United States Department of Labor for "New
York Northern New Jersey - Long Island, NY-NJ-CT." To illustrate the operation
of the foregoing provisions of this Section 3(a): Executive's Base Salary for
the Contract Year August 1, 1998 through July 31, 1999 shall be not less than
the Original Base Salary adjusted by the percentage increase (or decrease) of
the Consumer Price Index for June 1998 over (or below) said Index for June 1997.
Further adjustment in the Minimum Base Salary shall be made for
-4-
<PAGE> 5
each ensuing Contract Year, in each case (i) using the Consumer Price Index for
June 1997 as the base except as provided in the immediately following paragraph
hereof and (ii) applying the percentage increase (or decrease) in the Consumer
Price Index since said base month to the Original Base Salary to determine the
Minimum Base Salary. The Base Salary shall be paid in such periodic installments
as the Company may determine but not less often than monthly.
If with respect to any Contract Year (including the Contract Year
beginning August 1, 1998) the Board of Directors fixes the Base Salary at an
amount higher than the Minimum Base Salary, then (unless a resolution adopted
simultaneously with the resolution fixing such higher Base Salary for such
Contract Year provides otherwise), for the purpose of determining the Minimum
Base Salary for subsequent Contract Years: (i) the amount of the higher Base
Salary so fixed shall be deemed substituted for the Original Base Salary
wherever the Original Base Salary is referred to in the immediately preceding
paragraph hereof, and (ii) the base month for determining the Consumer Price
Index adjustment shall be June of the calendar year in which the Contract Year
to which such higher Base Salary is applicable begins (e.g., if the Board fixes
a Base Salary for the Contract Year beginning August 1, 1998 which is higher
than the Minimum Base Salary, then June 1998 would become the base month for the
purposes of making the CPI adjustment to determine the Minimum Base Salary for
subsequent Contract Years).
-5-
<PAGE> 6
(b) Bonus Compensation. With respect to each fiscal year of the Company
falling in whole or in part within the Term of Employment beginning with the
fiscal year ending July 30, 1994, Executive shall be entitled to a bonus (in
addition to his Base Salary) in such amount and computed in such manner as shall
be determined by the Board of Directors but in no event shall the bonus payable
to Executive under this Section 3(b) be less than an amount computed by applying
to the fiscal year in question the following bonus formula:
"Bonus Compensation" means the amount, if any, payable to
Executive under this Section 3(b).
"Average Equity" means the average of stockholders' equity as
shown on the fiscal year-end consolidated balance sheet of the Company
as of the end of the fiscal year with respect to which Bonus
Compensation is being computed hereunder and as of the end of the
immediately preceding fiscal year (e.g., "Average Equity" to be used in
computing Bonus Compensation for the fiscal year ending July 30, 1994
will be the average of stockholders' equity as of July 31, 1993 and
July 30, 1994) except that the amount shown as the "equity adjustment
from foreign currency translation" on each such consolidated balance
sheet shall be disregarded and the amount of $3,744,000 shall be the
equity adjustment (increase) from foreign currency translation used to
determine stockholders' equity at each such year-end balance sheet
date.
-6-
<PAGE> 7
"Net Earnings" means the after-tax consolidated net earnings
of the Company and its subsidiaries as certified by its independent
accountants for inclusion in the annual report to stockholders.
"Return on Equity" means Net Earnings as a percentage of
Average Equity.
For fiscal years 1994 and 1995, "Zero Bonus Percentage" shall
mean a Return on Equity of 12.5%. For fiscal year 1994, "Maximum Bonus
Percentage" shall mean a Return on Equity of 19%. For fiscal years
after fiscal 1995, the Company shall determine the Zero Bonus
Percentage, and for fiscal years after fiscal 1994, the Company shall
determine the Maximum Bonus Percentage, consistent in each case with
expected results based upon the Company's normal projection procedures,
or based on sound statistical or trend data, and the determination by
the Company of such percentages shall be conclusive and binding on
Executive.
If Return on Equity for the fiscal year in question is the Zero Bonus Percentage
or less, no Bonus Compensation shall be payable. If Return on Equity equals or
exceeds the Maximum Bonus Percentage, the Bonus Compensation payable to
Executive shall be 75% of his Base Salary for fiscal 1994 and 100% of his Base
Salary for subsequent fiscal years. If Return on Equity is more than the Zero
Bonus Percentage and less than the Maximum Bonus Percentage, the Bonus
Compensation shall be increased from zero percent of Base Salary
-7-
<PAGE> 8
towards 100% of Base Salary (after fiscal 1994) in the same proportion that
Return on Equity increases from the Zero Bonus Percentage to the Maximum Bonus
Percentage. Thus, for example, if Return on Equity for fiscal 1995 is 15.75%
(the midpoint between 12.5% and 19%, the Company on July 11, 1994 having
determined the Maximum Bonus Percentage for fiscal 1995 to be 19%), the Bonus
Compensation shall be an amount equal to 50% of Executive's Base Salary (the
midpoint between zero percent of Base Salary and 100% of Base Salary).
The Bonus Compensation shall be paid in installments as follows:
(i) 50% of the estimated amount thereof in July of the fiscal
year with respect to which the Bonus Compensation is payable (e.g., 50%
in July 1994 with respect to Bonus Compensation for the fiscal year
ending July 30, 1994), based on the then current projections of Return
on Equity, and
(ii) the balance thereof not later than January 15 next
following the end of the fiscal year with respect to which the Bonus
Compensation is payable. With respect to any fiscal year of the Company
which falls in part but not in whole
within the Term of Employment, the Bonus Compensation to which Executive is
entitled under this Section 3(b) shall be prorated on the basis of the number of
days of such fiscal year falling within the Term of Employment except that if
the Term of Employment ends within five days before or after the end of a fiscal
year, there shall be no proration and the Bonus
-8-
<PAGE> 9
Compensation shall be payable with respect to the full fiscal year ending within
such five-day period, provided, however, that for the purpose of computing Bonus
Compensation for the fiscal year ending July 30, 1994, the period of August 1,
1993 to the Term Commencement Date shall be deemed part of the Term of
Employment under this Agreement.
(c) Fringe Benefits and Perquisites. During the Term of Employment,
Executive shall enjoy the customary perquisites of office, including but not
limited to office space and furnishings, secretarial services, expense
reimbursements, and any similar emoluments customarily afforded to senior
executive officers of the Company. Executive shall also be entitled to receive
or participate in all "fringe benefits" and employee benefit plans provided or
made available by the Company to its executives or management personnel
generally, such as, but not limited to, group hospitalization, medical, life and
disability insurance, and pension, retirement, profit-sharing and stock option
or purchase plans.
(d) Vacation. Executive shall be entitled each year to a vacation or
vacations in accordance with the policies of the Company as determined by the
Board or by an authorized senior officer of the Company from time to time. The
Company shall not pay Executive any additional compensation for any vacation
time not used by Executive.
(e) Relocation Expenses. If at any time during the Term of
Employment Executive changes the location of his principal office, either at the
request of the Company or because it is in the best interests of the Company for
him to do so, to a location more than one hour's commuting time from the present
principal office of the Company in East Hills, Long Island,
-9-
<PAGE> 10
New York, the Company shall reimburse Executive for all costs and expenses
reasonably related to or arising from such relocation, including but not limited
to the cost of suitable housing at the new location, the cost of continuing to
maintain his residence at the old location if he so elects, moving expenses, and
the amounts necessary to equalize Executive's taxes and cost of living between
the old and new locations so that Executive will not have suffered any financial
disadvantage from having relocated.
Section 4. Termination by Reason of Disability, Death,
Retirement or Change of Control.
(a) Disability or Death. If, during the Term of Employment,
Executive, by reason of physical or mental disability, has been incapable of
performing his principal duties hereunder for an aggregate of 130 working days
out of any period of 12 consecutive months, the Company at its option may
terminate the Term of Employment effective immediately by notice to Executive
given within 90 days after the end of such 12-month period. If Executive shall
die during the Term of Employment or if the Company terminates the Term of
Employment pursuant to the immediately preceding sentence by reason of
Executive's disability, the Company shall pay to Executive, or to Executive's
legal representatives, or in accordance with a direction given by Executive to
the Company in writing, Executive's Base Salary to the end of the month in which
such death or termination for disability occurs and Executive's Bonus
Compensation prorated to said last day of the month.
-10-
<PAGE> 11
(b) Retirement.
(i) The Term of Employment shall end automatically, without
action by either party, on Executive's 65th birthday unless prior to
such birthday Executive and the Company have agreed in writing that the
Term of Employment shall continue past such 65th birthday. In that
event, unless the parties have agreed otherwise, the Term of Employment
shall be automatically renewed and extended each year, as of
Executive's birthday, for an additional one-year term, unless either
party has given a Non-Renewal Notice. A Non-Renewal Notice shall be
effective as of Executive's ensuing birthday only if given not less
than 60 days before such birthday and shall state that the party giving
such notice elects that this Agreement shall not automatically renew
itself further, with the result that the Term of Employment shall end
on Executive's ensuing birthday.
(ii) If the Term of Employment ends pursuant to this paragraph
by reason of a notice given by either party as herein permitted or
automatically at age 65 or any subsequent birthday, the Company shall
pay to Executive, or to another payee specified by Executive to the
Company in writing, Executive's Base Salary and Bonus Compensation
prorated to the date on which the Term of Employment ends.
(iii) Anything hereinabove to the contrary notwithstanding, if
any provision of this paragraph violates federal or applicable state
law relating to discrimination on account of age, such provision shall
be deemed modified or suspended to the extent
-11-
<PAGE> 12
necessary to eliminate such violation of law. If at a later date, by
reason of changed circumstances or otherwise, the enforcement of such
provision as set forth herein would no longer constitute a violation of
law, then it shall be enforced in accordance with its terms as set
forth herein.
(c) Change of Control. In event of a Change of Control (as hereinafter
defined), Executive shall have the right to terminate the Term of Employment, by
notice to the Company given at any time after such Change of Control, effective
on the date specified in such notice, which date shall not be more than (but can
be less than) one year after the giving of such notice. A Change of Control
shall be deemed to have occurred at such time as a majority of the directors
then in office are not Continuing Directors as defined in subparagraph (C)(6) of
Paragraph 12 of the Company's Restated Certificate of Incorporation dated
November 23, 1993 and filed by the New York Department of State on December 7,
1993.
Section 5. Severance.
Executive shall be entitled to receive severance pay from the Company,
in the amount determined as hereinafter in this paragraph provided, in the event
that the Term of Employment is terminated by the Company under Section 1 hereof
or by Executive under Section 2 or Section 4(c) hereof. The amount of such
severance pay shall be an amount equal to the Base Salary which would have been
payable to Executive during the 24 months following the date on which the Term
of Employment ends by reason of such termination, plus 100% of such Base
-12-
<PAGE> 13
Salary (representing the maximum Bonus Compensation payable under Section 3(b)
hereof). Executive shall have the option of (i) having such severance payment
made in installments, over the 24 months following the end of the Term of
Employment, at the same times at which Executive's Base Salary and Bonus
Compensation would have been paid had the Term of Employment not been terminated
or (ii) accepting as such severance pay an amount equal to the present value, as
of the date on which the Term of Employment ends, of the stream of payments
payable under clause "(i)" of this sentence, except that if Executive elects a
lump-sum payment under this clause "(ii)," there shall be no cost-of-living
adjustment of the Base Salary as would otherwise be made in accordance with
Section 3(a) hereof (because at the time such lump-sum payment is made, the
amount of the cost-of-living adjustment would not be known). In determining such
present value, a discount rate of 8% shall be utilized. The severance payment
provided for herein if Executive elects a lump sum shall be made within 20 days
after the end of the Term of Employment.
Section 6. Annual Contract Pension and Medical Coverage After Term of
Employment.
(a) For a period of 120 consecutive months beginning at the end of the
Term of Employment (unless Executive is entitled to severance pay under Section
5 hereof, in which event said period of months shall begin on the second
anniversary of the end of the Term of Employment), the Company shall pay
(i) to Executive during his lifetime, and
-13-
<PAGE> 14
(ii) if Executive is not living at the time any such payment
is due, then to such payee or payees (including a trust or trusts) as
Executive may at any time (whether during or after the Term of
Employment) designate by written notice to the Company or in his last
will and testament or, if no such designation is made, then to the
legal representatives of Executive's estate (any such designated payee
or estate being hereinafter called "Executive's Successor")
an "Annual Contract Pension" computed as follows: The term "Final Pay" as used
herein means one-third of the aggregate of Executive's total cash compensation
(i.e., Base Salary plus incentive compensation and any other bonus payments) for
those three full fiscal years out of the last five full fiscal years of the Term
of Employment with respect to which three fiscal years Executive received the
highest total cash compensation. The Annual Contract Pension payable to
Executive for each "Retirement Year" (as hereinafter defined) shall be an amount
determined by (I) adjusting Executive's Final Pay for changes in the Consumer
Price Index in the manner set forth in Section 3(a) except that for purposes of
the adjustment under this Section 6, the base month, instead of being June 1997,
shall be the month preceding the month in which payment of the Annual Contract
Pension commences and the comparison month shall be the same month in each
succeeding year and (II) multiplying the Final Pay as so adjusted by 60% and
subtracting therefrom the amount which, as of the last day of the Term of
Employment (i.e., the effective date of termination of the Term of Employment
under any of the provisions of Sections 1, 2 or 4 hereof), is the maximum annual
benefit payable, in accordance with
-14-
<PAGE> 15
Section 415(b)(1)(A) of the Internal Revenue Code (or successor section), as
adjusted by the Secretary of the Treasury to such last day under Section 415(d)
of the Code (or successor section), under a pension plan which qualifies under
Section 401(a) of the Code (or successor section). Such maximum annual benefit
is hereinafter called the "Maximum Qualified Plan Pension". Each 12-month period
beginning on the first day of the month in which the Annual Contract Pension
first becomes payable hereunder and on the first day of the same month during
each of the succeeding years in which the Annual Contract Pension is payable
hereunder is herein called a "Retirement Year." There shall be no adjustment of
the Final Pay based on the Consumer Price Index for the purpose of determining
the Annual Contract Pension for the first Retirement Year so that during such
first Retirement Year the Annual Contract Pension shall be 60% of Final Pay
minus the Maximum Qualified Plan Pension; there shall be such adjustment of
Final Pay for the purpose of determining the Annual Contract Pension for the
second and each succeeding Retirement Year.
(b) The Company hereby represents to and agrees with Executive, in
order to induce Executive to enter into this Amended and Restated Employment
Agreement, as follows: For purposes of the Company's Supplementary Pension Plan,
the amount of the offset pursuant to Section 3.1(b)(i) thereof shall be the
amount of the pension in fact payable to Executive under the Pall Corporation
Pension Plan, after giving effect to any distribution theretofore made under
said Plan pursuant to a qualified domestic relations order. The immediately
preceding sentence shall not, however, be deemed to modify the last sentence of
said Section 3.1, which reads and provides as follows:
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<PAGE> 16
"For purposes of this Section, the amount of the pension payable to the
Member under any Other Retirement Program shall be deemed to be the
amount equal to the form of pension payable only to, and during the
lifetime of, the Member, whether or not the Member receives payment of
such pension in some other form permitted under such Other Retirement
Program; but the amount of such pension shall be taken into account
only on and after the date on which payment of the Member's pension
under such Other Retirement Program is to commence."
(c) The Annual Contract Pension shall be paid in equal monthly
installments on the last business day of each month during the period with
respect to which the Annual Contract Pension is payable.
(d) So long as Executive is living it shall be a condition of the
payment of the Annual Contract Pension that, to the extent permitted by
Executive's health, he shall be available for advisory services requested by the
Board of Directors of the Company, the Executive Committee of said Board or the
chief executive officer of the Company, provided that such advisory services
shall not require more than 15 hours in any month. The Company shall reimburse
Executive for all travel and other expenses which he incurs in connection with
such advisory services.
(e) At the option of the Board of Directors of the Company, payment of
the Annual Contract Pension shall cease and the right of Executive and
Executive's Successor to all future such payments shall be forfeited if
Executive shall, without the written consent of the chief executive officer of
the Company, render services to any corporation or other entity engaged in any
activity, or himself engage in any activity, which is competitive to any
material extent with the business in which the Company or any of its
subsidiaries shall be
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<PAGE> 17
engaged at the end of the Term of Employment and in which the Company or any
such subsidiary shall still be engaged at the date such services or activity is
rendered or engaged in by Executive, provided, however, that if the Company
terminates under Section 1 following a Change of Control (as defined in
Section 4(c)), the provisions of this Section 6(e) shall be deemed deleted from
this Agreement and shall have no force or effect.
(f) Beginning at the end of the Term of Employment, the Company at its
sole expense shall provide "full medical coverage" (as hereinafter defined) for
Executive during his lifetime. As used herein, "full medical coverage" means
coverage which, when taken in conjunction with any government-financed medical
coverage available to Executive, will pay or reimburse Executive for all
"Medical Expenses," which term as used herein means and includes all costs of
doctors, hospitalization and related services incurred by Executive, provided,
however, that Executive shall not be required to participate in or utilize any
government-financed medical coverage or scheme (i) which does not allow the
participants a free choice of doctors and hospitals or (ii) which is available
only if the participant passes a "means test"; i.e., has assets or income below
a specified level. The Company shall have the option of providing such coverage
either through insurance (a group policy or an individual policy, at the
Company's option) or if for any reason such insurance coverage is not available
or is deemed by the Company to be unduly expensive, the Company shall itself pay
or reimburse Executive for all Medical Expenses in excess of the portion thereof
paid
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<PAGE> 18
by any government-financed coverage which Executive is obligated to utilize
under the preceding provisions of this paragraph.
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<PAGE> 19
Section 7. Internal Revenue Code Section 4999.
If any payments to Executive, whether under this Agreement or
otherwise, would be subject to excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, then payments hereunder shall be reduced or
deferred to the extent required (and only to the extent required) to avoid the
application of Section 4999; provided, however, that no such reduction or
deferral shall be made unless as a result thereof Executive's after-tax economic
position (taking into account not only payments under this Agreement and the
taxes thereon, but also the taxes that would otherwise be imposed on any
payments to which Executive is otherwise entitled) would be improved. In making
the determination whether Executive's after-tax economic position would be so
improved, the judgment of a certified public accountant or attorney chosen by
Executive shall be final. In the event of a reduction or deferral of payments
pursuant to this paragraph, Executive shall be entitled to specify which
payments shall be reduced or deferred.
Section 8. Acceleration of Stock Options.
On the date which is 30 days before the date on which the Term of
Employment will end by reason of a notice of termination given by either party
hereto under any of the provisions hereof, all employee stock options held by
Executive shall become exercisable in full (i.e., to the extent that any such
option or portion thereof is not yet exercisable, the right to exercise the same
in full shall be accelerated) and such option shall thereafter be fully
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<PAGE> 20
vested and exercisable in full (to the extent not theretofore exercised) until
it expires by its terms.
Section 9. Covenant Not to Compete.
For a period of 18 months after the end of the Term of Employment if
the Term of Employment is terminated by notice to the Company given by Executive
under Section 1, Section 2 or Section 4 hereof, or for a period of 12 months
after the end of the Term of Employment if the Term of Employment is terminated
by notice to Executive given by the Company under Section 1 or Section 4 hereof
or terminates under Section 4 by reason of Executive's attaining the age of 65,
Executive shall not render services to any corporation or other entity engaged
in any activity, or himself engage directly or indirectly in any activity, which
is competitive to any material extent with the business of the Company or any of
its subsidiaries, provided, however, that if the Company terminates under
Section 1 following a Change of Control (as defined in Section 4(c)), the
foregoing covenant not to compete shall not apply.
Section 10. Company's Right to Injunctive Relief.
Executive acknowledges that his services to the Company are of a unique
character, which gives them a peculiar value to the Company, the loss of which
cannot be reasonably or adequately compensated in damages in an action at law,
and that therefore, in addition to any other remedy which the Company may have
at law or in equity, the Company shall be entitled to injunctive relief for a
breach of this Agreement by Executive.
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Section 11. Inventions and Patents.
All inventions, ideas, concepts, processes, discoveries, improvements
and trademarks (hereinafter collectively referred to as intangible rights),
whether patentable or registrable or not, which are conceived, made, invented or
suggested either by Executive alone or by Executive in collaboration with others
during the Term of Employment, and whether or not during regular working hours,
shall be disclosed to the Company and shall be the sole and exclusive property
of the Company. If the Company deems that any of such intangible rights are
patentable or otherwise registrable under any federal, state or foreign law,
Executive, at the expense of the Company, shall execute all documents and do all
things necessary or proper to obtain patents and/or registrations and to vest
the Company with full title thereto.
Section 12. Trade Secrets and Confidential Information.
Executive shall not, either directly or indirectly, except as required
in the course of his employment by the Company, disclose or use at any time,
whether during or subsequent to the Term of Employment, any information of a
proprietary nature owned by the Company, including but not limited to records,
data, formulae, documents, specifications, inventions, processes, methods and
intangible rights which are acquired by him in the performance of his duties for
the Company and which are of a confidential information or trade-secret nature.
All records, files, drawings, documents, equipment and the like, relating to the
Company's business, which Executive shall prepare, use, construct or observe,
shall be and remain the Company's sole property. Upon the termination of his
employment or at any time prior
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<PAGE> 22
thereto upon request by the Company, Executive shall return to the possession of
the Company any materials or copies thereof involving any confidential
information or trade secrets and shall not take any material or copies thereof
from the possession of the Company.
Section 13. Mergers and Consolidations; Assignability.
In the event that the Company, or any entity resulting from any merger
or consolidation referred to in this Section 13 or which shall be a purchaser or
transferee so referred to, shall at any time be merged or consolidated into or
with any other entity or entities, or in the event that substantially all of the
assets of the Company or any such entity shall be sold or otherwise transferred
to another entity, the provisions of this Agreement shall be binding upon and
shall inure to the benefit of the continuing entity in or the entity resulting
from such merger or consolidation or the entity to which such assets shall be
sold or transferred. Except as provided in the immediately preceding sentence of
this Section 13, this Agreement shall not be assignable by the Company or by any
entity referred to in such immediately preceding sentence. This Agreement shall
not be assignable by Executive, but in the event of his death it shall be
binding upon and inure to the benefit of his legal representatives to the extent
required to effectuate the terms hereof.
Section 14. Captions.
The captions in this Agreement are not part of the provisions hereof,
are merely for the purpose of reference and shall have no force or effect for
any purpose whatsoever,
<PAGE> 23
including the construction of the provisions of this Agreement, and if any
caption is inconsistent with any provisions of this Agreement, said provisions
shall govern.
Section 15. Choice of Law.
This Agreement is made in, and shall be governed by and construed in
accordance with the laws of, the State of New York.
Section 16. Entire Contract.
This Agreement contains the entire agreement of the parties on the
subject matter hereof except that the rights of the Company hereunder shall be
deemed to be in addition to and not in substitution for its rights under the
Company's standard printed form of "Employee's Secrecy and Invention Agreement"
or "Employee Agreement" if heretofore or hereafter entered into between the
parties hereto so that the making of this Agreement shall not be construed as
depriving the Company of any of its rights or remedies under any such Secrecy
and Invention Agreement or Employee Agreement. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
Section 17. Notices.
All notices given hereunder shall be in writing and shall be sent by
registered or certified mail or overnight delivery service such as Federal
Express or delivered by hand, and, if intended for the Company, shall be
addressed to it (if sent by mail or overnight delivery service) or delivered to
it (if delivered by hand) at is principal office for the attention
of the Secretary of the Company, or at such other address and for the attention
of such other person of which the Company shall have given notice to Executive
in the manner herein provided, and, if intended for Executive, shall be
delivered to him personally or shall be addressed to him (if sent by mail or
overnight delivery service) at his most recent residence address shown in the
Company's employment records or at such other address or to such designee of
which Executive shall have given notice to the Company in the manner herein
provided. Each such notice shall be deemed to be given on the date on which it
is mailed or received by the overnight delivery service or, if delivered
personally, on the date so delivered.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated
Employment Agreement as of the day and year first above written.
PALL CORPORATION
By: /s/ Jeremy Hayward-Surry
--------------------------------
Jeremy Hayward-Surry,
President and Treasurer
/s/ Eric Krasnoff
--------------------------------
Eric Krasnoff
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<PAGE> 1
EXHIBIT 10.4
Pall Corporation
2200 Northern Boulevard
East Hills, New York 11548
July 17, 1997
Mr. Eric Krasnoff
Chairman & Chief Executive Officer
Pall Corporation
2200 Northern Boulevard
East Hills, New York 11548
Dear Eric:
The purpose of this letter is to set forth the terms and conditions of
an agreement (the "Agreement") to defer the payment of the portion of your
incentive bonus for Pall Corporation's fiscal year beginning on August 3, 1997
("Fiscal 1998") which portion, if not deferred, would not be deductible by Pall
Corporation (the "Corporation") for federal income tax purposes due to the
limitations of Section 162(m) of the Internal Revenue Code (the "Code").
1. The payment of the portion of your incentive bonus for Fiscal 1998
which (when your incentive bonus is aggregated with all other "applicable
employer remuneration" (as defined in Section 162(m) of the Code) you receive
from the Corporation which is allowable as a deduction by the Corporation
(determined without regard to Section 162(m)) for Fiscal 1998) exceeds
$1,000,000 will be deferred. Payment of the amount so deferred will be made to
you on January 4, 1999.
2. The Corporation will pay you interest on the amount deferred above,
computed from the date on which such amount would have been paid to you but for
this Agreement, until the date on which such amount is in fact paid to you,
computed at an annual rate of 7%. Such interest will be paid to you on the date
on which the amount deferred above is paid to you.
<PAGE> 2
3. You shall have the status of a general unsecured creditor of the
Corporation with respect to your right to receive any payment under this
Agreement. This Agreement shall constitute a mere promise by the Corporation to
make payments in the future of the amount described herein. It is intended that
the arrangement reflected in this Agreement be treated as unfunded for tax
purposes, as well as for purposes of Title 1 of ERISA.
4. Your right to any payment under this Agreement shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by your creditors.
If you agree to the arrangement described above, please so indicate by
signing and dating this letter below. Upon your execution, this letter will
then constitute a binding agreement between you and Pall Corporation as to the
matter described herein.
PALL CORPORATION
By: /s/ Jeremy Hayward-Surry
---------------------------------
Jeremy Hayward-Surry
President
I hereby agree to the deferral of the payment of a portion of my
incentive bonus, and to the terms and conditions of such deferral, as described
in this letter.
Signed: July 18, 1997 /s/ Eric Krasnoff
---------------------------------
Eric Krasnoff
<PAGE> 1
Exhibit 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated October 6, 1997,
between PALL CORPORATION, a New York corporation (the "Company"), and JEREMY
HAYWARD-SURRY ("Executive").
WHEREAS, the parties hereto are parties to an Employment Agreement
dated August 1, 1994 providing for a Term of Employment beginning on that date
and ending not earlier than July 31, 1999 (the "Original Agreement"); and
WHEREAS, the parties desire to extend the term of and make certain
other amendments to the Original Agreement; and
WHEREAS, for convenience, the parties desire to restate the Original
Agreement as proposed to be amended so that, as thus restated, there will be a
single document embodying and constituting the Original Agreement as amended to
and including the date hereof,
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth, the parties hereto agree that from and after
the date hereof the Employment Agreement between them reads and provides as
follows:
Section 1. Employment and Term.
The Company hereby employs Executive, and Executive hereby agrees to
serve, as an executive employee of the Company, with the duties set forth in
Section 2, for a term (hereinafter called the "Term of Employment") which began
August 1, 1994 (the "Term Commencement Date") and ending, unless sooner
terminated under Section 4, on the effective date specified in a notice of
termination given by either party to the other except that such effective date
shall
<PAGE> 2
not be earlier than the later of (i) July 31, 2003 and (ii) the second
anniversary of the date on which such notice is given.
Section 2. Duties.
(a) Executive agrees that during the Term of Employment he will hold
such offices or positions with the Company, and perform such duties and
assignments relating to the business of the Company, as the Board of Directors
or the chief executive officer of the Company shall direct except that Executive
shall not be required to hold any office or position or to perform any duties or
assignment inconsistent with his experience and qualifications or not
customarily performed by a corporate officer. The Company represents to
Executive that the Board of Directors (acting by its Compensation Committee) has
authorized the making of this Agreement and expressed its present intention that
during the Term of Employment Executive will be an elected officer of the
Company. The failure of any future Board of Directors to elect Executive as an
officer of the Company shall not, however, be deemed to relieve either party
hereto of any of his or its obligations under this Agreement.
(b) If the Board of Directors or the chief executive officer of the
Company so directs, Executive shall serve as an officer of one or more
subsidiaries of the Company (provided that the duties of such office are not
inconsistent with Executive's experience and qualifications and are duties
customarily performed by a corporate officer) and part or all of the
compensation to which Executive is entitled hereunder may be paid by such
subsidiary
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or subsidiaries. However, such employment and/or payment of Executive by a
subsidiary or subsidiaries shall not relieve the Company from any of its
obligations under this Agreement except to the extent of payments actually made
to Executive by a subsidiary.
(c) During the Term of Employment, Executive shall, except during
customary vacation periods and periods of illness, devote substantially all of
his business time and attention to the performance of his duties hereunder and
to the business and affairs of the Company and its subsidiaries and to promoting
the best interests of the Company and its subsidiaries, and he shall not, either
during or outside of such normal business hours, engage in any activity inimical
to such best interests.
Section 3. Compensation and Benefits During Term of Employment.
(a) Base Salary. With respect to the period beginning on the Term
Commencement Date and ending on July 31, 1997, the Company paid Executive a Base
Salary in accordance with the provisions of Section 3(a) of the Original
Agreement. With respect to the Contract Year beginning on August 1, 1997 and
ending on July 31, 1998, the Company shall pay Executive a Base Salary (in
addition to the compensation provided for elsewhere in this Agreement) at the
rate of $367,600 per annum (hereinafter called the "Original Base Salary"). With
respect to each Contract Year beginning with the Contract Year which starts
August 1, 1998, the Company shall pay Executive a Base Salary at such rate as
the Board of Directors may determine but not less than the Original Base Salary
adjusted as follows: The term "Contract Year" as used herein means the period
from August 1 of each year through
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<PAGE> 4
July 31 of the following year. For each Contract Year during the Term of
Employment beginning with the Contract Year which starts August 1, 1998, the
minimum compensation payable to Executive under this Section 3(a) (hereinafter
called the "Minimum Base Salary") shall be determined by increasing (or
decreasing) the Original Base Salary by the percentage increase (or decrease) of
the Consumer Price Index (as hereinafter defined) for the month of June
immediately preceding the start of the Contract Year in question over (or below)
the Consumer Price Index for June 1997. The term "Consumer Price Index" as used
herein means the "Consumer Price Index for all Urban Consumers" compiled and
published by the Bureau of Labor Statistics of the United States Department of
Labor for "New York - Northern New Jersey - Long Island, NY-NJ-CT." To
illustrate the operation of the foregoing provisions of this Section 3(a):
Executive's Base Salary for the Contract Year August 1, 1998 through July 31,
1999 shall be not less than the Original Base Salary adjusted by the percentage
increase (or decrease) of the Consumer Price Index for June 1998 over (or below)
said Index for June 1997. Further adjustment in the Minimum Base Salary shall be
made for each ensuing Contract Year, in each case (i) using the Consumer Price
Index for June 1997 as the base except as provided in the immediately following
paragraph hereof and (ii) applying the percentage increase (or decrease) in the
Consumer Price Index since said base month to the Original Base Salary to
determine the Minimum Base Salary. The Base Salary shall be paid in such
periodic installments as the Company may determine but not less often than
monthly.
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<PAGE> 5
If with respect to any Contract Year (including the Contract Year
beginning August 1, 1998) the Board of Directors fixes the Base Salary at an
amount higher than the Minimum Base Salary, then (unless a resolution adopted
simultaneously with the resolution fixing such higher Base Salary for such
Contract Year provides otherwise), for the purpose of determining the Minimum
Base Salary for subsequent Contract Years: (i) the amount of the higher Base
Salary so fixed shall be deemed substituted for the Original Base Salary
wherever the Original Base Salary is referred to in the immediately preceding
paragraph hereof, and (ii) the base month for determining the Consumer Price
Index adjustment shall be June of the calendar year in which the Contract Year
to which such higher Base Salary is applicable begins (e.g., if the Board fixes
a Base Salary for the Contract Year beginning August 1, 1998 which is higher
than the Minimum Base Salary, then June 1998 would become the base month for the
purposes of making the CPI adjustment to determine the Minimum Base Salary for
subsequent Contract Years).
(b) Bonus Compensation. With respect to each fiscal year of the Company
falling in whole or in part within the Term of Employment beginning with the
fiscal year ending July 30, 1994, Executive shall be entitled to a bonus (in
addition to his Base Salary) in such amount and computed in such manner as shall
be determined by the Board of Directors but in no event shall the bonus payable
to Executive under this Section 3(b) be less than an amount computed by applying
to the fiscal year in question the following bonus formula:
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<PAGE> 6
"Bonus Compensation" means the amount, if any, payable to
Executive under this Section 3(b).
"Average Equity" means the average of stockholders' equity as
shown on the fiscal year-end consolidated balance sheet of the Company
as of the end of the fiscal year with respect to which Bonus
Compensation is being computed hereunder and as of the end of the
immediately preceding fiscal year (e.g., "Average Equity" to be used in
computing Bonus Compensation for the fiscal year ending July 30, 1994
will be the average of stockholders' equity as of July 31, 1993 and
July 30, 1994) except that the amount shown as the "equity adjustment
from foreign currency translation" on each such consolidated balance
sheet shall be disregarded and the amount of $3,744,000 shall be the
equity adjustment (increase) from foreign currency translation used to
determine stockholders' equity at each such year-end balance sheet
date.
"Net Earnings" means the after-tax consolidated net earnings
of the Company and its subsidiaries as certified by its independent
accountants for inclusion in the annual report to stockholders.
"Return on Equity" means Net Earnings as a percentage of
Average Equity.
For fiscal years 1994 and 1995, "Zero Bonus Percentage" shall
mean a Return on Equity of 12.5%. For fiscal year 1994, "Maximum Bonus
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<PAGE> 7
Percentage" shall mean a Return on Equity of 19%. For fiscal years
after fiscal 1995, the Company shall determine the Zero Bonus
Percentage, and for fiscal years after fiscal 1994, the Company shall
determine the Maximum Bonus Percentage, consistent in each case with
expected results based upon the Company's normal projection procedures,
or based on sound statistical or trend data, and the determination by
the Company of such percentages shall be conclusive and binding on
Executive.
If Return on Equity for the fiscal year in question is the Zero Bonus Percentage
or less, no Bonus Compensation shall be payable. If Return on Equity equals or
exceeds the Maximum Bonus Percentage, the Bonus Compensation payable to
Executive shall be 75% of his Base Salary. If Return on Equity is more than the
Zero Bonus Percentage and less than the Maximum Bonus Percentage, the Bonus
Compensation shall be increased from zero percent of Base Salary towards 75% of
Base Salary in the same proportion that Return on Equity increases from the Zero
Bonus Percentage to the Maximum Bonus Percentage. Thus, for example, if Return
on Equity for fiscal 1995 is 15.75% (the midpoint between 12.5% and 19%, the
Company on July 11, 1994 having determined the Maximum Bonus Percentage for
fiscal 1995 to be 19%), the Bonus Compensation shall be an amount equal to 37.5%
of Executive's Base Salary (the midpoint between zero percent of Base Salary and
75% of Base Salary).
The Bonus Compensation shall be paid in installments as follows:
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<PAGE> 8
(i) 50% of the estimated amount thereof in July of the fiscal
year with respect to which the Bonus Compensation is payable (e.g., 50%
in July 1994 with respect to Bonus Compensation for the fiscal year
ending July 30, 1994), based on the then current projections of Return
on Equity, and
(ii) the balance thereof not later than January 15 next
following the end of the fiscal year with respect to which the Bonus
Compensation is payable.
With respect to any fiscal year of the Company which falls in part but
not in whole within the Term of Employment, the Bonus Compensation to which
Executive is entitled under this Section 3(b) shall be prorated on the basis of
the number of days of such fiscal year falling within the Term of Employment
except that if the Term of Employment ends within five days before or after the
end of a fiscal year, there shall be no proration and the Bonus Compensation
shall be payable with respect to the full fiscal year ending within such
five-day period.
(c) Fringe Benefits and Perquisites. During the Term of Employment,
Executive shall enjoy the customary perquisites of office, including but not
limited to office space and furnishings, secretarial services, expense
reimbursements, and any similar emoluments customarily afforded to senior
executive officers of the Company. Executive shall also be entitled to receive
or participate in all "fringe benefits" and employee benefit plans provided or
made available by the Company to its executives or management personnel
generally, such
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<PAGE> 9
as, but not limited to, group hospitalization, medical, life and disability
insurance, and pension, retirement, profit-sharing and stock option or purchase
plans.
(d) Vacation. Executive shall be entitled each year to a vacation or
vacations in accordance with the policies of the Company as determined by the
Board or by an authorized senior officer of the Company from time to time. The
Company shall not pay Executive any additional compensation for any vacation
time not used by Executive.
Section 4. Termination by Reason of Disability, Death, Retirement or
Change of Control.
(a) Disability or Death. If, during the Term of Employment, Executive,
by reason of physical or mental disability, has been incapable of performing his
principal duties hereunder for an aggregate of 130 working days out of any
period of 12 consecutive months, the Company at its option may terminate the
Term of Employment effective immediately by notice to Executive given within 90
days after the end of such 12-month period. If Executive shall die during the
Term of Employment or if the Company terminates the Term of Employment pursuant
to the immediately preceding sentence by reason of Executive's disability, the
Company shall pay to Executive, or to Executive's legal representatives, or in
accordance with a direction given by Executive to the Company in writing,
Executive's Base Salary to the end of the month in which such death or
termination for disability occurs and Executive's Bonus Compensation prorated to
said last day of the month.
(b) Retirement.
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<PAGE> 10
(i) The Term of Employment shall end automatically, without
action by either party, on Executive's 65th birthday unless prior to
such birthday Executive and the Company have agreed in writing that the
Term of Employment shall continue past such 65th birthday. In that
event, unless the parties have agreed otherwise, the Term of Employment
shall be automatically renewed and extended each year, as of
Executive's birthday, for an additional one-year term, unless either
party has given a Non-Renewal Notice. A Non-Renewal Notice shall be
effective as of Executive's ensuing birthday only if given not less
than 60 days before such birthday and shall state that the party giving
such notice elects that this Agreement shall not automatically renew
itself further, with the result that the Term of Employment shall end
on Executive's ensuing birthday.
(ii) If the Term of Employment ends pursuant to this paragraph
by reason of a notice given by either party as herein permitted or
automatically at age 65 or any subsequent birthday, the Company shall
pay to Executive, or to another payee specified by Executive to the
Company in writing, Executive's Base Salary and Bonus Compensation
prorated to the date on which the Term of Employment ends.
(iii) Anything hereinabove to the contrary notwithstanding, if
any provision of this paragraph violates federal or applicable state
law relating to discrimination on account of age, such provision shall
be deemed modified or suspended to the extent necessary to eliminate
such violation of law. If at a later date, by reason of changed
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<PAGE> 11
circumstances or otherwise, the enforcement of such provision as set
forth herein would no longer constitute a violation of law, then it
shall be enforced in accordance with its terms as set forth herein.
(c) Change of Control. In event of a Change of Control (as hereinafter
defined), Executive shall have the right to terminate the Term of Employment, by
notice to the Company given at any time after such Change of Control, effective
on the date specified in such notice, which date shall not be more than (but can
be less than) one year after the giving of such notice. A Change of Control
shall be deemed to have occurred at such time as a majority of the directors
then in office are not Continuing Directors as defined in subparagraph (C)(6) of
Paragraph 12 of the Company's Restated Certificate of Incorporation dated
November 23, 1993 and filed by the New York Department of State on December 7,
1993.
Section 5. Severance.
Executive shall be entitled to receive severance pay from the Company,
in the amount determined as hereinafter in this paragraph provided, in the event
that the Term of Employment is terminated by the Company under Section 1 hereof
or by Executive under Section 4(c) hereof. The amount of such severance pay
shall be an amount equal to the Base Salary which would have been payable to
Executive during the 12 months following the date on which the Term of
Employment ends by reason of such termination, plus 75% of such Base Salary
(representing the maximum Bonus Compensation payable under Section 3(b) hereof).
Executive
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<PAGE> 12
shall have the option of (i) having such severance payment made in installments,
over the 12 months following the end of the Term of Employment, at the same
times at which Executive's Base Salary and Bonus Compensation would have been
paid had the Term of Employment not been terminated or (ii) accepting as such
severance pay an amount equal to the present value, as of the date on which the
Term of Employment ends, of the stream of payments payable under clause "(i)" of
this sentence, except that if Executive elects a lump-sum payment under this
clause "(ii)," there shall be no cost-of-living adjustment of the Base Salary as
would otherwise be made in accordance with Section 3(a) hereof (because at the
time such lump-sum payment is made, the amount of the cost-of-living adjustment
would not be known). In determining such present value, a discount rate of 8%
shall be utilized. The severance payment provided for herein if Executive elects
a lump sum shall be made within 20 days after the end of the Term of Employment.
Section 6. Annual Contract Pension and Medical Coverage After Term of
Employment.
(a) For a period of 60 consecutive months beginning at the end of the
Term of Employment (unless Executive is entitled to severance pay under Section
5 hereof, in which event said period of months shall begin on the first
anniversary of the end of the Term of Employment), the Company shall pay
(i) to Executive during his lifetime, and
(ii) if Executive is not living at the time any such payment
is due, then to such payee or payees (including a trust or trusts) as
Executive may at any time
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(whether during or after the Term of Employment) designate by written
notice to the Company or in his last will and testament or, if no such
designation is made, then to the legal representatives of Executive's
estate (any such designated payee or estate being hereinafter called
"Executive's Successor")
an "Annual Contract Pension" computed as follows: The term "Final Pay" as used
herein means one-third of the aggregate of Executive's total cash compensation
(i.e., Base Salary plus incentive compensation and any other bonus payments) for
those three full fiscal years out of the last five full fiscal years of the Term
of Employment with respect to which three fiscal years Executive received the
highest total cash compensation. The Annual Contract Pension payable to
Executive for each "Retirement Year" (as hereinafter defined) shall be an amount
determined by (I) adjusting Executive's Final Pay for changes in the Consumer
Price Index in the manner set forth in Section 3(a) except that for purposes of
the adjustment under this Section 6, the base month, instead of being June 1997,
shall be the month preceding the month in which payment of the Annual Contract
Pension commences and the comparison month shall be the same month in each
succeeding year and (II) multiplying the Final Pay as so adjusted by 60% and
subtracting therefrom Executive's Qualified Plan Pension Benefit (as hereinafter
defined). As used herein, "Executive's Qualified Plan Pension Benefit" means the
annual amount which Executive would be entitled to receive as a pension benefit
under the Pall Corporation Pension Plan in the form of a pension (i) payable
only to him and during his lifetime (whether or not he elects to receive payment
of his qualified plan pension in
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some other form, e.g., a joint and survivor annuity) and (ii) which begins on
the first day of the month in which payment of the Annual Contract Pension
commences (whether or not the qualified plan pension in fact begins on such
first day). The amount of the offset for Executive's Qualified Plan Pension
Benefit as fixed in accordance with the preceding sentence shall remain constant
throughout the term of the Annual Contract Pension irrespective of any election
which Executive may make under the Pall Corporation Pension Plan, e.g., an
election to defer the start of benefit payments under that plan to a later date.
(b) Each 12-month period beginning on the first day of the month in
which the Annual Contract Pension first becomes payable hereunder and on the
first day of the same month during each of the succeeding years in which the
Annual Contract Pension is payable hereunder is herein called a "Retirement
Year." There shall be no adjustment of the Final Pay based on the Consumer Price
Index for the purpose of determining the Annual Contract Pension for the first
Retirement Year so that during such first Retirement Year the Annual Contract
Pension shall be 60% of Final Pay minus Executive's Qualified Plan Pension
Benefits; there shall be such CPI adjustment of Final Pay for the purpose of
determining the Annual Contract Pension for the second and each succeeding
Retirement Year.
(c) The Annual Contract Pension shall be paid in equal monthly
installments on the last business day of each month during the period with
respect to which the Annual Contract Pension is payable.
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(d) So long as Executive is living it shall be a condition of the
payment of the Annual Contract Pension that, to the extent permitted by
Executive's health, he shall be available for advisory services requested by the
Board of Directors of the Company, the Executive Committee of said Board or the
chief executive officer of the Company, provided that such advisory services
shall not require more than 15 hours in any month. The Company shall reimburse
Executive for all travel and other expenses which he incurs in connection with
such advisory services.
(e) At the option of the Board of Directors of the Company, payment of
the Annual Contract Pension shall cease and the right of Executive and
Executive's Successor to all future such payments shall be forfeited if
Executive shall, without the written consent of the chief executive officer of
the Company, render services to any corporation or other entity engaged in any
activity, or himself engage in any activity, which is competitive to any
material extent with the business in which the Company or any of its
subsidiaries shall be engaged at the end of the Term of Employment and in which
the Company or any such subsidiary shall still be engaged at the date such
services or activity is rendered or engaged in by Executive, provided, however,
that if the Company terminates under Section 1 following a Change of Control (as
defined in Section 4(c)), the provisions of this Section 6(e) shall be deemed
deleted from this Agreement and shall have no force or effect.
(f) Beginning at the end of the Term of Employment, the Company at its
sole expense shall provide "full medical coverage" (as hereinafter defined) for
Executive during
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his lifetime. As used herein, "full medical coverage" means coverage which, when
taken in conjunction with any government-financed medical coverage available to
Executive, will pay or reimburse Executive for all "Medical Expenses," which
term as used herein means and includes all costs of doctors, hospitalization and
related services incurred by Executive, provided, however, that Executive shall
not be required to participate in or utilize any government-financed medical
coverage or scheme (i) which does not allow the participants a free choice of
doctors and hospitals or (ii) which is available only if the participant passes
a "means test"; i.e., has assets or income below a specified level. Without
limiting the generality of the preceding "provided, however" clause, if at any
time Executive shall reside in the United Kingdom, he shall be entitled to
coverage hereunder provided by the Company which will enable him to participate
in a private medical plan rather than the so-called "National Health". The
Company shall have the option of providing such coverage either through
insurance (a group policy or an individual policy, at the Company's option) or
if for any reason such insurance coverage is not available or is deemed by the
Company to be unduly expensive, the Company shall itself pay or reimburse
Executive for all Medical Expenses in excess of the portion thereof paid by any
government-financed coverage which Executive is obligated to utilize under the
preceding provisions of this paragraph.
Section 7. Internal Revenue Code Section 4999.
If any payments to Executive, whether under this Agreement or
otherwise, would be subject to excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended,
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then payments hereunder shall be reduced or deferred to the extent required (and
only to the extent required) to avoid the application of Section 4999; provided,
however, that no such reduction or deferral shall be made unless as a result
thereof Executive's after-tax economic position (taking into account not only
payments under this Agreement and the taxes thereon, but also the taxes that
would otherwise be imposed on any payments to which Executive is otherwise
entitled) would be improved. In making the determination whether Executive's
after-tax economic position would be so improved, the judgment of a certified
public accountant or attorney chosen by Executive shall be final. In the event
of a reduction or deferral of payments pursuant to this paragraph, Executive
shall be entitled to specify which payments shall be reduced or deferred.
Section 8. Acceleration of Stock Options.
On the date which is 30 days before the date on which the Term of
Employment will end by reason of a notice of termination given by either party
hereto under any of the provisions hereof, all employee stock options held by
Executive shall become exercisable in full (i.e., to the extent that any such
option or portion thereof is not yet exercisable, the right to exercise the same
in full shall be accelerated) and such option shall thereafter be fully vested
and exercisable in full (to the extent not theretofore exercised) until it
expires by its terms.
Section 9. Covenant Not to Compete.
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For a period of 18 months after the end of the Term of Employment if
the Term of Employment is terminated by notice to the Company given by Executive
under Section 1 or Section 4 hereof, or for a period of 12 months after the end
of the Term of Employment if the Term of Employment is terminated by notice to
Executive given by the Company under Section 1 or Section 4 hereof or terminates
under Section 4 by reason of Executive's attaining the age of 65, Executive
shall not render services to any corporation or other entity engaged in any
activity, or himself engage directly or indirectly in any activity, which is
competitive to any material extent with the business of the Company or any of
its subsidiaries, provided, however, that if the Company terminates under
Section 1 following a Change of Control (as defined in Section 4(c)), the
foregoing covenant not to compete shall not apply.
Section 10. Company's Right to Injunctive Relief.
Executive acknowledges that his services to the Company are of a unique
character, which gives them a peculiar value to the Company, the loss of which
cannot be reasonably or adequately compensated in damages in an action at law,
and that therefore, in addition to any other remedy which the Company may have
at law or in equity, the Company shall be entitled to injunctive relief for a
breach of this Agreement by Executive.
Section 11. Inventions and Patents.
All inventions, ideas, concepts, processes, discoveries, improvements
and trademarks (hereinafter collectively referred to as intangible rights),
whether patentable or registrable or not, which are conceived, made, invented or
suggested either by Executive alone or by
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Executive in collaboration with others during the Term of Employment, and
whether or not during regular working hours, shall be disclosed to the Company
and shall be the sole and exclusive property of the Company. If the Company
deems that any of such intangible rights are patentable or otherwise registrable
under any federal, state or foreign law, Executive, at the expense of the
Company, shall execute all documents and do all things necessary or proper to
obtain patents and/or registrations and to vest the Company with full title
thereto.
Section 12. Trade Secrets and Confidential Information.
Executive shall not, either directly or indirectly, except as required
in the course of his employment by the Company, disclose or use at any time,
whether during or subsequent to the Term of Employment, any information of a
proprietary nature owned by the Company, including but not limited to records,
data, formulae, documents, specifications, inventions, processes, methods and
intangible rights which are acquired by him in the performance of his duties for
the Company and which are of a confidential information or trade-secret nature.
All records, files, drawings, documents, equipment and the like, relating to the
Company's business, which Executive shall prepare, use, construct or observe,
shall be and remain the Company's sole property. Upon the termination of his
employment or at any time prior thereto upon request by the Company, Executive
shall return to the possession of the Company any materials or copies thereof
involving any confidential information or trade secrets and shall not take any
material or copies thereof from the possession of the Company.
Section 13. Mergers and Consolidations; Assignability.
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In the event that the Company, or any entity resulting from any merger
or consolidation referred to in this Section 13 or which shall be a purchaser or
transferee so referred to, shall at any time be merged or consolidated into or
with any other entity or entities, or in the event that substantially all of the
assets of the Company or any such entity shall be sold or otherwise transferred
to another entity, the provisions of this Agreement shall be binding upon and
shall inure to the benefit of the continuing entity in or the entity resulting
from such merger or consolidation or the entity to which such assets shall be
sold or transferred. Except as provided in the immediately preceding sentence of
this Section 13, this Agreement shall not be assignable by the Company or by any
entity referred to in such immediately preceding sentence. This Agreement shall
not be assignable by Executive, but in the event of his death it shall be
binding upon and inure to the benefit of his legal representatives to the extent
required to effectuate the terms hereof.
Section 14. Captions.
The captions in this Agreement are not part of the provisions hereof,
are merely for the purpose of reference and shall have no force or effect for
any purpose whatsoever, including the construction of the provisions of this
Agreement, and if any caption is inconsistent with any provisions of this
Agreement, said provisions shall govern.
Section 15. Choice of Law.
This Agreement is made in, and shall be governed by and construed in
accordance with the laws of, the State of New York.
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Section 16. Entire Contract.
This Agreement contains the entire agreement of the parties on the
subject matter hereof except that the rights of the Company hereunder shall be
deemed to be in addition to and not in substitution for its rights under the
Company's standard printed form of "Employee's Secrecy and Invention Agreement"
or "Employee Agreement" if heretofore or hereafter entered into between the
parties hereto so that the making of this Agreement shall not be construed as
depriving the Company of any of its rights or remedies under any such Secrecy
and Invention Agreement or Employee Agreement. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
Section 17. Notices.
All notices given hereunder shall be in writing and shall be sent by
registered or certified mail or overnight delivery service such as Federal
Express or delivered by hand, and, if intended for the Company, shall be
addressed to it (if sent by mail or overnight delivery service) or delivered to
it (if delivered by hand) at is principal office for the attention of the
Secretary of the Company, or at such other address and for the attention of such
other person of which the Company shall have given notice to Executive in the
manner herein provided, and, if intended for Executive, shall be delivered to
him personally or shall be addressed to him (if sent by mail or overnight
delivery service) at his most recent residence address shown in the Company's
employment records or at such other address or to such
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designee of which Executive shall have given notice to the Company in the manner
herein provided. Each such notice shall be deemed to be given on the date on
which it is mailed or received by the overnight delivery service or, if
delivered personally, on the date so delivered.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Employment Agreement as of the day and year first above written.
PALL CORPORATION
By: /s/ Eric Krasnoff
-------------------------------------
Eric Krasnoff
Chairman and Chief Executive Officer
/s/ Jeremy Hayward-Surry
-------------------------------------
Jeremy Hayward-Surry
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<PAGE> 1
EXHIBIT 10.12
THIRD AMENDMENT
Amendment dated October 6, 1997 to Employment Agreement dated February 1, 1992
PALL CORPORATION, a New York corporation ("the Company") and ARNOLD
WEINER ("Executive") hereby agree as set forth below with respect to the
Employment Agreement between them dated February 1, 1992 as amended by
Amendments dated July 19, 1993 and August 1, 1995 (the "Agreement").
1. The notice heretofore given to the Company by Executive dated
January 30, 1996 terminating the Term of Employment under the Agreement
effective January 31, 1998 is hereby rescinded and shall be of no further force
or effect.
2. Section 1 of the Agreement is hereby amended to provide that the
"Term of Employment" shall end on July 31, 2000 unless sooner terminated under
Section 4.
3. Except as expressly amended hereby, the Agreement shall remain in
full force and effect in accordance with its terms.
PALL CORPORATION
By: /s/ Eric Krasnoff
--------------------------------------
Chairman and Chief Executive Officer
/s/ Arnold Weiner
--------------------------------------
Executive
<PAGE> 1
Exhibit 10.25
PALL CORPORATION
SUPPLEMENTARY PENSION PLAN
(As Amended Effective October 6, 1997)
Appendix A
<PAGE> 2
PALL CORPORATION
SUPPLEMENTARY PENSION PLAN
Pall Corporation (hereinafter called the "Corporation")
recognizes the contributions to its growth and success which have been made by
certain key officers and technical consultants employed by the Corporation and
desires to retain the services of such individuals and to assure the Corporation
of the continued benefit of their experience and advice. Accordingly, the
Corporation has decided to provide such individuals with deferred compensation
payable to or for their benefit which, together with the other retirement
benefits payable to such individuals from the Corporation and under Title II of
the Social Security Act, will assure such individuals of sufficient funds during
retirement.
ARTICLE I
DEFINITIONS
As used in this Pall Corporation Supplementary Pension Plan
(hereinafter called the "Plan"), the following terms shall have the meanings
described in this Article I:
Section 1.1 "Affiliated Corporation" means a member of a
controlled group of corporations of which the Corporation is a member. For
purposes hereof, a "controlled group of corporations" means a controlled group
of corporations as defined in section 1563(a) of the Internal Revenue Code,
determined without regard to Section 1563(b)(2)(C).
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Section 1.2 "Board of Directors" means the board of directors
of the Corporation.
Section 1.3 "Committee" means the Committee appointed and
acting for the time being pursuant to Article VI.
Section 1.4 "Compensation" means, for any Plan Year, the total
of all salary, incentive compensation and other bonus payments received by the
Member for such Plan Year from all Affiliated Corporations. The term
"Compensation" does not include any fringe benefits such as, but not limited to,
stock options, stock appreciation rights, or contributions by the Affiliated
Corporations to all employee retirement or benefit plans or programs.
Section 1.5 "Consumer Price Index" means the "Consumer Price
Index for all Urban Consumers for New York - Northern New Jersey - Long Island,
NY-NJ-CT" compiled and published by the Bureau of Labor Statistics of the United
States Department of Labor or any successor index thereto.
Section 1.6 "Early Retirement Date" means the last day of the
month coinciding with or immediately following the date a Member attains age 60.
Section 1.7 "Effective Date" means August 1, 1978.
Section 1.8 "Final Average Compensation" means one-
third of the aggregate of the Member's Compensation for the three (3) Plan Years
in which his Compensation was highest out of the last five (5) Plan Years in
which he was a Member except that
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(a) in the case of each Member who on March 16, 1987 held the office of Chairman
of the Board, Vice Chairman of the Board or President of the Corporation, the
term "Final Average Compensation" means one-half of the aggregate of such
Member's Compensation for the two (2) Plan Years in which his Compensation was
highest out of the last ten (10) Plan Years in which he was a Member; (b) in the
case of each Member who on March 16, 1987 held the office of Executive Vice
President of the Corporation, the term "Final Average Compensation" means
one-half of the aggregate of such Member's Compensation for the two (2) Plan
Years in which his Compensation was highest out of the last five (5) Plan Years
in which he was a Member; (c) in the case of the Member who on April 28, 1992
held the office of Senior Vice President and Treasurer and Chief Financial
Officer of the Corporation, the term "Final Average Compensation" means one-half
of the aggregate of such Member's Compensation for the two (2) Plan Years in
which his Compensation was highest out of the last five (5) Plan Years in which
he was a Member; and (d) in the case of Arnold Weiner, who on October 6, 1997
was a Group Vice President of the Corporation, the term "Final Average
Compensation" means one-third of the aggregate of his Compensation for the three
(3) Plan Years in which his Compensation was highest out of the last seven (7)
Plan Years in which he was a Member.
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Section 1.9 "Former Member" means a person who at the time he
ceased to be a Member was entitled to benefits under Article II or Article III.
Section 1.10 "Member" means:
(1) each person who on the Effective Date (a) had a written
contract in effect with the Corporation concerning his performance of
services for the Corporation, (b) was an officer of, or technical
consultant employed by, the Corporation and (c) was a member of the
Pall Corporation Pension Plan;
(2) each person who on October 20, 1980 held the office of
President of either of the following Affiliated Corporations:
Mectron Industries Inc.
Pallflex, Inc.;
(3) the person who, on July 6, 1986, held the office of
President of Pall Pneumatic Products Corporation (an Affiliated
Corporation);
(4) each person who on February 10, 1982 or on any subsequent
date prior to January 1, 1997 met all of the following three
conditions: (a) has a written contract in effect with the Corporation
concerning his performance of services for the Corporation which
contract does not provide that membership in the Plan is waived, (b) is
an officer of the Corporation (either a corporate officer elected by
the
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Board of Directors or a divisional or non-corporate officer appointed
by the President or the chief executive officer of the Corporation
pursuant to the by-laws), and (c) is a member of the Pall Corporation
Pension Plan;
(5) Roy Sheaff, who on May 1, 1990 was an appointed vice
president of the Corporation; and
(6) Each person who on January 1, 1997 or on any date
thereafter meets all of the following three conditions: (a) is an
officer of the Corporation (either a corporate officer elected by the
Board of Directors or a divisional or non-corporate officer appointed
by the chief executive officer pursuant to the by-laws), (b) is a
member of the Pall Corporation Pension Plan; and (c) has been approved
in writing by the chief executive officer for membership in the Plan.
A person who is ineligible to retire under Article III shall
cease to be a Member on the day his employment with the Corporation and all
other Affiliated Corporations terminates. A person shall also cease to be a
Member on the date he retires under Article III or dies.
Section 1.11 "Normal Retirement Date" means the last day of the
month coinciding with or immediately following the date a Member attains age 65.
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Section 1.12 "Other Retirement Program" means the Pall
Corporation Pension Plan, the Pall Corporation Retirement Plan and the Pall
(U.K.) Ltd. Pension Fund.
Section 1.13 "Plan Year" means the twelve consecutive month period
beginning on August 1 and ending on July 31 of the following year.
Section 1.14 "Primary Social Security Benefit" means the
following:
(a) in the case of a Member entitled to a pension under
Section 3.1 or Section 3.4, the annual old-age insurance benefit
payable to the Member on his Normal Retirement Date, as computed under
the provisions of Title II of the Social Security Act in effect on his
Normal Retirement Date;
(b) in the case of a Member entitled to a pension under
Section 2.2 or Section 3.2, the annual old-age insurance benefit
payable to the Member on his Normal Retirement Date, as computed under
the provisions of Title II of the Social Security Act in effect on the
date his pension commences under Section 2.2 or Section 3.2; in making
such computation in the case of a Member entitled to a pension under
Section 2.2, it will be assumed that the Member will continue to
receive "wages" as defined in Title II of the Social Security Act in
each Plan Year until his Normal Retirement Date in the same amount as
the
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<PAGE> 8
Compensation he received in the last Plan Year during which he was a
Member for the entire Plan Year; and
(c) in the case of a Member entitled to a pension under
Section 3.3, the annual disability benefit payable to the Member under
the provisions of Title II of the Social Security Act in effect on the
date his pension commences under Section 3.3.
The Committee may adopt rules governing the computation of the
Primary Social Security Benefit which shall be uniformly applicable to all
persons similarly situated. The non-receipt by a Former Member of his Primary
Social Security Benefit because of failure to apply for the same, continued
employment, or for any other reason, shall be disregarded.
Section 1.15 "Qualified Domestic Trust" means a trust
described in section 2056A of the Internal Revenue Code of 1986, as amended.
Section 1.16 "Total and Permanent Disability" means such
disability as entitles the Member to a Social Security certificate of disability
award under the Federal Social Security Act, as from time to time amended, and
the possession of such a certificate by a Member shall, unless and until it is
revoked, be conclusive evidence of such disability. The Committee may require a
disabled Former Member, from time to time, but not more than once each Plan
Year, to furnish the Committee with evidence
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<PAGE> 9
satisfactory to the Committee that such certificate has not been Revoked.
ARTICLE II
VESTING
Section 2.1 Vesting. Each Member whose services for the
Corporation and all other Affiliated Corporations terminate for any reason
(other than his death) under circumstances in which he is not entitled to
retirement benefits under any of the provisions of Article III, shall, subject
to the provisions of Section 4.3, be entitled to a vested pension in the amount,
and payable at such time, as provided in this Article, provided, however, that,
notwithstanding the foregoing, a person who becomes a member on or after
February 10, 1982 shall not be entitled to a vested pension under this Article
II unless (a) he is an employee of an Affiliated Corporation on the earlier of
(i) his 60th birthday and (ii) the date on which he has been employed by an
Affiliated Corporation or Corporations for a period of 25 years or (b) he has
held the position of Executive Vice President of the Corporation at any time
after February 10, 1982.
Section 2.2 Amount and Payment of Vested Pension. The vested
pension shall be a monthly pension commencing on the first day of the month
after such Former Member has attained his Early Retirement Date. The monthly
pension under this Section shall be equal to the amount computed under Section
3.1, without any
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<PAGE> 10
reduction if the pension of such Former Member commences prior to his Normal
Retirement Date.
Section 2.3 Death Benefit to Spouse. If a Member dies after
becoming entitled to a vested pension but prior to becoming entitled to
retirement benefits under any of the provisions of Article III, and prior to the
commencement of the payment of his pension under this Article, and if such
Member is survived by a spouse to whom he has been lawfully married for at least
one year prior to his death, then such spouse shall be entitled to receive a
monthly pension for life, commencing on the first day of the month following the
date of the Member's death or, if later, the date that would have been the
Member's Early Retirement Date if he had not died. The monthly pension under
this Section shall be equal to fifty percent (50%) of the pension the Member
would have been entitled to receive under this Article II if, on the date of his
death, his services for the Corporation and all other Affiliated Corporations
had terminated for any reason other than his death.
Notwithstanding the foregoing, if a federal estate tax marital
deduction is available for amounts passing to a Member's spouse only if such
amounts pass in a Qualified Domestic Trust, then the amounts otherwise payable
to such spouse pursuant to this Section 2.3 upon the Member's death shall not be
paid to such spouse but shall be paid, instead, to a Qualified Domestic Trust,
if the Member has so directed either (x) in a written
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<PAGE> 11
instrument executed by the Member and filed with the Committee (and not revoked
by him prior to his death) or (y) in the Member's last will and testament. Any
payments to be made to a Qualified Domestic Trust pursuant to the preceding
sentence shall be made in the same amounts, and at the same times, as such pay
ments would have been made if payable directly to the Member's spouse in the
absence of such direction.
ARTICLE III
BENEFITS
Section 3.1 Normal Retirement Pension. Each Member who retires
on his Normal Retirement Date shall be entitled to receive a monthly pension
commencing on the first day of the month following his Normal Retirement Date.
The monthly pension payable under this Section shall be equal to one-twelfth
(1/12) of the amount determined as follows:
(a) fifty percent (50%) of the Member's Final Average
Compensation (seventy percent (70%) as to a Member who on March 16,
1987 held the office of Executive Vice President of the Corporation),
reduced by
(b) the sum of
(i) the total annual pension payable to the Member
under all Other Retirement Programs (excluding any portion thereof
attributable to contributions to such Other Retirement Programs by such
Member), and
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(ii) the Member's Primary Social Security Benefit.
For purposes of this Section, the amount of the pension payable to the Member
under any Other Retirement Program shall be deemed to be the amount equal to the
form of pension payable only to, and during the lifetime of, the Member, whether
or not the Member receives payment of such pension in some other form permitted
under such Other Retirement Program; but the amount of such pension shall be
taken into account only on and after the date on which payment of the Member's
pension under such Other Retirement Program is to commence.
Section 3.2 Early Retirement Pension. A Member who has
attained his Early Retirement Date may retire on the last day of any month which
is not less than thirty (30) days after he has filed a written request for
retirement on such day with the Committee. In such event, a Member shall be
entitled to receive a monthly pension commencing on the first day of the month
after his retirement. The monthly pension under this Section shall be equal to
the amount computed under Section 3.1, without any reduction because payment
commences prior to his Normal Retirement Date.
Section 3.3 Disability Retirement Pension. A Member who
suffers Total and Permanent Disability shall retire and shall be entitled to
receive a monthly pension commencing on the first day of the month after such
disability has continued for six
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months and continuing only during such period during which such Member suffers
Total and Permanent Disability. Notwithstanding the foregoing, the pension of
any Member who ceases to suffer Total and Permanent Disability after he has
attained his Normal Retirement Date shall continue during his lifetime. The
monthly pension under this Section shall be equal to the amount computed under
Section 3.1 without any reduction because payment commences prior to his Normal
Retirement Date.
Section 3.4 Deferred Retirement Pension. Each Member who
retires after his Normal Retirement Date shall be entitled to receive a monthly
pension commencing on the later of (i) the first day of the month in which his
pension under any Other Retirement Program commences or (ii) the first day of
the month after his retirement. The monthly pension under this Section shall be
equal to the greater of (a) the amount computed under Section 3.1 or (b) the
amount computed under Section 3.1 after first determining "Final Average
Compensation" on the basis of the Plan Year in which the Member's Normal
Retirement Date occurred and the immediately preceding four Plan Years (the
immediately preceding nine Plan Years in the case of the persons who were
Chairman of the Board, Vice Chairman of the Board and President of the
Corporation on March 16, 1987) and then multiplying the pension amount thus
computed by the percentage increase, if any, of the Consumer Price Index for the
month immediately preceding the month in which the Member's pension
-12-
<PAGE> 14
under this Section is to commence over the Consumer Price Index for the month in
which the Member's Normal Retirement Date occurred.
Section 3.5 Death Benefit to Spouse. If a Member who is
eligible to retire and thereupon receive a pension under this Article dies prior
to the commencement of payment of his pension and the Member is survived by a
spouse to whom he has been lawfully married for at least one year prior to his
death, such spouse shall be entitled to receive a monthly pension for life,
commencing on the first day of the month following the date of the Member's
death. The monthly pension under this Section shall be equal to fifty percent
(50%) of the pension the Member would have been entitled to receive under this
Article had he retired on the date of his death.
Notwithstanding the foregoing, if a federal estate tax marital
deduction is available for amounts passing to a Member's spouse only if such
amounts pass in a Qualified Domestic Trust, then the amounts otherwise payable
to such spouse pursuant to this Section 3.5 upon the Member's death shall not be
paid to such spouse but shall be paid, instead, to a Qualified Domestic Trust,
if the Member has so directed either (x) in a written instrument executed by the
Member and filed with the Committee (and not revoked by him prior to his death)
or (y) in the Member's last will and testament. Any payments to be made to a
qualified Domestic Trust pursuant to the preceding sentence shall
-13-
<PAGE> 15
be made in the same amounts, and at the same times, as such payments would have
been made if payable directly to the Member's spouse in the absence of such
direction.
Section 3.6 Restoration of Former Members to Employment. If
any Former Member who is entitled to a pension under Article II or this Article
again becomes an employee of any Affiliated Corporation, his pension (if any was
being paid) shall cease. Upon his subsequent retirement or other termination of
employment his pension shall (i) recommence (if it was being paid) and (ii) be
recomputed under Article II or Article III taking into consideration his Final
Average Compensation and the total annual pension payable to the Member under
all Other Retirement Programs as the date of such subsequent retirement or other
termination of employment.
ARTICLE IV
PAYMENT AND FORM OF PENSIONS
Section 4.1 Payment of Pensions. All pensions payable pursuant
to Article II or Article III shall, upon application therefor by a Member,
Former Member, spouse or beneficiary and approval thereof by the Committee, be
paid by the Corporation, acting on the direction of the Committee, provided,
however, that the Corporation shall be obligated to pay a pension to which a
Member, Former Member, spouse or beneficiary is entitled by the terms of this
Plan notwithstanding the failure or refusal of the Committee to approve or
direct payment of such pension unless the
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<PAGE> 16
Committee has a valid basis for such failure or refusal by the terms of this
Plan. Payment of pensions shall begin on the first day of the month as provided
in Article II or Article III and shall cease after the first day of the month
coinciding with or immediately preceding the death of the Former Member, spouse
or beneficiary.
Section 4.2 Form of Pensions. The pension payable to a Member
or Former Member under Article II or Article III shall be paid in such form as
the Member or Former Member has elected, provided that, on the day on which the
Member or Former Member makes such election, such form of payment is an
authorized form of payment under the Other Retirement Program in which the
Member or Former Member is a participant. If the pension the Member or Former
Member receives under this Plan is to be paid in a form other than a monthly
pension payable only during the lifetime of the Member or Former Member, such
pension shall be adjusted so that it is the actuarial equivalent of such
lifetime only pension. The actuarial factors used in determining such actuarial
equivalent shall be the same actuarial factors which are in use, on the day on
which the pension hereunder commences, by the Other Retirement Program to
determine actuarial equivalence for the same form of payment in which the
Member's or Former Member's pension hereunder is to be paid.
An election as to the form of payment for the pension payable
to a Member or Former Member under Article II or Article
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<PAGE> 17
III shall be made in writing, shall specify the form of payment selected, and
shall be filed with the Committee no later than 30 days after such individual
has become a Member pursuant to Section 1.10 or, in the case of any individual
who was a Member or Former Member on May 1, 1989, by no later than June 30,
1989.
At the time such election is made, the Member or Former Member
may also elect an alternative form of payment for his pension hereunder, and
have payment of his pension made automatically in such alternative form in the
event that (a) in the case of a Member or Former Member who is single at the
time of his election, the Member or Former Member is married at the time payment
of his pension is to commence or (b) in the case of a Member or Former Member
who is married at the time of his election, such Member or Former Member is not
married or is legally separated at the time payment of his pension is to
commence, or, if at such time, the Member or Former Member's spouse has a
terminal illness. The spouse of a Member or Former Member shall be treated as
having a "terminal illness" if the spouse has incurred any illness or injury
that, in the judgment of the Committee, has been determined by competent medical
evidence to be likely to result in the death of such spouse within a period of
three years from the date on which the terminal nature of such illness or injury
was first determined.
A Member or Former Member may elect, as an alternative form of
payment, any form that, on the day on which such election
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<PAGE> 18
is made, is an authorized form of payment under the Other Retirement Program in
which the Member or Former Member is a participant. Any individual who was a
Member or Former Member on June 30, 1989, may elect an alternative form of
payment pursuant to the preceding paragraph by specifying in writing the
alternative form selected and filing same with the Committee no later than 30
days after December 19, 1989.
Any election made by a Member or Former Member as to the form
of payment, or alternative form of payment, of his pension hereunder shall be
irrevocable.
Notwithstanding any other provision herein to the contrary, if
under the form of payment that a Member or Former Member has elected under this
Section 4.2 any amounts are otherwise payable to the Member's or Former Member's
spouse upon the death of the Member or Former Member, and if at the time of the
Member's or Former Member's death a federal estate tax marital deduction is
available for amounts passing to such Member's or Former Member's spouse only if
such amounts pass in a Qualified Domestic Trust, then the amounts so payable
shall not be paid to such spouse but shall be paid, instead, to a Qualified
Domestic Trust, if the Member or Former Member has so directed, either (x) in a
written instrument executed by the Member or Former Member and filed with the
Committee (and not revoked by him prior to his death) or (y) in the Member or
Former Member's last will and testament. Any payments to be made to a Qualified
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<PAGE> 19
Domestic Trust pursuant to the preceding sentence shall be made in the same
amounts, and at the same times, as such payments would have been made if payable
directly to the Member's or Former Member's spouse in the absence of such
direction.
Section 4.3 Conditions of Payment of Pensions. The payment of
any pension under this Plan to a Former Member, spouse or beneficiary is
contingent on the following:
(a) that at no time either prior to or subsequent to
retirement or other termination of employment shall such Member or
Former Member engage in any business or other activity which, in the
reasonable judgment of the Committee, is competitive with any activity
of an Affiliated Corporation, except that it shall not be deemed a
violation of this Section 4.3(a) or of Section 4.3(b) for a Member or
Former Member to engage in any such competitive activity after the
Corporation has terminated an employment agreement in effect with such
Member or Former Member if by the terms of such employment agreement
the Member or Former Member is not prohibited from engaging in such
competitive activity immediately following such termination by the
Corporation;
(b) that at no time either prior to or subsequent to his
retirement or other termination of employment shall such Member or
Former Member violate the provisions of his secrecy or invention
agreements with the Corporation (if the Member or Former Member is or
was a party to the "Pall
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<PAGE> 20
Corporation Employee Agreement" substantially in the form annexed as
Exhibit A to the Plan as amended in October 1987, then said Employee
Agreement shall be deemed a "secrecy or invention agreement" referred
to in this Section 4.3(B)), and
(c) that such Member or Former Member shall not have been
discharged by the Corporation or another Affiliated Corporation as a
result of gross negligence or willful misconduct, and he shall not,
while a Member, have engaged in conduct which, had it been known at the
time, would have resulted, on the grounds of gross negligence or
willful misconduct, in his discharge by the Corporation or another
Affiliated Corporation.
If the Committee determines that such Member or Former Member
has violated any of the conditions of this Section it shall notify such Member
or Former Member and the obligation of the Corporation to make any payments to
such Member or Former Member or his spouse or beneficiary shall forthwith
terminate, provided that no amount paid prior to the date of such determination
by the Committee shall be required to be repaid. Any action by the Committee
under this Section must be taken within one year from the date by which the
facts which constitute a violation of any of the conditions of this Section have
been brought to the attention of the Committee.
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<PAGE> 21
ARTICLE V
CERTAIN RIGHTS AND LIMITATIONS
Section 5.1 Prohibition Against Alienation of Benefits. No
benefit under the Plan shall be subject in any manner to anticipation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be void; nor shall any such benefit be in any manner liable for or
subject to garnishment, attachment, execution or levy, or liable for or subject
to the debts, contracts, liabilities, engagements or torts of the person
entitled to such benefits; and in the event that the Committee shall find that
any Member, Former Member or his spouse or beneficiary has become bankrupt or
has attempted to anticipate, alienate, sell, transfer, assign, pledge, encumber
or charge any benefits under the Plan, then payment of such benefit shall, in
the discretion of the Committee, cease and terminate, and in that event the
Committee shall hold or apply the same to or for the benefit of such Member,
Former Member or spouse or the children or other dependents of the same, or
beneficiary in such manner and in such proportions as the Committee may deem
proper, and any such application shall be a complete discharge of all
liabilities of the Corporation therefor.
Section 5.2 Incompetency. In the event that the Committee
shall find that a Member, Former Member or other person
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<PAGE> 22
entitled to a benefit under the Plan is unable to care for his affairs because
of illness or accident or because he is a minor, the Committee may direct that
any benefit payment due him, unless claim shall have been made therefor by a
duly appointed guardian, committee or other legal representative, be paid to a
spouse, child, parent or other blood relative of such person or to anyone found
by the Committee to have incurred expense for the support and maintenance of
such person, and any such payment so made shall be a complete discharge of all
liabilities of the Corporation therefor.
Section 5.3 No Right to Continued Employment. The
establishment and continuation of the Plan by the Corporation shall not confer
any legal rights upon any Member or any person to continued employment, nor
shall such establishment or continuation interfere with the rights of the
Corporation to discharge any Member and to otherwise treat him without regard to
the effect which such discharge might have upon him as a Member.
Section 5.4 Payment of Taxes. The Corporation shall have the
right to deduct and withhold from any amount which it is otherwise obligated to
pay under the Plan any amount which it may be required to deduct or withhold
pursuant to any applicable statute, law, regulation or order of any jurisdiction
whatsoever. The Corporation shall not be required to pay any amount to the
spouse or beneficiary of any deceased Member pursuant to Article III until such
spouse, beneficiary or the legal representatives
-21-
<PAGE> 23
of the deceased Member shall have furnished the Committee with evidence
satisfactory to the Corporation of the payment or the provision for the payment
of any estate, transfer, inheritance or death taxes which may be payable with
respect thereto.
ARTICLE VI
ADMINISTRATION OF THE PLAN
Section 6.1 Appointment of Committee. The Board of Directors
shall appoint a Committee of not less than three nor more than five persons who
shall serve at the pleasure of said Board. Any vacancy in the Committee arising
by death, resignation or otherwise shall be filled by the Board of Directors.
Section 6.2 Duties and Powers of the Committee. The Committee
shall be responsible for the control and management of the operation and
administration of the Plan and the proper execution of its provisions. It shall
also be responsible for the construction of the Plan and the determination of
all questions arising hereunder. It shall maintain all necessary books of
accounts and records. In furtherance of the foregoing, the Committee shall have
the sole power and responsibility (i) to establish, interpret, enforce, amend
and revoke from time to time such rules and regulations for the administration
of the Plan and the conduct of its business as it deems appropriate, provided
such rules and regulations are uniformly applicable to all persons similarly
situated, (ii) to receive and approve or
-22-
<PAGE> 24
disapprove (where approval is required) elections of Members and Former Members
to receive benefits, to otherwise determine the entitlement of Members, Former
Members and their spouses and beneficiaries to benefits under the Plan and to
decide any disputes which may arise relative to the rights of the Members,
Former Members and their spouses and beneficiaries with respect to such
benefits, and (iii) to keep all appropriate records and data pertaining to the
interests of the Members, Former Members and their spouses and beneficiaries in
the Plan. Any action which the Committee is required or authorized to take
shall, to the extent permitted by applicable law, be final and binding upon each
and every person who is or may become interested in the Plan, provided, however,
that nothing in this Section 6.2 is intended to or shall be deemed or construed
to empower the Committee to deny to any person a pension to which such person is
entitled by the terms of this Plan other than this Section 6.2 or to deprive any
person of the right to a determination by a court of competent jurisdiction of
whether such person is entitled to a pension pursuant to this Plan and of the
amount and other terms of such pension.
Section 6.3 Conduct of Affairs of Committee. The Committee
shall hold such meetings upon such notice at such place or places and at such
times as it may from time to time deem appropriate. The Committee may act by a
majority of its members in office from time to time. The action of such majority
may be
-23-
<PAGE> 25
taken at a meeting of the Committee or pursuant to written consent of such
majority without a meeting. It shall elect from time to time one of its own
members to act as Chairman and a different person, who may but need not be a
member of the Committee, to act as Secretary. It may authorize any one or more
of its members to execute and deliver any documents on behalf of the Committee.
Section 6.4 Expenses and Liability. The expenses of
administering the Plan shall be paid by the Corporation. The members of the
Committee shall serve without compensation for their services as such, but shall
be reimbursed by the Corporation for any expenses they may individually or
collectively incur in the performance of their duties hereunder. No member of
the Committee shall be personally liable for anything done or omitted to be done
by him unless it shall have been judicially determined that the member failed to
perform his duties under the Plan in good faith and in a prudent manner.
Section 6.5 Indemnification of Committee Members. The
Corporation shall, to the maximum extent permitted under applicable law,
indemnify each member of the Committee from and against any and all claims,
actions, demands, losses, damages, expenses and liabilities arising from any act
or omission of the member in connection with the performance of his duties
hereunder and for which the member is not reimbursed or otherwise made whole
under any contract or contracts of insurance maintained by
-24-
<PAGE> 26
the Corporation for the purpose of indemnifying the member from and against any
and all such claims, actions, demands, losses, damages, expenses and liabilities
which may arise therefrom. Such indemnification shall include attorneys' fees
and all other costs and expenses reasonably incurred by the member in defense of
any claim or action brought or asserted against him arising from such act or
omission. Notwithstanding the foregoing, the Corporation shall not indemnify any
member of the Committee with respect to any claims, actions, demands, losses,
damages, expenses and liabilities arising from any act or omission of the member
with respect to the performance of his duties hereunder if such act or omission
is deemed by the Corporation to constitute gross negligence, willful misconduct,
criminal conduct or dealing with the Plan for his own benefit or for his own
account.
Section 6.6 Claims Procedure. A Member, Former Member, spouse
or beneficiary may claim any benefits under the Plan which such person believes
is properly payable pursuant to the provisions of the Plan by filing an
application therefor. Such claim shall be filed with the Committee on a form
approved by it. The claim shall be approved or denied by the Committee within
ninety (90) days after the claim was filed. If the Committee in its sole
discretion determines that special circumstances exist which require an
extension of time to process the claim, the Committee shall (i) give the
claimant written notice, within ninety (90) days after the claim was filed,
-25-
<PAGE> 27
specifying the special circumstances and the expected date of a decision on the
claim and (ii) approve or deny the claim within 180 days after the claim was
filed.
If the claim is denied in full or in part, the claimant shall
be given written notice setting forth, in a manner calculated to be understood
by the claimant, (i) the specific reason or reasons for such denial, (ii)
specific reference to the pertinent provision or provisions of the Plan upon
which such denial was based, (iii) a description of any additional information,
documentation or other material necessary for the claimant to perfect his claim
and an explanation of why such information, documentation or other material is
necessary, and (iv) an explanation of the procedure for obtaining a review of
the denial of the claim. The claimant or his duly authorized representative may
request a review of the denial of the claim by filing with the secretary of the
Committee a written request for review within, and only within, the period of
sixty (60) days commencing with the date the denial of the claim was posted by
registered or certified mail to the claimant. The claimant and his duly
authorized representative shall be given a reasonable opportunity to review the
documents of the Plan and to submit their written issues and comments to the
Committee at any time prior to the expiration of the aforesaid 60-day period.
Within the period of sixty (60) days of the date a request for
review of a denial of claim is received by the
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<PAGE> 28
Committee, the Committee shall consider the request and post its final decision
to the claimant by registered or certified mail. In the event that the Committee
in its sole discretion determines that a hearing is warranted, and a hearing is
held before the Committee (at which hearing the claimant and his duly authorized
representative shall be given a reasonable opportunity to present their views),
or in the event that the Committee determines that the case otherwise presents
special circumstances requiring an extension of time for processing the request
for review, the Committee shall (i) give the claimant written notice of the
extension within sixty (60) days after receiving the request for review and (ii)
post its final decision to the claimant by registered or certified mail not
later than 120 days after the date the request for review was received by the
Committee. Such decision shall be written in a manner calculated to be
understood by the claimant, and shall fully set forth the reason or reasons for
the decision, with specific references to the pertinent provision or provisions
of the Plan upon which the decision was based.
ARTICLE VII
CONTRACTUAL OBLIGATION
The obligation of the Corporation under this Plan to make
payments of pensions when due is merely contractual, and all such pensions shall
be paid from the general revenues of the Corporation. Nothing contained in this
Plan shall require the
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<PAGE> 29
Corporation to segregate or earmark any cash or other property for any Member,
Former Member, spouse or beneficiary.
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Amendment and Termination. The Plan may not be
amended or terminated, in whole or in part, without the written consent of (a)
each Member, (b) each Former Member and (c) any spouse or beneficiary of a
Member or Former Member who at the time of the proposed amendment or termination
is receiving benefits under the Plan pursuant to Section 4.2 subsequent to the
death of the Member or Former Member. Notwithstanding the foregoing, no such
consent shall be required from a Member, Former Member, spouse or beneficiary as
to whom the proposed amendment to, or termination of, the Plan would not under
any circumstances or at any time reduce the benefits payable under the Plan to
such Member, Former Member, spouse or beneficiary.
Section 8.2 Successors and Assigns. The Plan shall be binding
upon and inure to the benefit of the Corporation and its successors and assigns,
but no assignment shall relieve the Corporation of any of its obligations or
liabilities hereunder to a Member, Former Member, spouse or beneficiary without
the written consent of such person.
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<PAGE> 30
ARTICLE IX
CONSTRUCTION
9.1 Governing Law. This Plan shall be governed by and
construed in accordance with the laws of the State of New York.
9.2 Words and Headings. As used herein, the masculine gender
shall be deemed to refer to the feminine, and the singular person shall be
deemed to refer to the plural, wherever appropriate. The headings of Articles
and Sections are inserted for convenience and reference only, and in the event
of any conflict between the text of any provision of the Plan and the heading
thereof, the text shall control.
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<PAGE> 1
Exhibit 10.26
PALL CORPORATION
PROFIT-SHARING PLAN
as amended and restated as of January 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS......................................................................................... 1
1.1. "Accounts" or "Plan Accounts"................................................................... 1
1.2. "Affiliated Company"............................................................................ 1
1.3. "Beneficiary"................................................................................... 1
1.4. "Break in Service".............................................................................. 2
1.5. "Code".......................................................................................... 2
1.6. "Committee"..................................................................................... 2
1.7. "Company"....................................................................................... 2
1.8. "Compensation".................................................................................. 2
1.9. "Compensation Limit"............................................................................ 2
1.10. "Designated Officer"............................................................................ 3
1.11. "Disabled"...................................................................................... 3
1.12. "Earnings"...................................................................................... 3
1.13. "Employee"...................................................................................... 3
1.14. "Employer"...................................................................................... 3
1.15. "Employer Contribution Account"................................................................. 3
1.16. "Employer Contributions"........................................................................ 3
1.17. "ERISA"......................................................................................... 3
1.18. "401(k) Contribution Account"................................................................... 3
1.19. "401(k) Contributions".......................................................................... 3
1.20. "Highly Compensated Employee"................................................................... 3
1.21. "Hours of Service".............................................................................. 4
1.22. "Leave" ........................................................................................ 6
1.23. "Member". . .................................................................................... 6
1.24. "Mutual Fund" . . . . .......................................................................... 6
1.25. "Normal Retirement Age"......................................................................... 6
1.26. "Pall Stock Fund"............................................................................... 6
1.27. "Plan". . . .................................................................................... 6
1.28. "Plan Year" . . . . . . . . . . ................................................................ 6
1.29. "Reemployment Commencement Date"................................................................ 7
1.30. "Rollover Account".............................................................................. 7
1.31. "Service" . . . . . . . ........................................................................ 7
1.32. "Termination of Service"........................................................................ 7
1.33. "Trust" . . . . . .............................................................................. 7
1.34. "Trust Agreement"............................................................................... 7
1.35. "Trust Fund".................................................................................... 7
1.36. "Trustee" . . . ................................................................................ 7
1.37. "Vested Portion". . . . . . . . ................................................................ 7
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
1.38. "Voluntary Contribution Account"................................................................ 8
1.39. "Voluntary Contributions"....................................................................... 8
1.40. "Years of Service".............................................................................. 8
ARTICLE 2 - PURPOSE, ELIGIBILITY AND PARTICIPATION.............................................................. 8
2.1. Purpose......................................................................................... 9
2.2. Eligibility..................................................................................... 9
2.3. Commencement of Membership...................................................................... 9
2.4. Membership After Reemployment .................................................................. 9
ARTICLE 3 - CONTRIBUTIONS AND ROLLOVERS......................................................................... 9
3.1. 401(k) Contributions............................................................................ 9
3.2. Voluntary Contributions......................................................................... 9
3.3. Elections....................................................................................... 10
3.4. Employer Contributions.......................................................................... 11
3.5. Time and Manner................................................................................. 12
3.6. Rollovers....................................................................................... 12
ARTICLE 4 - LIMITATIONS ON CONTRIBUTIONS........................................................................ 13
4.1. Dollar Limit for 401(k) Contributions........................................................... 13
4.2. Nondiscrimination Test for 401(k) Contributions................................................. 13
4.3. Nondiscrimination Test for Voluntary Contributions.............................................. 14
4.4. Special Rules for Nondiscrimination Tests....................................................... 15
4.5. Deduction Limit................................................................................. 16
4.6. Section 415 Limits.............................................................................. 16
4.7. Adjustments..................................................................................... 18
4.8. Corrective Distributions........................................................................ 18
4.9. Other Cross-Sectional Rules..................................................................... 21
ARTICLE 5 - PLAN ACCOUNTS, ALLOCATIONS AND FORFEITURES.......................................................... 22
5.1. Plan Accounts................................................................................... 22
5.2. Forfeitures..................................................................................... 23
ARTICLE 6 - INVESTMENTS AND EARNINGS............................................................................ 24
6.1. Investment of Accounts.......................................................................... 24
6.2. Investment Elections............................................................................ 25
6.3. Determination of Earnings....................................................................... 27
6.4. Voting Rights................................................................................... 27
ARTICLE 7 - DISTRIBUTIONS, WITHDRAWALS AND LOANS................................................................ 28
7.1. Distributions................................................................................... 28
7.2. Hardship Withdrawals............................................................................ 30
7.3. In-Service Withdrawals.......................................................................... 32
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
7.4. Direct Rollovers................................................................................ 33
7.5. Loans........................................................................................... 33
ARTICLE 8 - PLAN ADMINISTRATION................................................................................. 37
8.1. Responsibility for Administering the Plan....................................................... 37
8.2. Responsibilities of the Committee............................................................... 37
8.3. Duties and Powers of the Committee.............................................................. 38
8.4. Reimbursement and Indemnification of the Committee.............................................. 40
8.5. Responsibilities of the Trustee................................................................. 40
8.6. Responsibilities of the Company's Board of Directors............................................ 41
8.7. Claims Procedure................................................................................ 41
8.8. Agent for Service of Process.................................................................... 42
8.9. Expenses........................................................................................ 42
ARTICLE 9 - AMENDMENT, MERGER AND TERMINATION................................................................... 42
9.1. Amendment....................................................................................... 42
9.2. Merger or Consolidation......................................................................... 42
9.3. Termination..................................................................................... 43
9.4. Termination of An Employer's Participation in the Plan.......................................... 44
ARTICLE 10 - TOP-HEAVY PROVISIONS............................................................................... 45
10.1. General........................................................................................ 45
10.2. Minimum Benefit................................................................................ 45
10.3. Minimum Vesting................................................................................ 46
10.4. Maximum Compensation........................................................................... 46
10.5. Section 415 Limits............................................................................. 46
10.6. Definitions.................................................................................... 46
10.7. Applicability.................................................................................. 48
ARTICLE 11 - SPECIAL RULES FOR GELMAN EMPLOYEES................................................................. 48
11.1. In General...................................................................................... 48
11.2. Transfer of Employment to Gelman................................................................ 48
11.3. Transfer of Employment From Gelman to an Employer............................................... 49
11.4. Plan Loans...................................................................................... 50
ARTICLE 12 - MISCELLANEOUS...................................................................................... 50
12.1. Plan Assets to be Held for Exclusive Benefit of Members........................................ 50
12.2. Nonassignability of Rights..................................................................... 51
12.3. Qualified Domestic Relations Orders............................................................ 51
12.4. Military Leaves of Absence..................................................................... 51
12.5. Trust Fund as Sole Source of Benefit Payments.................................................. 52
12.6. Right to Employment............................................................................ 52
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
12.7. Gender and Number.............................................................................. 52
12.8. Titles......................................................................................... 52
</TABLE>
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<PAGE> 6
PALL CORPORATION
PROFIT-SHARING PLAN
Foreword
This document sets forth the Pall Corporation Profit-Sharing Plan, as
amended and restated as of January 1, 1997.
The amendments to the Plan reflected in this document are effective as
of January 1, 1997, except as otherwise indicated in the text of the Plan.
The rights under the Plan of any person who retired or otherwise
terminated employment with his or her employer before the effective date of a
particular amendment shall be determined solely under the terms of the Plan as
in effect on the date of his or her retirement or other termination of
employment, without regard to such amendment.
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<PAGE> 7
ARTICLE 1 - DEFINITIONS
As used herein, the following terms shall have the following meanings,
unless a different meaning is required by the context:
1.1. "Accounts" or "Plan Accounts" - shall mean the separate accounts
established and maintained for a Member pursuant to Section 5.1.
1.2. "Affiliated Company" shall mean (a) the Company, (b) any
corporation which is treated, under section 414(b) of the Code, as a member of a
controlled group of corporations of which the Company is also a member; (c) any
trade or business (whether or not incorporated) which is treated, under section
414(c) of the Code, as belonging to a group of trades or businesses under common
control, and which includes the Company; or (d) any other entity which, under
section 414(m) or 414(o) of the Code, is included, along with the Company, in a
group of employers, the employees of which are treated as employed by a single
employer. For purposes of Section 4.6(a), the preceding sentence shall be
applied by taking into account the requirement of section 415(h) of the Code.
1.3. "Beneficiary" - shall mean the person or persons designated by a
Member to receive any amount distributable under Section 7.1 by reason of his
death, as indicated in the last written designation of a Beneficiary filed by
such Member with the Committee, on a form furnished by the Committee for such
purpose, prior to such Member's death.
Notwithstanding the foregoing, if a Member who was married at the date
of his death, and who had been married to his spouse throughout the one-year
period ending on the date of his death, had designated any person other than
such spouse as his Beneficiary, such Member shall be deemed to have failed to
designate a Beneficiary unless such spouse consents to the designation of such
non-spouse Beneficiary. Said spousal consent shall be made in writing, shall
specifically identify the person designated as the Member's Beneficiary, and
shall acknowledge the effect of the spouse's consent to such designation on her
rights to benefits under the Plan. Further, such consent shall be signed by the
spouse, witnessed by a notary public and filed with the Committee. The consent
of a spouse to any designation of a non-spouse Beneficiary shall be irrevocable
as to such designation, and shall be effective only with respect to that spouse.
However, the consent of a Member's spouse to the Member's designation of a
non-spouse Beneficiary shall not be required if it is established to the
satisfaction of the Committee that such consent cannot be obtained because there
is no spouse, because the spouse cannot be located, or because of such other
circumstances as may be prescribed in the applicable Treasury regulations or in
rulings or notices issued by the Internal Revenue Service.
If a Member has failed (or is deemed above to have failed) to designate
a Beneficiary, or if no Beneficiary designated by him survives to receive any
amount distributable hereunder upon the Member's death, the following person or
persons will be deemed to be
<PAGE> 8
such Member's Beneficiary with priority in the order named: (a) his spouse; and
(b) his estate.
1.4. "Break in Service" - shall mean a period consisting of one or more
consecutive Plan Years during each of which an Employee has not completed more
than 500 Hours of Service. A "5-Year Break in Service" shall mean a Break in
Service which includes five or more consecutive Plan Years during each of which
the Employee has not completed more than 500 Hours of Service.
1.5. "Code" - shall mean the Internal Revenue Code of 1986, as amended
from time to time.
1.6. "Committee" - shall mean the committee established by the Board of
Directors of the Company under Section 8.6(b) to control and manage the
operation and administration of the Plan.
1.7. "Company" - shall mean Pall Corporation.
1.8. "Compensation" - An Employee's Compensation, for any Plan Year,
shall mean the sum, for such Plan Year, of (a) the amount of the Employee's
gross income reported on Form W-2 by his Employer and (b) the 401(k)
Contributions, and any before-tax elective contributions to a Code section 125
"cafeteria plan", made on behalf of the Employee by his Employer. Provided,
however, that for purposes of Section 4.6(a)(2), for the Plan Year beginning on
January 1, 1997, Compensation shall be defined as under the preceding sentence
except that amounts described in clause (b) thereof shall not be included in
Compensation. Provided further, however, that for purposes of Section 3.4, for
any Plan Year, an Employee's Compensation shall mean the sum, for such Plan
Year, of the base pay, prior to reduction for the amounts described in clause
(b) above, bonuses and overtime pay paid by the Employer to the Employee during
the taxable year of the Employer which ends in such Plan Year.
In addition to the foregoing, an Employee's Compensation for any Plan
Year shall, except for purposes of Section 3.4, include any amount which is
described above, but which is paid or provided to, or on behalf of, the Employee
during such Plan Year by an entity which is not an Employer, but which is an
Affiliated Company.
For any Plan Year, the amount of Compensation taken into account under
the Plan for any Employee shall not exceed the Compensation Limit in effect for
such Plan Year.
1.9. "Compensation Limit" shall mean, for any Plan Year, $160,000, as
increased by the cost-of-living adjustment, if any, in effect for such Plan Year
under section 401(a)(17)(B) of the Code.
2
<PAGE> 9
1.10. "Designated Officer" shall mean any Member who is either (a) the
Corporate Secretary of the Company or (b) required to file reports with the
Securities Exchange Commission under section 16 of the Securities Exchange Act
of 1934.
1.11. "Disabled" - The term "Disabled" shall have the meaning assigned
to it under section 72(m)(7) of the Code.
1.12. "Earnings" - shall mean the Earnings attributable to the
investment of a Member's 401(k) Contribution Account, Voluntary Contribution
Account, Employer Contribution Account or Rollover Account, as determined under
Section 6.3 hereof.
1.13. "Employee" - shall mean an individual who is employed as a common
law employee by an Employer.
The term "Employee" shall not include any individual who is a "leased
employee", within the meaning of section 414(n)(2) of the Code, of the Employer.
1.14. "Employer" - shall mean the Company or any Affiliated Company
which has adopted this Plan.
1.15. "Employer Contribution Account" - shall mean the separate account
established and maintained for a Member under Section 5.1 to hold Employer
Contributions and the Earnings thereon.
1.16. "Employer Contributions" - shall mean the contributions described
in Section 3.4.
1.17. "ERISA" - shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
1.18. "401(k) Contribution Account" - shall mean the separate account
established and maintained for a Member under Section 5.1 to hold 401(k)
Contributions and the Earnings thereon.
1.19. "401(k) Contributions" - shall mean the contributions described
in Section 3.1.
1.20. "Highly Compensated Employee" - shall mean, for any Plan Year,
any individual who is in Service during such Plan Year, and who either:
(a) was, at any time during such Plan Year or the immediately
preceding Plan Year, a five-percent owner of any Affiliated Company,
within the meaning of section 414(q)(2) of the Code, or
3
<PAGE> 10
(b) for the immediately preceding Plan Year (1) had
Compensation in excess of $80,000, as increased by the cost-of-living
adjustment, if any, in effect for such preceding year under section
414(q)(1) of the Code, and (2) if the Affiliated Companies elect the
application of this clause (2), was in the top-paid group of employees,
within the meaning of section 414(q)(3) of the Code.
1.21. "Hours of Service" - an Employee shall be credited with Hours of
Service in accordance with the following rules:
(a) Work Performed. An Employee shall be credited with one Hour of
Service for each hour for which he is paid, or entitled to payment, by an
Affiliated Company for the performance of duties for such company.
(b) Paid Absences. An Employee shall be credited with one Hour of
Service for each hour for which he is paid, or entitled to payment, by an
Affiliated Company for a period of time during which no duties are performed by
him (irrespective of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including Disability), lay-off, jury
duty or military duty. For this purpose, a payment shall be deemed to be made by
or due from an Affiliated Company regardless of whether such payment is made by
or due from such company directly, or indirectly through, among others, a trust
fund, insurer, or other entity to which such company contributes or pays
premiums and regardless of whether contributions made or due to the trust fund,
insurer or other entity are for the benefit of particular Employees or are on
behalf of a group of Employees in the aggregate. However, no Hours of Service
shall be credited hereunder with respect to (1) hours for which an Employee
receives payment under a plan maintained solely for the purpose of complying
with applicable workmen's compensation, unemployment compensation, or
disability insurance laws, or (2) hours for which an Employee receives a payment
which solely reimburses him for medical or medically-related expenses incurred
by him. No more than 501 Hours of Service shall be credited hereunder to an
Employee on account of any single continuous period during which he performs no
duties whether or not such period occurs within a single Plan Year.
(c) Back Pay. An Employee shall be credited with one Hour of Service
for each hour for which back pay, irrespective of mitigation of damages, is
awarded or agreed to by an Affiliated Company. However, no Hours of Service
shall be credited hereunder if they are credited to the Employee under
subsection (a) or (b) above. Furthermore, crediting of Hours of Service
hereunder for periods described in subsection (b) above shall be subject to the
limitations therein set forth.
(d) Special Rules for Crediting Hours of Service. Hours of Service to
be credited under subsection (b) above, and the periods to which Hours of
Service are to be credited under subsections (a), (b) and (c) above, shall be
determined under the rules set forth in
4
<PAGE> 11
Section 2530.200b-2(b) and (c) of the regulations issued by the U.S. Department
of Labor, as the same may be amended from time to time.
(e) Paid Leave. In the case of any Employee who incurs any paid Leave,
the Employee shall be credited, for the period during which he is on such Leave,
with the number of Hours of Service which otherwise normally would have been
credited to such Employee for such period under the Plan but for such Leave, as
determined by the Committee. However, no Hours of Service shall be credited
under this subsection (e) if they are credited to the Employee under subsection
(b) above.
(f) Employees Exempt From the Fair Labor Standards Act. In the case of
any Employee who is not covered by the Fair Labor Standards Act, in lieu of
being credited with Hours of Service in the amount and in the manner described
in subsections (a) through (e) above, such Employee shall be credited with 45
Hours of Service for each week for which he would otherwise be credited with at
least one Hour of Service under subsections (a) through (e) above.
(g) Maternity or Paternity Absence. Solely for purposes of determining
whether an Employee has incurred a Break in Service by reason of a Maternity or
Paternity Absence, such Employee shall be credited, during such absence, with
the same number of Hours of Service which otherwise normally would have been
credited to such Employee but for such absence, as determined by the Committee.
Notwithstanding the foregoing, the total number of hours so credited by reason
of any such Maternity or Paternity Absence shall not exceed 501 hours. Hours to
be credited hereunder shall be credited only in the Plan Year in which the
Maternity or Paternity Absence begins, if the Employee would be prevented from
incurring a Break in Service in such Plan Year solely because of the operation
of this subsection (g); otherwise, such Hours of Service shall be credited in
the immediately following Plan Year. For purposes of this subsection (g),
Maternity or Paternity Absence shall mean any period during which an Employee is
absent from work by reason of the Employee's pregnancy, the birth of a child of
the Employee, the placement of a child with the Employee in connection with the
Employee's adoption of such child, or the Employee's providing care for such
child for a period beginning immediately following such birth or placement. This
subsection (g) shall not apply to any Maternity or Paternity absence which is a
paid Leave.
(h) FMLA Absence. Solely for purposes of determining whether an
Employee has incurred a Break in Service by reason of a leave of absence taken
under the Family Medical Leave Act of 1993 (an "FMLA Absence"), such Employee
shall be credited, for the period during which he is taking the FMLA Absence,
with the same number of Hours of Service which otherwise normally would have
been credited to such Employee but for such absence, as determined by the
Committee. This subsection (h) shall not apply to any FMLA Absence which is a
paid Leave.
5
<PAGE> 12
(i) Asset and Stock Acquisitions. In computing Hours of Service (and
Years of Service), to the extent determined by the Committee, any service
performed by an individual as an employee of a former employer (which is not
otherwise required to be taken into account under the Plan) shall be taken into
account under the Plan if such individual became an Employee:
(a) in connection with the acquisition of the assets of the
former employer by his Employer;
(b) in connection with the acquisition of the stock of the
former employer by, and the merger of the former employer with and
into, his Employer;
(c) by the transfer of his employment to his Employer after
the former employer became an Affiliated Company.
1.22. "Leave" - shall mean any period during which an Employee is
absent pursuant to an authorized leave of absence, approved by his Employer on a
non-discriminatory basis under rules uniformly applicable to all of its
Employees which are similarly situated, for a period not to exceed two years.
1.23. "Member" - shall mean (a) any Employee on January 1, 1997 who was
participating in the Plan on December 31, 1996 and (b) any other Employee whose
membership in the Plan commences, or resumes, on or after January 1, 1997. An
Employee who is or becomes a Member, as so defined, shall cease to be a Member,
as that term is used herein, on the date which is the later of (1) the date on
which he incurs a Termination of Service or (2) the date on which there is no
balance to his credit in his Plan Accounts.
1.24. "Mutual Fund" - shall mean any fund or portfolio maintained by
any open-end investment company registered under the Investment Company Act of
1940.
1.25. "Normal Retirement Age" - shall mean age 65.
1.26. "Pall Stock Fund" - shall mean the investment fund established,
maintained and managed by the Trustee pursuant to the Trust Agreement the assets
of which are invested primarily in shares of common stock of Pall Corporation.
1.27. "Plan" - shall mean the Pall Corporation Profit-Sharing Plan, as
set forth in this document and as the same may be amended from time to time.
1.28. "Plan Year" - shall mean the calendar year.
6
<PAGE> 13
1.29. "Reemployment Commencement Date" - shall mean the date on which
an Employee first performs an Hour of Service upon his return to Service with an
Employer after a Termination of Service.
1.30. "Rollover Account" - shall mean the separate account established
and maintained for a Member under Section 5.1 to hold Rollover Contributions and
the Earnings thereon.
1.31. "Service" - shall mean employment with an Employer or any other
Affiliated Company.
1.32. "Termination of Service" - An Employee shall be treated as having
incurred a Termination of Service on the first date as of which he is no longer
in the employ of any Employer or any other Affiliated Company. An Employee shall
not be treated as having incurred a Termination of Service as a result of his
absence from work unless such absence is due to his resignation, discharge,
retirement or death. However, an Employee who is on a Leave shall be treated as
having incurred a Termination of Service (and as having ceased to be an
Employee) (a) as of the expiration of such Leave, unless prior to such
expiration he resumes his active employment with his Employer, or (b) at such
earlier time as he notifies his Employer, in writing, that he does not intend to
resume his active employment with the Employer at the expiration of such Leave.
1.33. "Trust" - shall mean the trust, created pursuant to a trust
agreement between the Company and the Trustee, which holds the assets of the
Plan.
1.34. "Trust Agreement" - shall mean the agreement, between the Company
and the person named as trustee therein, setting forth the provisions of the
trust associated with this Plan.
1.35. "Trust Fund" - shall mean the assets of the Plan held in trust,
pursuant to the Trust Agreement.
1.36. "Trustee" - shall mean the person named as trustee in the Trust
Agreement.
1.37. "Vested Portion" - shall mean the portion of a Member's Account
or Accounts in which the Member is vested, determined in accordance with the
rules set forth below.
(a) Employer Contribution Account. A Member shall become vested in his
Employer Contribution Account in accordance with the schedule below.
7
<PAGE> 14
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C> <C>
less than 5 0
5 or more 100
</TABLE>
Notwithstanding the schedule above, a Member shall be 100% vested in his
Employer Contribution Account if (i) while he is in Service, he attains Normal
Retirement Age or a higher age, dies or becomes Disabled, or (ii) he is employed
at the Pall well technology division on July 27, 1995, and incurs a Termination
of Service after such date.
(b) Other Plan Accounts. A Member shall, at all times, be 100% vested
in his 401(k) Contribution Account, his Voluntary Contribution Account and his
Rollover Account.
1.38. "Voluntary Contribution Account" - shall mean the separate
account established and maintained for a Member under Section 5.1 to hold
Voluntary Contributions and the Earnings thereon.
1.39. "Voluntary Contributions" - shall mean the contributions
described in Section 3.2.
1.40. "Years of Service" - An Employee's Years of Service shall be
determined in accordance with the following rules:
(a) General Rule. An Employee's Years of Service shall mean the number
of Plan Years in each of which the Employee has completed at least 1,000 Hours
of Service.
(b) Break in Service. In determining an Employee's Years of Service
under subsection (a) as of any date after he has returned to Service after
incurring a Break in Service, his Years of Service prior to such break shall not
be taken into account if (1) he did not have any balance to his credit in the
Vested Portion of his Accounts at the time such break commenced and (2) such
break was a 5-Year Break in Service.
(c) Pre-1997 Employment. Notwithstanding the foregoing, an individual
who was an Employee on any date prior to January 1, 1997 shall not have fewer
Years of Service than he or she would have had under the provisions of the Plan
that were in effect on December 31, 1996.
ARTICLE 2 - PURPOSE, ELIGIBILITY AND PARTICIPATION
2.1. Purpose. This Plan is intended to qualify as a cash or deferred
defined contribution profit sharing plan under sections 401(a), 401(k) and
401(m) of the Code. Pursuant to section 401(a)(27) of the Code, the Plan is
intended to constitute a profit sharing
8
<PAGE> 15
plan under which contributions may be made by the Employer whether or not the
Employer has current or accumulated profits.
2.2. Eligibility. An Employee shall be eligible for membership in the
Plan if:
(a) he is employed on a full-time basis, or he has completed,
or is expected to complete, at least 1,000 Hours of Service during any
12-consecutive month period;
(b) he has completed at least 30 consecutive days of Service;
(c) his principal place of employment is not Puerto Rico; and
(d) he is not covered under a collective bargaining agreement,
unless such agreement specifically provides for his participation in
this Plan.
2.3. Commencement of Membership. An Employee shall commence membership
in the Plan on the first day of the month coincident with or next following the
day on which he first meets each of the requirements of Section 2.2.
2.4. Membership After Reemployment. An Employee who incurs a
Termination of Service, and who thereafter returns to Service, shall (a) if he
had become a Member prior to such Termination of Service, resume membership in
the Plan as of his Reemployment Commencement Date, or (b) if he is not described
in clause (a), commence membership as of the first day of the month coincident
with or next following the date on which he first meets each of the conditions
for eligibility set forth in Section 2.2 after his Reemployment Commencement
Date.
ARTICLE 3 - CONTRIBUTIONS AND ROLLOVERS
3.1. 401(k) Contributions. Subject to the limitations contained in
Article 4, a Member may elect to (1) have his Compensation for each pay period
within the Plan Year reduced by an amount equal to (i) any percentage thereof
which is not less than 1% or greater than 15%, and which is an integral multiple
of 1% or (ii) a specific dollar amount which, when aggregated with all other
amounts by which Compensation is reduced under this Section 3.1 during such Plan
Year, is not greater than 15% of his Compensation for such Plan Year, and (2)
have such amount contributed by his Employer to the Plan on his behalf. The
contributions made to the Plan on behalf of a Member under this Section 3.1
shall be referred to herein as "401(k) Contributions".
3.2. Voluntary Contributions. Subject to the limitations contained in
Article 4, a Member may elect to contribute to the Plan, by payroll deduction,
for each pay period within
9
<PAGE> 16
the Plan Year an amount equal to (a) any percentage of his Compensation, after
reduction for 401(k) Contributions, for the pay period which is not less than 1%
or greater than 10%, and which is an integral multiple of 1% or (b) a specific
dollar amount which, when aggregated with all other amounts contributed by the
Member under this Section 3.2 during such Plan Year, is not greater than 10% of
his Compensation, after reduction for 401(k) Contributions, for such Plan Year.
However, the percentage of Compensation the Member elects to contribute to the
Plan for any pay period under clause (a) of the preceding sentence, when
aggregated with the percentage of Compensation the Member elects to have
contributed to the Plan on his behalf for such pay period under clause (1)(i) of
Section 3.1, cannot exceed 15% of Compensation for such pay period; and the
specific dollar amount the Member elects to contribute to the Plan for any Plan
Year pursuant to clause (b) of the preceding sentence, when aggregated with his
401(k) Contributions for such Plan Year, cannot exceed 15% of Compensation for
such Plan Year. The contributions that a Member elects to make to the Plan under
this Section shall be referred to herein as "Voluntary Contributions".
3.3. Elections. The elections that a Member may make under Sections 3.1
and 3.2, and any change in or termination of such elections, shall be made in
accordance with the following rules:
(a) Any election, and any change in or termination of any
election, shall be made in writing, on a form provided by the Committee
for such purpose, and filed with the Committee or with any person
designated by the Committee to receive such filings.
(b) A Member's initial election under Section 3.1 or 3.2 shall
become effective as soon as practicable after the form containing such
election is filed. Any election, or change therein, shall remain in
effect until such election is changed or terminated as hereinafter
provided.
(c) A Member may, at any time, change his election so as to
increase or decrease the amount of 401(k) Contributions or Voluntary
Contributions, as applicable, to be contributed to the Plan by him or
on his behalf. Any such change in election shall become effective as
soon as practicable after the form containing such change in election
is filed.
(d) A Member may terminate his election under Section 3.1 or
3.2 at any time. Such termination of election shall become effective as
soon as practicable after the form containing such termination of
election is filed. A Member who terminates an election under Section
3.1 or 3.2 may thereafter make a new election under Section 3.1 or 3.2
at any time. Such new election shall become effective as soon as
practicable after the form containing such new election is filed.
10
<PAGE> 17
(e) A Member's elections under Sections 3.1 and 3.2 shall
cease to be effective upon, and no contribution shall be made by or on
behalf of a Member after, the close of the pay period in which he
incurs a Termination of Service.
3.4. Employer Contributions. Subject to the limitations contained in
Article 4, for each Plan Year, the Employers shall contribute to the Plan, in
addition to the 401(k) Contributions, an amount determined below.
For each Plan Year, the Employers shall contribute to the Plan under
this Section 3.4 an amount which is equal to (a) the excess, if any, of (1)
7-1/2% of the combined "Net Earnings" for such Plan Year of all Employers over
(2) $500,000, less (b) the sum of (1) all forfeitures arising under Section
5.2(a) during such Plan Year, other than those applied to restore any
forfeitures under Section 5.2(b), (2) the expenses of administering the Plan and
Trust for such Plan Year, other than those paid out of the Trust Fund in
accordance with Section 8.9 and (3) any amounts set aside, and any payments
made, by the Employers, for such Plan Year, under the Pall Corporation
Supplementary Profit-Sharing Plan.
Notwithstanding the preceding paragraph, the Board of Directors of the
Company reserves the right with respect to any Plan Year to direct the
Employers, by action taken no later than five and one-half months after the
close of such Plan Year, to make to the Plan under this Section 3.4 (i) no
contribution, (ii) a contribution in any amount less than the amount required to
be contributed under the preceding paragraph, or (iii) a contribution in any
amount greater than the excess of 7-1/2% of the combined Net Earnings for such
Plan Year of all Employers over $500,000.
For purposes of this Section 3.4, the "Net Earnings" of an Employer for
any Plan Year shall be the net earnings and profits of such Employer for its
taxable year ending within such Plan Year, as determined by the accountants
employed by the Employer in accordance with generally accepted accounting
principles, before deducting any contributions to the Plan, any capital losses
and any taxes upon or with respect to income, but after deducting capital gains,
income from investments and any contributions to any employee benefit plan other
than the Plan. Solely for the purpose of determining the combined Net Earnings
of all Employers, each subsidiary of the Company which was incorporated in the
United States, is not otherwise an Employer, and has not adopted the Gelman
Sciences 401(k) Savings Plan shall be treated as an Employer.
A Member shall be entitled to share in the allocation of the Employers'
contribution under this Section 3.4 for a Plan Year if (A) as of the first day
of such year, he had been in Service for at least six consecutive months and had
attained age 20 1/2 and (B) either (x) he is employed by any Employer or other
Affiliated Company on the last day of such year, (y) during such year, he
incurred a Termination of Service after attaining Normal Retirement Age or by
reason of death or disability or (z) he incurred a Termination of Service after
July 31 of such year, and the reason for such termination, as indicated on the
Employers' records,
11
<PAGE> 18
is "retirement" (Code 12). The Employers' contribution for a Plan Year under
this Section 3.4 shall be allocated to each Member entitled to share therein in
the proportion that each such Member's Compensation for such Plan Year bears to
the aggregate amount of Compensation of all such Members for such Plan Year.
Contributions made to the Plan under this Section 3.4 shall be referred to
herein as "Employer Contributions".
3.5. Time and Manner. All contributions to be made under Sections 3.1,
3.2 and 3.4 of the Plan shall be made in the form of cash payments by the
Company to the Trustee. 401(k) Contributions and Voluntary Contributions shall
be made as soon as possible after the date on which such contributions would
have been paid to the Employee but for his elections under Sections 3.1 and 3.2,
but in all events within 15 business days of the month immediately following the
month which includes such date. The Employer Contribution to be made for any
Plan Year shall be made no later than by the due date of the tax return (with
extensions) for the Employers' taxable year that ends during the Plan Year to
which such contribution relates.
In respect of the contributions the Company pays to the Trustee under
the preceding paragraph for each Plan Year, each other Employer shall reimburse
the Company for (1) a portion of the Employer Contribution so paid by the
Company to the Trustee for such year, based on the ratio of (i) the aggregate
Compensation for such year of the Members employed by such Employer who shared
in the allocation of such Employer Contribution to (ii) the aggregate
Compensation for such year of all Members who shared in the allocation of such
Employer Contribution, and (2) the amount of the 401(k) Contributions and
Voluntary Contributions so paid by the Company to the Trustee for such year
which are attributable to the Members employed by such Employer.
3.6. Rollovers. A Member, with the prior approval of the Committee, may
roll over into this Plan amounts that meet each of the following requirements:
(a) The amount to be rolled over must represent either (1)
part or all of an "eligible rollover distribution", within the meaning
of section 402(c)(4) of the Code, from a trust qualified under section
401(a) of the Code or from an employee annuity plan qualified under
section 403(a) of the Code (such a trust or plan shall be referred to
below as a "Qualified Plan") or (2) the entire amount of a distribution
to the Member from an individual retirement account or individual
retirement annuity, as defined in section 408(a) or section 408(b) of
the Code, provided that no amount in such account, or no part of the
value of such annuity (such an account or annuity shall be referred to
below as an "IRA"), at the time of distribution to the Member, was
attributable to any source other than a "rollover contribution", as
defined in section 402 of the Code, from a Qualified Plan.
(b) The amount to be rolled over must be (1) an amount which
the Member elected to have paid directly from a Qualified Plan to this
Plan in accordance with section 401(a)(31) of the Code or (2) an amount
distributed, or deemed distributed, to the Member from a Qualified
Plan, or from an IRA, not more than 60
12
<PAGE> 19
days prior to the date on which such amount is transferred to this
Plan, including any such amount representing (i) any portion of the
Member's account in a Qualified Plan that was applied to offset any
outstanding balance of a loan to the Member from such plan or (ii)
income taxes withheld on a distribution to the Member from a Qualified
Plan.
(c) The amount to be rolled over must not represent all or
part of (1) a distribution that is required to be made to the Member
under section 401(a)(9), section 408(a)(6) or section 408(b)(3) of the
Code, or (2) an amount distributed to the Member in the Member's
capacity as a beneficiary of another individual.
(d) The amount to be rolled over may not include (1) any part
of a distribution to the Member that would not be includible in the
Member's gross income for Federal income tax purposes, even if it were
not rolled over or (2) any "accumulated deductible employee
contributions" within the meaning of section 72(o)(5)(B) of the Code.
(e) The amount to be rolled over must consist entirely of
cash, and shall be paid to the Plan only by means of a check made
payable to, or endorsed over to, the Trustee.
The Committee may adopt such procedures, and may require a Member to
furnish such information or documentation, as the Committee, in its sole
discretion, deems necessary to ensure that the amount the Member requests to
roll over to this Plan will meet all the foregoing requirements.
ARTICLE 4 - LIMITATIONS ON CONTRIBUTIONS
4.1. Dollar Limit for 401(k) Contributions. For any Plan Year, the
total amount of 401(k) Contributions to be made on behalf of any Member, when
aggregated with the total amount deferred by such Member under other plans or
arrangements described in Code section 401(k), 408(k) or 403(b) maintained by
his Employer or by any other Affiliated Company, shall not exceed $9,500, as
increased by the cost-of-living adjustment, if any, in effect for such year
under regulations, rulings or notices issued under section 402(g)(5) of the
Code.
4.2. Nondiscrimination Limit for 401(k) Contributions. The Actual
Deferral Percentage, for any Plan Year, for the group of Members who are Highly
Compensated Employees shall not exceed the greater of the following percentages:
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<PAGE> 20
(a) a percentage that is equal to 125% of the Actual Deferral
Percentage for the immediately preceding Plan Year for all individuals
who, for such preceding year, were Members but not Highly Compensated
Employees (the "Prior Year ADP"); or
(b) a percentage that is not more than 200% of the Prior Year
ADP, and is not more than 2 percentage points higher than the Prior
Year ADP.
For these purposes, the term "Actual Deferral Percentage", for any group of
Members for any Plan Year, shall mean the average of the ratios, calculated
separately for each Member in such group, of (1) the 401(k) Contributions made
on behalf of such Member for such year to (2) such Member's Compensation for
such year.
The Affiliated Companies may elect to apply the preceding paragraph for
any Plan Year by substituting the following for clauses (a) and (b) therein:
(a) a percentage that is equal to 125% of the Actual Deferral
Percentage, for such Plan Year, for the group of all other Members; or
(b) a percentage that is not more than 200% of the Actual
Deferral Percentage, for such Plan Year, for the group of all other
Members, and that is not more than 2 percentage points higher than the
Actual Deferral Percentage, for such Plan Year, for the group of all
other Members.
It is provided, however, that if the Affiliated Companies make such election for
any Plan Year, such election shall apply to such Plan Year and all subsequent
Plan Years, unless the Affiliated Companies change the election in a manner
prescribed by the Internal Revenue Service.
4.3. Nondiscrimination Limit for Voluntary Contributions. The
Contribution Percentage, for any Plan Year, for the group of Members who are
Highly Compensated Employees shall not exceed the greater of the following
percentages:
(a) a percentage that is equal to 125% of the Contribution
Percentage for the immediately preceding Plan Year for all individuals
who, for such preceding year, were Members but not Highly Compensated
Employees (the "Prior Year Contribution Percentage"); or
(b) a percentage that is not more than 200% of the Prior Year
Contribution Percentage, and is not more than 2 percentage points
higher than the Prior Year Contribution Percentage.
For these purposes, the term "Contribution Percentage", for any group of Members
for any Plan Year, shall mean the average of the ratios, calculated separately
for each Member in
14
<PAGE> 21
such group, of (1) the Voluntary Contributions made by such Member for such year
to (2) such Member's Compensation for such year.
The Affiliated Companies may elect to apply the preceding paragraph for
any Plan Year by substituting the following for clauses (a) and (b) therein:
(a) a percentage that is equal to 125% of the Contribution
Percentage, for such Plan Year, for the group of all other Members; or
(b) a percentage that is not more than 200% of the
Contribution Percentage, for such Plan Year, for the group of all other
Members, and that is not more than 2 percentage points higher than the
Contribution Percentage, for such Plan Year, for the group of all other
Members.
It is provided, however, that if the Affiliated Companies make such election for
any Plan Year, such election shall apply to such Plan Year and all subsequent
Plan Years, unless the Affiliated Companies change the election in a manner
prescribed by the Internal Revenue Service.
For purposes of determining the contribution percentages above, all or
a portion of the 401(k) Contributions for a Plan Year may be treated as
Voluntary Contributions for such year provided that:
(i) all 401(k) Contributions for such year satisfy
the limitation of Section 4.2, and
(ii) the 401(k) Contributions for such year,
excluding those treated as Voluntary Contributions under this
Section for such year, satisfy the limitation of Section 4.2.
4.4. Special Rules for Nondiscrimination Limits. For purposes of the
nondiscrimination limits set forth in Sections 4.2 and 4.3, the following rules
shall apply:
(a) Alternative Limitation. The alternative limit set forth in Sections
4.2(b) and 4.3(b) may be utilized only to the extent permitted under section
401(m)(9) of the Code and the Treasury regulations and rulings and notices
issued thereunder.
(b) Calculations. The Actual Deferral Percentages and the Contribution
Percentages shall be calculated to the nearest one-hundredth of 1%.
(c) Plan and Contribution Aggregation Requirements. If one or more
plans are aggregated with this Plan for purposes of satisfying section 401(a)(4)
or 410(b) of the Code (other than solely for purposes of satisfying section
410(b)(2)(A)(ii) of the Code) for any
15
<PAGE> 22
Plan Year, then, the nondiscrimination limits of Section 4.2 and 4.3 shall be
applied, in the manner required by the applicable provisions of the Code and
Treasury regulations, by treating such plan or plans and this Plan as a single
plan for such year. If one or more plans are permissibly aggregated with this
Plan for purposes of satisfying the nondiscrimination limit in Section 4.2
and/or Section 4.3 for any Plan Year, then, such plan or plans, when aggregated
with this Plan, must also satisfy sections 401(a)(4) and 410(b) of the Code for
such year, as though they were a single plan. In the case of any Highly
Compensated Employee who, during any Plan Year, participates both in this Plan
and another qualified retirement plan of any Affiliated Company, any elective
contributions made on his behalf to such other plan under its 401(k) provisions
for such year (or, if applicable, for the plan year of such other plan which
ends in such year) shall be taken into account in determining his actual
deferral percentage under this Plan for such year; and any voluntary after-tax
contributions, or any matching contributions, made by him, or on his behalf, to
such other plan under its 401(m) provisions for such year (or, if applicable,
for the plan year of such other plan which ends in such year) shall be taken
into account in determining his contribution percentage under this Plan for such
year.
(d) Records. The Committee shall maintain or cause to be maintained
records sufficient to demonstrate the satisfaction of the nondiscrimination
limits in Sections 4.2 and 4.3, and to show the amount of 401(k) Contributions,
if any, used to satisfy the nondiscrimination limit in Section 4.3.
4.5. Deduction Limit. The total amount of contributions made hereunder
by an Employer, considering the amount of such contributions both with and
without aggregating such contributions with the contributions made by the
Employer under each other qualified plan the Employer maintains, for any taxable
year of the Employer may not exceed the maximum amount allowable as a deduction
for the contributions made to this Plan by the Employer for such taxable year.
4.6. Section 415 Limits.
(a) General. For any Plan Year, the total amount contributed by or on
behalf of any Member, or allocated to such Member, under the Plan, when
aggregated with all other amounts which are "annual additions" with respect to
such Member, shall not exceed the lesser of (1) $30,000, increased by the
cost-of-living adjustment, if any, in effect for such Plan Year under section
415(d)(1)(C) of the Code or (2) 25% of the Participant's Compensation for such
Plan Year. For these purposes, "annual additions" with respect to a Member shall
mean (i) any employer contributions (including 401(k) or matching
contributions), voluntary after-tax employee contributions or forfeitures
allocated to the Member under any qualified defined contribution plan maintained
by any Affiliated Company, and (ii) except as to the limitation in clause (2)
above, amounts allocated on behalf of the Member to any individual medical
account which is part of a pension or annuity plan, or any contributions
attributable to post-retirement medical benefits allocated on behalf
16
<PAGE> 23
of the Member to a separate account described in Code section 419A(d)(1) under a
welfare benefit fund, maintained by any Affiliated Company.
(b) 415(e) Limit. In addition to the above, the amounts contributed
under the Plan by or on behalf of, or allocated under the Plan to, any Member
for any Plan Year shall not exceed the amount permissible under the overall
limitation applicable to such Member for such year under section 415(e) of the
Code. In calculating the defined benefit plan fraction and the defined
contribution plan fraction, as defined in section 415(e) of the Code, for the
purpose of determining the aforesaid Code section 415(e) limitation, an amount
shall, to the extent permitted under Section 1106(i)(4) of P.L. 99-514, be
subtracted from the numerator of the defined contribution plan fraction (not
exceeding such numerator) as prescribed by the Secretary of the Treasury so that
the sum of the defined benefit plan fraction and the defined contribution plan
fraction does not exceed 1.0 for the Plan Year. In no event shall the amount to
be subtracted from the numerator of the defined contribution plan fraction be
less than the amount permitted to be so subtracted under Section 235(g)(3) of
P.L. 97-248. In addition, the aforesaid Code section 415(e) limitation shall, to
the extent permitted under Section 1106(i)(3) of P.L. 99-514, be calculated by
using the Member's Current Accrued Benefit. The "Current Accrued Benefit" is a
Member's accrued benefit under any qualified defined benefit plan which is, or
ever was, maintained by the Employer, determined as if the Member had separated
from service as of the close of the last limitation year of such plan beginning
before August 1, 1987, when expressed as an annual benefit within the meaning of
section 415(b)(2) of the Code. In determining the amount of a Member's Current
Accrued Benefit, the following shall be disregarded: (1) any change in the terms
and conditions of such plan after May 5, 1986, and (2) any cost of living
adjustment occurring after May 5, 1986. In no event shall the amount of the
Current Accrued Benefit be less than the Current Accrued Benefit as defined and
determined under Section 235(g)(4) of P.L. 97-248.
If the limitation applicable to a Member under section 415(e) of the
Code is exceeded, the Member's benefit under a qualified defined benefit plan
maintained by the Employer shall be reduced to the extent necessary to meet such
limitation, before any reduction is made with respect to the Member's annual
additions under this Plan.
Notwithstanding any provisions of the Plan to the contrary, the Code
section 415(e) limitation described in this Section 4.6(b) shall cease to apply
as of January 1, 2000.
(c) Reduction of Contributions. In the event that the amount of the
contributions which, without regard to this Section 4.6, would be made by or on
behalf of, or allocated to, a Member under the Plan in respect of any Plan Year
must be reduced by reason of the limitations of this Section 4.6, such
reductions shall be made in the following order of priority, but only to the
extent necessary: (1) the amount of the Member's Voluntary Contributions shall
be reduced, or, if already paid to the Trustee, shall (with the Trust Fund
earnings thereon) be refunded to the Member; then (2) the amount of the Member's
401(k) Contributions shall be reduced, or, if already paid to the Trustee, shall
(with the Trust Fund
17
<PAGE> 24
earnings thereon) be refunded to the Member; then (3) any Employer Contributions
that would otherwise be allocated to such Member in respect of such Plan Year
shall, instead, be allocated to each other Member entitled to share in such
contributions (subject to the limitations of this Section 4.6 as applied to
each such Member) in the same proportion that each such Member's Compensation
for such Plan Year bears to the aggregate of the Compensation for such Plan Year
of all such Members.
(d) Distribution or Other Correction of Allocated Contributions. If the
contributions allocated to the Accounts of any Member for any Plan Year should
exceed the limitations under this Section 4.6 for such year, such excess shall
be deemed to be attributable to the contributions so allocated for such year in
the following order: (i) Voluntary Contributions, (ii) Salary Reduction
Contributions, (iii) Employer Contributions, and (iv) any other contributions
taken into account for purposes of this Section 4.6. To the extent permitted by
Section 1.415-6(b)(6) of the Treasury regulations, (x) any Voluntary
Contributions or Salary Reduction Contributions deemed to be a part of such
excess, and the earnings on such contributions, shall be distributed to the
Member in accordance with Section 1.415-6(b)(6)(iv) of the Treasury regulations,
and (y) any other contributions made under this Plan which are deemed to be a
part of such excess shall be treated in the manner described in Section
1.415-6(b)(6)(ii) of the Treasury regulations.
4.7. Adjustments. Notwithstanding any other provision in the Plan to
the contrary, at any time during the Plan Year, the Committee may make such
adjustments to or impose such restrictions on the amounts of contributions that
otherwise may be made to the Plan by or on behalf of, or allocated to, any
Member or group of Members during the balance of such Plan Year, as the
Committee deems necessary in order for such contributions or allocations not to
exceed any of the limitations set forth in this Article 4, or in order for the
Plan to meet any other requirement for the Plan's continued qualification under
sections 401(a), 401(k) and 401(m) of the Code.
4.8. Corrective Distributions. If for any Plan Year the 401(k)
Contributions or Voluntary Contributions made by or on behalf of a Member for
such year exceed the limitation applicable to such contributions under Section
4.1, 4.2 or 4.3, or if for any Plan Year any amount of the 401(k) Contributions
made on behalf of a Member during such year is designated as an excess deferral
attributable to this Plan under subsection (b) below, the excess of the
contributions over the limitation, or the amount so designated, shall be
distributed to the Member in accordance with the following rules:
(a) If the aggregate amount of the 401(k) Contributions made
on behalf of a Member for any Plan Year exceeds the dollar limit for
such contributions under Section 4.1 for such year, the excess amount
so contributed, as adjusted for income or loss allocable thereto, shall
be (1) designated by the Committee as an excess amount of 401(k)
Contributions (and earnings), and (2) distributed to the Member from
his 401(k) Contribution Account after the end of such year but by no
later than April 15
18
<PAGE> 25
next following the close of such year. The 401(k) Contributions to be
distributed under this subsection (a) for any Plan Year shall be so
distributed prior to any distribution of 401(k) Contributions under
subsection (b) for such Plan Year, and shall be reduced by the 401(k)
Contributions previously distributed to the Member under subsection (c)
or (d) for such Plan Year.
(b) If the aggregate amount of the 401(k) Contributions made
on behalf of a Member under this Plan for any Plan Year, when added to
the total amount deferred by such Member in such year under other plans
or arrangements described in section 401(k), 408(k) or 403(b) of the
Code, exceeds the limit under section 402(g) of the Code for such year,
the Member may designate a portion of such excess deferrals as
allocable to the 401(k) Contributions made on the Member's behalf under
this Plan for such year. Such designation shall be made by filing with
the Committee a written notice that specifies the amount so designated,
and which contains a certification by the Member that if the amount so
designated is not distributed, such amount, when added to his remaining
401(k) Contributions and the total amount deferred under other plans or
arrangements described in section 401(k), 408(k) or 403(b) of the Code,
will exceed the limit under section 402(g) of the Code for the Plan
Year in question.
Such written notice shall be filed with the Committee no later
than by March 1 next following the close of such Plan Year. The amount
so designated, as adjusted for income or loss allocable thereto, shall
be (1) designated by the Committee as an excess deferral (and
earnings), and (2) distributed to the Member from his 401(k)
Contribution Account after the end of such year but by no later than
April 15 next following the close of such year.
The 401(k) Contributions to be distributed under this
subsection (b) for a Plan Year shall be reduced by any 401(k)
Contributions that were previously distributed to the Member under
subsection (a), (c) or (d) for the same Plan Year. In no event shall a
distribution of 401(k) Contributions pursuant to this subsection (b)
for a Plan Year exceed the amount of the Member's 401(k) Contributions
under this Plan for such year.
(c) If for any Plan Year the aggregate amount of 401(k)
Contributions made on behalf of Members who are Highly Compensated
Employees exceeds the limit for such contributions under Section 4.2
(such excess is referred to herein as "Excess Contributions"), the
Excess Contributions, as adjusted for income or loss allocable thereto,
shall be distributed to such Members. The portion of the Excess
Contributions to be distributed to each such Member shall be determined
under the following paragraph.
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First, the total amount of Excess Contributions to be
distributed shall be determined as follows. The actual deferral
percentage of the Members who are Highly Compensated Employees shall be
reduced in the order of the amount of their actual deferral
percentages, beginning with those Highly Compensated Employees with the
highest such percentages, until the aggregate amount of 401(k)
Contributions for such Members has been reduced to the amount
permissible under Section 4.2. The total amount of Excess Contributions
to be distributed shall be equal to the aggregate amount of such
reductions. Second, the portion of the total amount of Excess
Contributions to be distributed to each Member who is a Highly
Compensated Employee shall be determined as follows. The 401(k)
Contributions of the Members who are Highly Compensated Employees shall
be reduced in the order of the dollar amount of such contributions,
beginning with those Highly Compensated Employees with the highest such
dollar amounts, until the aggregate amount of 401(k) Contributions for
such Members has been reduced by an amount equal to the total amount of
Excess Contributions to be distributed. The portion of the total amount
of Excess Contributions to be distributed to each Member who is a
Highly Compensated Employee shall be equal to the amount by which his
401(k) Contributions are reduced pursuant to the preceding sentence.
Distributions of Excess Contributions and the income or loss
allocable thereto shall be (1) designated by the Committee as Excess
Contributions (and earnings) and (2) distributed to the Member from his
401(k) Contribution Account after the end of the Plan Year but no later
than by March 15 next following the close of such year. Excess
Contributions to be distributed to a Member in accordance with the
preceding sentence for any Plan Year shall be so distributed prior to
any distributions of 401(k) Contributions under subsection (a) or (b)
for such Plan Year. In no event shall a distribution of Excess
Contributions to a Member for a Plan Year exceed the amount of 401(k)
Contributions made on the Member's behalf for such year.
(d) If for any Plan Year the aggregate amount of Voluntary
Contributions, when added to the total amount of 401(k) Contributions
treated as Voluntary Contributions under Section 4.3, made by or on
behalf of Members who are Highly Compensated Employees exceeds the
limit for such contributions under Section 4.3 (such excess is referred
to herein as "Excess Aggregate Contributions"), the Excess Aggregate
Contributions, as adjusted for income or loss allocable thereto, shall
be distributed to such Members. The portion of the Excess Aggregate
Contributions to be distributed to each such Member shall be determined
under the following paragraph.
First, the total amount of Excess Aggregate Contributions to
be distributed shall be determined as follows. The contribution
percentages of the Members who are Highly Compensated Employees shall
be reduced in the order of the amount of their contribution
percentages, beginning with those Highly Compensated Employees
20
<PAGE> 27
with the highest such percentages, until the aggregate amount of
Voluntary Contributions (and 401(k) Contributions treated as Voluntary
Contributions) for such Members has been reduced to the amount
permissible under Section 4.3. The total amount of Excess Aggregate
Contributions to be distributed shall be equal to the aggregate amount
of such reductions. Second, the portion of the total amount of Excess
Aggregate Contributions to be distributed to each Member who is a
Highly Compensated Employee shall be determined as follows. The
Voluntary Contributions (and 401(k) Contributions treated as such) of
the Members who are Highly Compensated Employees shall be reduced in
the order of the dollar amount of such contributions, beginning with
those Highly Compensated Employees with the highest such dollar
amounts, until the aggregate amount of Voluntary Contributions (and
401(k) Contributions treated as such) for such Members has been reduced
by an amount equal to the total amount of Excess Aggregate
Contributions to be distributed. The portion of the total amount of
Excess Aggregate Contributions to be distributed to each Member who is
a Highly Compensated Employee shall be equal to the amount by which his
Voluntary Contributions (and 401(k) Contributions treated as such) are
reduced pursuant to the preceding sentence.
Distributions of Excess Aggregate Contributions and the income
or loss allocable thereto shall be (1) designated by the Committee as
Excess Aggregate Contributions (and earnings) and (2) distributed to
the Member, first, from his Voluntary Contribution Account and, second,
to the extent that 401(k) Contributions were treated as Voluntary
Contributions for the Plan Year in question under Section 4.3, from his
401(k) Contribution Account after the end of the Plan Year but no later
than by March 15 next following the close of such year. In no event
shall a distribution of Excess Aggregate Contributions to a Member for
a Plan Year exceed the amount of Voluntary Contributions (and 401(k)
Contributions so treated as such) for such year.
(e) The amount of income or loss allocable to 401(k)
Contributions or Voluntary Contributions to be distributed to any
Member under subsection (a), (b), (c) or (d) above shall be determined
in accordance with the applicable provisions of the regulations issued
under sections 401(k), 401(m) and 402(g) of the Code.
(f) Any amounts required to be distributed to a Member
pursuant to subsection (a), (b), (c) or (d) above shall be so
distributed, notwithstanding any other provision in the Plan to the
contrary.
4.9. Other Cross-Sectional Rules.
(a) In determining the actual deferral percentages under
Section 4.2, 401(k) Contributions which are made on behalf of any
Member who is not a Highly Compensated Employee, and which, without
regard to any amounts deferred by such
21
<PAGE> 28
Member under any other plan or arrangement, are in excess of the
limitation in Section 4.1, shall be disregarded.
(b) 401(k) Contributions which are made on behalf of any
Member shall be disregarded for purposes of Section 4.6 to the extent
that such contributions are distributed to such Member under Section
4.8(a) or (b).
(c) 401(k) Contributions and Voluntary Contributions which are
made to the Plan, and which are returned to Members under Section
4.6(c) by reason of being in excess of the limitations set forth in
Section 4.6, shall be disregarded for purposes of Sections 4.1, 4.2 and
4.3.
ARTICLE 5 - PLAN ACCOUNTS, ALLOCATIONS AND FORFEITURES
5.1. Plan Accounts. For each Member, the Committee shall establish and
maintain, or caused to be established and maintained, a separate Plan Account
with respect to the 401(k) Contributions made on behalf of the Member under
Section 3.1, the Voluntary Contributions made by the Member under Section 3.2,
the Employer Contributions allocated to the Member under Section 3.4 and the
amounts rolled over to the Plan by the Member under Section 3.6. Such Accounts
shall be referred to herein, respectively, as the Member's "401(k) Contribution
Account", his "Voluntary Contribution Account", his "Employer Contribution
Account", and his "Rollover Account". The Committee shall also establish and
maintain, or cause to be established and maintained, such other Accounts as may
be necessary or desirable to comply with the requirements of the Code or to
otherwise effect the purposes of the Plan. Each such Account shall be adjusted
from time to time as follows:
(a) Such Account shall be credited, as hereinafter provided,
with the amounts contributed to the Plan by or on behalf of the Member,
allocated to the Member, or rolled over to the Plan by the Member under
Section 3.1, 3.2, 3.4 or 3.6, as the case may be, and with any payments
of principal and interest made by the Member pursuant to Section 7.5 on
any loan to him. 401(k) Contributions shall be credited to a Member's
401(k) Contribution Account at the time such contributions are made to
the Plan, but no later than by the final day of the Plan Year to which
such contributions relate. Voluntary Contributions, Employer
Contributions and amounts rolled over to the Plan by the Member shall
be credited to a Member's Voluntary Contribution Account, Employer
Contribution Account and Rollover Account, respectively, at the time
such contributions are made to the Plan or at the time such rolled over
amounts are transferred to or received by the Plan. Any payment on a
loan under Section 7.5, which is credited to a Member's Account as
described therein, shall be so credited to such Account as of the date
on which such payment is received by the Plan.
22
<PAGE> 29
(b) Such Account shall be credited or charged, as the case may
be, with the Earnings attributable to the investment of such Account
under Section 6.3.
(c) Such Account shall be charged with the amount of any
distributions, withdrawals or loans made therefrom, pursuant to Section
4.8 or Article 7. A distribution, withdrawal or loan shall be so
charged as of the date on which the amount thereof is paid to the
Member.
(d) In addition to (a), (b) and (c) above, such Account shall
be credited or charged as required by other provisions of the Plan, in
the manner and as of the date set forth therein, or, where such manner
or date is not expressly set forth, as the Committee shall determine.
(e) Such Account shall also reflect the number of shares of
any Mutual Fund, and the number of units of interest in the Pall Stock
Fund, in which the balance of such Account is invested. The number of
shares or units of interest to be so reflected shall include fractions
of a share or unit of interest, as well as whole numbers of shares or
units.
5.2. Forfeitures.
(a) Incurrence and Application of Forfeitures. The portion of the
Member's Employer Contribution Account which is not a Vested Portion shall be
forfeited, and the amount so forfeited shall be charged to his Employer
Contribution Account, as of the close of the Plan Year in which he incurs a
Termination of Service. Any forfeiture shall be applied, first, to restore other
forfeitures under subsection (b) below, and, second, to reduce Employer
Contributions made to the Plan after the date such forfeiture arises. Prior to
such application, a forfeiture shall be held in a separate account established
and maintained solely for forfeitures under the Trust Fund; and such account
shall be invested in the Fidelity Retirement Money Market Portfolio described in
Section 6.1(f).
(b) Restoration of a Forfeiture. If any portion of a Member's Employer
Contribution Account was forfeited upon his Termination of Service, and such
Member thereafter returns to Service, any amount that was forfeited shall be
restored to his Employer Contribution Account, as of his Reemployment
Commencement Date, unless: (1) the Member failed to return to Service prior to
incurring a 5-Year Break in Service after such Termination of Service, or (2)
the Member had previously received from the Plan a distribution described in
subsection (c) below, and, as of his Reemployment Commencement Date, has failed
to repay such distribution in accordance with subsection (c) below. In the event
that the restoration of a forfeiture is prevented by reason of clause (2) in the
preceding sentence, and the Member subsequently repays the distribution referred
to in clause (2) in accordance with subsection (c) below, the amount forfeited
shall be restored to the Member's Employer Contribution Account as of the date
on which such repayment is made to the Plan. Any amount so
23
<PAGE> 30
restored to such Account shall be invested in accordance with the Member's
investment election with respect to New Money to be credited to such Account
then in effect under Section 6.2.
Funds to restore a forfeiture to a Member's Employer Contribution
Account shall come, first, from other forfeitures as provided in subsection (a)
above, and, second, from contributions made to the Plan by the Company for such
purpose. The Company shall make such additional contributions to the Plan as are
necessary to restore any forfeitures in accordance with the preceding sentence.
If the Company makes any such contributions with respect to a Member who is
employed by an Employer other than the Company, such Employer shall reimburse
the Company for the amount of any such contributions so made. The amount of any
forfeiture to be restored to a Member hereunder shall, to the extent required by
section 411 of the Code, include earnings on the amounts that were forfeited by
the Member under subsection (a) above.
(c) Repayment of Distributions. A Member who has incurred a Termination
of Service and, in connection therewith, has received from the Plan a
distribution of the entire Vested Portion of the balance of his Plan Accounts,
and thereafter returns to Service, may repay such distribution to the Plan. Any
such repayment shall consist of the full amount of such distribution. Further,
such repayment must be made before the fifth anniversary of the Member's
Reemployment Commencement Date. A repaid distribution shall be credited pro rata
to the Member's Accounts from which such distribution was made, shall be so
credited as of the date received by the Plan, and shall be invested in
accordance with the Member's investment election with respect to New Money to be
credited to such Accounts then in effect under Section 6.2.
ARTICLE 6 - INVESTMENTS AND EARNINGS
6.1 Investment of Accounts. The balance of each Plan Account maintained
for a Member hereunder shall be invested, as the Member shall from time to time
elect in accordance with Section 6.2, in any one or more of the following
investment options (hereinafter referred to as "Investment Options"):
(a) shares of the Fidelity U.S. Bond Index Portfolio;
(b) shares of the Fidelity Asset Manager;
(c) shares of the Fidelity Puritan Fund;
(d) shares of the Fidelity Equity-Income Fund;
(e) shares of the Fidelity Magellan Fund;
24
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(f) shares of the Fidelity Retirement Money Market Portfolio;
and
(g) units of interest in the Pall Stock Fund.
The Committee may, at any time and in its sole discretion, eliminate or add any
Investment Option to the above list.
Except to the extent that the Committee otherwise directs, all
dividends and other distributions payable with respect to the shares of any
Mutual Fund in which any Plan Account is invested shall be reinvested in
additional shares of such Mutual Fund; and the number of additional shares
acquired as a result of such reinvestment shall be credited to such Plan
Account. Except as otherwise provided in the Trust Agreement, all dividends and
other distributions payable with respect to the shares of common stock of Pall
Corporation held in the Pall Stock Fund shall be reinvested by the Trustee in
such fund in additional shares of such stock.
To the fullest extent permissible under section 404(c) of ERISA, the
Trustee, the members of the Committee, and any other fiduciary of the Plan shall
not be liable for any loss, or by reason of any breach of duty, that results
from any election made, or deemed to have been made, by a Member under Section
6.2 with respect to the investment of his Plan Account balances.
6.2. Investment Elections. Elections with respect to the investment of
a Member's Plan Accounts shall be made in accordance with the following rules:
(a) Initial Investment Election. Each Member shall make an initial
investment election with respect to each Plan Account that is established for
him hereunder by the close of the last business day immediately preceding the
date on which an amount is first credited to such Account pursuant to Section
5.1. Such election shall be made in the manner set forth in subsection (c)
below.
(b) Investment Election Changes. Subject to the limitations set forth
below, a Member may change his investment election with respect to any of his
Plan Accounts, by making a new investment election with respect to such Account
in accordance with the provisions of subsection (c) below. A Member may so
change his investment election just with respect to the existing balance of any
Plan Account ("Current Balance"); or just with respect to contributions and
repayments of principal and interest on any loan from the Plan ("New Money")
that are to be credited to any Plan Account on or after the effective date of
such change; or with respect to both the Current Balance of, and New Money to be
credited to, any Plan Account.
(c) Procedure for Making Elections. An investment election under
subsection (a) above shall be made by filing with the Committee a form furnished
by the Committee for this
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purpose, on which the Member shall indicate, by percentage (which shall be an
integral multiple of 1%) or dollar amount, the portion of the Member's Plan
Account balance to be invested in shares or units of interest, as applicable, of
each Investment Option. The Member shall designate his investment choices, in
the manner described in the preceding sentence, separately for each of his Plan
Accounts. If a Member fails to make the investment election under subsection (a)
with respect to any of his Plan Accounts by the time required under subsection
(a), then, in the case of the Member's Employer Contribution Account, the Member
shall be deemed to have elected to have the entire balance of such account
invested in shares of the Fidelity Asset Manager, and in the case of any other
Account, the Plan shall not accept any contribution, or other amount, that would
otherwise be credited to such account, until the Member makes an investment
election hereunder for such account. Any change in a Member's investment
election under subsection (b) above shall be made in the same manner as herein
described in the case of an election under subsection (a) above. Notwithstanding
the foregoing, if the Committee so permits (and subject to such rules as the
Committee may have promulgated) any Member may use the telephone service made
available by the Trustee to communicate directly to the Trustee any initial
investment election with respect to his Employer Contribution Account, or any
change in his investment election made under subsection (b) above. A Member
shall be provided with a written confirmation of any investment election made
under subsection (a), or any change in investment election made under subsection
(b), in the manner provided in the Trust Agreement or in any administrative
services agreement between the Committee and the Trustee.
(d) Effect of Election. An investment election made by a Member, or
deemed to have been made by him, with respect to any of his Plan Accounts under
subsection (a) above shall remain in effect until the Member changes his
investment election with respect to such Plan Account in accordance with
subsection (b) above. Any investment election change made by a Member under
subsection (b) above with respect to any Plan Account shall remain in effect
until the Member again changes his investment election with respect to such Plan
Account in accordance with subsection (b) above.
(e) Implementation. All transactions necessary to implement any
investment elections and changes therein that are made by Members pursuant to
this Section 6.2 shall be executed at such times, and in such manner, as
provided in the Trust Agreement or in any administrative services agreement
between the Committee and the Trustee.
(f) Restrictions. Notwithstanding any provision of the Plan to the
contrary, the following restrictions shall apply to a Member's investment
elections under this Section 6.2:
(1) A Member may not invest any Plan Account, other than his
Employer Contribution Account, in the Pall Stock Fund. Also, no Plan
Account may be invested in the Pall Stock Fund until May 1, 1997. A
Member may, on and after May
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1, 1997, invest all or any portion of his Employer Contribution Account
in the Pall Stock Fund.
(2) Notwithstanding subsection (c) above, a Member who is a
Designated Officer may make a change in investment election, which
would result in any Current Balance being transferred to or from the
Pall Stock Fund, only by filing such forms with, and providing such
information to, the Committee as the Committee shall require for this
purpose. Any such change in investment election by such Member must be
approved by the Committee, and the Committee shall not approve any such
change if it would result in (i) liability to such Member under section
16(b) of the Securities and Exchange Act of 1934, or (ii) the violation
of any policy which has been adopted by the Company's Board of
Directors, and which establishes a "blackout period" during which
Designated Officers may not sell or purchase Company stock.
The Committee may, at any time and in its sole discretion, eliminate or
modify any of the foregoing restrictions, or impose additional restrictions on
Members' investment elections. To the extent that any such restriction ceases to
apply with respect to the Current Balance of, or the New Money to be credited
to, any Plan Account of a Member, the Member may elect to invest all or any
portion of such Current Balance, or of such New Money, of such Account in any
Investment Option offered under Section 6.1, subject to any such restrictions
which remain, by making a change in investment election under subsection (b)
above.
6.3. Determination of Earnings. The Earnings attributable to the
investment of any Plan Account for any period shall mean the amount (positive or
negative) by which (a) the aggregate value, as of the close of the last business
day of such period, of all shares of Mutual Funds, and all units of interest in
the Pall Stock Fund, in which such Account is then invested, plus the unpaid
principal amount of any loan made to the Member from such Account that is
outstanding at the close of such day, and any cash amount standing to the
Member's credit in such Account as of the close of such day, as reduced by (b)
the amount of all contributions, loan repayments and amounts rolled over to the
Plan, that were credited to such Account during the period, and as increased by
(c) the amount of all distributions, withdrawals and loans charged to such
Account during the period, exceeds, or is less than, (d) the aggregate value, as
of the close of the last business day immediately preceding the start of such
period, of all shares of Mutual Funds, and all units of interest in the Pall
Stock Fund, in which such Account was then invested, plus the unpaid principal
amount of any loan made to the Member from such Account that was outstanding at
the close of such day, and any cash amount standing to the Member's credit in
such Account as of the close of such day.
6.4. Voting Rights. In accordance with the applicable rules set forth
in the Trust Agreement, each Member shall have the right to direct the Trustee
as to how to vote the
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<PAGE> 34
shares of Pall Corporation stock attributable to the units of interest in the
Pall Stock Fund, and the shares of any Mutual Fund, credited to his Plan
Accounts, and the right to direct the Trustee as to how to exercise all other
rights pertaining to such shares, including the right to direct the Trustee as
to the manner in which to respond to a tender or exchange offer with respect to
any such shares of Pall Corporation stock. A Member shall be treated as a "named
fiduciary", within the meaning of section 402(a)(2) of ERISA, for the purpose of
giving such directions to the Trustee.
ARTICLE 7 - DISTRIBUTIONS, WITHDRAWALS AND LOANS
7.1. Distributions. Distributions shall be made in accordance with the
following rules:
(a) Commencement of Distributions. A Member's Plan Account balances
shall become distributable to him (1) upon his Termination of Service, for any
reason other than death, or (2) if he is affected by an event described in
section 401(k)(10)(A)(ii) or (iii) of the Code. Any distribution to the Member
hereunder shall be made as soon as practicable after the date of the
Participant's Termination of Service, or the date of such event, as applicable.
(b) Medium, Form, and Amount of Distributions. Any distribution to a
Member under this Section 7.1 shall be made in cash, shall be made in the form
of a single lump sum payment, except as provided in subsection (e) below. Any
lump sum payment made to the Member under this Section 7.1 shall be equal to the
Vested Portion of the balance of his Plan Accounts as of the close of the day on
which such payment is made. For the purposes of making any installment payment
to the Member under subsection (e) below, the balance of his Plan Accounts shall
be determined as of the close of the day on which such installment payment is
made.
(c) Member's Consent. Notwithstanding subsection (a), no distribution
to the Member with respect to his Plan Account balances shall be made prior to
his attaining Normal Retirement Age unless either (1) the amount of such
distribution does not exceed $3,500 or (2) the Member consents, in writing,
within the 90-day period ending on the date of distribution and after receipt of
the explanation described in the paragraph below, to the immediate payment of
such distribution.
For purposes of clause (2) of the preceding paragraph, the Committee
shall furnish the Member with a written explanation of the Member's right to
defer his distribution until he has attained age 65 and the effect of such
deferral. Such explanation shall be furnished no less than 30 days (or such
shorter period as may be permitted by Treasury regulations) and no more than 90
days before the distribution is made to the Member.
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<PAGE> 35
If an immediate distribution with respect to the Member's Plan Account
balances cannot be made to the Member by reason of his failure to consent to
such distribution, distribution with respect to his Account balances shall be
made as soon as practicable after the earliest to occur of the following: the
date on which the Member attains age 65, the date of the Member's death, or the
date on which the Committee receives written notice from the Member requesting,
and consenting to, an immediate distribution from his Accounts.
(d) Distributions after Termination of Service. Unless the Member
elects otherwise, distribution to the Member with respect to his Plan Account
balances shall be made no later than 60 days after the close of the Plan Year in
which occurs the latest of the date on which the Member attains age 65, the 10th
anniversary of the date as of which the Member commenced participation in the
Plan, or the date of the Member's Termination of Service.
(e) Age 70 1/2 Distributions. Notwithstanding any provision of the Plan
to the contrary, the distribution of a Member's Plan Account balances shall be
made or commence not later than:
(1) in the case of a Member who is a 5-percent owner, as
defined under section 416(i) of the Code and the Treasury regulations
thereunder, the April 1st following the calendar year in which he
attains age 70 1/2;
(2) in the case of a Member who is not a 5-percent owner, as
so defined in (1), and who attains age 70 1/2 prior to January 1, 1988,
the April 1st following the later of (i) the calendar year in which he
attains age 70 1/2, or (ii) the calendar year ending December 31, 1990;
or
(3) in the case of a Member not described in (1) or (2), the
later of (i) the April 1st following the calendar year in which he
attains age 70 1/2 or (ii) April 1, 1990.
Clause (3)(ii) above shall not apply to a Member who both attains age 70 1/2 in
1988 and incurs a Termination of Service in 1988. The date by which the
distribution of a Member's Account balances must be made or commence under (1),
(2) or (3) above, as applicable, shall be referred to herein as the Member's
"Required Commencement Date".
A Member who attains age 70 1/2 may elect to have his Account balances
distributed pursuant to one of the following options: (I) the balance of his
Plan Accounts shall be distributed to him annually in a single lump sum payment
or (II) his Account balances shall be paid to him in 10 annual installments. The
election must be made no later than by the June 30 of the calendar year
preceding the calendar year in which the Member's Required Commencement Date
falls, or by such later date permitted by the Committee. If the Member fails to
make an election by such date, the Member's Account balances shall be
distributed under option (I).
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If the Member's Account balances are to be distributed under option
(I), the initial lump sum payment shall be made no earlier than by the November
1 of the calendar year preceding the calendar year in which the Member's
Required Commencement Date falls and no later than by the Member's Required
Commencement Date. Thereafter, pursuant to option (I), a lump sum payment shall
be made once each calendar year, beginning with the calendar year in which the
Member's Required Commencement Date falls, on or after August 1 of the year.
If the Member's Account balances are to be distributed under option
(II), the initial installment payment shall be made no earlier than by the
November 1 of the calendar year preceding the calendar year in which the
Member's Required Commencement Date falls and no later than by the Member's
Required Commencement Date, and with respect to the remaining installment
payments, one installment payment shall be made each calendar year, beginning
with the calendar year in which the Member's Required Commencement Date falls,
on or after August 1 of the year. The amount of the initial installment payment
shall be equal to the balance of the Member's Plan Accounts, divided by 10, and
the amount of each other installment payment shall be equal to the balance of
the Member's Plan Accounts, divided by the excess of (x) 10 over (y) the number
of installment payments previously made. Any amounts credited to the Member's
Plan Accounts after the date on which the 10th installment payment is made shall
be distributed in one lump sum payment for each calendar year, beginning with
the calendar year following the calendar year in which the 10th installment is
made, on or after the August 1 of such year.
Notwithstanding any provision in the Plan to the contrary, the amount
of any payment made pursuant to this subsection (e) shall be increased to the
extent necessary to satisfy the requirements of Code section 401(a)(9),
including the incidental death benefit requirements of Code section
401(a)(9)(G), and the regulations, rulings or notices issued thereunder.
(f) The Member's Death. If a Member dies and, immediately following his
death, there is a balance to his credit in the Vested Portion of his Plan
Accounts, such balance shall be distributed to his Beneficiary, in the form of a
single lump sum cash payment. Such payment shall be equal to the Vested Portion
of the Member's Plan Accounts, determined as of the close of the day on which
such payment is made. Such payment shall be made as soon as practicable after
the Member's death, but in all events not later than by the final day of the
Plan Year next following the Plan Year in which his death occurs.
7.2. Hardship Withdrawals. A Member who is in Service, and who has not
attained age 59 1/2, may make a hardship withdrawal from his 401(k) Contribution
Account subject to the following conditions:
(a) The withdrawal must be for:
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(1) expenses for "medical care", as defined in
section 213(d) of the Code, incurred by the Member, the
Member's spouse or any "dependent" of the Member, as defined
in section 152 of the Code;
(2) costs directly related to the purchase of the
Member's principal residence (excluding mortgage payments);
(3) payments necessary to prevent the eviction of the
Member from, or the foreclosure of the mortgage on, his
principal residence; or
(4) payment of tuition and related educational fees
for the next 12 months of post-secondary education for the
Member, or for the Member's spouse, children or dependents (as
defined in (1) above).
In addition to the above, the Committee may, in its sole discretion,
permit a Member to make a withdrawal in any circumstance which the
Committee determines to be an "immediate and heavy financial need",
within the meaning of Section 1.401(k)-1(d)(2)(iii) of the Treasury
regulations.
(b) The amount withdrawn may not exceed the lesser of (1) the
amount of the Member's immediate and heavy financial need, determined
in accordance with Section 1.401(k)-1(d)(2)(iv)(B)(1) of the Treasury
regulations, attributable to the matter for which the hardship
withdrawal is requested or (2) the aggregate amount of 401(k)
Contributions that have been contributed to the Plan on the Member's
behalf as of the day of the withdrawal, less the aggregate amount of
401(k) Contributions that were previously withdrawn by the Member under
this Section 7.2.
(c) The Member must have obtained all distributions, other
than hardship distributions, and all nontaxable loans currently
available under this Plan and all other plans maintained by the
Employer or any other Affiliated Company, to the extent obtaining such
distributions or loans is required under section 401(k) of the Code and
the regulations, rulings or notices issued thereunder.
(d) Notwithstanding any other provision in Article 3 to the
contrary, no 401(k) Contributions or Voluntary Contributions may be
made to the Plan, and no elective contributions or employee
contributions may be made to any other plan (qualified or nonqualified)
of deferred compensation maintained by the Employer or any other
Affiliated Company, by or on behalf of the Member for a period of 12
months following the day of the Member's receipt of a hardship
withdrawal hereunder.
(e) Notwithstanding the provisions of Section 4.1, the maximum
amount of 401(k) Contributions that may be made to the Plan on the
Member's behalf for the
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Plan Year next following the Plan Year in which the Member receives a
hardship withdrawal shall not exceed the dollar limit applicable to
401(k) Contributions under section 402(g) of the Code for such next
following year, less the amount of the 401(k) Contributions made on the
Member's behalf for the Plan Year in which such hardship withdrawal is
received.
(f) A Member who wishes to make a withdrawal hereunder shall
file a written request with the Committee setting forth the amount he
wishes to withdraw. The Member's request shall include such information
as to the amount needed by the Member, the reason for the withdrawal
and the Member's financial need for such withdrawal as required to
enable the Committee to make a determination as to whether or not the
conditions set forth herein for a hardship withdrawal will be met in
the Member's case. However, if the Committee so permits, and subject to
such rules and guidelines as the Committee may have promulgated, a
Member may use the telephone service made available by the Trustee to
communicate the foregoing information directly to the Trustee in
request for a withdrawal. A Member requesting a withdrawal shall
complete such forms as are prescribed by the Committee and/or the
Trustee in support of his request.
A withdrawal cannot be made from the Member's 401(k)
Contribution Account to the extent there is an unpaid amount
outstanding on any loan to the Member from such Account (disregarding
any loan required to be taken under subsection (c) hereof as a
condition of taking such withdrawal). Amounts withdrawn from the
Member's 401(k) Contribution Account shall be deemed to have been
withdrawn, pro rata, from each Investment Option in which such Account
was invested at the time of the withdrawal. Any withdrawal hereunder
shall be paid in the form of a lump sum cash payment.
7.3. In-Service Withdrawals. A Member who is in Service shall be
permitted to make withdrawals from his Plan Accounts as follows:
(a) Voluntary Contribution and Rollover Account. A Member may, at any
time, make a withdrawal of all or any portion of the balance of his Voluntary
Contribution Account or Rollover Account.
(b) Attainment of Age 59 1/2. A Member who has attained age 59 1/2 may,
at any time and in addition to the withdrawals permitted under subsection(a)
above, make a withdrawal of all or any portion of the balance of his 401(k)
Contribution Account.
(c) Rules of Application. Withdrawals made pursuant to this Section 7.3
shall be made in accordance with the following rules. A Member who wishes to
make a withdrawal hereunder shall file a written request with the Committee,
setting forth the amount he wishes to withdraw and specifying the Account or
Accounts from which such withdrawal is to be
32
<PAGE> 39
made. However, if the Committee so permits, and subject to such rules and
guidelines as the Committee may have promulgated, a Member may use the telephone
service made available by the Trustee to communicate the foregoing information
directly to the Trustee in request for a withdrawal. A Member requesting a
withdrawal shall complete such forms as are prescribed by the Committee and/or
the Trustee in support of his request.
A withdrawal cannot be made from an Account to the extent there is an
unpaid amount outstanding on any loan to the Member from such Account. Amounts
withdrawn from any Account shall be deemed to have been withdrawn, pro rata,
from each Investment Option in which such Account was invested at the time of
the withdrawal. For the purpose of this Section 7.3, the balance of any Account
shall be determined as of the close of the day on which the withdrawal is made.
Any withdrawal hereunder shall be made in the form of a lump sum cash payment.
7.4. Direct Rollovers. This Section 7.4 applies to any distribution
made under Section 7.1, 7.2 or 7.3 on or after January 1, 1993, to the extent
that such distribution is an "Eligible Rollover Distribution". Notwithstanding
any provision of the Plan to the contrary, the "Payee" of any Eligible Rollover
Distribution made under Section 7.1, 7.2 or 7.3 may elect, at the time and in
the manner prescribed by the Committee, to have all or any portion of such
distribution paid as a "Direct Rollover" to an "Eligible Retirement Plan"
specified by the Payee.
For the purpose of this Section 7.4, the following definitions shall
apply. An "Eligible Rollover Distribution" is defined as under section 402(c)(4)
of the Code and the applicable Treasury regulations. An "Eligible Retirement
Plan" is an individual retirement account described in section 408(a) of the
Code, an individual retirement annuity described in section 408(b) of the Code,
a qualified annuity plan described in section 403(a) of the Code, or a qualified
trust described in section 401(a) of the Code, that will accept a Direct
Rollover of the Payee's distribution. However, if the Payee is the surviving
spouse of a Member, only an individual retirement account or individual
retirement annuity described above may be an Eligible Retirement Plan. A "Payee"
is any person who is entitled to receive a distribution from the Plan, and who
is a Member, the surviving spouse of a Member, or the spouse or former spouse of
a Member who is entitled to receive the distribution as the alternate payee
under a "qualified domestic relations order", as defined in section 414(p) of
the Code. A "Direct Rollover" is a direct payment of a distribution by the Plan
to the Eligible Retirement Plan specified by the Payee, made in accordance with
section 401(a)(31) of the Code and the Treasury regulations, and the rulings and
notices issued by the Internal Revenue Service, thereunder, and made in such
manner as prescribed by the Committee.
7.5. Loans. The Committee shall establish and administer a loan program
for Members. Loans shall be made to a Member by the Trustee pursuant to said
program in accordance with the following rules:
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(a) Generally, loans under the Plan shall: (1) be available to
all Members on a reasonably equivalent basis, (2) not be made available
to Highly Compensated Employees in an amount greater than the amount
made available to other Employees, (3) be made in accordance with the
specific provisions herein, (4) bear a reasonable rate of interest, and
(5) be adequately secured.
(b) A loan may be made to a Member only while such Member is
in Service with an Employer. A loan may be made only from a Member's
401(k) Contribution Account, Rollover Account or Employer Contribution
Account. A loan may not be taken from an Account while there is an
outstanding balance on two separate loans previously taken from the
Plan, or while there is any outstanding balance on a loan from another
qualified retirement plan maintained by the Employer or any other
Affiliated Company. A loan may be made from a Member's 401(k)
Contribution Account or Rollover Account for any purpose. A loan may be
made from a Member's Employer Contribution Account to pay one or more
of the following:
(1) expenses for "medical care", as defined in
section 213(d) of the Code, incurred by the Member, the
Member's spouse or any "dependent" of the Member, as defined
in section 152 of the Code;
(2) costs directly related to the purchase or repair
of the Member's principal residence (excluding mortgage
payments);
(3) payments necessary to prevent the eviction of the
Member from, or the foreclosure of the Mortgage on, his
principal residence;
(4) costs directly related to the purchase or repair
of any vehicle needed by the Member in connection with his
employment by the Employer;
(5) expenses for a funeral of any member of the
Member's family;
(6) unpaid income or real estate taxes, legal fees,
or liabilities associated with the Member's divorce; or
(7) payment of tuition and related educational fees
for the next 12 months of post-secondary education for the
Member, or for the Member's spouse, children or dependents (as
defined in (1) above).
In addition to the above, the Committee may, in its sole discretion,
permit a Member to take a loan from his Employer Contribution Account
in any circumstance which the Committee determines to be a hardship.
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<PAGE> 41
The amount of any loan to a Member from an Account shall be
withdrawn, pro-rata, from each Investment Option in which the balance
of such Account is invested at the time of the loan. The Account from
which the loan is made shall be charged with such fees with respect to
the loan as the Trustee and the Committee shall agree from time to
time.
(c) A Member shall request a loan by filing a written request
with the Committee, in advance of the loan, setting forth the amount
and term of the loan desired, the Account from which the loan is to be
made, and, if the loan is to be made from the Member's Employer
Contribution Account, the purpose for which the loan is requested.
However, if the Committee so permits, and subject to such rules and
guidelines as the Committee may have promulgated, a Member may use the
telephone service made available by the Trustee to communicate the
foregoing information directly to the Trustee in application for a
loan. A Member requesting a loan shall complete such forms and
documents as are prescribed by the Committee and/or the Trustee to
obtain the loan. A loan shall not be granted unless it is approved by
the Committee. Notwithstanding the foregoing, a Member who is a
Designated Officer, and who desires to take a loan from his Employer
Contribution Account while such Account is wholly or partly invested in
the Pall Stock Fund, may request such loan only by filing such forms
with, and providing such information to, the Committee as the Committee
shall require for this purpose. The Committee shall not approve the
request for such loan if the granting of such loan would either (i)
subject such Member to liability under section 16(b) of the Securities
and Exchange Act of 1934, or (ii) result in the violation of any policy
which has been adopted by the Company's Board of Directors, and which
establishes a "blackout period" during which a Designated Officer may
not sell or purchase Company stock.
(d) Each loan must be for a minimum amount of at least $1,000.
The amount of any loan, when added to the outstanding balance of all
other loans to the Member from this Plan and any other qualified
retirement plan of an Affiliated Company ("Other Plan Loans"), shall
not exceed the least of:
(1) $50,000, reduced by the excess (if any) of (i)
the highest outstanding balance of Other Plan Loans to the
Member during the one year period ending the day before the
loan is to be made over (ii) the outstanding balance of Other
Plan Loans to the Member on the day the loan is made;
(2) one-half of the Vested Portion of the balance of
the Member's Plan Accounts; or
(3) either (i) in the case of a loan to be made from
the Member's Employer Contribution Account, one-half of the
Vested Portion of the balance
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of such Account, or (ii) in any other case, the Vested Portion
of the balance of the Account from which the loan is to be
made.
(e) For the purpose of this Section 7.5, the Vested Portion of
the balance of the Member's Plan Accounts, individually and in the
aggregate, shall be determined as of the day on which the loan is made.
(f) The loan shall be evidenced by a Promissory Note in such
form and containing such terms and conditions as are herein required
and as the Committee otherwise determines.
(g) Each loan shall provide for repayment of principal and
interest in level monthly installments over its term. Repayments shall
commence with the month following the month in which the loan is made.
The monthly installments of Members shall be deducted proportionately
from each of their paychecks from the Employer for the month and
remitted by the Employer to the Trustee, or shall be made in such other
manner as prescribed by the Committee. Repayments shall be suspended,
for up to one year, for periods during which the Member is taking an
unpaid leave of absence from the Employer due to temporary disability.
(h) The loan shall be for a term to be selected by the Member
with the approval of the Committee. The term for a loan from the
Member's Employer Contribution Account shall not exceed three years.
The term for a loan from the Member's 401(k) Contribution Account or
Rollover Account shall not exceed five years, or, if the proceeds of
such loan are to be used to acquire any dwelling unit which, within a
reasonable time, is to be used as the Member's principal residence, the
term of such loan shall not exceed 15 years. Notwithstanding the above,
the loan shall provide that all unpaid amounts of principal and
interest shall become immediately due and payable one month after the
Member's Termination of Service.
(i) The interest rate charged on any loan from the Plan shall
represent a prevailing interest rate charged on similar personal loans
granted under like circumstances by persons in the business of lending
money, as determined under rules of uniform application issued by the
Committee from time to time.
(j) The amount of the outstanding balance of any loan shall,
itself, be deemed to be an investment of the Member's Account from
which the loan was made. No Earnings shall be credited or charged to
such Account under Section 6.3 with respect to the amount of the
outstanding balance of any Plan loan. Repayments on the loan shall be
credited to such Account, and shall be invested in accordance with the
Member's investment election with respect to New Money to be credited
to such Account then in effect under Section 6.2.
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<PAGE> 43
(k) The loan shall be secured by the portion of the Member's
Account deemed to be invested in the outstanding balance of the loan.
As a condition of any loan to a Member hereunder, the Member shall
agree in writing that in the event of a default by the Member on such
loan, to the extent that such Account is being used as a security for
the loan, such Account shall be reduced as an offset against the
Member's obligation to repay any amount outstanding on such loan;
provided, however, that no such reduction of the Member's 401(k)
Contribution Account may be made until the earliest of the Member's
attainment of age 59 1/2, his becoming Disabled or his Termination of
Service.
(l) If any portion of the loan remains outstanding at the time
the Account from which the loan was made is to be distributed under
Section 7.1, to the extent such Account is being used as security for
the loan, the amount then distributable under Section 7.1 from such
Account shall be reduced to offset the outstanding loan balance.
(m) The failure to make any payment under the loan when due
shall constitute a default on the loan. However, the Committee may, in
its sole discretion, grant any Member who has failed to make any
payment on a loan by its due date a grace period, not exceeding 30 days
after such due date, during which the Member may make such payment and
avoid a default on the loan. In the event of a default, the balance of
the Member's Account from which the loan was made, to the extent such
Account is being used as security for the loan, shall be reduced as an
offset against the Member's obligations under the loan as provided in
subsection (k). In addition, the Committee shall take any commercially
reasonable action it deems necessary or desirable to satisfy any
remaining obligations under the loan.
(n) Each loan hereunder shall be subject to such other terms
and conditions as the Committee may require under rules of uniform
application issued by the Committee from time to time.
ARTICLE 8 - PLAN ADMINISTRATION
8.1. Responsibility for Administering the Plan. Authority to control
and manage the operation and administration of the Plan shall rest exclusively
with the Committee, except as to those responsibilities and powers reserved or
granted to the Trustee under Section 8.5, and to the Company's Board of
Directors under Section 8.6.
8.2. Responsibilities of the Committee. The Committee shall be a "named
fiduciary" of the Plan within the meaning of section 402(a) of ERISA, the
"administrator" of the Plan within the meaning of section 3(16)(A) of ERISA, and
the "plan administrator"
37
<PAGE> 44
within the meaning of section 414(g) of the Code. The Committee shall have the
following responsibilities with respect to the administration of the Plan:
(a) to furnish Members (and other individuals entitled to
receive same) with such reports, notifications, documents, statements,
information and explanations with respect to the Plan as may be
required under the provisions hereof and by the Code and ERISA;
(b) to file with the appropriate governmental agencies all
reports with respect to the Plan required by the Code, ERISA or any
other applicable statute;
(c) to engage an independent certified public accountant to
perform such functions with respect to the Plan as may be required of
the Committee by ERISA;
(d) to direct the Trustee to pay out of the Trust Fund all
amounts which are payable hereunder to Members or their surviving
spouses or other beneficiaries, any contributions to be returned to an
Employer under Section 12.1 and any taxes (including interest and
penalties thereon) that may be levied or assessed on the Trust's assets
or the income thereof;
(e) to interpret the Plan, to decide all questions that may
arise as to the construction or application of any of its provisions
and, in accordance with the claims procedure set forth in Section 8.7,
to make all final determinations as to the rights of Members or their
surviving spouses or other beneficiaries to benefits under the Plan.
Any determination made by the Committee as to the interpretation,
construction or application of the Plan, or as to the rights of any
Member or any other person to benefits under the Plan, shall be
conclusive and binding on all parties;
(f) to promulgate such rules and regulations, and prescribe
such forms and manuals, as it shall deem appropriate for the efficient
administration of the Plan, and to maintain all data, records and
documents with respect to the Plan that may be necessary for its
operation and administration or that may be required to be maintained
by law;
(g) to employ suitable agents and legal counsel (who may be
the same as legal counsel for any Employer) to advise or assist the
Committee with respect to any of its duties hereunder;
(h) to establish and carry out a funding policy and method for
the Plan consistent with the objectives of the Plan and with the
requirements of ERISA, and to communicate such funding policy and
method to the Trustee; and
38
<PAGE> 45
(i) to perform such other duties and responsibilities as are
specifically assigned to it hereunder or under the Trust Agreement, or
as may be necessary for the Plan to be operated and administered in
accordance with the requirements of the Code and ERISA.
8.3. Duties and Powers of the Committee. In carrying out its
responsibilities under Section 8.2, the Committee shall comply with the
standards of conduct set forth in subsection (a) and shall have the powers set
forth in subsection (b).
(a) Standards of Conduct. The Committee shall discharge its duties
under the Plan solely in the interest of the Members and their surviving spouses
or other beneficiaries (subject, however, to the provisions of Section 12.1);
and
(1) for the exclusive purpose of providing benefits to Members
and their surviving spouses or other beneficiaries and defraying the
reasonable expenses of administering the Plan;
(2) with the skill, care, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims;
(3) in accordance with the documents and instruments governing
the Plan insofar as such documents and instruments are consistent with
the provisions of ERISA; and
(4) in accordance with such other applicable standards as may
be prescribed by ERISA for Plan fiduciaries.
In addition, the Committee shall maintain a written record of all
actions taken by it and determinations made by it in carrying out its
responsibilities under the Plan, and shall prepare and submit to the Company's
Board of Directors such written reports relating to its responsibilities under
the Plan as the Board may request of it from time to time. Any action to be
taken by the Committee hereunder shall be taken upon the affirmative vote of at
least a majority of all persons serving on the Committee, except as otherwise
permitted under subsection (b)(1). Any direction to be given by the Committee
hereunder in effecting any action may be given by any person serving on the
Committee, unless the duty to give such direction with respect to such action
has been allocated to a specific person or persons serving on the Committee
under subsection (b)(1).
(b) Powers. The Committee shall have the following powers:
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<PAGE> 46
(1) The persons serving on the Committee may allocate specific
duties and responsibilities among themselves. Any such allocation shall
be made pursuant to a written instrument, signed by all such persons,
and setting forth (i) the duties or responsibilities so allocated, (ii)
the person or persons to whom such duties or responsibilities are
allocated, and (iii) the period of time for which such allocation is to
be effective. If any duty or responsibility is so allocated, a person
to whom such duty or responsibility has not been allocated shall not be
liable for any act or omission of the person or persons to whom such
duty or responsibility has been allocated, except as may otherwise be
provided under section 405(b)(2) of ERISA;
(2) The Committee may designate persons other than persons
serving on the Committee to carry out any fiduciary responsibility,
other than a "trustee responsibility" within the meaning of section
405(c)(3) of ERISA. Any such designation shall be made pursuant to a
written instrument setting forth (i) the duties or responsibilities so
delegated, (ii) the person or persons to whom such duties or
responsibilities are delegated, and (iii) the period of time for which
such delegation is to be effective. If any fiduciary responsibility is
so delegated, the Committee shall not be liable for any act or omission
of the person or persons designated by it to carry out such
responsibility, except as otherwise provided under section 405(c)(2) of
ERISA. Any person to whom fiduciary responsibilities are so delegated
shall perform such responsibilities in accordance with the standards of
conduct set forth in subsection (a) of this Section;
(3) The Committee, and any person to whom fiduciary
responsibilities are delegated by it under subsection (b)(2) above, may
employ attorneys, accountants, actuaries, and other consultants or
advisors to render advice to or otherwise to assist them in carrying
out their responsibilities under the Plan; and
(4) The Committee shall have all other powers necessary to
enable it to carry out its responsibilities under Section 8.2, and to
carry out such responsibilities as are assigned to it under the Trust
Agreement.
8.4. Reimbursement and Indemnification of the Committee. The persons
serving on the Committee, and any persons designated by the Committee to perform
fiduciary responsibilities pursuant to Section 8.3(b)(2), shall not receive any
compensation for their services as such, but shall be reimbursed by the Company
for all reasonable expenses incurred by them in the performance of their duties
hereunder. The persons serving on the Committee, and any other persons
designated by the Committee to perform fiduciary responsibilities pursuant to
Section 8.3(b)(2), shall be indemnified and held harmless by the Company and
each other Employer for any liability or loss (including legal fees or other
expenses of litigation) arising out of or in connection with their services to
the Plan in such capacity, to the extent that such liability or loss (a) is not
insured against under any applic-
40
<PAGE> 47
able policy of insurance (whether or not maintained by the Company or any other
Employer) and (b) is not determined to be due to their gross negligence or
willful misconduct.
8.5. Responsibilities of the Trustee. The Trustee shall have the
following responsibilities and powers in connection with the Plan:
(a) to hold all amounts contributed to the Plan by the
Employers, any income thereon and any other Plan assets, as part of the
Trust Fund;
(b) to make payments out of the Trust Fund in accordance with
the instructions of the Committee;
(c) to hold and control the Trust Fund, and to invest the
Trust Fund in accordance with any directions received from the
Committee and the Members which are proper, and which are in accordance
with the terms of the Plan and the requirements of ERISA; and
(d) to perform such other responsibilities and duties in
connection with the Plan and Trust as are set forth in the Trust
Agreement.
8.6. Responsibilities of the Company's Board of Directors. The
following responsibilities and powers in connection with the Plan shall be
reserved to the Board of Directors of the Company:
(a) to amend or terminate the Plan;
(b) to establish a committee to control and manage the
operation and administration of the Plan; and to appoint, remove and
replace the persons serving on such committee, and to determine the
number of persons who shall serve on such committee; and
(c) to appoint, remove and replace the Trustee, and to
determine the number of persons who shall serve as Trustee.
8.7. Claims Procedure. Any claim for benefits or other payments under
the Plan shall be determined in accordance with the procedure set forth below.
(a) Initial Determination. Any claim for benefits or other payments
under the Plan shall be made by filing a written statement of such claim with
the person or persons designated by the Committee to process and make initial
determinations as to such claims. In the event such claim is denied in whole or
in part, such person or persons shall notify the claimant of the denial within
90 days after the date on which the claim was filed. Such notification shall be
in writing and shall set forth: the specific reason or reasons for the
41
<PAGE> 48
denial; specific reference to the provisions of the Plan on which denial was
based; a description of any additional material or information necessary for the
claimant to perfect the claim, and an explanation of why such material or
information is necessary; and an explanation of the review procedure under
subsection (b).
(b) Review Procedure. A claimant whose claim is denied in whole or in
part under subsection (a) shall be entitled to have such denial reviewed by the
Committee, by filing a written request for such review with the Committee within
60 days after his receipt of notification of the denial of his claim under
subsection (a). Upon receipt of such request, the Committee shall make a full
and fair review of the claim; and in connection with such review, the claimant
shall be entitled to review pertinent documents and to submit issues and
comments in writing.
(c) Decision on Review. The Committee shall make a decision with
respect to such claim within 60 days after its receipt of the claimant's written
request for review; provided, however, that if the Committee determines that a
hearing is necessary, the Committee shall hold such hearing within such 60-day
period and shall make its decision within 120 days after its receipt of the
claimant's request for review. The Committee's decision on review shall be in
writing and shall include specific reasons for the decision and specific
references to the provisions of the Plan on which its decision was based.
8.8. Agent for Service of Process. The agent to accept service of legal
process on behalf of the Plan shall be such person as may be designated by the
Committee, from time to time, to perform such function or, in the absence of
such designation, the Committee itself.
8.9. Expenses. The Employers shall pay all of the fees and expenses of
the Plan and Trust which are not specifically described in the Trust Agreement.
All other fees and expenses of the Plan and Trust shall be paid by the
Employers, or out of the Trust Fund, as provided in the Trust Agreement.
ARTICLE 9 - AMENDMENT, MERGER AND TERMINATION
9.1. Amendment. The Company may amend this Plan at any time, by a duly
adopted resolution of the Company's Board of Directors. Any such amendment may
be made with retroactive effect to the extent not prohibited by law. However, no
such amendment shall decrease the balance of any Member's Plan Accounts, or
affect the computation of the extent to which a Member is vested in his
Accounts. In addition, no such amendment shall increase the duties or
liabilities of the Committee or the Trustee without their written consent.
9.2. Merger or Consolidation.
(a) General. In the event that the Plan is merged or consolidated with
any other plan, or in the event of any transfer of assets or liabilities of the
Plan to any other plan, the benefit
42
<PAGE> 49
which each Member would be entitled to receive if the Plan terminated
immediately after such merger, consolidation or transfer shall be at least equal
to the benefit which he would have been entitled to receive if the Plan had
terminated immediately before the merger, consolidation or transfer.
(b) Transfer Accounts. In the event that any Employer terminates any
plan and its trust which are qualified and tax-exempt under sections 401(a) and
501(a) of the Code, and such plan was a defined contribution plan (such plan
shall be referred to below as a "Terminated Plan"), then the Committee may, in
its sole discretion, permit such Employer to directly transfer to this Plan any
or all of the account balances under the Terminated Plan which belong to Members
in this Plan. Any such transfer shall be made in accordance with the applicable
provisions of the law, and in accordance with such rules as are prescribed by
the Committee.
The account balances under the Terminated Plan of any Member which are
so transferred to this Plan shall be held in an account referred to as a
"Transfer Account" established and maintained under the Plan for such Member. A
Member's interest in his Transfer Account shall be fully vested and
nonforfeitable at all times. The Transfer Account shall be invested in
accordance with rules and procedures which are consistent with those set forth
in Article 6, as if such account was a Rollover Account. A Member may borrow
from his Transfer Account under the provisions of Section 7.5 as if such Account
was a Rollover Account. Any loan against the Member's account balances under the
Terminated Plan which is outstanding at the time such balances are transferred
to this Plan may, in the discretion of the Committee, be included in such
transfer; and the Member shall repay any such loan in accordance with the terms
and conditions thereof as established under the Terminated Plan.
A Transfer Account shall be credited with Earnings in the manner
described in Section 5.1(b). However, the balance of any Transfer Account shall
be distributed, or may be withdrawn, under the same terms and conditions which
applied to distributions and withdrawals from participants' accounts under the
Terminated Plan (immediately prior to the termination thereof) in lieu of the
terms and conditions of Article 7, and, upon Plan termination, Section 9.3(b),
except that, for purposes of determining the amount of any distribution or
withdrawal, the Transfer Account shall be valued as of the close of the last
business day immediately preceding the time such distribution or withdrawal is
made. If appropriate, the Transfer Account shall be divided into sub-accounts to
account separately for any portions of the account balances transferred from the
Terminated Plan which, under the provisions of the Terminated Plan, could be
distributed or withdrawn at different times, or in different forms or manners,
than other portions of such account balances.
Except as otherwise provided above, the Transfer Account shall be
treated as an Account under the Plan.
9.3. Termination.
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<PAGE> 50
(a) General. The Company reserves the right to terminate the Plan at
any time, without the consent of any other party, pursuant to a resolution
authorizing such termination duly adopted by the Company's Board of Directors.
Notwithstanding anything herein to the contrary, the Employers, upon termination
of the Plan, shall have no obligation or liability whatsoever to make any
further contributions to the Trust, and neither the Trustee, nor any Member,
Beneficiary, Employee or other person shall have any right to compel any
Employer to make any such further contributions.
(b) Termination or Continuation of the Trust. Upon termination of the
Plan, one of the following actions shall be taken:
(1) If the Company so directs, the Trust shall continue in
existence. In such event, the Trust Fund shall be held, administered
and distributed as directed by the Committee and as provided in the
Plan, and all of the provisions of the Plan set forth herein, which are
applicable in the opinion of the Committee, other than the provisions
relating to contributions, shall remain in full force and effect.
(2) If the Plan is terminated without establishment or
maintenance of another defined contribution plan within the meaning of
section 401(k)(10) of the Code, and if the Company so directs, the
Trust shall be terminated. In such case, not withstanding any other
provision of the Plan to the contrary, the Plan Account balances of
each Member and Beneficiary shall be distributed to such Member or
Beneficiary, as soon as administratively feasible, in the form of a
single lump sum payment.
(3) If, upon termination of the Plan, another defined
contribution plan has been, or will be, established or maintained
within the meaning of section 401(k)(10) of the Code, then,
notwithstanding any other provision of the Plan to the contrary and if
the Company so directs (i) an immediate distribution shall be made, in
accordance with the provisions of (2) above, to all Beneficiaries and
to all Members who have attained age 59-1/2 or are Disabled, and (ii)
the Trust shall be continued, in accordance with the provisions of (1)
above, with respect to all other Members; provided, however, that each
such other Member's Plan Account balances shall be distributed, in a
single lump-sum payment, as soon as practicable after such Member has
attained age 59-1/2, has become Disabled or has incurred a Termination
of Service for any reason.
(c) Vesting Upon Termination. Upon the termination or partial
termination of the Plan, or upon the complete discontinuance of contributions to
the Plan, notwithstanding any other provision of the Plan to the contrary, each
Member affected thereby shall become 100% vested, and shall have a
nonforfeitable interest, in his Plan Accounts.
44
<PAGE> 51
9.4. Termination of An Employer's Participation in the Plan. An
Employer, other than the Company, may at any time terminate its participation in
the Plan, and the Company may at any time direct that an Employer terminate its
participation in the Plan. Unless the Company specifically directs otherwise, an
Employer other than the Company shall be treated as having terminated its
participation in the Plan (a) upon the sale or other transfer of all or
substantially all of its assets to an Unaffiliated Entity or (b) upon the sale
or other transfer of its stock to an Unaffiliated Entity in a transaction that
results in the termination of such Employer's "parent-subsidiary or
brother-sister controlled group relationship" with the Company, or with the
controlled group of corporations of which the Company is a member, within the
meaning of section 414(b) of the Code. For purposes of the foregoing, the term
"Unaffiliated Entity" shall mean any entity other than an Affiliated Company.
Upon any such termination of participation, the Plan shall terminate with
respect to the terminating Employer and its Employees and shall continue in
effect with respect to the remaining Employers and their Employees. In the event
of such a termination, the provisions of Section 9.3(b) shall apply with respect
to the portion of the Trust Fund attributable to the terminating Employer, and
Section 9.3(c) shall apply to the Employees of such Employer.
ARTICLE 10 - TOP-HEAVY PROVISIONS
10.1. General. With respect to each Plan Year in which the Plan is
Top-Heavy, the provisions of Sections 10.2, 10.3, 10.4 and 10.5 shall apply
notwithstanding any other provisions in this Plan to the contrary. With respect
to any Plan Year in which the Plan is not Top-Heavy, except as otherwise
provided herein, the provisions of Sections 10.2, 10.3. 10.4 and 10.5 shall not
apply.
10.2. Minimum Benefit. For any Plan Year in which the Plan is
Top-Heavy, the Employer shall make a contribution to the Plan under this Section
10.2 on behalf of any Member who is a Non-Key Employee. Such contribution shall
be in the amount by which the contributions made by the Employer on such
Member's behalf, or allocated to such Member, for such year under this Plan, and
under each other defined contribution plan aggregated with this Plan under
Section 10.6(a), is less than the smaller of (a) 3% of such Member's Section 415
Compensation for such year or (b) the percentage of such Member's Section 415
Compensation for such year which is equal to the highest Allocation Percentage
for the year of any Member who is a Key Employee. For this purpose, (1) 401(k)
Contributions made on behalf of Non-Key Employees under this Plan, and any
contributions subject to section 401(k) or 401(m) of the Code made on behalf of
Non-Key Employees under any other defined contribution plan, shall be
disregarded; (2) a Key Employee's "Allocation Percentage" for a Plan Year shall
mean the percentage determined by dividing the sum for such year of (i) total
401(k) Contributions and Employer Contributions made on behalf of the Key
Employee, or allocated to the Key Employee, under this Plan and (ii) the total
contributions made by the Employer on such Key Employee's behalf, or allocated
to such Key Employee, under any other defined contribution plan aggregated with
this Plan
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<PAGE> 52
under Section 10.6(a) by so much of his Section 415 Compensation for the year as
does not exceed the maximum amount of his Section 415 Compensation that may be
taken into account hereunder; and (3) any person who is not a Member solely
because he has not elected to have any 401(k) Contributions made on his behalf
shall be treated as a Member. Clause (b) in the second preceding sentence shall
not apply in any Plan Year in which this Plan enables a defined benefit plan,
which is aggregated with this Plan under Section 10.6(a), to meet the
requirements of section 401(a)(4) or 410 of the Code for such year.
Notwithstanding the foregoing, the amount to be contributed on behalf
of any Member pursuant to this Section shall not exceed the minimum amount that
must be contributed on such Member's behalf in order to meet the "minimum
benefit" requirements of section 416(c) of the Code and the regulations issued
thereunder; and no amount shall be contributed under this Section on behalf of a
Member for any Plan Year if (A) the Member is not employed by the Employer on
the last day of such Plan Year, or (B) the Member is entitled to receive for
such year, under any defined benefit plan aggregated with this Plan under
Section 10.6(a), a benefit that is at least equal to the defined benefit minimum
described in M-2 of Section 1.416-1 of the Treasury regulations.
Any amount contributed under this Section 10.2 by the Employer on
behalf of any Member shall be credited to the Member's Employer Contribution
Account, as of the day on which such contribution is made to the Plan, but no
later than by the final day of the Plan Year to which the contribution relates.
10.3. Minimum Vesting. In the case of a Member who earns at least one
Hour of Service under the Plan during or subsequent to a Plan Year for which the
Plan is Top-Heavy, the Vested Portion of his Plan Accounts shall be determined
as provided in Section 1.37, except that the following schedule shall apply to
all such Members in lieu of the schedule appearing in subsection (a) of Section
1.37:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C> <C>
0 - 1 0
2 40
3 100
</TABLE>
10.4. Maximum Compensation. For any Plan Year beginning prior to August
1, 1989 in which the Plan is Top-Heavy, the annual Compensation taken into
account under the Plan, and the annual Section 415 Compensation taken into
account under this Article 10, for any Member shall not exceed $200,000,
adjusted annually by the Secretary of the Treasury under section 416(d) of the
Code and the Treasury regulations issued thereunder.
10.5. Section 415 Limits. For any Plan Year beginning before January 1,
2000 in which the Plan is Top-Heavy, the overall limit of section 415(e) of the
Code shall be applied
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<PAGE> 53
by substituting "1.0" for "1.25" wherever "1.25" appears. However, the preceding
sentence shall not apply with respect to a Plan Year if (a) each Member who is a
Non-Key Employee is entitled to receive for such year (1) under this Plan, when
aggregated with any other defined contribution plan aggregated with this Plan
under Section 10.6(a), a benefit that is at least equal to the defined
contribution minimum described in M-14 of Section 1.416-1 of the Treasury
regulations, or (2) under any defined benefit plan aggregated with this Plan
under Section 10.6(a), a benefit that is at least equal to the defined benefit
minimum described in M-14 of Section 1.416-1 of the Treasury regulations, and
(b) the Plan is not Super Top-Heavy for such year.
10.6. Definitions. For purposes of this Article 10, the following terms
shall have the following meanings, and the following rules shall apply:
(a) "Top-Heavy" and "Super Top-Heavy" - the Plan shall be deemed to be
Top-Heavy with respect to any Plan Year if, as of the Determination Date for
that year, the aggregate Benefits of all Key Employees under this Plan, and all
other plans which are aggregated with this Plan, exceed 60% of the aggregate
Benefits of all Key and Non-Key Employees under this Plan and all such other
plans. The Plan shall be deemed to be Super Top-Heavy with respect to any Plan
Year if, as of the Determination Date for that year, the aggregate Benefits of
all Key Employees under this Plan, and all other plans that are aggregated with
this Plan, exceed 90% of the aggregate Benefits of all Key and Non-Key Employees
under this Plan and all such other plans. For purposes of the two preceding
sentences, each qualified plan maintained by the Employer, including this Plan,
(1) in which a Key Employee was a participant, or (2) which enabled any plan
described in clause (1) to meet the requirements of section 401(a)(4) or section
410 of the Code, during the 5-year period ending on the Determination Date for
the Plan Year in question shall be aggregated. A terminated plan shall be
aggregated with this Plan, for these purposes, if such plan was maintained by
the Employer during the aforesaid 5-year period and would, but for its termi-
nation, be so aggregated under the preceding sentence.
(b) "Determination Date" - The Determination Date for a Plan Year shall
mean the final day of the immediately preceding Plan Year, except, however, the
Determination Date for the first Plan Year shall be the final day of such year.
(c) "Benefits" - An individual's Benefits shall mean the sum of (1) the
balance of his Plan Accounts under this Plan and his accounts under all other
defined contribution plans aggregated with this Plan under Section 10.6(a); (2)
the present value of his cumulative accrued benefits under all defined benefit
plans aggregated with this Plan under Section 10.6(a); and (3) the aggregate
distributions made with respect to him under the plans described in clauses (1)
and (2) hereof during the 5-year period ending on the Determination Date as of
which such individual's Benefits are being determined.
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<PAGE> 54
For purposes of this Section 10.6(c), the Benefits of any individual
shall be disregarded if such individual (i) has not performed any services for
the Employer during the 5-year period ending on the Determination Date for the
Plan Year or (ii) was a Key Employee for any Plan Year but subsequently became a
Non-Key Employee for any Plan Year. The present value of accrued benefits under
any defined benefit plan shall be determined for each Non-Key Employee under the
uniform method of benefit accrual used by all qualified defined benefit plans of
the Employer, or, if there is no such method, as if benefits accrued not more
rapidly than under the slowest accrual rate permitted under section 411(b)(1)(C)
of the Code.
(d) "Key Employee" and "Non-Key Employee" - shall be defined as under
section 416(i) of the Code and the Treasury regulations thereunder.
(e) "Section 415 Compensation" - shall mean, for any Plan Year,
compensation as defined under section 415(c)(3) of the Code, subject to the
Compensation Limit in effect for such year.
(f) The benefits attributable to any plan aggregated with this Plan
under Section 10.6(a) shall be taken into account for purposes of Sections 10.2,
10.5 and 10.6(a) and (c) in a Plan Year in a manner consistent with T-23 of
Section 1.416-1 of the Treasury regulations.
(g) For purposes of this Article 10, wherever required by Section 416
of the Code and the regulations thereunder, the term "Employer" includes all
entities aggregated with the Employer under section 414(b), (c), (m) or (o) of
the Code and the regulations thereunder.
10.7. Applicability. In the event that Congress should provide by
statute, or the Treasury Department or the Internal Revenue Service should
provide by regulation, ruling or notice, that the provisions of this Article are
no longer necessary to meet the qualification requirements of section 401(a) of
the Code, this Article shall become void, and shall no longer apply, without the
necessity of any amendment to the Plan.
ARTICLE 11
SPECIAL RULES FOR GELMAN EMPLOYEES
11.1. In General. The rules set forth in this Article 11 shall apply,
notwithstanding any other provisions of the Plan to the contrary, to any
individual who, during any Plan Year, transfers employment either from Gelman
Sciences, Inc. ("Gelman") to an Employer, or from an Employer to Gelman. For
purposes of this Article, any elective contributions made by or on behalf of any
individual to a qualified retirement plan pursuant to the 401(k) provisions of
such plan shall be referred to as "Elective Contributions". Any voluntary,
after-tax contributions or matching contributions made by or on behalf of any
individual to a qualified
48
<PAGE> 55
retirement plan pursuant to the 401(m) provisions of such plan shall be referred
to as "Voluntary Contributions" and "Matching Contributions", respectively. The
Gelman Sciences 401(k) Savings Plan shall be referred to as the "Gelman Plan".
11.2. Transfer of Employment to Gelman.
(a) In the case of any individual whose employment is
transferred from an Employer to Gelman, and whose Elective
Contributions, as of the date of such transfer, are not in excess of
the dollar limit under section 402(g) of the Code for the Plan Year in
which such transfer occurs, any distribution of Elective Contributions
(and earnings) that would otherwise be required to be made to such
individual by this Plan for such Plan Year under Section 4.8(a) shall,
instead, be made by the Gelman Plan.
(b) In the case of any individual whose employment is so
transferred, and whose Elective Contributions, as of the date of such
transfer, are in excess of such dollar limit, the distribution of
Elective Contributions (and earnings) that would otherwise be required
to be made to such individual by this Plan for such Plan Year under
Section 4.8(a) shall be limited to the excess of Elective Contributions
over such dollar limit as of the date of such transfer (and the
earnings attributable to such excess contributions). The Elective
Contributions (and earnings) that would be distributed to such
individual by this Plan under Section 4.8(a) but for the preceding
sentence shall, instead, be distributed to such individual by the
Gelman Plan.
(c) In the case of any individual whose employment is so
transferred, and whose contributions under the Gelman Plan are required
to be taken into account in computing his actual deferral percentage
and contribution percentage under this Plan for any Plan Year, and who
must receive a distribution of any contributions (and earnings), or
forfeit any Matching Contributions (and earnings), for such Plan Year
in order for this Plan and/or the Gelman Plan to satisfy the
requirements of section 401(k) or (m) of the Code:
(1) if Elective Contributions must be so distributed
for such year, the Elective Contributions made under the
Gelman Plan during such year shall be distributed before any
Elective Contributions made under this Plan for such year are
distributed; and
(2) if Voluntary and Matching Contributions must be
so distributed, or if Matching Contributions must be so
forfeited, for such year, the Voluntary Contributions made
under this Plan for such year shall be distributed before any
Matching Contributions made under the Gelman Plan during such
year are distributed or forfeited.
49
<PAGE> 56
11.3. Transfer of Employment From Gelman to an Employer.
(a) In the case of any individual whose employment is
transferred from Gelman to an Employer, and whose Elective
Contributions under the Gelman Plan, as of the date of such transfer,
are not in excess of the dollar limit under Code section 402(g) for the
Plan Year in which such transfer occurs, any distribution of Elective
Contributions (and earnings), which is otherwise required by this Plan
and the Gelman Plan because such contributions exceed such dollar limit
for such Plan Year, shall be made entirely from this Plan under Section
4.8(a).
(b) In the case of any individual whose employment is so
transferred, and whose Elective Contributions under the Gelman Plan, as
of the date of such transfer, are in excess of the dollar limit under
Code section 402(g) for the Plan Year in which such transfer occurs,
any distribution of Elective Contributions (and earnings) that would
otherwise be required to be made to such individual by the Gelman Plan
for such Plan Year shall be limited to the excess of Elective
Contributions over such dollar limit as of the date of such transfer
(and the earnings attributable to such excess contributions). The
Elective Contributions (and earnings) that would be distributed to such
individual by the Gelman Plan but for the preceding sentence shall,
instead, be distributed to such individual by this Plan under Section
4.8(a).
(c) In the case of any individual whose employment is so
transferred, and whose contributions under the Gelman Plan are required
to be taken into account in computing his actual deferral percentage
and contribution percentage under this Plan for any Plan Year, and who
must receive a distribution of any contributions (and earnings), or
forfeit any Matching Contributions (and earnings), for such Plan Year
in order for this Plan and/or the Gelman Plan to satisfy the
requirements of section 401(k) or (m) of the Code:
(1) if Elective Contributions must be so distributed
for such year, the Elective Contributions made under this Plan
for such year shall be distributed before any Elective
Contributions made under the Gelman Plan during such year are
distributed; and
(2) if Voluntary and Matching Contributions must be
so distributed, or Matching Contributions must be so forfeited
for such year, the Voluntary Contributions made under this
Plan for such year shall be distributed before any Matching
Contributions made under the Gelman Plan during such year are
distributed or forfeited.
11.4 Plan Loans. If the employment of any individual is transferred
from an Employer to Gelman, and on the date of such transfer there is an
outstanding principal balance on any loan to such individual from the Plan, the
Committee may, in its discretion
50
<PAGE> 57
and under such terms and conditions as the Committee shall prescribe, permit
such individual to continue making installment payments on the loan after such
transfer, by employer deduction from his paychecks from Gelman or otherwise,
until the loan has been fully repaid. In the case of any individual who receives
such permission, such outstanding principal balance shall not become immediately
due and payable, and such loan shall not otherwise be treated as being in
default, merely as a result of such transfer of employment, or merely as a
result of any change in the time or manner for making the installment payments
on such loan under the preceding sentence.
ARTICLE 12 - MISCELLANEOUS
12.1. Plan Assets to be Held for Exclusive Benefit of Members. The
assets of the Plan shall never inure to the benefit of the Employers and shall
be held for the exclusive purposes of providing benefits to Members of the Plan
and their spouses and other beneficiaries, and defraying the reasonable costs
and expenses of administering the Plan. However, this Section shall not prevent
a contribution made by any Employer under the Plan from being returned to it, or
other Plan assets to be distributed to an Employer, in the following
circumstances:
(a) If an amount is contributed under the Plan by an Employer
pursuant to a mistake of fact, the amount so contributed shall be
returned to such Employer within one year of the date of such
contribution.
(b) Each contribution which an Employer makes under the Plan
is conditioned upon the deductibility of such contribution under
section 404 of the Code. To the extent a deduction therefor is not
allowed, the amount of any such contribution shall be returned to such
Employer within one year after the contribution is determined to be
nondeductible.
12.2. Nonassignability of Rights. Except to the extent provided in
Section 12.3, no interest, right or claim in or to any part of the Trust Fund or
any payment therefrom shall be assignable, transferable or subject to sale,
mortgage, pledge, garnishment, attachment, execution or levy of any kind, and
the Trustee shall not recognize any attempt to assign, transfer, sell, mortgage,
pledge, garnish, attach or execute the same.
12.3. Qualified Domestic Relations Orders. To the extent so provided in
an order that the Committee determines to constitute a "qualified domestic
relations order" within the meaning of section 414(p)(1)(A) of the Code
("QDRO"), the right to receive all or a portion of the benefits payable under
the Plan with respect to a Member may be assigned or transferred by the Member
to any "alternate payee" within the meaning of section 414(p)(8) of the Code
("Alternate Payee") specified in such QDRO. Notwithstanding any other provision
in this Plan to the contrary, if a QDRO so provides, the portion of a Member's
51
<PAGE> 58
interest in the Plan which is payable under the QDRO to any Alternate Payee
shall be distributed to such Alternate Payee, in the form of a single lump sum
payment, as soon as practicable after the Committee has determined that such
order constitutes a QDRO.
12.4. Military Leaves of Absence. With respect to any period of absence
from employment taken by a Member for military service, to the extent required
by section 414 (u) of the Code:
(a) the Member shall be credited with Hours of Service and
days of Service, and shall be deemed to receive Compensation, for such
period;
(b) the Member shall receive an allocation under Section 3.4
of any Employer contribution made for such period; and
(c) at the conclusion of such period, the Member shall be
permitted to make any 401(k) Contributions and Voluntary Contributions
that he would have been able to make to the Plan during such period but
for the absence.
In addition to the above, the Committee may permit the suspension of repayments
during any such period of absence on any loan that was made by the Plan to the
Member prior to the start of such period, to the extent that such suspension is
permitted under section 414 (u) of the Code.
12.5. Trust Fund as Sole Source of Benefit Payments. The Trust Fund
shall be the sole source of payment of benefits under the Plan. In no event
shall any Employer or any other Affiliated Company be liable to any Member or to
any other individual for the payment of such benefits.
12.6. Right to Employment. The Plan shall not confer upon any Employee
any right of employment, nor shall any provision of the Plan interfere with the
right of any Employer to discharge any Employee.
12.7. Gender and Number. Words used in the masculine include the
feminine gender. Words used in the singular or plural shall be construed as if
plural or singular, respectively, where they would so apply.
12.8. Titles. Titles of Articles, Sections and subsections are inserted
for convenience and shall not affect the meaning or construction of the Plan.
12.9. Notifications. Except as otherwise provided above, any written
notification required to be given to a Member hereunder may be given by sending
such notification to him by first class mail, addressed to him at the address
most recently listed for him in the records of his Employer.
52
<PAGE> 1
Exhibit 13
Pall Corporation 1997 Annual Report
Opportunity...
[PHOTOS OMITTED]
<PAGE> 2
Contents
Profile of Pall Corporation 1
Letter to Shareholders 2
Financial Highlights 5
Pall at a Glance 6
Pall's Vision 8
Market Reviews 10
Financial Contents 22
Corporate Directory 42
<PAGE> 3
Profile of Pall Corporation...
Profile
Pall Corporation is a specialty materials and engineering company with the
broadest-based filtration and separations capabilities in the world. We serve a
diverse, global customer base in three major markets: Health Care, Aeropower and
Fluid Processing. The worldwide market potential for filtration and separations
products is $17 billion and growing steadily.
For more than 50 years, we have dedicated ourselves to applying innovative
technologies and scientific research to solve complex customer problems. We have
taken prudent risks along the way and never shied away from a good challenge.
The strategic expansion of our business to include high-end separations
represents an important new chapter in our history. With the addition of
separations to our traditional fluid clarification business, we dramatically
increased the size of our potential market worldwide. Just as important, we
enhanced our ability to provide customers with "cradle-to-grave" support for
their manufacturing processes. As a result, we have become much more than a
supplier of quality filtration products. We are in partnership with our
customers, adding value for them and competitive advantage for Pall.
1
<PAGE> 4
Letter to Shareholders
This was a year of high points and disappointments. Overall results were below
our targets for revenues and earnings and well short of our historical
performance. Sales for the year grew 2 1/2% in local currency and were down 1%
after adding back the negative effects of foreign currency exchange rates. This
3 1/2% swing reduced our sales by $35 million and earnings by 14 cents per
share.
Put into a longer-term context, in the last three years, Pall grew at an annual
rate of 10% in sales. 1997 can be viewed as a year in which we strengthened and
consolidated recent market gains in each of our major markets and staked
important new territory for forward growth. All this was in the face of
considerable currency head winds and some rough market seas. We enter 1998
[PHOTO]
Eric Krasnoff
Chairman and Chief Executive Officer
with a strong balance sheet and excellent products and compelling market
positions. Above all, your management shares a resolute commitment to accelerate
our company's growth in sales and earnings.
This year we moved aggressively to enhance shareholder value and renew top-line
growth. In February, Gelman Sciences, a leading manufacturer of microfiltration
products used in the laboratory research, medical health care, environmental
monitoring, and high-technology process industries, was acquired. The addition
of Pall Gelman places us strategically at the beginning of the process for drug
discovery and development - a $500 million market for our products. We are now
well equipped to help our customers design full-cycle filtration programs that
rationalize the many areas of filter use. This drives down their costs in
dealing with both production and regulatory issues.
The Pall Gelman acquisition was concluded in the third quarter and was accounted
for as a pooling of interests. Our financials have been restated accordingly.
A one-time charge of $92 million taken in the third quarter covered the costs of
acquiring Pall Gelman and significant restructuring of other areas of Pall's
business. In the US, we are consolidating three Aeropower manufacturing plants
into two. In Europe, we reduced overhead with concomitant reductions in head
count. We are confident that we will realize $20 million in annual savings from
these actions.
Considerable management effort held selling, general and administrative expenses
steady as a percentage of sales, despite the reduction in sales. Cost of sales
increased in line with expectations relative to the negative currency effects.
These results speak to the sound underlying fundamentals of our P&L and form a
strong platform for earnings growth as revenues rebound.
On October 6, 1997, the Board of Directors authorized a Stock Repurchase Program
for $150 million, to begin in that month. Management recommended the repurchase
program to the Board because we believe that Pall shares are undervalued and
represent an excellent investment.
Let's review our major markets and some key points of the year.
Health Care
Medical filters for Patient Protection accounted for approximately 24% of total
Pall sales. Blood filter sales make up 70% of this amount. Since introducing the
market to leukocyte reduction
2
<PAGE> 5
in 1988, Pall's blood filter business has grown into a $175 million worldwide
business.
One in 20 of us will receive a blood transfusion at some time in our lives. Yet
blood is not sterile. There are many viruses known to reside solely in white
cells and more viruses are discovered each year. Filtration can remove many of
these unwelcome passengers.
Recent clinical studies affirm that filtration reduces the cost of treatment for
all patients. It reduces the risk of post operative infection, which saves the
cost of additional treatment and facilitates an earlier discharge from the
hospital. This is good for patients and good for health care budgets.
Above all, your management shares a resolute commitment to accelerate our
company's growth in sales and earnings.
Yet today only 17% of blood is filtered. I know of no single action with the
potential to improve the safety of our blood supply more than the adoption of
universal leukocyte filtration. A number of countries have already accepted this
premise, including France, Austria, Finland and Norway. Others will surely
follow.
Blood filter sales moved ahead in North America and Asia during the year, while
Europe felt the effects of price pressure, particularly from blood centers. We
have taken actions to improve our market positions in all three geographies.
We continue to broaden the platform of our blood center business. An exciting
treatment now under development uses placental/umbilical cord blood stem cells
(PCB) as transplants to aggressively treat such diseases as leukemia, lymphomas
and some genetic disorders. PCB stem cells can greatly reduce or eliminate
critical delays in finding suitable HLA-matched bone marrow or peripheral blood
donors, who would otherwise have to undergo invasive procedures to harvest their
stem cells. Patients treated with PCB stem cells may also have a lower incidence
of rejection. Our sterile collection, processing and storage sets are designed
to simplify and streamline the process steps involved while maintaining the
highest PCB stem cell population and viability.
Another exciting technology involving Pall may enable platelets to be dried,
stored and reconstituted on demand. The technology may also eliminate the
current problem of bacterial growth in stored platelets, thus significantly
improving both their availability and quality.
In the nonmedical portion of our Health Care business, new opportunities for our
separations technologies are opening up, particularly in the Pharmaceutical and
Food & Beverage segments.
The latter grew about 9% in local currency, with advanced separation systems
contributing significantly. This year we received one of the largest nonmilitary
orders in Pall's history. It was for a system that will be used to reclaim
wastewater from a cheese manufacturer and will serve as a platform for future
sales in similar applications.
Pharmaceutical sales were weak this year due to price pressures from global
market consolidation and local weakness in Europe. Still our market share held
firm. These trends are likely to impact the first half of fiscal 1998. In the
longer term, consolidation will favor global suppliers such as Pall. The
pharmaceutical industry is again moving toward finer levels of filtration,
particularly to combat viral contamination in bioengineered drugs. Pall
continues to lead the market with a variety of unique products for virus
removal.
3
<PAGE> 6
Fluid Processing
After the booming years of 1995 and 1996, new semiconductor fab construction
virtually ground to a halt in 1997. Yet our Microelectronics sales were down
less than 5% as replacement sales to users remained strong and our market share
again increased.
I know of no single action with the potential to improve the safety of our blood
supply more than the adoption of universal leukocyte filtration.
We continue to drive our leadership position and industry standards forward with
new products.
This year we also formed separate strategic alliances with three companies to
support the purification needs of the next generation of microprocessor-based
products.
The rest of our Fluid Processing segment is 45% larger than the Microelectronics
division. It represents a host of diverse industries and applications. Weakness
in our Power Generation subsegment, a number of US nuclear plant closures and
the timing of some major orders depressed results. The need to modify our
STRATAPAC filter line, now relaunched in April 1997, was also a factor. It
should again contribute to growth in 1998.
Despite erratic results, this segment represents some of our largest
opportunities, including a new $4 billion market in water management. The
inefficient use of surface water and its continued degradation in quality has
lead to plans to treat municipal water for irrigation and industry, and to
repurify water to meet drinking water standards. Membrane filtration is proving
to be a viable cost-efficient means to achieving this, while offering protection
against bacteria, virus and parasite transmission. In late 1997, we received our
first orders for systems in the US and Europe. Although it is early, and
significant product development is in progress, we are optimistic.
Aeropower
An outperformer this year was our Commercial Aerospace division. It continued
from strength to strength with a 23% increase, while Military Aerospace was
flat. The split is now 53% Commercial Aerospace and 47% Military Aerospace.
Here, our filtration systems are meeting ongoing requirements for improved
reliability and flexibility. The US Department of Defense continues to pursue
environmental and waste stream reduction efforts, and is consulting with us for
our expertise and support.
Improvement in Fiscal 1998
We believe we will see improvement in our results in fiscal 1998. Pall Gelman
will be accretive and the restructuring of the rest of Pall's business will
bring additional savings. Our new manufacturing facility in Ireland started up
late in the year and should contribute to improved earnings in 1998. Foreign
currency pressures should begin to ease, although there will still be negative
effects at current rates, particularly in the first half of the year.
In the longer term, we will continue to pursue growth through an aggressive
approach to R&D that consistently advances our products and then find or create
niche applications across many markets, industries, and geographies. We will
continue to seek out key strategic alliances and partner with industry leaders.
At the same time, we will maximize our operating efficiencies.
I hope that this letter transmits the strength, optimism and endurance that
characterizes Pall Corporation. Above all, our long-term focus on growth, with
short-term concentration on excellence, will drive Pall forward.
/s/ Eric Krasnoff
Eric Krasnoff
Chairman and Chief Executive Officer
4
<PAGE> 7
Financial Highlights
Years Ended
- --------------------------------------------------------------------------------
(in thousands, except per share data) August 2, 1997 August 3, 1996
- --------------------------------------------------------------------------------
Net Sales $1,062,008 $1,072,433
Earnings Before Income Taxes $ 86,127 $ 203,737
Net Earnings $ 67,318 $ 142,834
Earnings Per Share $ .53 $ 1.14
Total Assets at End of Year $1,265,624 $1,291,186
Working Capital $ 305,575 $ 290,743
Stockholders' Equity $ 824,833 $ 796,988
Average Shares Outstanding 126,319 125,114
Equity Per Share Outstanding at Year-End $ 6.48 $ 6.36
================================================================================
[THE FOLLOWING BAR CHARTS WERE OMITTED]
Sales Dividends Per Share Earnings Per Share
- ----- ------------------- ------------------
(in billions) (in dollars) (in dollars)
5
<PAGE> 8
Pall at a Glance...
Health Care
[THE FOLLOWING TABLE WAS DEPICTED AS
INDIVIDUAL BAR CHARTS IN THE PRINTED MATERIAL.]
Breakdown of Sales
(amounts in millions)
1996* 1997
---- ----
Laboratory, Diagnostic,
Pharmaceutical, Food & Beverage 28% $304.9 $298.9
Patient Protection 24% $265.9 $256.5
Aeropower 23% $235.1 $243.2
Fluid Processing 25% $266.5 $263.4
Market Description
Laboratory, Diagnostic, Pharmaceutical, Food & Beverage Pall is an innovator and
leader in the supply of filtration systems, validation services and proprietary
membranes that are fundamental to developers and manufacturers of
pharmaceuticals, biopharmaceuticals, blood fractions, therapeutic biologicals,
and food and beverages, as well as producers of diagnostic tests and users of
laboratory-scale filtration devices. These producers rely on Pall to ensure the
efficacy and safety of their products and processes.
- --------------------------------------------------------------------------------
Patient Protection
Pall filters protect patients receiving blood transfusions, undergoing
open-heart surgery, organ transplants, dialysis, intravenous feeding and
breathing therapy. They are used extensively in hospitals and in blood centers.
Often the last line of defense, our sophisticated products provide unparalleled
protection from particulates, bacteria, viral and foreign leukocyte
contamination. They help to improve patient outcomes, shorten hospital stays,
and lower health care costs.
- --------------------------------------------------------------------------------
Aeropower
Pall is a leading supplier of filtration products to the commercial and military
market for use on aircraft, ships and land-based vehicles. Our industrial
customers include power generation plants and manufacturers of aluminum and
steel, paper, automobiles, injection molded parts and mobile equipment including
trucks and earthmoving machinery. Pall's high-performance products remove
particulates and water from hydraulic and lubrication fluids and systems,
extending their useful life, minimizing waste for disposal, and increasing
overall productivity.
- --------------------------------------------------------------------------------
Fluid Processing
In this diverse market, Pall products are critical to the producers of oil and
gas, electricity, chemicals, plastics, semiconductors, municipal water,
photographic film, magnetic storage devices, thin-film rigid discs, jet ink
printers, computer terminals, disc drives and many more. To meet the stringent
challenges of these innovators, Pall offers a wide range of sophisticated
products and services that enhance the purity of fluids by removing microscopic
and larger contaminants that can devastate production equipment, product yields
and quality.
* 1996 results restated following acquisition of Gelman Sciences
6
<PAGE> 9
[THE FOLLOWING TABLES WERE DEPICTED AS PIE CHARTS IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Sales by Market Segment 1997 Market Potential
(amounts in millions) (amounts in millions) Competitors
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7% BioSupport OEM Membranes $3,000 Abcor, CUNO, Koch, Millipore,
1997 Sales: $39.7 Sartorius, Whatman
1996 Sales:* $47.2
37% Laboratory, Pharmaceutical,
Biologicals and Bioprocessing
1997 Sales: $206.7
1996 Sales:* $206.6
10% Food & Beverage
1997 Sales: $52.5
1996 Sales:* $51.1
- ------------------------------------------------------------------------------------------------
46% Patient Protection $4,000 Abbot, Asahi Medical, Maco Pharma
1997 Sales: $256.5
1996 Sales:* $265.9
- ------------------------------------------------------------------------------------------------
46% Airborne, Military Land and Marine $2,500 Donaldson, Fairey Arlon, Hydac,
1997 Sales: $110.8 Koito Manufacturing, LeBozak,
1996 Sales:* $99.9 Mark IV Industries, Parker Hannifin,
Schroeder, Taisei
54% Industrial and Mobile Fluid Power
1997 Sales: $132.4
1996 Sales:* $135.2
- ------------------------------------------------------------------------------------------------
61% Microelectronics, Data Storage $7,000 Baker Hughes, CUNO, Funda Filter,
and Photographic Film Graver, Memtec, Millipore, Roki
1997 Sales: $160.6 Techno, Ronnigen-Petter
1996 Sales:* $169.2
39% Oil/Gas, Chemical/Petrochemical
and Power Generation
1997 Sales: $102.8
1996 Sales:* $97.3
</TABLE>
Grand Total
$16.5 billion
7
<PAGE> 10
Pall Corporation: Our Vision...
Strategies
Pall's vision is to become the most widely consulted integrated source for
high-end filtration and separations in our industry. We emphasize systems over
components and provide sophisticated and unique custom-engineered solutions to
complex customer problems.
Pall's commitment to the science of filtration is to continually push the
envelope of what is possible - testing the limits of scientific, technical and
service achievement. While internal generation of products remains our core
focus, we will reach out to other companies, universities and customers to add
complementary technologies to our product portfolio.
We are determined to establish a geographic presence wherever growth
opportunities exist. This led us into Europe in the early 1960s and into Asia,
starting with Japan, more than 20 years ago. Today more than 60% of our business
is outside the United States. This is now leading us into emerging growth areas
such as China, India, the CIS and Latin American countries.
We are fervent in our determination to always do what's right for our
customers and for their businesses. This single strategic direction, above all
others, is vital to our ongoing success.
8
<PAGE> 11
The Pall Filtered Factory
Every manufacturer, municipal water supplier, laboratory, hospital and blood
center is potentially a Pall customer. Collectively they share a need to be
profitable, efficient and environmentally responsible producers of high-quality
products.
Pall's proprietary filtration and separations products are used to purify
incoming raw materials, assure product quality, keep equipment running
efficiently, extend the life of process fluids, and clean up and minimize solid,
liquid and gaseous wastes.
This generic manufacturing plant is typical of countless industries and plants
around the world. Red dots indicate the myriad of applications within a plant
where Pall products can be employed.
[FLOW CHART GRAPHIC OMITTED]
o Red dots indicate Pall product applications
9
<PAGE> 12
Serving Diverse Industries
The need for filtration and separations technologies exists in all industries.
Anything that is manufactured and any equipment that moves has a need for
filtration. This translates into thousands of Pall customers in industries as
diverse as oil drilling and refining, pulp and paper, power generation, and food
and beverage, to name a few.
Providing Integrated
Solutions
Industrial processes and equipment are becoming profoundly more
contamination-sensitive. Operating systems of chemical plants and refineries,
for example, are becoming more stringent in their requirements for purity. They
are moving toward finer and finer levels of filtration and toward systems that
provide a full range of filtration and
[PHOTOS OMITTED]
10
<PAGE> 13
purification capabilities which are integrated together and operate
automatically. Pall is leading the way by introducing novel, cost-effective
"smart" systems in place of aging technologies. These Pall systems remove
contaminants precisely as needed and are efficient consumers of energy and
valuable floor space. Our capabilities mesh seamlessly with modern manufacturing
requirements.
Improving Customer
Profitability
For petroleum refiners, profitability relates directly to equipment reliability
and availability, 365 days a year. Unscheduled down time can cost millions of
dollars a day. At the same time, refiners must produce cleaner burning fuels and
cope with tighter mandates for water and air emissions. Pall helps them meet
these exacting requirements with tailored backwash and coalescing systems.
Driving electrical power producers are ever-tighter environmental guidelines in
an increasingly competitive market. Reducing operating costs and extending the
life of plant equipment are key to success. Filtration reduces the likelihood of
component failure and protects the boilers, turbines and nuclear reactors that
generate power. Fine filtration ensures compliance with radiation and waste
emission levels. Our systems are outperforming older technologies, and providing
customers and Pall a strong competitive edge.
R&D Pays Off
In food and beverage our R&D efforts are starting to pay off. This year we
received one of the largest single orders in our history - a multimillion dollar
order from a cheese manufacturing plant for a total system incorporating our
vibrating technologies. It will be used to treat and reclaim wastewater, and the
recovered protein can be sold as a food additive for livestock.
[PHOTOS OMITTED]
11
<PAGE> 14
Opportunities from Drug Discovery to Delivery
The pharmaceutical industry is projected to grow at about 10% a year. Aging
populations, emerging global markets, new drugs for antibiotic-resistant
bacteria, diseases to treat, and new drugs being developed by the important
biopharmaceutical sector will ensure ongoing demand for its products and its
research.
Pharmaceutical companies consume large quantities of filters. Filters are found
on virtually every stream in a plant. Most pharmaceuticals would not exist
without the contribution of filtration.
Partnering for Success
Bringing a drug to market in this highly regulated industry is enormously costly
and time consuming. This is an industry for which supplier product variety,
reliability and technical support are paramount. It is also one that seeks to
partner with companies capable of helping them to navigate the complex
validation and regulatory process
[PHOTOS OMITTED]
12
<PAGE> 15
throughout the world. These are among the reasons they choose Pall.
Significant Competitive
Advantage
Pharmaceuticals are produced to exacting specifications that encompass
ingredients and process alike. Our acquisition of Gelman Sciences has made us a
significant player in the $500 million research laboratory market, the
birthplace of drugs. In this industry, products available in a full range of
sizes capable of going from small volume laboratory tests to pilot scale and
then to full production have significant competitive advantage. Pall Gelman's
line of laboratory products completes our ability to serve the total filtration
needs of drug companies. We can now serve the R&D scientist, plant management
and environmental engineers who produce pharmaceuticals, and the hospital
doctors and nurses who administer them to patients.
Leader in Virus Removal
Adding promise is the complexity of removing viruses from genetically-engineered
drugs. Compliance is governed by increasingly stringent guidelines. Viruses can
have the same physical and behavioral characteristics as the desired
biopharmaceutical components. Pall is the leader and innovator in virus
filtration with a full range of products to meet exacting requirements.
World Demand Fuels
Growth
The need for more advanced pharmaceuticals in densely populated emerging markets
such as China, India and Latin America is fueling growth. Pharmaceutical
powerhouses are replicating their plants abroad to meet demand for basic drugs -
among them vaccines, antibiotics and vitamins. Pall's ability to provide
identical products and technical support locally is a key strength.
[PHOTOS OMITTED]
13
<PAGE> 16
Minimizing Risk in Transfusion Medicine
There are 25 infectious agents known to be blood-borne, yet donor blood is
screened for only a few of them. This is frightening considering that a single
donation of contaminated blood can infect many people. Many of these viruses are
exclusively associated with white blood cells (leukocytes). Pall's
leukocyte-reduction filters minimize the risk of transfusion transmission of
cell-associated viruses.
Adding a Margin of
Safety
Yet less than 20% of our blood supply is filtered. Most leukocyte-reduced blood
currently goes to seriously ill patients and for good reason. Without this added
margin of safety in removing leukocytes, many would suffer severe complications
or die due to immunogenic
[PHOTOS OMITTED]
14
<PAGE> 17
and toxic by-products of leukocytes. But the majority of blood is transfused to
surgical patients where infusion of viral challenges to an already compromised
patient can affect recovery.
Improving Patient
Outcomes
There is compelling clinical evidence that patients who receive blood filtered
to remove white blood cells recover faster and suffer fewer costly
complications. They require less of everything: diagnostic tests, medications
and days in the hospital. Not only is the clinical evidence significant, the
economic benefits are as well. One landmark study confirms cost savings of 36%
per patient per hospital stay.
Route to Universal
Filtration
The practice of medicine relies on a preponderance of best practices. The
process is most often evolutionary. Our technology was first embraced by a
handful of practitioners seeking to save critically ill patients. Blood bankers
understood the benefits but could only provide leukocyte-reduced blood if
physicians ordered it. Today a few institutions and countries - such as Norway,
Austria, France and Finland - are preparing to filter every unit of blood.
Meeting Customer Needs
In time, all blood will be leukocyte-reduced. When it is, Pall will garner the
lion's share of the market. We pioneered this technology, have the widest range
of performance-differentiated products to serve specific customer needs, and are
committed to continuously advancing the state of the art.
One in 20 of us will receive a blood transfusion at some point in our lives.
Which will you choose - filtered or unfiltered blood?
[PHOTOS OMITTED]
15
<PAGE> 18
Providing Advanced Engineering Solutions for Aerospace
The worldwide fleet of commercial aircraft is expected to double by 2015 and air
traffic to triple. Nearly 5,000 jets are due to be retired during that period
and over 13,500 new jets valued at over $1 trillion - will be needed to meet
global demand.
This industry relies on a few select suppliers for custom engineering,
sophisticated products and worldwide distribution capabilities. Pall meets their
rigorous product and service requirements. As proof, our products are on board
every commercial aircraft in service today.
Multiple Product
Locations
Industry requirements for contamination-free fluids and gases are ubiquitous.
Each commercial aircraft leaves the factory with 20 or more main system filters.
Pall filters and manifolds are found in multiples on the aircraft cabin air
systems, engines, fuel controls and pumps.
[PHOTOS OMITTED]
16
<PAGE> 19
They are also a vital part of the ground-support vehicles that greet each flight
at the gate.
Immense Aftermarket
All of this creates opportunity. The aftermarket, or replacement products
business, is expected to grow exponentially with the introduction of new
aircraft. To be successful in this field, companies must have approved products
at the right locations to meet the immediate needs of customers.
Keeping Customers Flying
When a commercial airliner cannot fly because it needs service, a call for help
- - "Aircraft on Ground" - goes out to approved vendors to rapidly supply
necessary parts. Grounded planes erode profits and inconvenience travelers and
crews alike. Pall's Aircraft on Ground service guarantees dispatch within hours
of such a call to help get them flying again.
Meeting Military
Specifications
Flexibility and speed of response using modern ground, sea and air forces are
key tenets of today's defense strategies. We expect our sales to the military to
remain strong but reflect the relatively flat year-to-year procurement policies
currently in effect.
Pall products are on every US development and production program and are
specified on many European vehicles. We recently received a multimillion dollar
development contract from the UK Royal Navy to remove off-gassing of
refrigerants on board nuclear submarines.
The US Department of Defense is committed to meeting environmental discharge
regulations. Pall is working in concert with this department to reduce the
financial impact of compliance with purification systems that extend the useful
life of their process fluids - mineral and hydraulic oils, lubricants etc. - or
condition them for reuse.
[PHOTOS OMITTED]
17
<PAGE> 20
Supporting Demanding Requirements in Microelectronics
Global demand for personal computers, automobiles with ABS, microwave ovens,
personal communication devices, video games and debit cards, to name a few,
propels the microchip revolution. The semiconductor industry is expected to grow
an average of 19% per year through 2001 to meet the world's insatiable appetite
for microprocessor-based products. Semiconductor production capacity, even with
148 new plants slated for construction, may be strained. All of this is good for
Pall.
Cradle-to-Grave Service
The filtration and separation requirements of this industry and its suppliers
(where dust particles can ruin silicon wafers worth $250,000 a batch) are at
once pervasive and rigorous. All fluids - the chemicals, gases and water - that
touch microchips as
[PHOTOS OMITTED]
18
<PAGE> 21
they are being produced are filtered before, during and after use. Pall's
technology, including separation and purification systems, enables chip
producers to conserve and reuse costly and scarce raw materials (water for
example) and at the very end of the process to safely and economically dispose
of them. Pall is the only supplier to this industry capable of serving these
requirements from "cradle to grave."
Growth Through
Innovation
Innovation in this industry moves at a furious pace. The drive for faster
microprocessors and higher density memory chips is relentless. Each industry
advance raises the technology bar for filtration. Pall's unique filtration media
and proprietary purification technologies are now separating particles to
nanometer sizes and gaseous contaminants down to the parts per trillion level.
The filtration requirements of this industry are so difficult that only a
handful of filtration companies participate. Growth depends upon the ability to
innovate in tandem with this industry, and Pall is leading the market to ever
finer levels of filtration and purification.
Building Strategic
Alliances
A combination of strong R&D and strategic alliances continues to move us
forward. This year we formed three important alliances with industry OEMs. What
all of these alliances have in common is that they strengthen Pall's ability to
provide fully integrated service to the semiconductor manufacturing market. Our
customers can rely on one supplier to support all of their filtration and
purification needs. We are well positioned to ride the crest of the coming boom
in new fab construction.
[PHOTOS OMITTED]
19
<PAGE> 22
Protecting the Environment with Pall Technologies
Ours is a world where potable water is scarce. Landfills are closing. Factory
emissions and waste streams are more stringently regulated. Hazardous waste
sites are targeted for cleanup.
"Reduce. Reuse. Recycle." are the watchwords for the end of this century. They
govern our actions at home and at work.
Diverse Family of
Products
Pall's business was born of purification...making the liquid and gas streams
that serve us in so many ways safe for use and reuse. We've refined and
broadened our business over the years to bring it more in line with the needs of
our customers. Our diverse family
[PHOTOS OMITTED]
20
<PAGE> 23
of filtration and separation products is specifically geared to ensuring high
product quality, cost reduction and waste minimization throughout industry.
Arsenal of Solutions
Historically, Pall filters enabled manufacturers to control their flue emissions
and to use their process fluids longer. This resulted in less waste - including
spent filters - to dispose of and improved economics for our customers. Our
technologies are in even greater demand today as is the arsenal of solutions we
bring to bear. Products cover the spectrum from testing for water-borne
pathogens to sampling for airborne toxins, to cleaning up waste streams. More
recently we are being asked to help solve common, yet complex, environmental
challenges - how to separate oil or paint from water, or soap from a ship's
laundry or kitchen - so the water can be reused or safely discharged and the
waste carted to landfills minimized. Here our ultrafiltration cassette systems
are making significant inroads. We are also partnering with the US government on
nuclear waste cleanup projects. The complexity of this assignment is enormous
and Pall's experience is integral to its success.
A Huge New Market
One of the greatest drivers of our business over the next several years will be
treating municipal drinking water or bringing wastewater back up to drinking
water standards. Pure water is scarce and municipalities the world over are
going to great lengths to conserve and purify it. Our novel, membrane-based
backwash systems are proving to be effective and economical. They are helping us
to carve out significant niches in the multibillion dollar municipal water
market.
[PHOTOS OMITTED]
21
<PAGE> 24
Financial Contents
Financials
Management's Discussion and Analysis
of Financial Condition and Results of Operations 23
Consolidated Statements of Earnings 26
Independent Auditors' Report 26
Consolidated Balance Sheets 27
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Financial Information About Industry Segments 30
Financial Information About Foreign
and Domestic Operations and Export Sales 31
Notes to Consolidated Financial Statements 32
Common Stock Prices and Cash Dividends 40
Six-Year Sales 40
Six-Year Financial History 41
Corporate Directory 42
Corporate Information 43
22
<PAGE> 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations
1997 Compared to 1996
Results of Operations
Review of Consolidated Results
Sales for the year decreased by 1% to $1,062 million from $1,072 million last
year. Exchange rates adversely impacted sales by $35 million. Excluding the
effects of exchange rates, sales would have increased by 2 1/2%. A detailed
summary of sales by industry and geographic segments is indicated in the tables
below.
Cost of sales (before the inventory write-down) as a percentage of sales
increased by nearly 2%, mainly due to the adverse effects of exchange rates.
Selling, general and administrative expenses remained at the same level as last
year, mainly due to the restructuring after the Company's merger with Gelman
Sciences.
At the beginning of the third quarter, the Company completed its merger with
Gelman Sciences. The combined companies incurred merger related expenses of $14
million. Upon consummation of the merger, the combined companies restructured
their operations to streamline the manufacturing, sales and overhead functions,
and as a result recorded a pretax charge of $20 million. Along with the Gelman
restructuring, the Company performed a comprehensive review of its existing
business segments. In the Aeropower segment, the Company decided to further
consolidate its US production and operating facilities to maintain greater
efficiency in manufacturing and overhead functions and to recognize inventory
write-downs due to changes in demand. As a result, the Company recorded a pretax
charge of $6 million. In the Health Care and Fluid Processing segments, the
review identified certain products that have been superseded by the introduction
of new products. As the gross margins on the older products continued to
decline, the Company decided to write-down these products. The review also
identified certain manufacturing, sales and overhead personnel who were made
redundant. The total pretax charge related to these items was $24 million. The
Company also wrote-down machinery and equipment (including the impact of SFAS
No. 121) and recorded a pretax charge of $15.5 million. Factors leading to the
write-down were new product introductions, a decline in the gross margins of
older products and inadequate cash flows. The Company expects an annual on-going
savings of $20 million from its above actions.
On April 19, 1995, a jury verdict of $7 million was rendered against the
Company. The Company had appealed the verdict; however, on April 9, 1997 the
judgment was affirmed. The Company recorded a pretax charge of $6.5 million
under the judgment, net of insurance recoveries and legal costs, in the third
quarter. The judgment awarded was paid in the fourth quarter. On May 9, 1997,
Gelman received a permit from the State of Michigan to clean up contaminated
water. The permit requires that all processed water discharged meet the
standards set by the State. Based on the permit obtained from the State of
Michigan and upon review of environmental issues at its other facilities, the
Company decided to record a pretax charge of $10 million in the third quarter.
Of the total charges of $96 million, approximately $42 million will result in
cash expenditures. A summary table of all the charges is included in the notes
to the consolidated financial statements.
Pretax margins (before one-time charges) declined by about 2% mainly due to the
reduction in gross margins. The Company's effective tax rate for the year
(before one-time charges) was approximately 29% compared to 30% last year.
Earnings per share for the year were 53 cents compared to $1.14 last year.
Excluding the effect of one-time charges (50 cents and 1 cent per share after
pro forma tax effect in both years), earnings per share for the current year and
prior year would have been $1.03 and $1.15, respectively. The Company estimates
that the earnings per share for the current year were further reduced by
approximately 14 cents, due to the adverse effects of exchange rates.
23
<PAGE> 26
Review of Industry and Geographic Segment Sales
Exchange % Change
% rate in local
1997 1996 Change difference currency
- --------------------------------------------------------------------------------
Patient
Protection $ 256,484 $ 265,897 (3 1/2) $ (8,075) (1/2)
Other 298,894 304,938 (2) (10,040) 1 1/2
- --------------------------------------------------------------------------------
Total Health Care 555,378 570,835 (2 1/2) (18,115) 1/2
Microelectronics 93,893 103,600 (9 1/2) (5,144) (4 1/2)
Other 169,530 162,923 4 (5,614) 7 1/2
- --------------------------------------------------------------------------------
Total
Fluid Processing 263,423 266,523 (1) (10,758) 3
Aeropower 243,207 235,075 3 1/2 (6,358) 6
- --------------------------------------------------------------------------------
Total $1,062,008 $1,072,433 (1) $(35,231) 2 1/2
================================================================================
Exchange % Change
% rate in local
1997 1996 Change difference currency
- --------------------------------------------------------------------------------
Asia $ 192,027 $ 183,901 4 1/2 $(17,097) 13 1/2
Europe 368,767 387,533 (5) (18,082) --
Western
Hemisphere 501,214 500,999 -- (52) --
- --------------------------------------------------------------------------------
Total $1,062,008 $1,072,433 (1) $(35,231) 2 1/2
================================================================================
Sales in the Health Care segment increased by only 1/2%, as sales in the Patient
Protection market were affected by price reductions of about 2%. Both the
Western Hemisphere and Europe saw price decreases in the range of 2% - 5%. Sales
in the other Health Care markets increased by 1 1/2%. Sales in the Food &
Beverage markets increased by 9%, assisted by sales of advanced separation
systems. Sales in the Pharmaceutical markets also increased; however, price
pressures from global market consolidation contained the increase to 3%.
Sales in the Fluid Processing segment increased by 3%. Growth in this market was
held back by the Microelectronics segment, where sales declined by 4 1/2%. This
reduction in sales was due to curtailment of new fabrication plant construction.
Microelectronics sales declined by 17% in the Western Hemisphere, but increased
in Europe and Asia. Sales in the rest of the Fluid Processing markets increased
by 7 1/2% led by increases in the Industrial, Oil & Gas and Chemical &
Petrochemical markets. Sales in the Power Generation segment were weak due to
closures of nuclear facilities in the US. Sales increases in the rest of the
Fluid Processing markets by geography are as follows: Western Hemisphere 2 1/2%,
Europe 4 1/2% and Asia 25%.
Sales in the Aeropower segment increased by 6%, led by Commercial Aerospace
sales which increased 23%. By geography, sales in the Western Hemisphere, Europe
and Asia increased by 8%, 5% and 3 1/2%, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities decreased by $60 million in 1997 for
the following reasons: decrease in fourth quarter sales on a comparable basis,
reduction in tax obligations, net of tax asset increases and cash expenditures
incurred as a result of the one-time charges and a general decrease in accounts
payable.
Capital expenditures for the year amounted to $89 million and were comparable to
last year's level. Cash dividends paid to stockholders amounted to $80 million
compared to $52 million last year. In the current year, the Company paid five
quarters of dividends. Normally, the Company pays four quarters of dividends
each year.
At the beginning of the third quarter, the Company completed its merger with
Gelman Sciences. Pursuant to the terms of the merger agreement, the Company
issued 10,607,000 shares of its common stock to the holders of Gelman common
stock. The Company accounted for the acquisition as a pooling-of-interests and,
as such, all financial information herein is presented on a merged basis.
During the year, the Company acquired all the assets of its distributor in
Belgium and acquired minority interests in certain of its distributors in the
Fluid Processing and Aerospace markets. The costs of these investments and
acquisitions were approximately $12 million.
24
<PAGE> 27
The Company considers its existing lines of credit along with the cash it
generates from operations to be sufficient for its future growth. The Company
anticipates that capital expenditures in fiscal 1998 will be about $90 million.
New Accounting Standards
Recently the Financial Accounting Standards Board issued Statements (SFAS No.
128, 130 and 131) related to Earnings per Share, Reporting Comprehensive Income
and Segment Disclosures. The Earnings per Share statement will be adopted in
fiscal 1998 and is not expected to have a material change in the Company's per
share calculation. The Company plans to adopt the Comprehensive Income and
Segment Disclosures statements upon their effective dates in fiscal 1999.
1996 Compared to 1995
Results of Operations
Review of Consolidated Results
Sales in 1996 increased 16% to $1,072 million from $926 million the previous
year. Excluding exchange rate effects, sales would have increased by 18%.
Acquisitions accounted for approximately $38 million of fiscal 1996 sales.
Cost of sales as a percentage of sales increased to 40.1% in 1996 from 38.3% the
previous year, principally due to: the acquisition of Medsep which brought with
it lower gross margin products, the negative effect of exchange rates, mainly
the Japanese Yen, as most of the products sold in Japan are sourced from the US,
and product mix.
Selling, general and administrative expenses as a percentage of sales decreased
by about 1%, mainly as the increase in sales volume was not accompanied by a
similar increase in selling, general and administrative expenses. During the
third quarter, the Company received $6.2 million as a partial payment of a
judgment awarded to it in a patent litigation with Micron Separations, Inc.
Offset against this were $3.9 million of related legal fees. Also, during the
quarter, the Company wrote off $1.2 million of fixed assets following the
transfer of most industrial cartridge manufacturing from its Japanese plant into
existing facilities elsewhere. The net pretax benefit of $1.1 million was
reflected as a reduction of selling, general and administrative expenses. In the
fourth quarter, Gelman increased its reserves for environmental remediation
costs and recorded a pretax charge of $2,800.
Research and development as a percentage of sales showed a reduction of 0.5%
compared to the previous year. This reduction did not constitute a decrease in
research efforts by the Company, but rather a reevaluation to ensure that
various research and development related activities across the world were
working in concert.
The Company's pretax margin of 19% was the same as the previous year. The
Company's effective tax rate in 1996 increased to 30% compared to 29% in 1995,
due to continued reduction in the tax benefits from its Puerto Rico operations.
Earnings per share increased to $1.14 in 1996 from $1.00 in 1995.
25
<PAGE> 28
Consolidated Statements of Earnings
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) August 2, 1997 August 3, 1996 July 29, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $1,062,008 $1,072,433 $ 926,326
- -----------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of sales 468,413 429,728 355,159
Selling, general and administrative expenses 376,904 378,809 338,729
Research and development 53,747 53,772 50,640
Gelman merger and restructuring charges 30,621 -- --
Other charges 43,360 2,800 --
Interest expense, net 2,836 3,587 4,107
------------------------------------------
Total Costs and Expenses 975,881 868,696 748,635
- -----------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes and the Cumulative Effect
of an Accounting Change 86,127 203,737 177,691
Provisions for income taxes 18,809 60,903 51,853
- -----------------------------------------------------------------------------------------------------------------------
Earnings Before the Cumulative Effect of an Accounting Change 67,318 142,834 125,838
Cumulative effect of a change in accounting for postemployment benefits -- -- (780)
- -----------------------------------------------------------------------------------------------------------------------
Net Earnings $ 67,318 $ 142,834 $ 125,058
- -----------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Earnings before the cumulative effect of an accounting change $ 0.53 $ 1.14 $ 1.01
Cumulative effect of a change in accounting for postemployment benefits -- -- (.01)
------------------------------------------
Net Earnings Per Share $ 0.53 $ 1.14 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------
Average Shares Outstanding 126,319 125,114 124,624
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Independent Auditors' Report
Board of Directors
PALL CORPORATION
We have audited the accompanying consolidated balance sheets of Pall Corporation
and subsidiaries as of August 2, 1997 and August 3, 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended August 2, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pall Corporation and
subsidiaries as of August 2, 1997 and August 3, 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 2, 1997, in conformity with generally accepted accounting
principles.
As discussed in the Accounting Policies note to the consolidated financial
statements, the Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" in fiscal year 1995.
/s/ KPMG Peat Marwick LLP
Jericho, New York
September 2, 1997
26
<PAGE> 29
Consolidated Balance Sheets
Pall Corporation and Subsidiaries
(In thousands, except per share data) August 2, 1997 August 3, 1996
- --------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 17,972 $ 44,118
Short-term investments 37,500 71,450
Accounts receivable, net of allowance for
doubtful accounts of $6,602 and $5,998,
respectively 266,604 268,599
Inventories 198,080 205,515
Prepaid expenses 19,844 19,151
Taxes receivable 40,262 18,008
Deferred income taxes 20,971 18,180
Other current assets 5,371 6,180
--------------------------
Total Current Assets 606,604 651,201
- --------------------------------------------------------------------------------
Property, Plant and Equipment:
Land 29,219 29,038
Buildings and improvements 299,935 280,962
Machinery and equipment 447,904 448,340
Furniture and fixtures 58,533 57,424
Transportation equipment 13,948 13,716
--------------------------
849,539 829,480
Less: Accumulated depreciation and amortization 345,493 331,451
--------------------------
Property, Plant and Equipment, Net 504,046 498,029
- --------------------------------------------------------------------------------
Other Assets 154,974 141,956
- --------------------------------------------------------------------------------
Total Assets $ 1,265,624 $ 1,291,186
================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 123,974 $ 139,957
Accounts payable 53,200 66,060
Accrued liabilities:
Salaries and commissions 34,239 34,890
Payroll taxes 5,882 6,444
Interest 2,810 2,434
Pension and profit sharing plans 15,237 13,062
Other 33,390 26,116
--------------------------
91,558 82,946
Income taxes 27,620 40,036
Current portion of long-term debt 4,677 17,326
Dividends payable -- 14,133
--------------------------
Total Current Liabilities 301,029 360,458
- --------------------------------------------------------------------------------
Long-term Debt, Net of Current Portion 62,126 54,416
Deferred Income Taxes 27,678 37,383
Other Non-Current Liabilities 49,958 41,941
- --------------------------------------------------------------------------------
Total Liabilities 440,791 494,198
- --------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, par value $.10 per share;
500,000 shares authorized; 127,958 and
127,710 shares, respectively, issued 12,796 12,771
Capital in excess of par value 92,893 90,362
Retained earnings 749,923 755,864
Treasury stock, at cost (1997 -- 596
shares, 1996 -- 2,375 shares) (12,837) (50,410)
Foreign currency translation (4,722) 2,060
Minimum pension liability (4,348) (4,629)
Stock option loans (8,820) (8,802)
Cumulative unrealized investment losses (52) (228)
- --------------------------------------------------------------------------------
Total Stockholders' Equity 824,833 796,988
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,265,624 $ 1,291,186
================================================================================
See accompanying notes to consolidated financial statements.
27
<PAGE> 30
Consolidated Statements of Stockholders' Equity
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
Capital in Foreign Minimum Stock
Years Ended July 29, 1995, Common Excess of Retained Treasury Currency Pension Option
August 3, 1996 and August 2, 1997 Stock Par Value Earnings Stock Translation Liability Loans
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 30, 1994 $ 12,535 $ 67,637 $589,480 $(35,144) $ (2,691) $ (4,711) $ (8,882)
Net earnings 125,058
Cash dividends declared (46,911)
Issuance of 558 shares for stock
options and employee plans 28 1,661 (238) 2,577
Purchase of 2,306 shares (49,997)
Issuance of 1,280 shares
in acquisition of Filtron 2,680 22,175
Public offering - 1,876 shares 188 19,234
Translation adjustment 15,162
Minimum pension liability (434)
Stock option loans 1,002
Net unrealized investment gains
- ----------------------------------------------------------------------------------------------------------------
Balance at July 29, 1995 12,751 91,212 667,389 (60,389) 12,471 (5,145) (7,880)
Net earnings 142,834
Cash dividends declared (54,343)
Issuance of 1,216 shares for stock
options and employee plans 20 (850) (16) 19,979
Purchase of 433 shares (10,000)
Translation adjustment (10,411)
Minimum pension liability 516
Stock option loans (922)
Net unrealized investment losses
- ----------------------------------------------------------------------------------------------------------------
Balance at August 3, 1996 12,771 90,362 755,864 (50,410) 2,060 (4,629) (8,802)
Net earnings 67,318
Cash dividends declared (65,928)
Issuance of 1,978 shares for stock
options and employee plans 25 2,361 (7,331) 34,368
Sale of 150 treasury shares 170 3,205
Translation adjustment (6,782)
Minimum pension liability 281
Stock option loans (18)
Net unrealized investment gains
- ----------------------------------------------------------------------------------------------------------------
Balance at August 2, 1997 $ 12,796 $ 92,893 $749,923 $(12,837) $ (4,722) $ (4,348) $ (8,820)
================================================================================================================
</TABLE>
(In thousands) Cumulative
Unrealized
Years Ended July 29, 1995, Investment
August 3, 1996 and August 2, 1997 (Losses) Gains Total
- -----------------------------------------------------------------
Balance at July 30, 1994 $ (583) $617,641
Net earnings 125,058
Cash dividends declared (46,911)
Issuance of 558 shares for stock
options and employee plans 4,028
Purchase of 2,306 shares (49,997)
Issuance of 1,280 shares
in acquisition of Filtron 24,855
Public offering - 1,876 shares 19,422
Translation adjustment 15,162
Minimum pension liability (434)
Stock option loans 1,002
Net unrealized investment gains 746 746
- -----------------------------------------------------------------
Balance at July 29, 1995 163 710,572
Net earnings 142,834
Cash dividends declared (54,343)
Issuance of 1,216 shares for stock
options and employee plans 19,133
Purchase of 433 shares (10,000)
Translation adjustment (10,411)
Minimum pension liability 516
Stock option loans (922)
Net unrealized investment losses (391) (391)
- -----------------------------------------------------------------
Balance at August 3, 1996 (228) 796,988
Net earnings 67,318
Cash dividends declared (65,928)
Issuance of 1,978 shares for stock
options and employee plans 29,423
Sale of 150 treasury shares 3,375
Translation adjustment (6,782)
Minimum pension liability 281
Stock option loans (18)
Net unrealized investment gains 176 176
- -----------------------------------------------------------------
Balance at August 2, 1997 $ (52) $824,833
=================================================================
See accompanying notes to consolidated financial statements.
28
<PAGE> 31
Consolidated Statements of Cash Flows
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) August 2, 1997 August 3, 1996 July 29, 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net earnings $ 67,318 $ 142,834 $ 125,058
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gelman merger, restructuring and other charges 69,609 2,217 --
Cumulative effect of a change in accounting for postemployment benefits -- -- 780
Depreciation and amortization of property, plant and equipment 55,854 51,516 46,162
Amortization of intangibles 6,972 6,329 4,393
Deferred income taxes (13,261) 5,921 508
Provision for doubtful accounts 1,417 989 998
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (20,038) (37,990) (575)
Inventories (20,762) (25,988) (12,162)
Other assets (30,627) (19,001) (8,845)
Accounts payable (11,252) 16,220 4,625
Accrued expenses 6,111 10,891 306
Income taxes payable (13,635) 2,455 (432)
Other liabilities 1,025 2,612 1,470
-----------------------------------------
Net Cash Provided by Operating Activities 98,731 159,005 162,286
- ------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Investments and acquisitions (13,865) (44,545) (230)
Capital expenditures (88,605) (88,452) (74,304)
Disposals of fixed assets 1,300 5,413 4,566
Short-term investments 33,950 1,400 (22,050)
Benefits protection trust (1,319) (2,596) (2,599)
-----------------------------------------
Net Cash Used by Investing Activities (68,539) (128,780) (94,617)
- ------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Notes payable (6,933) 26,775 1,930
Long-term debt borrowings 15,768 2,360 47,045
Payments on long-term debt (17,515) (10,865) (47,293)
Public offering -- -- 19,422
Net proceeds from stock options and employee plans 29,405 18,211 5,030
Dividends paid (80,061) (52,224) (45,564)
Treasury stock 3,375 (10,000) (49,997)
-----------------------------------------
Net Cash Used by Financing Activities (55,961) (25,743) (69,427)
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flow for Year (25,769) 4,482 (1,758)
Cash and Cash Equivalents at Beginning of Year 44,118 40,923 39,749
Effect of Exchange Rate Changes on Cash (377) (1,287) 2,932
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 17,972 $ 44,118 $ 40,923
==============================================================================================================================
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 9,180 $ 10,525 $ 10,772
Income taxes paid (net of refunds) 66,718 63,235 49,095
Shares issued upon acquisition of Gelman 267,615 -- --
Treasury stock issued upon acquisition of Filtron -- -- 24,855
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 32
Financial Information About Industry Segments
Pall Corporation and Subsidiaries
Fiscal Years
- -------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Sales to Unaffiliated Customers:
Health Care $ 555,378 $ 570,835 $ 489,347
Aeropower 243,207 235,075 212,806
Fluid Processing 263,423 266,523 224,173
---------------------------------------------
Total $ 1,062,008 $ 1,072,433 $ 926,326
- -------------------------------------------------------------------------------
Operating Profit:
Health Care $ 88,530(a) $ 153,032(b) $ 137,158
Aeropower 47,176(a) 52,686 51,342
Fluid Processing 42,122(a) 55,394(b) 41,861
---------------------------------------------
Subtotal 177,828 261,112 230,361
Interest expense, net (2,836) (3,587) (4,107)
General corporate expenses (88,865)(a) (53,788) (48,563)
---------------------------------------------
Total $ 86,127 $ 203,737 $ 177,691
- -------------------------------------------------------------------------------
Identifiable Assets:
Health Care $ 502,480 $ 529,650 $ 472,594
Aeropower 195,113 184,374 177,389
Fluid Processing 276,627 289,524 240,149
---------------------------------------------
Subtotal 974,220 1,003,548 890,132
Corporate 291,404 287,638 266,571
---------------------------------------------
Total $ 1,265,624 $ 1,291,186 $ 1,156,703
- -------------------------------------------------------------------------------
Capital Expenditures:
Health Care $ 46,165 $ 43,981 $ 38,415
Aeropower 8,544 13,193 12,419
Fluid Processing 24,302 24,218 17,045
---------------------------------------------
Subtotal 79,011 81,392 67,879
Corporate 9,594 7,060 6,425
---------------------------------------------
Total $ 88,605 $ 88,452 $ 74,304
- -------------------------------------------------------------------------------
Depreciation:
Health Care $ 26,511 $ 25,665 $ 21,972
Aeropower 9,466 8,852 8,545
Fluid Processing 16,012 13,358 11,307
---------------------------------------------
Subtotal 51,989 47,875 41,824
Corporate 3,865 3,641 4,338
---------------------------------------------
Total $ 55,854 $ 51,516 $ 46,162
===============================================================================
(a) Includes a charge of $95,930 related to Gelman merger, restructuring and
other charges (Health Care - $41,735, Aeropower - $10,124, Fluid Processing
- $8,561 and Corporate Expenses - $35,510).
(b) Includes a charge of $2,800 related to Gelman's environmental remediation
costs (Health Care - $2,520, Fluid Processing - $280).
30
<PAGE> 33
Financial Information About Foreign and Domestic Operations and Export Sales
Pall Corporation and Subsidiaries
Fiscal Years
- -------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Sales to Unaffiliated Customers:
Western Hemisphere $ 501,214 $ 500,999 $ 404,153
Europe 368,767 387,533 357,055
Asia and Australia 192,027 183,901 165,118
-------------------------------------------
Total $ 1,062,008 $ 1,072,433 $ 926,326
- -------------------------------------------------------------------------------
Transfers Between Geographic Areas:
Western Hemisphere $ 79,784 $ 99,041 $ 75,770
Europe 31,906 21,549 13,838
Asia and Australia 1,990 3,552 2,025
-------------------------------------------
Total $ 113,680 $ 124,142 $ 91,633
- -------------------------------------------------------------------------------
Total Sales:
Western Hemisphere $ 580,998 $ 600,040 $ 479,923
Europe 400,673 409,082 370,893
Asia and Australia 194,017 187,453 167,143
Eliminations (113,680) (124,142) (91,633)
-------------------------------------------
Total $ 1,062,008 $ 1,072,433 $ 926,326
- -------------------------------------------------------------------------------
Operating Profit:
Western Hemisphere $ 76,173(a) $ 125,203(b) $ 97,156
Europe 74,533(a) 110,449 103,527
Asia and Australia 23,899(a) 29,104 28,502
Eliminations 3,223 (3,644) 1,176
-------------------------------------------
Subtotal 177,828 261,112 230,361
Interest expense, net (2,836) (3,587) (4,107)
General corporate expenses (88,865)(a) (53,788) (48,563)
-------------------------------------------
Total $ 86,127 $ 203,737 $ 177,691
- -------------------------------------------------------------------------------
Identifiable Assets:
Western Hemisphere $ 523,012 $ 529,919 $ 448,933
Europe 314,680 339,946 319,310
Asia and Australia 149,484 150,151 134,614
Eliminations (12,956) (16,468) (12,725)
-------------------------------------------
Subtotal 974,220 1,003,548 890,132
Corporate 291,404 287,638 266,571
-------------------------------------------
Total $ 1,265,624 $ 1,291,186 $ 1,156,703
===============================================================================
(a) Includes a charge of $95,930 related to Gelman merger, restructuring and
other charges (Western Hemisphere - $39,904, Europe - $17,284, Asia and
Australia - $3,232 and Corporate Expenses - $35,510).
(b) Includes a charge of $2,800 related to Gelman's environmental remediation
costs.
Export sales to unaffiliated customers by the Company's US operations
approximately totaled $65,000 in 1997 ($66,000 in 1996 and $47,000 in 1995). The
Company considers its foreign operations to be of major importance to its future
growth prospects, and does not believe the risk of its foreign business differs
materially from its domestic business, except for the risk of currency
fluctuations. Transfers between geographic areas are generally priced on the
basis of a markup of manufacturing costs to achieve an appropriate sharing of
the profit between the parties.
31
<PAGE> 34
Notes to Consolidated Financial Statements
(In thousands, except per share data)
Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Saturday closest to July 31, except that
the Company's foreign subsidiaries are on a July 31 fiscal year. The years ended
August 2, 1997, August 3, 1996 and July 29, 1995 comprise 52, 53 and 52 weeks,
respectively.
Basis of Consolidation
The financial statements of Pall Corporation are presented on a consolidated
basis with its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
On February 3, 1997, the Company acquired Gelman Sciences Inc. The transaction
was accounted for as a pooling-of-interests and, accordingly, all financial data
for periods presented have been restated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make assumptions and estimates that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Revenue Recognition
Revenue is recognized when a product is shipped or a service is performed.
Translation of Foreign Currencies
Financial statements of foreign subsidiaries have been translated into US
dollars at exchange rates as follows: (i) balance sheet accounts at year-end
rates, and (ii) income statement accounts at weighted average rates. Translation
gains and losses are reflected in stockholders' equity, while transaction gains
and losses are reflected in income. Transaction (losses) gains in the amounts of
($2,108), $1,171 and ($353) were incurred in fiscal years 1997, 1996 and 1995,
respectively.
The equity in, and advances to, foreign subsidiaries approximately totaled
$252,000 and $281,000 at August 2, 1997 and August 3, 1996, respectively.
Cash and Cash Equivalents
The Company considers all financial instruments purchased with a maturity of
three months or less, other than its investments in Puerto Rico, to be cash
equivalents. The Company holds all cash equivalents until maturity.
Short-Term Investments
Short-term investments, consisting principally of certificates of deposit and
repurchase agreements secured by government obligations, are held to maturity
and are carried at cost, which approximates fair value.
Inventories
Inventories are valued at the lower of cost (principally on the first-in,
first-out method) or market.
Property, Plant and Equipment and Intangible Assets
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective assets,
principally on the straight-line basis. Expenditures for additions, major
renewals and betterments are capitalized, and expenditures for maintenance and
repairs are charged to earnings as incurred. Costs related to patents and
trademarks are amortized using the straight-line method over the estimated
useful lives, generally for periods ranging up to 17 years. Goodwill and other
intangible assets are amortized over periods ranging up to 20 years.
Impairment of Long-Lived Assets
The Company adopted SFAS No. 121 (Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of) during 1997. The effect of
adopting this standard was not material. The Company periodically reviews its
long-lived assets to assess recoverability and to ensure that the carrying
values of such long-lived assets have not been impaired.
Income Taxes
The Company accounts for taxes on income using the asset and liability method.
Under this method, deferred tax assets and liabilities are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse.
Earnings Per Share
Earnings per share was computed based on the average number of shares
outstanding. Stock options were excluded from the computation since they were
not materially dilutive.
Capitalized Interest
Interest in the amounts of $1,758 in 1997, $1,608 in 1996 and $1,439 in 1995 was
capitalized. Such amounts were computed by applying the effective interest rate
on the borrowing to the accumulated expenditures incurred for property, plant
and equipment.
Accounting Change
In fiscal 1995, the Company adopted SFAS No. 112 (Employers' Accounting for
Postemployment Benefits). The effect of initially applying this Statement is
reported as the cumulative effect of a change in an accounting principle.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year
presentation.
32
<PAGE> 35
Acquisitions
On February 3, 1997, the Company acquired Gelman Sciences Inc. ("Gelman"). The
acquisition was effected through the exchange of 1.3047 shares of Company common
stock for each share of Gelman common stock. The Company issued 10,607 shares of
its common stock for the acquisition. The transaction was accounted for as a
pooling-of-interests and, accordingly, all financial data for periods presented
have been restated.
On September 29, 1995, the Company completed its acquisition of the Medical
Plastics business of Bayer Corporation for approximately $45,000. The
acquisition of Medsep was financed through working capital sources and was
accounted for under the purchase method of accounting. As such, the results of
its operations are included in the Company's financial statements from the date
of acquisition. The purchase price exceeded the fair value of the tangible net
assets acquired by approximately $16,000.
On January 26, 1995, the Company acquired for approximately $28,000 all of the
outstanding shares of Filtron Technology Corporation, a manufacturer of
ultrafiltration membranes and cassettes. This acquisition was financed through
issuance of 1,280 shares of the Company's treasury shares valued at
approximately $25,000, and the remainder through working capital sources. The
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the operations of Filtron are included in the Company's financial
statements from the date of acquisition. The purchase price exceeded the fair
value of the tangible net assets acquired by approximately $22,000.
The acquisitions of Medsep and Filtron would not have materially affected the
financial statements of the Company had the results of their operations been
included in the Company's financial statements of prior years.
Gelman Merger, Restructuring and Other Charges
At the beginning of the third quarter, the Company completed its merger with
Gelman. The combined companies incurred merger related expenses of $10,519.
These expenses include amounts paid to investment advisors, attorneys,
accountants, change in control payments to certain executive officers of Gelman
and other incidental expenses related to the merger. Also, during the first
quarter, Gelman paid $3,911 in connection with the termination of its proposed
merger transaction with Memtec Ltd.
Upon consummation of the merger, the combined companies restructured their
operations to streamline the manufacturing, sales and overhead functions. As a
result, the combined companies recorded a pretax charge of $19,645.
Along with the Gelman restructuring, the Company performed a comprehensive
review of its existing business segments. In the Aeropower segment, the Company
decided to further consolidate its US production and operating facilities to
maintain greater efficiency in manufacturing and overhead functions and to
recognize inventory write-downs due to changes in demand. As a result, the
Company recorded a pretax charge of $6,114. In the Health Care and Fluid
Processing segments, the review identified certain products that have been
superseded by the introduction of new products. As the gross margins on the
older products continued to decline, the Company decided to write-down these
products. The review also identified certain manufacturing, sales and overhead
personnel who were made redundant. The total pretax charge related to these
items was $23,670. The Company also wrote-down machinery and equipment
(including the impact of SFAS No. 121) and recorded a pretax charge of $15,571.
Factors leading to the write-down were new product introductions, a decline in
the gross margins of older products and inadequate cash flows.
On April 19, 1995, a jury verdict of $7,000 was rendered against the Company.
The Company appealed the judgment; however, on April 9, 1997, the judgment was
affirmed. The Company estimated that its obligation under the judgment,
including insurance recoveries and legal costs, would be approximately $6,500.
The judgment awarded was paid in the fourth quarter.
On May 9, 1997, Gelman received a permit from the State of Michigan to clean up
contaminated water. The permit requires that all processed water discharged meet
the standards set by the State. Based on the permit obtained from the State of
Michigan and upon review of environmental issues at its other facilities, the
Company decided to record a pretax charge of $10,000. All the aforementioned
charges were recorded in the third quarter.
At the end of the year, approximately $20,000 of accruals relating to
environmental matters and provisions for severance and other obligations are
reflected on the balance sheet.
33
<PAGE> 36
A detailed summary of the charges is given below.
Gelman Merger and Other Charges
Restructuring ----------------------
Charges Aeropower Other Total
- ----------------------------------------------------------------------------
Merger related
expenses $14,430 $ -- $ -- $14,430
Asset write-offs 11,662 2,625 15,571 29,858
Severance 1,514 771 4,091 6,376(a)
Environmental and legal -- -- 16,500 16,500
Other 3,015 242 3,560 6,817
- ----------------------------------------------------------------------------
Subtotal 30,621 3,638 39,722 73,981
Inventory write-down 3,454 2,476 16,019 21,949(b)
- ----------------------------------------------------------------------------
Total pretax charges $34,075 $ 6,114 $55,741 $95,930
============================================================================
- ----------------------------------------------------------------------------
Cash $18,003 $ 1,013 $22,688 $41,704
Non-cash 16,072 5,101 33,053 54,226
- ----------------------------------------------------------------------------
Total $34,075 $ 6,114 $55,741 $95,930
============================================================================
(a) Approximately 250 employees were made redundant due to work-force
reduction.
(b) The inventory write-downs are included in cost of sales.
In the fourth quarter of fiscal 1996, Gelman increased its reserves for
environmental remediation costs and recorded a pretax charge of $2,800.
Inventories
The major classes of inventory are as follows:
1997 1996
- --------------------------------------------------------------------------------
Raw materials and components $ 79,545 $ 87,065
Work-in-process 22,065 22,159
Finished goods 96,470 96,291
- --------------------------------------------------------------------------------
Total inventory $198,080 $205,515
================================================================================
Other Assets
Other assets consist of the following:
1997 1996
- --------------------------------------------------------------------------------
Patents and trademarks,
net of accumulated
amortization of $15,211
and $13,184, respectively $ 38,123 $ 34,552
Benefits protection trust 26,475 26,701
Prepaid pension expenses 17,731 13,654
Intangible pension assets 1,792 2,385
Goodwill and other intangibles,
net of accumulated amortization
of $8,114 and $4,701, respectively 40,875 39,047
Other 29,978 25,617
- --------------------------------------------------------------------------------
Total $154,974 $141,956
================================================================================
Patents and trademarks include costs related to successfully defending certain
Pall patents, and expenditures made to register new patents and trademarks, as
well as paid-up licenses for third party patents.
The benefits protection trust was established for the purpose of satisfying
certain previously unfunded pension obligations, in the event of a change of
control of the Company. The August 2, 1997 and August 3, 1996 balance sheets
reflect related liabilities in the amounts of $27,729 and $27,835, respectively.
The trust primarily holds investments in US government obligations, debt
obligations of corporations and financial institutions with high credit ratings.
The Company considers investments held in the trust to be available-for-sale,
and these investments are carried at fair value. Unrealized gains and losses are
reported as a separate component of stockholders' equity, until realized.
Realized gains and losses are recognized in earnings upon sale. Contractual
maturity dates range from 1998-2027.
Pertinent information related to the trust follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Annual contributions $ 1,319 $ 2,596 $ 2,599
Total purchases 49,357 41,779 28,364
Total proceeds from sales 51,632 42,720 29,611
Net (losses) gains recognized (18) 584 (712)
================================================================================
Prepaid pension expenses represent amounts arising from the excess of cumulative
employer contributions and earnings thereon, over accrued net pension expenses.
Intangible pension assets represent, for certain domestic pension arrangements,
the excess of unfunded accumulated benefits over unrecognized prior service
costs. The August 2, 1997 and August 3,
34
<PAGE> 37
1996 balance sheets reflect additional long-term pension liabilities of $8,481
and $9,506, respectively and a reduction in stockholders' equity, net of
deferred tax benefits, of $4,348 and $4,629, respectively.
Goodwill and other intangibles represent the cost in excess of the tangible net
assets acquired of the Company's former distributors in Australia and Belgium,
Filtron Technology Corporation and the Medical Plastics business of Bayer
Corporation.
During the year, the Company acquired a 20% interest in Oiltools International
Ltd ("Oiltools"). Oiltools, which specializes in oil field service, sells,
distributes and provides certain manufacturing services for the Company's family
of Stratapac(R) sand control products for use in oil and gas wells. In addition,
the Company acquired all the assets of its distributor in Belgium and also made
an investment in one of its distributors in the Aerospace market. The total cost
of these investments was approximately $12,000. The Company accounts for its
investment in Oiltools under the equity method of accounting.
Notes Payable
At August 2, 1997, the Company and its subsidiaries had lines of credit totaling
approximately $425,000, of which $123,974 had been drawn. Such lines of credit
do not represent legal commitments on the parts of the financial institutions
and no compensating balance is required.
Pertinent information with respect to notes payable follows:
1997 1996 1995
- -------------------------------------------------------------------------------
Average month-end borrowings $ 143,000 $ 139,000 $ 119,000
Weighted average interest rate
during the year 4.4% 4.8% 5.1%
Highest level of borrowing at
any month-end during the year $ 179,000 $ 158,000 $ 161,000
Weighted average interest rate
at year-end 4.0% 4.6% 5.1%
===============================================================================
Long-Term Debt
1997 1996
- --------------------------------------------------------------------------------
1.16% - 2.59% bank loans in Japan,
due in installments through 2000 $23,430 $23,028
7.23% term loan, due on June 30,1999 20,000 20,000
7.38% sale-and-leaseback obligation 14,181 18,030
5.89% industrial development bonds
due on July 1, 2004 4,415 4,415
Other 4,777 6,269
- --------------------------------------------------------------------------------
Total long-term debt 66,803 71,742
Less: current portion 4,677 17,326
- --------------------------------------------------------------------------------
Long-term debt, net of current portion $62,126 $54,416
================================================================================
In July 1995, the Company entered into a sale-and-leaseback transaction for
certain of its personal properties for approximately $25,000. No gain or loss
was recognized on this transaction. For accounting purposes, the Company has
treated this transaction as a financing arrangement. Payments are due in
installments through the year 2001. Depreciation on the properties has been
reflected in accordance with the Company's normal accounting practices.
The aggregate annual maturities of long-term debt during the fiscal years 1998
through 2002 are approximately as follows: 1998, $4,677; 1999, $35,557; 2000,
$17,736; 2001, $3,744; and 2002, $362.
Interest expense for 1997, 1996 and 1995 amounted to $9,556, $11,046 and
$10,818, respectively. Interest income for 1997, 1996 and 1995 amounted to
$6,720, $7,459 and $6,711, respectively.
Income Taxes
The components of earnings before income taxes and the cumulative effect of a
change in an accounting principle are as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Domestic operations $ 4,581 $ 84,002 $ 64,568
Foreign operations 81,546 119,735 113,123
- --------------------------------------------------------------------------------
Total $ 86,127 $203,737 $177,691
================================================================================
The Company and its domestic subsidiaries file a consolidated Federal income tax
return. The provisions for income taxes, excluding the cumulative effect of a
change in an accounting principle, consist of the following items:
1997 1996 1995
- --------------------------------------------------------------------------------
Current:
Federal and Puerto Rico $ 4,116 $ 13,286 $ 12,112
State 500 543 460
Foreign 27,454 41,153 38,773
- --------------------------------------------------------------------------------
Total 32,070 54,982 51,345
- --------------------------------------------------------------------------------
Deferred:
Federal (14,454) 3,150 31
Foreign 1,193 2,771 477
- --------------------------------------------------------------------------------
Total (13,261) 5,921 508
- --------------------------------------------------------------------------------
Total income tax expense $ 18,809 $ 60,903 $ 51,853
================================================================================
35
<PAGE> 38
The tax effects of temporary differences and loss carry-forwards that give rise
to significant portions of the net deferred tax liability at August 2, 1997,
August 3, 1996 and July 29, 1995 are as follows:
1997 1996 1995
- -------------------------------------------------------------------------------
Deferred tax asset:
Inventories $ 8,499 $ 10,088 $ 9,854
Pension liabilities 14,451 11,911 12,044
Accrued expenses 12,261 6,069 4,959
Other 6,533 2,042 6,193
- -------------------------------------------------------------------------------
Total deferred tax asset 41,744 30,110 33,050
Valuation allowance (2,500) (127) (210)
- -------------------------------------------------------------------------------
Net deferred tax asset 39,244 29,983 32,840
- -------------------------------------------------------------------------------
Deferred tax liability:
Plant and equipment (40,185) (44,072) (43,038)
Pension assets (4,429) (3,398) (2,564)
Other (1,337) (1,716) (700)
- -------------------------------------------------------------------------------
Total deferred tax liability (45,951) (49,186) (46,302)
- -------------------------------------------------------------------------------
Net deferred tax liability $ (6,707) $(19,203) $(13,462)
===============================================================================
The valuation allowance has been increased by $2,373 as of August 2, 1997 to
reflect certain foreign tax loss carry-forwards generated in fiscal 1997 which
may not be utilized.
Two of the Company's three Puerto Rico subsidiaries are organized as
"possessions corporations" as defined in Section 936 of the Internal Revenue
Code. In fiscal 1997, both 936 corporations elected to change from the so-called
"percentage limitation" to the so-called "economic-activity limitation" in
computing the allowable credit against their underlying US tax liability. The
former limitation restricts the credit to a stipulated percentage of their
pre-credit US tax liability. The latter equates the credit to the sum of three
separate gauges of activity, by far the most significant of which to the
companies is 60% of qualified possession wages and fringe benefits. The
exemption from Puerto Rico income tax remains at 90%. Repatriation of these
earnings results in the imposition of a withholding tax of not more than 10%.
The third Puerto Rico subsidiary, incorporated under Puerto Rico law in
November, 1996, is a controlled foreign corporation (CFC) under US tax
principles, the earnings of which are normally subject to US tax only upon
repatriation. Application has been made for 90% exemption from Puerto Rico
income tax and the Company has every confidence that such application will be
approved retroactively to the date of incorporation. In the reconciliation of
the computed "expected" tax expense to the total and effective tax rate,
outlined below, the "benefit" attributable to this subsidary is combined with
the effects of other CFCs.
The Small Business Job Protection Act of 1996 repealed Section 936 of the
Internal Revenue Code which provided a tax credit for US companies with
operations in certain US possessions, including Puerto Rico. For existing
qualifying Puerto Rico operations, such as Pall, Section 936 will be phased out
over a period of several years, with a decreasing credit being available through
the last taxable year beginning before January 1, 2006.
United States income taxes have not been provided on the retained earnings of
foreign subsidiaries (including the Puerto Rico CFC referred to above), which
totaled $199,000, $178,000 and $180,000 at August 2, 1997, August 3, 1996 and
July 29, 1995, respectively. Foreign subsidiaries have paid, and are expected to
continue to pay, dividends out of accumulated earnings. A portion of such
earnings will however be permanently reinvested and any additional US taxes
arising from the repatriation of earnings available for distribution, less
applicable credits for taxes paid abroad, would not be material.
A reconciliation of the provisions for income taxes, excluding the cumulative
effect of a change in accounting principle, follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Earnings Amount Earnings Amount Earnings
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense $ 30,144 35.0% $ 71,308 35.0% $ 62,191 35.0%
Tax benefit of Section 936 Puerto Rico operations (7,737) (9.0) (9,781) (4.8) (9,716) (5.5)
Federal tax credits and other effects (488) (0.6) (3,145) (1.5) (677) (0.4)
Valuation allowance 2,373 2.7 (83) (0.1) (250) (0.1)
Foreign income and withholding taxes,
net of US foreign tax credits (5,808) (6.7) 2,251 1.1 5 --
State income taxes, net of Federal
income tax benefit 325 0.4 353 0.2 300 0.2
- -----------------------------------------------------------------------------------------------------------------
Total and effective tax rate $ 18,809 21.8% $ 60,903 29.9% $ 51,853 29.2%
=================================================================================================================
</TABLE>
36
<PAGE> 39
Common Stock
Shareholder Rights Plan
On November 17, 1989, the Board of Directors adopted a Shareholder Rights Plan.
Under the Plan, each shareholder received a dividend of one right for each share
of the Company's outstanding common stock. Each right entitles the holder to
purchase one share of common stock at an initial exercise price of $60 per
share. Initially, the rights are attached to the common stock and are not
exercisable. The rights become exercisable and will trade separately from the
common stock ten days after any person or group acquires 20% or more of the
Company's outstanding common stock, or ten business days after any person or
group announces a tender offer for 20% or more of the outstanding common stock.
Each right not owned by the acquiror would become exercisable for the number of
shares of common stock of the Company having a market value at that time of
twice the exercise price of the right. Alternatively, the Board of Directors
could exchange the rights not owned by the acquiror for common stock at an
exchange ratio of one share of common stock per right.
The effective date of the rights dividend was December 1, 1989, to shareholders
of record on that date. Such rights are also attached to common stock issued
subsequent to December 1, 1989. The rights will expire on December 1, 1999,
unless earlier redeemed by the Company. The rights are redeemable by the Board
of Directors for .33 cents per right at any time until a 20% position has been
acquired in the Company's common stock by a person or group.
Stock Repurchase Programs
On January 9, 1995, the Company's Board of Directors authorized a program to
repurchase shares of its common stock. The Board authorized the expenditure of
up to $50,000, and this program was completed by the end of fiscal 1995, with
2,306 shares being acquired.
On February 28, 1996, the Company's Board of Directors authorized another
program to repurchase shares of its common stock. The Board authorized the
expenditure of up to $40,000. Through the end of fiscal 1996 the Company
purchased 433 shares at an aggregate cost of $10,000.
The shares repurchased under these programs were held in treasury for use in
connection with the exercise of options granted under the Company's stock option
plans, and for general corporate purposes. In January 1997, the Company sold 150
of its treasury shares. At August 2, 1997, the Company held 596 treasury shares.
Incentive Compensation Plan
The plan provides additional compensation to officers and key employees of the
Company and its subsidiaries based upon the achievement of specified management
goals. The Compensation Committee of the Board of Directors establishes the
goals on which the Company's executive officers are compensated, and management
establishes the goals for other covered employees. With respect to the officers
covered by the employment contracts referred to in the Contingencies and
Commitments footnote, any incentive compensation payable to an officer under the
incentive compensation arrangement described in this paragraph is reduced by the
incentive compensation payable under the formula contained in his/her employment
contract. The aggregate amounts charged to expense in connection with the plan
were approximately $7,000, $10,000, and $8,000 in fiscal years 1997, 1996 and
1995, respectively.
Stock Option Plans
The Company has adopted several plans that provide for the granting of stock
options to officers, employees and non-employee directors, at option prices
equal to the market price of the common stock at date of grant, which results in
no charge to earnings. The forms of option adopted provide that the options may
not be exercised within one year from the date of grant, and expire if not
completely exercised within five years from the date of grant. For the most
part, in any year after the first year, the options can be exercised with
respect to only up to 25% of the shares subject to the option, computed
cumulatively.
1997 1996
- --------------------------------------------------------------------------------
Options exercisable 2,654 3,010
Options available for grant 3,310 3,282
- --------------------------------------------------------------------------------
Changes in the options outstanding during fiscal years 1995, 1996 and 1997 are
summarized in the following table:
Number of Shares Price Per Share
- --------------------------------------------------------------------------------
Balance - July 30, 1994 6,121 $ 2.30 - $22.31
Fiscal 1995:
Options granted 441 10.35 - 21.44
Options exercised (506) 2.30 - 18.81
Options terminated (142) 2.60 - 22.31
- --------------------------------------------------------------------------------
Balance - July 29, 1995 5,914 2.60 - 22.31
Fiscal 1996:
Options granted 2,546 16.10 - 27.25
Options exercised (1,163) 2.60 - 19.88
Options terminated (106) 2.60 - 24.25
- --------------------------------------------------------------------------------
Balance -August 3, 1996 7,191 2.60 - 27.25
Fiscal 1997:
Options granted 137 17.53 - 26.75
Options exercised (1,926) 2.64 - 24.25
Options terminated (158) 2.81 - 26.06
- --------------------------------------------------------------------------------
Balance - August 2, 1997 5,244 2.60 - 27.25
================================================================================
As of August 2, 1997, 8,554 shares of common stock of the Company were reserved
for the exercise of stock options. To the extent treasury shares are used to
satisfy option exercises, these reserved shares will not be issued.
37
<PAGE> 40
The Company applies Accounting Principles Board Opinion No. 25 (Accounting for
Stock Issued to Employees) and related interpretations in accounting for its
stock option plans. Accordingly, no compensation expense is recognized when
options are granted. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123 (Accounting for Stock-Based Compensation) which became
effective for the Company during the current year. Had compensation expense been
determined based on the fair value methodology prescribed in this statement, net
earnings and earnings per share for the current year would have been reduced by
approximately $3,000 or $.02 per share for options granted in fiscal 1996. The
fair value of the options granted during fiscal 1996 was estimated at $5.70 on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: dividend yield 2%, volatility 20%, risk-free interest
rate of 5.7% and an expected life of 5 years.
Pension and Profit Sharing Plans and Arrangements
Pension Plans
The Company and its subsidiaries provide substantially all domestic and foreign
employees with pension benefits. Pension costs charged to operations totaled
$10,739, $10,532 and $9,018 in fiscal years 1997, 1996 and 1995, respectively.
Net periodic pension cost for these plans in fiscal years 1997, 1996 and 1995
was:
<TABLE>
<CAPTION>
US Plans Foreign Plans
- --------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 3,949 $ 3,449 $ 2,665 $ 4,346 $ 4,074 $ 4,115
Interest cost on projected benefit obligation 6,051 5,700 5,308 5,039 4,279 3,469
Return on plan assets (16,948) (5,684) (7,472) (6,470) (5,362) (5,282)
Net amortization and deferrals 14,394 3,458 5,198 (1,086) (863) (400)
- --------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 7,446 $ 6,923 $ 5,699 $ 1,829 $ 2,128 $ 1,902
==============================================================================================================
</TABLE>
The following table presents the plans' funded status and amounts recognized on
the Company's consolidated balance sheets at August 2, 1997 and August 3, 1996:
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
- -----------------------------------------------------------------------------------------------------------------------------------
US Plans Foreign Plans US Plans Foreign Plans
---------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 45,692 $ 5,021 $ 51,309 $ 42,781 $ 26,127 $ 61,382 $ 13,415 $ 9,089
Accumulated benefit obligation 48,376 5,274 51,309 43,525 27,728 64,668 15,710 10,138
Projected benefit obligation 56,098 5,274 54,809 48,140 31,000 75,080 20,884 12,263
Plan assets 61,572 5,413 91,304 75,993 -- 41,470 8,005 --
- -----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation
(in excess of) or less than plan assets 5,474 139 36,495 27,853 (31,000) (33,610) (12,879) (12,263)
Unrecognized net (gain) or loss (11,510) (555) (19,234) (10,889) 9,960 10,663 2,915 (2,484)
Unrecognized prior service cost 1,568 936 167 179 911 2,021 -- --
Unrecognized net obligation or
(asset) at date of adoption (2,614) (465) (3,015) (3,544) 881 (1,434) 261 501
Additional minimum liability -- -- -- -- (8,481) (9,506) (57) (116)
- -----------------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost (liability) in
the consolidated balance sheets $ (7,082) $ 55 $ 14,413 $ 13,599 $(27,729) $(31,866) $ (9,760) $(14,362)
===================================================================================================================================
The assumptions used were:
Discount rate 7.75% 7.75% 8.5% 5.5-8.5% 7.75% 7.75% 3.5-6.5% 5.5-6.5%
Rate of compensation increase 4.25-5.25% 4.25-5.25% 5.5% 2.9-5.5% 4.25-5.25% 4.25-5.25% 3.0-4.0% 3.0-5.0%
Long-term rate of return on plan assets 9.0% 9.0% 9.0% 4.5-9.0% 9.0% 9.0% 9.0% 4.5-9.0%
</TABLE>
38
<PAGE> 41
The Company's pension plans provide benefits based on salary and length of
service. Funding policy for domestic plans is in accordance with ERISA funding
standards; for foreign plans, funding is determined by local tax laws and
regulations. Plan assets are invested primarily in common stocks, bonds and cash
instruments.
The Company and its subsidiaries also participate in certain pension plans for
the benefit of its employees who are union members. Contributions to these plans
were $1,464, $1,481 and $1,417 for fiscal years 1997, 1996 and 1995,
respectively.
Profit Sharing Plan
The Company's profit sharing plan covers substantially all domestic employees of
the Company and its participating subsidiaries, other than those employees
covered by a union retirement plan. The plan provides that, unless the Board of
Directors decides otherwise, the Company contribute annually the lesser of (a)
the amount which, when added to forfeitures for the year, equals 7.5% of the
amount by which the consolidated net operating income before income taxes of the
Company and its participating subsidiaries exceeds $500, or (b) the amount
deductible for Federal income tax purposes. The profit sharing expense for
fiscal years 1997, 1996 and 1995 was $5,207, $6,092 and $4,293, respectively.
Other Non-Current Liabilities
This consists primarily of accruals for deferred compensation plans and
arrangements, the benefits of which are, and will continue to be, paid to
covered officers and employees. Also included are accruals for environmental
remediation costs that were recorded in the third quarter.
Contingencies and Commitments
On May 9, 1997, Gelman received a permit to clean up contaminated water at its
Ann Arbor, Michigan, facility. The permit requires that all processed water
discharged meet the standards set by the State. Certain other facilities of the
Company are also involved in environmental proceedings. The situations at these
sites are similar, in that they relate to the acts of third parties and are not
related to ongoing Company operations. The Company's insurers have been notified
and are evaluating coverage. Based on the permit obtained from the State and
upon review of the environmental issues at other facilities the Company decided
to increase its environmental remediation reserves by an additional $10,000 and
recorded a pretax charge in the third quarter. In the opinion of management, the
Company is in substantial compliance with applicable environmental laws. Because
regulatory standards under environmental laws are becoming increasingly
stringent, there can be no assurance that future developments will not cause the
Company to incur material environmental liabilities or costs.
The Company and its subsidiaries are subject to certain other legal actions that
arise in the normal course of business. It is management's opinion that these
other actions will not have a material effect on the Company's financial
position.
The Company and its subsidiaries lease office and warehouse space, automobiles,
computers and office equipment. Rent expense for all operating leases amounted
to approximately $18,000 in 1997, $16,000 in 1996 and $14,000 in 1995. Future
minimum rental commitments at August 2, 1997 for all noncancelable operating
leases with initial terms exceeding one year are $10,400 in 1998; $7,500 in
1999; $5,200 in 2000; $3,300 in 2001; $2,100 in 2002; and $900 thereafter.
The Company has employment agreements with its executive officers, the terms of
which expire at various times through July 31, 1999. Such agreements, which have
been revised from time to time, provide for minimum salary levels, adjusted
annually for cost-of-living changes, as well as for incentive bonuses that are
payable if specified management goals are attained. The aggregate commitment for
future salaries at August 2, 1997, excluding bonuses, is approximately $9,000.
Financial Instruments and Risks and Uncertainties
The Company enters into forward exchange contracts, generally with terms of 90
days or less, to manage its foreign currency transaction exposures. Effects of
changes in currency rates on those transactions are therefore minimized and
hedges are accounted for as part of the underlying transactions. The total value
of open contracts at year-end was not material.
The Company sells its products to a diverse group of customers in the Health
Care, Aeropower and Fluid Processing industries throughout the world and as such
does not consider itself exposed to concentration of credit risks. These risks
are further minimized by placing credit limits, ongoing monitoring of the
customers' account balances, and assessment of the customers' financial
strengths.
The Company's cash and cash equivalents and investments are in high-quality
securities placed with a wide array of financial institutions with high credit
ratings. This investment policy limits the Company's exposure to concentration
of credit risks.
The Company considers the fair value of all financial instruments to be not
materially different from their carrying value at year-end.
The Company manufactures and markets filtration and separations products and
systems within three segments, Health Care, Aeropower and Fluid Processing,
throughout the world. As such, the Company is subject to certain risks and
uncertainties as a result of changes in general economic conditions, sources of
supply, competition, foreign exchange rates, tax reform, litigation and
regulatory developments. The diversity and breadth of the Company's products and
geographic operations mitigate significantly the risk that adverse changes in
any event would materially affect the Company's operating results. The Company's
segment information by industry and geographic areas are disclosed on pages 30
and 31.
39
<PAGE> 42
Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997:
Net sales $ 235,791 $ 260,759 $ 275,339 $ 290,119 $1,062,008
Gross profit 137,543 151,132 136,240 168,680 593,595
Earnings (loss) before income taxes 25,888(a) 41,497 (40,410)(b) 59,152 86,127(a)(b)
Net earnings (loss) 17,284 28,968 (22,204) 43,270 67,318
Earnings (loss) per share 0.14(a) 0.23 (0.18)(b) 0.34 0.53(a)(b)
1996:
Net sales $ 218,885 $ 266,440 $ 277,376 $ 309,732 $1,072,433
Gross profit 129,838 157,631 167,680 187,556 642,705
Earnings before income taxes 28,636 49,315 56,514 69,272(c) 203,737(c)
Net earnings 19,674 33,942 40,598 48,620 142,834
Earnings per share 0.16 0.27 0.32 0.39(c) 1.14(c)
=========================================================================================================
</TABLE>
(a) Includes a charge of $3,911, (3 cents per share after pro forma tax effect)
Gelman paid to Memtec Ltd. in connection with the termination of its
proposed merger transaction.
(b) Includes a charge of $92,019 related to the Gelman merger, restructuring
and other charges (47 cents per share after pro forma tax effect).
(c) Includes a charge of $2,800 (1 cent per share after pro forma tax effect)
related to Gelman's environmental remediation costs.
Common Stock Prices and Cash Dividends
Pall Corporation's Common Stock is listed on the New York and London Stock
Exchanges. The table below sets forth quarterly data relating to the Company's
Common Stock prices and cash dividends declared per share for the past two
fiscal years.
Cash dividends
Fiscal 1997 Fiscal 1996 per common share
- --------------------------------------------------------------------------------
Price per share High Low High Low 1997 1996
- --------------------------------------------------------------------------------
Quarter:
First $ 28.25 $ 22.75 $ 24.50 $ 20.13 $0.1225 $0.1050
Second 27.25 22.13 27.75 23.25 0.1400 0.1225
Third 24.50 20.75 29.38 25.63 0.1400 0.1225
Fourth 25.38 22.63 28.63 19.63 0.1400 0.1225
================================================================================
There are approximately 8,400 holders of record of the Company's Common Stock.
Six-Year Sales
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Health Care $ 555,378 $ 570,835 $ 489,347 $ 437,324 $ 430,534 $ 404,947
Aeropower 243,207 235,075 212,806 179,508 176,134 204,723
Fluid Processing 263,423 266,523 224,173 178,979 166,763 156,858
- ----------------------------------------------------------------------------------------
Total $1,062,008 $1,072,433 $ 926,326 $ 795,811 $ 773,431 $ 766,528
========================================================================================
</TABLE>
40
<PAGE> 43
Six-Year Financial History
<TABLE>
<CAPTION>
(In millions, except per share data
and number of employees) 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Results for the Year:
Sales 1,062.0 1,072.4 926.3 795.8 773.4 766.5
Cost of sales 468.4 429.7 355.2 304.9 293.3 305.0
Selling, general and administrative expenses 376.9 378.8 338.7 295.0 294.2 281.8
Research and development 53.8 53.8 50.6 46.2 44.2 38.0
Interest expense, net 2.8 3.6 4.1 3.4 6.0 7.9
Other charges 74.0 2.8(b) -- 3.7(d) 26.7(e) 9.0(f)
Earnings before taxes 86.1(a) 203.7 177.7 142.6 109.0 124.8
Income taxes 18.8 60.9 51.8 38.8 28.0 35.8
Accounting changes -- -- (.8)(c) -- -- 2.5(g)
Net earnings 67.3 142.8 125.1 103.8 81.0 91.5
Earnings per share .53 1.14 1.00 .84 .66 .74
Dividends declared per share .54 .47 .41 .36 .31 .26
Capital expenditures 88.6 88.5 74.3 80.0 68.4 60.2
Depreciation 55.9 51.5 46.2 41.2 39.6 38.6
- ---------------------------------------------------------------------------------------------------------------------------------
Year-End Position:
Working capital 305.6 290.7 268.9 237.4 211.7 231.5
Property, plant and equipment, net 504.0 498.0 460.5 426.8 384.8 392.3
Total assets 1,265.6 1,291.2 1,156.7 1,031.3 965.8 974.4
Long-term debt 62.1 54.4 74.3 75.9 47.0 71.3
Total liabilities 440.8 494.2 446.1 413.6 400.6 409.2
Equity 824.8 797.0 710.6 617.7 565.2 565.2
- ---------------------------------------------------------------------------------------------------------------------------------
Other Ratios and Statistics:
Net earnings (excluding other charges
and accounting changes) as % of:
Sales 12.3 13.5 13.6 13.3 12.8 12.4
Average total assets 10.2 11.8 11.5 10.6 10.2 10.4
Average equity 16.1 19.2 18.9 18.0 17.5 17.8
Average shares outstanding 126.3 125.1 124.6 123.9 123.4 124.3
Equity per share 6.48 6.36 5.70 5.01 4.57 4.59
Number of employees at year-end 8,500 8,500 7,300 7,000 7,100 7,200
Price range of stock during the year:
High 28.25 29.38 24.00 21.25 23.16 24.09
Low 20.75 19.63 15.75 13.63 16.38 16.50
=================================================================================================================================
</TABLE>
(a) Includes a charge of $95.9 million related to Gelman merger, restructuring
and other charges.
(b) Represents a charge related to Gelman's environmental remediation costs.
(c) Represents a decrease in net earnings as a result of adopting SFAS No. 112
(Employers' Accounting for Postemployment Benefits).
(d) Represents principally the cost of restructuring the German operations and
of writing off a bad debt in the Aerospace operations.
(e) Represents principally the cost of downsizing and further integrating the
military portion of the Aeropower business with the Industrial Fluid Power
business.
(f) Represents charges related to settlement of certain promissory notes and
Gelman's environmental remediation costs.
(g) Represents an increase in net earnings as a result of adopting SFAS No. 109
(Accounting for Income Taxes).
41
<PAGE> 44
Corporate Directory
Senior Officers
Eric Krasnoff
Chairman and
Chief Executive Officer
Jeremy Hayward-Surry
President, Treasurer and
Chief Financial Officer
Derek Williams
Executive Vice President and
Chief Operating Officer
Group Vice Presidents
Peter Cope
Clifton Hutchings
Donald Stevens
Gerhard Weich
Arnold Weiner
Samuel Wortham
Secretary
Mary Ann Bartlett
Senior Vice Presidents
Dr. Joseph Adiletta
Kim Davis
Dr. Peter Degen
Dr. Thomas Gsell
Erwin Kirnbauer
Paul Kohn
John Miller
Akio Satake
Robert Simkins
Gilbert Weiner
Vice Presidents
Dr. Leonard Bensch
Jane Block
Thomas Bormann
Claude Broussy
Steven Chisolm
Jack Cole
Terry Flack
Stephen Geibel
Charles Grimm
Dr. Richard Gutman
Dr. Martin Hirsch
Patricia Iannucci
Sakae Isohata
Dr. Hyman Katz
Neil MacDonald
William Palmer
Clarence Treppa
Marcus Wilson
Charles Wolowitz
Board of Directors
Abraham Appel
Ulric Haynes, Jr.
Jeremy Hayward-Surry
Eric Krasnoff
Dr. Edwin Martin, Jr.
Dr. David Pall
Katharine Plourde
Chesterfield Seibert
Heywood Shelley
Alan Slifka
Dr. James Watson
Derek Williams
42
<PAGE> 45
Corporate Information
Corporate Headquarters
2200 Northern Blvd.
East Hills, New York 11548
Tel: (516) 484-5400
Fax: (516) 484-3649
Principal Plants
Glen Cove, East Hills,
Port Washington, Hauppauge
and Cortland, New York
New Port Richey,
Fort Meyers and Pensacola,
Florida
Covina and Pleasanton,
California
Putnam, Connecticut
Northborough, Massachusetts
Ann Arbor, Michigan
Portsmouth, Ilfracombe,
Newquay and Redruth, England
Tipperary, Ireland
Tsukuba, Japan
Fajardo, Puerto Rico
Auditors
KPMG Peat Marwick LLP
Jericho, New York
Registrar & Transfer Agent
Wachovia Bank, NA
The transfer agent is responsible for shareholder records, changes of address,
stock transfers, changes of ownership, issuance of stock certificates, and
distribution of dividends and IRS Forms 1099.
Requests concerning these matters are most efficiently answered by contacting:
Wachovia Bank, NA
Wachovia Shareholder Services
P.O. Box 8217
Boston, Massachusetts
02266-8217
Telephone: 1-800-633-4236
Investor Relations
Investor relations inquiries should be directed to:
Pall Corporation
Investor Relations Manager
25 Harbor Park Drive
Port Washington, New York
11050-4630
Telephone: 516-484-3600
Fax: 516-484-3649
E-mail: [email protected]
Requests for financial materials:
Telephone: 1-800-205-7255
Information on company results can be obtained through conventional press
coverage, SEC filings, Pall's Internet web site at http://www.pall.com or
through Pall's Fax-on-Demand system at 1-800-664-PALL. Due to availability of
results by above methods and cost considerations, Pall Corporation will no
longer distribute a quarterly report to shareholders.
Dividend Reinvestment Plan
Pall Corporation's Dividend Reinvestment Plan allows shareholders to reinvest
dividends and invest additional cash to purchase Pall Corporation Common Stock.
You must be a registered shareholder with a minimum of 50 shares in order to
participate. For more information, contact Pall's Transfer Agent or Investor
Relations Department.
Forward-Looking Statements
This annual report contains forward-looking statements that are based on current
Company expectations and are subject to a number of factors that could cause
actual results to differ materially. Such factors include, but are not limited
to, fluctuations in foreign exchange rates, regulatory approval and market
acceptance of new technologies, market demand, competitive pricing
considerations and global and regional economic conditions.
Trademarks
All product names appearing in type form different from that of the surrounding
text are trademarks owned by Pall Corporation or its subsidiaries.
[LOGO] This report has been printed on recycled paper.
The papers used in this annual report were manufactured in mills that use Pall
filters on their paper machines.
<PAGE> 46
[LOGO] Pall Corporation
2200 Northern Boulevard
East Hills, NY 11548
Filtration. Separation. Solution.(TM)
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF PALL CORPORATION
Pall Corporation owns 100% of the outstanding capital stock of those companies
listed below, except where otherwise noted:
State or Other Jurisdiction
Name of Company of Incorporation
Medsep Corporation Delaware
Pall Aeropower Corporation Delaware
Pall Biomedical, Inc. Delaware
Pall International Corporation Delaware
Pall Puerto Rico, Inc. Delaware
Pall Stratapac Ltd. Delaware
Russell Associates Inc. Delaware
Pall Filtron Corporation Massachusetts
Gelman Sciences, Inc. Michigan
Pall Industries, Inc. Puerto Rico
Pall (Canada) Limited Canada
Pall Belgium Belgium
Gelman Sciences Ltd. (b) Canada
Pall Europe Limited England
Gelman Sciences Ltd. (b) England
Pall Deutschland GmbH Holding Germany
Pall GmbH (a) Germany
Gelman Sciences Deutschland GMBH (b) Germany
Pall Italia S.R.L. Italy
Gelman Italy S.R.L. (b) Italy
Gelman Ireland Ltd. (b) Ireland
Pall France S.A. France
Gelman Sciences S.A. (b) France
Pall Netherlands B.V. Netherlands
Pall Norge AS Norway
Pall (Schweiz) A.G. Switzerland
Pall Austria Filter Ges.m.b.H. Austria
Pall Espana S.A. Spain
Pall Filtron AB (d) Sweden
Pall Filtron Technology B.V. (d) The Netherlands
Pall Poland Limited (a) Poland
Nihon Pall Ltd. Japan
Gelman Sciences Ltd. (b) Japan
Pall Filtration Pte. Ltd. Singapore
Pall Korea Limited South Korea
Pall Filter (Beijing) Co., Ltd. China
Pall Asia International Ltd. Hong Kong
Gelman Sciences Ltd. (b) Australia
Pall Export Sales Corp., Limited (c) Jamaica
(a) 100% owned by Pall Deutschland GmbH Holding.
(b) 100% owned by Gelman Sciences Inc., Michigan
(c) 100% owned by Pall International Corporation.
(d) 100% owned by Pall Filtron Corporation.
All subsidiaries listed above are included in the consolidated financial
statements for the fiscal years 1997, 1996 and 1995, or, in the case of
corporations organized since August 1, 1993, from the date of incorporation.
The list does not include inactive subsidiaries.
<PAGE> 1
EXHIBIT 23
[KPMG PEAT MARWICK LLP Letterhead]
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
Pall Corporation:
We consent to incorporation by reference in Pall Corporation's Registration
Statements Nos. 33-25640, 33-44399, 33-51151 and 33-64751 on Form S-8, and
Registration Statements Nos. 33-39655, 33-57507 and 333-18971 on Form S-3, and
Registration Statement No. 333-17417 on Form S-4, of our reports dated
September 2, 1997, relating to the consolidated balance sheets of Pall
Corporation and subsidiaries as of August 2, 1997 and August 3, 1996 and the
related consolidated statements of earnings, stockholders' equity and cash
flows and related schedule for each of the years in the three-year period ended
August 2, 1997, which reports are incorporated by reference or appear in this
annual report on Form 10-K of Pall Corporation for the fiscal year ended August
2, 1997.
Our reports refer to the Company's adoption of Statement of Financial
Accounting Standards No. 112, "Employers Accounting for Postemployment
Benefits" in fiscal year 1995.
/s/ KPMG PEAT MARWICK LLP
------------------------------------
KPMG PEAT MARWICK LLP
Jericho, New York
October 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 17,972
<SECURITIES> 37,500
<RECEIVABLES> 273,206
<ALLOWANCES> 6,602
<INVENTORY> 198,080
<CURRENT-ASSETS> 606,604
<PP&E> 849,539
<DEPRECIATION> 345,493
<TOTAL-ASSETS> 1,265,624
<CURRENT-LIABILITIES> 301,029
<BONDS> 0
0
0
<COMMON> 12,796
<OTHER-SE> 812,037
<TOTAL-LIABILITY-AND-EQUITY> 1,265,624
<SALES> 1,062,008
<TOTAL-REVENUES> 1,062,008
<CGS> 468,413
<TOTAL-COSTS> 975,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,836
<INCOME-PRETAX> 86,127
<INCOME-TAX> 18,809
<INCOME-CONTINUING> 67,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,318
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
