<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
PALL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PALL CORPORATION
2200 NORTHERN BOULEVARD
EAST HILLS, NEW YORK 11548
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 20, 1997
---------------------
To the Holders of Common Stock:
PLEASE TAKE NOTICE that the annual meeting of shareholders of Pall Corporation,
a New York corporation (the "Company"), will be held at The Garden City Hotel,
45 Seventh Street, Garden City, New York 11530, on Thursday, November 20, 1997
at 2:30 P.M. for the following purposes:
(1) to elect four directors for a three-year term; and
(2) to transact such other business as may properly come before the
meeting.
The close of business on October 9, 1997 has been fixed as the record date for
the meeting; only shareholders of record at that time are entitled to notice of
and to vote at the meeting.
Mary Ann Bartlett,
Secretary
October 17, 1997
<PAGE> 3
PALL CORPORATION
2200 NORTHERN BOULEVARD
EAST HILLS, NEW YORK 11548
October 17, 1997
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Pall
Corporation, a New York corporation (the "Company"), for use at the annual
meeting of shareholders to be held on Thursday, November 20, 1997, at 2:30 P.M.
at The Garden City Hotel, 45 Seventh Street, Garden City, New York 11530, and at
any adjournments thereof (the "meeting"). Shareholders are requested to date and
execute the enclosed form of proxy and return it in the enclosed postage-paid
return envelope, whether or not they plan to attend the meeting.
The approximate date on which this proxy statement and the enclosed proxy
will be first sent to shareholders is October 17, 1997. The cost of the
solicitation of proxies in the enclosed form (estimated not to exceed $150,000)
will be borne by the Company. The solicitation is to be made primarily by mail,
but will be supplemented by telephone calls and personal solicitation by
full-time regular employees of the Company, who will not be specially
compensated therefor, and by the firm of Georgeson & Company Inc., which has
been retained for this purpose by the Company and which is to be paid the sum of
$7,500 as a fee for its services plus disbursements estimated at $100,000, such
fee and estimated disbursements being included in the total cost estimate given
above.
VOTING
The shares represented by each properly signed and returned proxy will be
voted in accordance with the instructions marked thereon. In the event that
voting instructions are not marked on any such proxy, the shares represented by
such proxy will be voted for the election as directors of the nominees proposed
herein. The Board of Directors is not aware of any other matters to be presented
for action at the meeting, but in the event that other matters are properly
brought before the meeting, shares represented by properly signed and returned
proxies will be voted in accordance with the judgment of the persons named as
proxies.
Shareholders have the right to revoke their proxies at any time before a
vote is taken, by notifying the Secretary of the Company in writing at the
address given above. In addition, a shareholder may revoke a proxy (1) by
executing a new proxy card bearing a later date, provided the new proxy is
received by Wachovia Bank of North Carolina, N.A. (which will have a
representative present at the meeting) before the vote, (2) by attending the
meeting and voting in person, or (3) by any other method available to
shareholders by law.
The close of business on October 9, 1997 has been fixed as the record date
for the meeting, and only shareholders of record at that time will be entitled
to vote. The only capital stock of the Company outstanding is Common Stock, par
value $.10 per share (the "Common Stock"). There were 127,379,859 shares of
Common Stock outstanding and entitled to vote on the record date. Each
shareholder is entitled to one vote for each share held.
<PAGE> 4
[BOARD OF DIRECTORS PHOTOS]
2
<PAGE> 5
ELECTION OF DIRECTORS
Four directors are to be elected at the meeting, each for a three-year
term. The Board of Directors, on the recommendation of its Nominating Committee,
has nominated Eric Krasnoff, David B. Pall, Chesterfield F. Seibert and James D.
Watson, all of whom are presently directors of the Company. The Board of
Directors recommends that shares represented by the enclosed proxy be voted for
the election of Messrs. Krasnoff, Pall, Seibert and Watson. Although it is not
anticipated that any of the nominees will become unavailable before the meeting,
in that event the persons named as proxies on the enclosed proxy card will have
the right, at their discretion, to vote all properly executed proxies for such
substitute candidate, if any, as may be nominated by the Board of Directors.
Directors will be elected by a plurality of the votes properly cast (in
person or by proxy) at the meeting. Thus, shareholders who do not vote, or who
withhold their vote from one or more of the nominees named above and do not vote
for another person, will not affect the outcome of the election provided that a
quorum is present at the meeting. A broker who is the record owner of shares of
Common Stock beneficially owned by a customer will have discretionary authority
to vote such shares if the broker has not received voting instructions from the
beneficial owner by the tenth day before the meeting, provided that this proxy
statement has been transmitted to the beneficial owner at least 15 days before
the meeting.
Information with respect to the nominees and each other present director of
the Company is set forth below. The principal occupations of each director
during at least the past five years is shown in the fourth column and the notes
thereto.
<TABLE>
<CAPTION>
SERVICE AS PRESENT
POSITIONS AND OFFICES DIRECTOR TERM
NAME AGE WITH THE COMPANY** PRINCIPAL OCCUPATIONS SINCE EXPIRES
- ---------------------- ---- --------------------- ---------------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Abraham Appel......... 82 Founder Director President, Appel 1969 1999
Consultants, Inc.,
consultants on financing
and foreign trade, Toronto,
Canada
Ulric Haynes, Jr...... 66 Director Dean of the School of 1994 1999
Business
and Executive Dean for
University International
Relations, Hofstra
University, Hempstead,
N.Y.(a)
Jeremy 54 President, Treasurer Officer of the Company(b) 1993 1999
Hayward-Surry....... and Chief Financial
Officer and Director
Eric Krasnoff*........ 45 Chairman and Chief Officer of the Company(c) 1994 1997
Executive Officer
and Director
Edwin W. Martin, 66 Director (d) 1993 1999
Jr..................
David B. Pall*........ 83 Founder Chairman and (e) 1946 1997
Director
Katharine L. 45 Director Principal and Analyst, 1995 1998
Plourde............. Donaldson, Lufkin &
Jenrette, Inc., investment
banking firm, New York,
N.Y.
Chesterfield F. 72 Director (f) 1971 1997
Seibert*............
Heywood Shelley....... 70 Director Attorney(g) 1990 1998
Alan B. Slifka........ 68 Director (h) 1964 1998
James D. Watson*...... 69 Director (i) 1988 1997
Derek T.D. Williams... 65 Executive Vice Officer of the Company(j) 1994 1998
President and Chief
Operating Officer
and Director
</TABLE>
(footnotes on next page)
3
<PAGE> 6
- ---------------
* Nominee for election at the meeting.
** Mr. Appel is a member of the Audit, Compensation and Nominating
Committees of the Board of Directors. Mr. Haynes is a member of the Compensation
Committee. Messrs. Krasnoff and Hayward-Surry and Dr. Pall are members of the
Executive Committee. Dr. Martin is a member of the Compensation and Nominating
Committees. Mr. Seibert is a member of the Audit and Nominating Committees. Ms.
Plourde and Dr. Watson are members of the Audit Committee.
(a) Mr. Haynes, who was the U.S. Ambassador to Algeria in 1977-1981, is
also a director of Marine Midland Bank, N.A.
(b) Mr. Hayward-Surry has been President, Treasurer and Chief Financial
Officer of the Company since July 1994. Prior thereto, he was Executive Vice
President, Treasurer and Chief Financial Officer from November 1992 to July 1994
and Senior Vice President and Controller from July 1989 to November 1992.
(c) Mr. Krasnoff has been Chairman and Chief Executive Officer of the
Company since July 1994. Prior thereto, he was President and Chief Operating
Officer from October 1993 to July 1994, and Executive Vice
President -- Worldwide Sales and Marketing and Corporate Administration -- from
November 1991 to October 1993.
(d) Dr. Martin was President and Chief Executive Officer until September
1994, and since then has been President Emeritus, of the National Center for
Disability Services, a non-profit education, rehabilitation and research agency
located in Albertson, N.Y. Dr. Martin is also a director of Roslyn Bancorp.
(e) Since August 1992, Dr. Pall's principal occupation has been as senior
scientist of the Company under the Consulting Agreement described below.
(f) Mr. Seibert was retired until February 1994, when he became Chairman of
the Board and Chief Executive Officer of Marietta Corporation, a manufacturer of
amenities for the hotel industry and a packager for cosmetic manufacturers. Mr.
Seibert resigned as an officer and director of Marietta Corporation effective
December 31, 1994, and has been retired since that date.
(g) Mr. Shelley is a member of the firm of Carter, Ledyard & Milburn, New
York, N.Y., which firm acts as legal counsel to the Company.
(h) Mr. Slifka is Managing Principal of Halcyon/Alan B. Slifka Management
Company, LLC, formerly Alan B. Slifka and Company, L.P., which Mr. Slifka
founded in 1982. The firm, headquartered in New York City, provides financial
asset management through the Halcyon and Gryphon Partnerships, of which it is
managing general partner. In addition, since October 1993 Mr. Slifka has been
Chairman of the Board of Global Telesystems Group, Inc., an operator of long
distance and access telecommunications networks and a provider of voice and data
telecommunications services to business customers and other telecommunications
service providers in Western Europe, the Commonwealth of Independent States,
Central Europe, India and China.
(i) Dr. Watson was Director until January 1994, and since then has been
President, of the Cold Spring Harbor Laboratory, a biomedical research
institution specializing in genetics, located in Cold Spring Harbor, N.Y. Dr.
Watson, who shared the Nobel Prize for medicine in 1962, is also a director of
Diagnostic Products Corporation and SIBIA Neurosciences, Inc.
(j) Mr. Williams has been an Executive Vice President of the Company since
November 1991 and also Chief Operating Officer since July 1994.
------------------------
There were six meetings of the Board of Directors of the Company during
fiscal 1997. The Executive Committee of the Board is authorized to act on most
Board matters during the intervals between meetings of the full Board. There
were sixteen meetings of the Executive Committee during fiscal 1997.
The duties and responsibilities of the Audit Committee include, among other
things, review of the Company's financial statements, consideration of the
nature and scope of the work to be performed by the Company's independent
auditors, oversight of the results of such work, review of such auditors'
letters to management which evaluate (as part of their annual audit of the
Company's financial statements) the internal control systems of the Company,
discussions with representatives of management of particular areas of the
4
<PAGE> 7
Company's operations, and meeting with the Company's internal audit managers to
review their plans and to discuss internal audit reports. The Audit Committee
met twice during fiscal 1997.
The Compensation Committee has the power and duty to fix the compensation
of officers of the Company and to authorize and approve the making of employment
contracts between the Company and its officers. The Committee also administers
the Company's stock option plans and selects the employees to whom options are
to be granted and the number of shares to be optioned to each. The Compensation
Committee met once in fiscal 1997 and in addition took certain actions by
unanimous written consent.
The Nominating Committee has the power and duty to develop policy on the
size and composition of the Board of Directors and criteria for director
nomination, to establish procedures for the nomination process, to identify and
recommend candidates for election to the Board, and to evaluate the
participation and contribution of current Board members. The Nominating
Committee met once in fiscal 1997. The Nominating Committee will consider
nominees for director recommended by shareholders. The procedure to be followed
by a shareholder in submitting such recommendations is to send the Corporate
Secretary a letter making the recommendation and describing fully the education,
business experience and other qualifications of the person recommended.
During fiscal 1997, each presently incumbent director attended 75% or more
of the aggregate number of meetings of the Board and of the Board committee or
committees on which he or she served, except for Mr. Slifka, who attended
two-thirds (four of six) of such meetings.
For serving on the Board of Directors, each director of the Company who is
not also an employee of the Company is paid $2,000 a month plus $1,500 for each
meeting of the Board and Board committees attended (other than meetings by
conference telephone). Each member of the Audit Committee is paid an additional
$500 a month. Directors who are employees receive no additional compensation.
During fiscal 1997, the Company paid compensation to Dr. Pall in the amount
of $93,000 under a Consulting Agreement which has been effective since his
retirement as a full-time officer of the Company in July 1992. By the terms of
the Consulting Agreement, Dr. Pall agrees to perform consulting services for the
Company and the Company agrees to pay for such services at the rate of $1,500 a
day. This Agreement remains in effect indefinitely until terminated by either
party on six months notice. During the term of the Consulting Agreement, Dr.
Pall is entitled to receive, at the Company's expense, private office space and
furnishings, secretarial services, a Company car and appropriate laboratory
space and equipment and, on request, automobile transportation and personal
accounting services.
The Company and its officers and directors are insured under an insurance
policy dated August 1, 1997 with Chubb Group of Insurance Companies with respect
primarily to liability arising from the performance by officers and directors of
their corporate duties. The policy also includes certain other coverage and the
Company pays the premium, which is $149,248 per year. The Company and its
officers are also insured under an excess insurance policy dated June 15, 1997
with National Union Fire Insurance Company with respect to liability arising
from the performance by officers and directors of their corporate duties. The
Company pays the premium which is $57,127 per year.
Under the Company's Stock Option Plan for Non-Employee Directors as adopted
at the 1995 annual meeting of the Company's shareholders (the "Director Plan"),
a maximum of 300,000 shares of Common Stock were reserved for issuance upon
exercise of options which are granted automatically each year, on the date of
and immediately following the annual meeting of the Company's shareholders, to
each member of the Board of Directors who is elected or re-elected at such
annual meeting and who is not at that time an employee of the Company or any of
its subsidiaries (a "Non-Employee Director"). There are currently nine
Non-Employee Directors. The exercise price of each option granted under the
Director Plan is the fair market value (as defined in the Director Plan) on the
date of grant of the shares of Common Stock subject to such option. Each option
granted under the Director Plan becomes exercisable in three substantially
equal, cumulative installments on each of the first three anniversary dates of
the date of grant, and expires on the fifth anniversary of the date of grant.
5
<PAGE> 8
Under the Director Plan, on the date of each annual meeting of the
Company's shareholders each Non-Employee Director who is elected a director of
the Company by the shareholders for the first time at such annual meeting is
granted an option to purchase 20,000 shares of Common Stock for election to a
three-year term, 16,667 shares of Common Stock for election to a two-year term,
and 13,333 shares for election to a one-year term. Also on the date of each
annual meeting of shareholders, each Non-Employee Director who is re-elected at
such meeting is granted an option to purchase 10,000 shares for a three-year
term, 6,667 shares for a two-year term, and 3,333 shares for a one-year term.
Thus, Messrs. Appel, Haynes and Martin, who were re-elected at the 1996 annual
meeting for a three-year term, were each granted an option on that date to
purchase 10,000 shares of Common Stock. All of the options granted to
Non-Employee Directors under the Director Plan on the date of the 1996 annual
meeting were at an exercise price of $26.75 per share.
COMPENSATION AND OTHER BENEFITS OF SENIOR MANAGEMENT
The following table sets forth information concerning the total
compensation of the Chief Executive Officer of the Company and the four other
executive officers who had the highest individual aggregates of salary and bonus
during the Company's fiscal year ended August 2, 1997. These five persons are
hereinafter referred to collectively as the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND FISCAL ------------------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS(#) COMPENSATION(B)
- --------------------------- ------ -------- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Eric Krasnoff.............. 1997 $516,308 $232,339 $63,704(a) -0- $73,142
Chairman and 1996 491,787 491,787 120,000 72,525
Chief Executive Officer 1995 410,020 410,020 -0- 65,444
Jeremy Hayward-Surry....... 1997 353,548 120,206 -0- 50,184
President, Treasurer and 1996 336,762 252,572 75,000 48,316
Chief Financial Officer 1995 280,020 210,015 -0- 40,286
Derek T.D. Williams........ 1997 263,721 51,803 -0- 313
Executive Vice President 1996 233,611 101,232 50,000 9,824
and Chief Operating 1995 222,320 100,044 -0- 10,197
Officer
Gerhard Weich.............. 1997 282,259 35,250 -0- 5,794
Group Vice President 1996 298,971 74,743 30,000 844
1995 288,503 72,127 -0- -0-
Samuel T. Wortham.......... 1997 211,224 88,714 -0- 35,428
Group Vice President 1996 207,018 144,913 30,000 27,109
1995 195,312 136,718 -0- 27,078
</TABLE>
- ---------------
(a) Comprised of (i) $45,360 for the cost of legal and accounting services
and (ii) $18,344 for the provision of a company car.
(b) Includes amounts which, under regulations of the Securities and
Exchange Commission, are deemed to be compensation by reason of interest-free
loans made by the Company for the payment of the exercise price of options under
the Company's employee stock option plans. See Indebtedness of Officers and
Directors under Stock Option Plans below. Such amounts, computed under rates
prescribed by the IRS to determine "imputed interest", were as follows in fiscal
1997: Mr. Krasnoff -- $22,882; Mr. Hayward-Surry -- $18,398; Mr.
Williams -- $313; Mr. Weich -- $5,794; and Mr. Wortham -- $15,475. Also includes
contributions to the Company's Profit-Sharing Plan and Supplementary
Profit-Sharing Plan, which contributions for fiscal 1997 were as follows: Mr.
Krasnoff -- $50,260; Mr. Hayward-Surry -- $31,786; and Mr. Wortham -- $19,953.
6
<PAGE> 9
OPTIONS
No options were granted to the Named Executive Officers during fiscal 1997.
The following table sets forth information concerning the exercise of stock
options by the Named Executive Officers during fiscal 1997, and the number and
value of unexercised options held by each of them at August 2, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric Krasnoff............. 108,333 $ 803,123 75,000 130,000 $ 451,875 $ 360,000
Jeremy Hayward-Surry...... 7,808 62,952 93,750 81,250 611,719 235,156
Derek T.D. Williams....... 33,333 249,998 62,500 37,500 326,563 23,438
Gerhard Weich............. 0 0 43,750 31,250 235,781 69,844
Samuel T. Wortham......... 20,000 161,250 33,750 31,250 172,031 69,844
</TABLE>
- ---------------
(1) Value realized is the aggregate market value, on the date of exercise, of
the shares acquired less the aggregate exercise price paid for such shares.
(2) Value of unexercised options is the difference between the aggregate market
value of the underlying shares (based on the closing price on August 1,
1997, which was $24.875 per share) and the aggregate exercise price for such
shares.
CONTRACTS WITH NAMED EXECUTIVE OFFICERS
The Company has employment contracts with the three U.S.-based Named
Executive Officers. (The Company's U.K.-based subsidiary, Pall Europe Limited,
has an employment contract with Mr. Williams, and the Company's subsidiary based
in Germany, Pall Deutschland GMbh Holding, has an employment contract with Mr.
Weich, each of which is described separately below.) These three contracts
provide for annual base salaries equal to the greater of (i) the base salary for
the preceding fiscal year adjusted for the annual change in the consumer price
index or (ii) the amount fixed by the Board of Directors (which acts for this
purpose by its Compensation Committee, consisting of three Non-Employee
Directors). The base salaries payable for fiscal 1998, as fixed by the
Compensation Committee, are as follows: Mr. Krasnoff -- $537,000; Mr.
Hayward-Surry -- $367,600, and Mr. Wortham -- $219,600. These contracts also
provide for incentive bonuses determined by a formula under which a bonus equal
in amount to a percentage of base salary becomes payable if the Company's return
on equity (after-tax consolidated net income (as defined) as a percentage of
average shareholders' equity (as defined)) exceeds a certain percentage (the
"Bonus Threshold"); the bonus increases to reflect increases in return on equity
up to a maximum bonus payable when return on equity equals or exceeds a certain
percentage (the "Maximum Bonus Percentage"). For fiscal 1998, the Bonus
Threshold is 12.5% and the Maximum Bonus Percentage is 18%. For fiscal years
after fiscal 1998, the Compensation Committee will determine the Bonus Threshold
and the Maximum Bonus Percentage, consistent in each case with expected results
based upon the Company's normal projection procedures, or based on statistical
or trend data. The maximum bonus payable under this formula is 100% of base
salary for Mr. Krasnoff, 75% of base salary for Mr. Hayward-Surry, and 42% of
base salary for Mr. Wortham. Also, Mr. Wortham, who is in charge of a separate
segment of the Company's business, may receive an additional bonus based on the
results of operations of the business segment for which he is responsible. Under
Mr. Wortham's employment contract, the Chief Executive Officer has discretion to
determine the amount of this additional bonus, up to a maximum amount of 28% of
Mr. Wortham's base salary. The formula currently used by the Chief Executive
Officer in determining the business segment component of bonuses for executive
officers is described below under Compensation Committee Report on Executive
Compensation -- Annual Incentive Bonuses.
7
<PAGE> 10
Each of these three employment contracts is for a "Term of Employment"
which will continue until terminated by either party on not less than two years'
notice except that (i) the effective date of termination cannot be earlier than
July 31, 2003 as to Messrs. Krasnoff and Hayward-Surry and (ii) unless the
parties agree otherwise, the Term of Employment ends at age 65. In addition, Mr.
Krasnoff has the right to terminate his employment on not less than 30 days'
notice if at any time he no longer has the title, authority and duties of chief
executive officer. Under each of these three employment contracts, in the event
of a "change of control" of the Company (as defined), the officer has the right
to terminate his employment effective immediately or effective on a date
specified in his notice of termination that is not more than one year from the
date of giving of such notice. Upon any such termination, the officer would be
entitled to his salary and bonus compensation prorated to the effective date of
termination. In addition, in the event of termination (i) by Mr. Krasnoff
because he is no longer chief executive officer or (ii) by Mr. Krasnoff or Mr.
Hayward-Surry in the event of a change of control of the Company or (iii) by the
Company on notice as described in the first sentence of this paragraph, Mr.
Krasnoff would become entitled to two years' severance pay and Mr. Hayward-Surry
would become entitled to one year's severance pay. The amount of such severance
pay would be the minimum base salary and the maximum incentive bonus, determined
under the contract provisions described in the preceding paragraph. The officer
would have the option of taking such severance pay in installments at the times
at which the base salary and incentive bonus would have been paid had his
employment not been terminated or taking the present value of such payments at
the effective date of the termination of his employment.
The contracts with Messrs. Krasnoff and Hayward-Surry also provide for an
"Annual Contract Pension" beginning at the end of the Term of Employment except
that if the officer is entitled to severance pay, as described in the preceding
paragraph, the Annual Contract Pension does not commence until the end of the
period covered by such severance pay--two years after the end of the Term of
Employment as to Mr. Krasnoff and one year as to Mr. Hayward-Surry. The Annual
Contract Pension is for a term of ten years as to Mr. Krasnoff and five years as
to Mr. Hayward-Surry and is in the annual amount of 60% of "Final Pay" (as
defined) reduced by an offset, as follows: (i) in the case of Mr. Krasnoff, the
annual offset is in the amount of the maximum pension payable under a qualified
pension plan in accordance with sec.415 of the Internal Revenue Code, currently
$125,000 a year; (ii) as to Mr. Hayward-Surry, the annual offset is in the
amount payable to him annually, as an annuity for his lifetime only, under the
Company's qualified pension plan, described below under Pension Plans. Final Pay
is defined as the average of the officer's cash compensation (base salary plus
incentive compensation and any other bonus payments) for the three years in
which his compensation was highest out of the five years preceding the end of
his employment with the Company. Based on fiscal years through fiscal 1997,
Final Pay would be $850,754 as to Mr. Krasnoff and $517,708 as to Mr.
Hayward-Surry. After the first year, the Annual Contract Pension is adjusted
annually for inflation. The contracts with Messrs. Krasnoff and Hayward-Surry
also provide for lifetime medical coverage beginning at the end of the Term of
Employment, similar to what is commonly known as "medigap" coverage; i.e.,
coverage for expenses in excess of those covered by government-financed medical
coverage such as Medicare. With certain exceptions, the officer is required to
participate in or utilize available government-financed medical coverage. Also,
at the start of the 30-day period preceding the end of the Term of Employment
under the contracts with Messrs. Krasnoff and Hayward-Surry, the exercisability
of any employee stock options that are not yet fully vested is accelerated and
such options can be exercised in full during such 30-day period and thereafter
until they expire by their terms.
The employment contract between Pall Europe Limited and Mr. Williams
provides for an annual salary for fiscal 1998 which will be 162,000 pounds
sterling (equal to approximately $265,700 at August 1, 1997). This contract also
provides for an incentive bonus determined under the return on equity formula
described above, with a maximum bonus of 45% of base salary. The contract with
Mr. Williams is for a term of employment which will continue until terminated by
either party on not less than one year's notice. In the event of a change in
control of Pall Europe Limited, Mr. Williams has the right to terminate on not
less than three months' nor more than 24 months' notice given not more than two
years after the change in control.
The employment contract between Pall Deutschland GMbh Holding and Mr. Weich
provides for an annual salary for fiscal 1998 which will be 471,700 Deutsche
Marks ("DM") (equal to approximately $254,700 at August 1, 1997). This contract
also provides for an incentive bonus determined under the return on equity
formula described above, with a maximum bonus of 15% of base salary. Also, Mr.
Weich, who is in
8
<PAGE> 11
charge of a separate segment of the Company's business, may receive an
additional bonus based on the results of operations of that business segment.
Under Mr. Weich's employment contract, the Chief Executive Officer of the
Company has discretion to determine the amount of this additional bonus, up to a
maximum amount of 10% of Mr. Weich's base salary. The formula currently used by
the Chief Executive Officer in determining the business segment component of
bonuses for executive officers is described below under Compensation Committee
Report on Executive Compensation -- Annual Incentive Bonuses. The contract with
Mr. Weich is for a term of employment which will continue until terminated by
either party on not less than two years' notice until the executive reaches age
65 and thereafter on one year's notice. In the event of a change in control of
Pall Deutschland GMbh Holding, Mr. Weich has the right to terminate on not less
than three months' nor more than 24 months' notice following such change in
control.
PENSION PLANS
Messrs. Krasnoff, Hayward-Surry and Wortham are participants in the Pall
Corporation Pension Plan (the "Pension Plan"), a defined benefit plan qualified
under the Internal Revenue Code (the "Code"). Benefits under the Pension Plan
are determined pursuant to a benefit formula under which, in general, for each
fiscal year of credited service, a participant accrues an annual benefit equal
to 1% of the participant's covered compensation for that fiscal year, plus .5%
of the excess of the participant's covered compensation for that fiscal year
over the Social Security Wage Base for that year ($62,700 in fiscal 1997).
Covered compensation under the Pension Plan is total compensation, including
bonuses and overtime but excluding stock options and contributions to all
benefit programs. For fiscal 1997, the maximum amount of any participant's
covered compensation which could be taken into account under the Pension Plan
for the purpose of computing that participant's benefits was limited by the Code
to $150,000.
Under the Company's Supplementary Pension Plan (which is not a qualified
plan under the Code), additional pension benefits are provided to certain
employees, including Messrs. Krasnoff, Hayward-Surry and Wortham. The
Supplementary Pension Plan provides lifetime pension payments which, when added
to primary Social Security benefits and payments from the Pension Plan, will on
an annual basis equal 50% of a participant's "Final Average Compensation", which
is defined as the average of the three highest of a participant's last five
years of cash compensation (salary and bonus). If a participant vested under the
Supplementary Pension Plan dies before retirement, his surviving spouse receives
a lifetime pension equal to 50% of the straight-life-annuity pension which the
participant would have been entitled to receive upon retirement. Currently,
Final Average Compensation (based on fiscal years through fiscal 1997) for the
Named Executive Officers who participate in the Supplementary Pension Plan would
be as follows: Mr. Krasnoff -- $850,754; Mr. Hayward-Surry -- $517,708, and Mr.
Wortham -- $327,966.
Mr. Williams is a participant in the Pall (UK) Pension Fund (the "Pension
Fund"). The annual retirement pension that would be provided to a participant
under the Pension Fund is determined according to the following formula: 1/60 X
Pensionable Salary X Period of Pensionable Service, where Pensionable Salary is
defined as the average of the three highest of the last ten years' base salary
and Period of Pensionable Service is defined as the period of full-time
permanent continuous service with the Company while a participant in the Pension
Fund. Benefits under the Fund are normally payable monthly as determined by the
actuaries for the Fund. However, a participant has the option of receiving a
portion of his or her pension in the form of a lump sum payment on retirement,
with a resulting reduction in the monthly payment.
In addition, Mr. Williams is also eligible for participation in one of two
versions of The Pall U.K. Supplementary Pension Scheme (the "Supplementary
Scheme"), which provides pension benefits in addition to any benefits earned as
a participant in the Pension Fund. The version of the Supplementary Scheme in
which Mr. Williams participates provides pension payments which, when added to
payments from the Pension Fund and any other occupational pension to which he is
entitled, will on an annual basis equal two-thirds of his Pensionable Salary (as
defined for the Pension Fund). The Supplementary Scheme provides for annual
inflationary increases to a maximum of 5% of total pension. Currently, Mr.
Williams' Pensionable Salary (based on fiscal years through fiscal 1997) would
be 147,133 pounds sterling (equal to approximately $241,300 at August 1, 1997).
Mr. Weich is a participant in pension plans and supplementary executive
pension arrangements provided by certain of the Company's European subsidiaries.
His pension benefits as so supplemented are based upon
9
<PAGE> 12
Pensionable Service and Pensionable Income, where Pensionable Service is
generally defined as up to 40 years of uninterrupted full-time employment
between ages 20 and 65, and Pensionable Income is defined as the average of 13
times monthly average base salary for the three years ended the July 1 preceding
retirement. Mr. Weich's benefit formula for each year of Pensionable Service is
(i) 0.3% of Pensionable Income up to the German Social Security Salary Ceiling
as of the July 1 preceding his retirement (DM 98,400, equal to approximately
$56,088 at July 1, 1997), plus (ii) 1.5% of Pensionable Income above such
Ceiling. In case of termination of employment by reason of disability before
normal retirement age of 65, Mr. Weich's years of Pensionable Service would
include those which would have been credited to him had he continued to work
until age 65, and his Pensionable Income would be calculated as if he had
retired on the date of disability termination. If Mr. Weich had retired at the
end of the Company's last fiscal year and had been age 65 at that time, he would
have had 32 years of Pensionable Service and would have been entitled to a total
annual pension of DM 166,868 (approximately $90,109). Had he then retired by
reason of disability, he would have been credited with 35 years of Pensionable
Service and would have been entitled to a total annual pension of DM 182,512
(approximately $98,556). In addition, if Mr. Weich's spouse should survive him,
she would receive a lifetime pension after his death equal to 60% of Mr. Weich's
pension. Under German law, a pension is subject to cost-of-living adjustments
every three years if the economic situation of the paying company permits.
BENEFITS PROTECTION TRUST
The Company has established a Benefits Protection Trust to which it makes
voluntary contributions to fund the Company's obligations under the
Supplementary Pension Plan and the Supplementary Profit-Sharing Plan (see
Compensation Committee Report on Executive Compensation -- Supplementary
Profit-Sharing and Pension Plans) and the Company's obligation to pay the
"Annual Contract Pension" provided for under the employment agreements in effect
with Messrs. Krasnoff and Hayward-Surry and formerly in effect with Dr. Pall and
two other former chief executive officers of the Company. In the event of a
"change in control" of the Company (as defined in the trust agreement), the
trust fund must thereafter be used to satisfy the abovementioned obligations.
INDEBTEDNESS OF OFFICERS AND DIRECTORS UNDER STOCK OPTION PLANS
As permitted by the Company's stock option plans, optionees may elect to
make installment payments of the purchase price of the Common Stock upon their
exercise of options, and thereby become indebted to the Company. The following
table sets forth certain information with respect to all executive officers and
directors who were indebted to the Company under the stock option plans in an
amount in excess of $60,000 at any time from August 4, 1996, the start of the
Company's most recently completed fiscal year, to October 1, 1997. The second
column of the table shows the largest amount of indebtedness outstanding during
that period by each of such executive officers and directors, and the last
column shows the principal amount outstanding as of October 1, 1997. All of the
indebtedness shown in the table is non-interest-bearing and payable on demand.
<TABLE>
<CAPTION>
AMOUNT OF INDEBTEDNESS
-----------------------------
NAME LARGEST OCTOBER 1, 1997
---------------------------------------------------------- -------- ---------------
<S> <C> <C>
Peter Cope................................................ $115,625 $ 115,625
Jeremy Hayward-Surry...................................... 365,658 270,666
Paul Kohn................................................. 137,437 137,437
Eric Krasnoff............................................. 527,905 467,326
David B. Pall............................................. 168,743 168,743
Robert Simkins............................................ 75,579 75,579
Donald Stevens............................................ 134,091 97,939
James D. Watson........................................... 231,250 231,250
Gerhard Weich............................................. 204,375 204,375
Samuel T. Wortham......................................... 352,469 352,469
</TABLE>
10
<PAGE> 13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation program for executive officers consist of four
parts:
1. base salary;
2. annual incentive bonuses;
3. stock options; and
4. supplementary profit-sharing and pension plans.
The program is based on the Company's overall philosophy of providing a
balanced, competitive total compensation package. It is believed that such a
program enables the Company to attract and retain highly qualified professionals
and to reward sustained corporate performance, with the attendant benefit to
shareholders.
Base Salary
The Company maintains a conservative policy on base salaries. Overall, base
salaries are targeted at the median, or 50th percentile, of those paid by other
high technology and general industry companies of similar size (hereinafter
referred to as the "market" or "marketplace").
For the last several years the Company has retained the services of Watson
Wyatt Worldwide ("Wyatt"), an independent executive compensation consultant, to
evaluate the cash compensation levels of the Company's executive officers
(currently nine U.S.-based and four overseas). Wyatt makes detailed evaluations
biennially, in the spring of every second year, utilizing published compensation
survey data in assessing the Company's compensation competitiveness relative to
the marketplace. Wyatt determines the marketplace by extracting data cuts from
broad-based compensation surveys, including surveys conducted by Wyatt and by
other executive compensation consulting firms. These surveys provide data
specific to companies in high technology industries such as the aerospace
(including military), electronic communications and biomedical fields, as well
as information on a broad group of general industry companies. The biennial
Wyatt report issued in June 1996 was used by the Compensation Committee in June
1996 in connection with the fixing of base salaries for fiscal 1997. That report
indicated that the Company was paying base salaries that were within 10% of the
marketplace median for all executive positions. Any significant variation from
the median is intended to reflect a particular individual's job experience
and/or performance.
Employment contracts with executive officers call for a minimum annual
increase in base salary equal to the June-to-June percentage increase in the
consumer price index (the CPI). For fiscal 1997, this minimum mandatory increase
was 2.7%, based on the CPI increase from June 1995 to June 1996. With the CPI
increase as a floor, the Compensation Committee adjusted base salaries for
fiscal 1997, as it does each year, to reflect individual performance for the
past year, internal relationships and marketplace practices as shown by the
Wyatt report. Executive base salary increases for fiscal 1997 ranged from 4%
(for six executives) to 10% (for one executive), with increases of 7% for
Messrs. Krasnoff, Hayward-Surry and Williams, whose fiscal 1996 base salaries
had been determined by Wyatt to be approximately 5% below the marketplace
medians for their positions.
Annual Incentive Bonuses
The principal method by which total cash compensation of executive officers
is tied to the Company's current financial performance is the Incentive Bonus
Plan.
The measure of performance applicable in whole or in part to all executive
officers under the Incentive Bonus Plan is after-tax consolidated net income as
a percentage of average shareholders' equity, i.e., return on equity or "R.O.E."
(For the purpose of the Incentive Bonus Plan, R.O.E. is determined by utilizing
the fixed amount of $3,744,000 as the equity adjustment from foreign currency
translation.) In addition, beginning in fiscal 1996, bonus awards for each
executive officer whose primary responsibilities relate to a particular
subsidiary, division or other segment of the overall operations of the Company
(a "Business Segment") have
11
<PAGE> 14
been based on two separate measures: (1) Company-wide R.O.E. and (2) results of
operations of the appropriate Business Segment. In fiscal 1997, the bonus awards
of three executive officers (Messrs. Krasnoff, Hayward-Surry and Williams) were
calculated solely on the basis of R.O.E., and the bonus awards of nine executive
officers (including Messrs. Weich and Wortham) were calculated on the basis of
both R.O.E. and Business Segment performance. Wyatt had determined that six of
the nine companies other than the Company (the "Peer Group") comprising the
Standard & Poor's Manufacturing-Diversified Industries Index in July 1995 (see
Performance Graph below) used both a Business Segment-type component and an
overall corporate performance component (such as R.O.E.) in calculating their
annual incentive compensation. (Kim A. Davis became an executive officer of the
Company in February 1997, following the Company's acquisition of Gelman Sciences
Inc. ("Gelman"). Mr. Davis was President and Chief Operating Officer of Gelman
prior to the acquisition and has continued in that role following the closing,
which took place on February 3, 1997. Mr. Davis, who is also a Senior Vice
President of the Company, did not participate in the Company's Incentive Bonus
Plan in fiscal 1997; his compensation for that year was a fixed amount specified
in an employment agreement with Gelman entered into prior to the closing of the
acquisition.)
The Business Segment component of a bonus is designed to tie an officer's
compensation in part to the performance of the Business Segment for which such
officer is responsible. The maximum Business Segment bonus is equal to 28% of
base salary for U.S.-based executive officers and 10% to 14% of base salary for
overseas-based executive officers. Subject to these maximums, the Chief
Executive Officer has discretion to determine the amount of the Business Segment
component of the incentive bonus for each executive officer having
responsibility for a particular Business Segment. In the exercise of that
discretion, Mr. Krasnoff establishes annually, for each Business Segment, the
dollar amount of profit below which no bonus is earned (the bonus threshold) and
the dollar amount of profit at which the maximum bonus is earned. These dollar
amounts are fixed in light of the results of operations of the Business Segment
during the preceding fiscal year and the profit projections of that Business
Segment for the current year. If the profits achieved exceed the bonus threshold
and are less than the amount at which the officer becomes entitled to a maximum
bonus, the bonus amount is determined pro rata, on a sliding scale, in the same
manner as the R.O.E. bonus component as described in the following paragraph.
The R.O.E. component of the Incentive Bonus Plan is sensitive to
Company-wide performance in that no bonuses are earned thereunder if R.O.E. is
below a specified percentage. Under the bonus formula set by the Compensation
Committee for fiscal 1997, no bonus was payable unless R.O.E. for fiscal 1997
exceeded 12.5% (the "Bonus Threshold"), and the maximum bonus was payable if
R.O.E. equaled or exceeded 20% (the "Maximum Bonus Percentage"). If R.O.E. was
more than 12.5% but less than 20%, the bonus would increase pro rata from zero
at R.O.E. of 12.5% to the maximum bonus at R.O.E. of 20%. The maximum bonus was
100% of base salary for Mr. Krasnoff and 75% of base salary for Mr.
Hayward-Surry (the only U.S.-based executive officers whose bonus calculation
did not include a Business Segment component). Thus, if fiscal 1997 R.O.E. was
16.25% -- the midpoint between the Bonus Threshold and the Maximum Bonus
Percentage -- a "target" bonus would be payable in the amount of 50% of base
salary for Mr. Krasnoff and 37.5% for Mr. Hayward-Surry. Prior to the
commencement of each fiscal year, the Bonus Threshold and the Maximum Bonus
Percentage are reviewed by the Compensation Committee and set for such fiscal
year. The Bonus Threshold and Maximum Bonus Percentage for fiscal 1998 are 12.5%
and 18%, respectively.
With respect to the U.S.-based executive officers whose fiscal 1997 bonuses
were based in part on a Business Segment component, the maximum bonus based on
R.O.E. was 42% of base salary and the maximum bonus based on Business Segment
performance was 28% of base salary, so that the aggregate maximum bonus of these
officers was 70% of base salary. The employment arrangements for fiscal 1997
with the Company's four executive officers based outside the U.S. provided for
aggregate maximum bonuses ranging from 25% to 45% of base salary. In the case of
three of these overseas-based officers, the bonus included a Business Segment
component, the maximum amount of which ranged from 10% to 14% of base salary.
The Incentive Bonus Plan formula is structured so that (i) the target bonus
award in any given year would result in total cash compensation (base salary
plus annual bonus) which is 5% above the marketplace median, and (ii) the
maximum bonus award would result in total cash compensation which approximates
the
12
<PAGE> 15
market 75th percentile. Awards for fiscal 1997, which resulted from R.O.E. of
15.9%, were 45% of base salary for Mr. Krasnoff, as Chief Executive Officer, and
34% of base salary for Mr. Hayward-Surry, as President and Chief Financial
Officer (i.e., target bonus awards were not achieved in fiscal 1997). As to each
of the six U.S.-based executive officers whose bonus for fiscal 1997 included a
Business Segment component, his bonus for fiscal 1997 was 18% of base salary
(the R.O.E. component) plus such additional amount, up to 28% of base salary, as
was determined by the Chief Executive Officer in his discretion, as described
above.
Stock Options
The Company's stock option grant program, under plans approved by
shareholders, was administered by the Stock Option Committee of the Board of
Directors until November 1995 when that Committee was merged into the
Compensation Committee. The stock option plans of the Company, although not
exclusively for the benefit of executive officers (about 600 other employees of
the Company are eligible to participate), are intended to complement the
Incentive Bonus Plan and were the sole means of providing long-term incentive
compensation to the Company's executive officers in fiscal 1997. Stock option
grants provide executive officers with opportunities for capital accumulation,
promote long-term executive retention and, by fostering in executive officers a
proprietary interest in the Company, align their interests with those of the
Company's shareholders.
The Compensation Committee may, in its discretion, grant options to
purchase shares of Common Stock of the Company to any officer or other employee
who, in the judgment of the Committee, is in a position to contribute
significantly to the Company's success. Grants are made at an option price of
100% of the fair market value of the Common Stock on the date of grant. All
options heretofore granted have had a five-year term. The Compensation Committee
determines the number of shares to be covered by options granted to executive
officers at each level, e.g., chief executive officer, president and chief
financial officer, chief operating officer, group vice president, etc. With
respect to options granted in fiscal 1996, these grant levels were fixed after
review of marketplace practice and on the basis of recommendations by Wyatt.
Prior to fiscal 1996, it had been the policy of the Stock Option Committee
to make across-the-board option grants at intervals of approximately three
years, with interim grants only for promotions and new hires. Effective for the
1996 fiscal year, on the recommendation of Wyatt, the grant policy was revised
to provide for across-the-board grants approximately every two years, without
significantly changing the average per annum size of grants. A more frequent
grant schedule makes it easier to respond to special situations and is more
consistent with the practice of companies comprising the market, which typically
make annual grants.
In fiscal 1996, option grants to executive officers were in the following
respective amounts: 120,000 shares to Mr. Krasnoff as Chairman and Chief
Executive Officer, 75,000 shares to Mr. Hayward-Surry as President and Chief
Financial Officer, 50,000 shares to Mr. Williams as Executive Vice President and
Chief Operating Officer, 25,000 or 30,000 shares to each of 13 Group Vice
Presidents and Senior Vice Presidents and 10,000 shares to the Secretary. All of
these grants were within the range of biennial option grants recommended by
Wyatt in July 1995 and were designed to provide "total direct compensation" in
fiscal 1996 (base salary plus bonus plus the two-year average of the present
value of option grants) which approximates the market 75th percentile in the
event that "target" bonuses are paid under the Incentive Bonus Plan. Total
direct compensation is the sum of base salary, short-term incentive compensation
and the present value of long-term incentive compensation.
In fiscal 1997, the Company made no option grants to its executive
officers, consistent with the biennial grant policy. However, at the time of the
Gelman acquisition in February 1997, Mr. Davis held options to purchase 197,500
shares of Gelman Common Stock, which, by the terms of the merger agreement
pursuant to which the Company acquired Gelman, were exchanged for options to
purchase 257,678 shares of the Company's Common Stock.
In view of the Company's policy of not granting options to executive
officers each year, the significance of option grants is better understood by
taking an average over a period of years. During the five-year period from the
beginning of fiscal 1993 to the end of fiscal 1997, the average per annum option
grants to all executive officers as a group (not including the above-mentioned
options held by Mr. Davis) were for 280,200 shares,
13
<PAGE> 16
representing about one-fifth of one percent (0.22%) of the shares of Common
Stock outstanding at the end of fiscal 1997.
Supplementary Profit-Sharing and Pension Plans
In addition to providing tax-qualified profit-sharing and pension plans for
its employees including executive officers, the Company also maintains
non-tax-qualified supplementary plans and arrangements for executive officers.
The Supplementary Profit-Sharing Plan provides an annual benefit to U.S.-based
executives with respect to annual cash compensation in excess of the maximum
compensation that, under the Internal Revenue Code, can be taken into account
for the qualified Profit-Sharing Plan. An executive officer's annual benefit
under the Supplementary Profit-Sharing Plan is the product of (1) such excess
annual earnings and (2) the ratio, for the year, of the Company's aggregate
contributions under the qualified Profit-Sharing Plan to the aggregate
compensation (as limited by the Code) of all qualified Profit-Sharing Plan
participants. Also, the Supplementary Profit-Sharing Plan credits each
participant with earnings on his or her account balance based on the investment
of an amount equal to the account balance in the Fidelity Asset Manager Fund.
The purpose of the Supplementary Profit-Sharing Plan is to provide to executive
officers affected by the limitations under the qualified Profit-Sharing Plan a
capital accumulation, on a percentage of compensation basis, equal to that
provided to other employees of the Company. The Company's annual contributions
to the Profit-Sharing Plan and the Supplementary Profit-Sharing Plan for the
benefit of the Named Executive Officers are included in the column "All other
compensation" in the Summary Compensation Table above.
The supplementary pension plan arrangements for executive officers are
described above under the caption Pension Plans. The purpose of these
supplementary arrangements is to assure executives a specified level of
retirement benefit over and above what would be payable under the Company's
general pension plans.
Discussion of Fiscal 1997 Compensation of the Chief Executive Officer
Mr. Krasnoff's base salary for fiscal 1997 was $516,308, which was
approximately 5% below the market median rate for chief executive officers as
determined by Wyatt as of June 1, 1996. Mr. Krasnoff's incentive bonus for
fiscal 1997 was 45% of base salary. Mr. Krasnoff's total cash compensation (base
salary plus incentive bonus) for the fiscal year was 0.9% above the market
median and 19.8% below the market 75th percentile, as determined by Wyatt as of
June 1, 1996.
The factors and criteria upon which the Chief Executive Officer's
compensation was based, including the relationship of the Company's performance
to his compensation for fiscal 1997, are set forth in the preceding sections of
this Committee Report and are applicable to the total compensation package of
the Chief Executive Officer as well as other executive officers.
Policy Regarding $1,000,000 Limit on Deductible Compensation
The Code limits the deductibility for federal income tax purposes of
executive compensation paid by public companies to their senior officers. Under
Section 162(m) of the Code, the Company would not be able to deduct compensation
of a Named Executive Officer (generally the Chief Executive Officer and the four
other highest paid executive officers) in excess of $1,000,000 for any fiscal
year except to the extent that the compensation in excess of that amount meets
the statutory definition of "performance-based compensation." Nondeductibility
would result in additional tax cost to the Company.
In light of Section 162(m), the Company's 1993 and 1995 Stock Option Plans
have been structured so that gains on options granted thereunder meet the
statutory definition of "performance-based compensation." Accordingly, such
gains are not included in compensation subject to the $1,000,000 limit on
deductibility. With respect to fiscal years through 1996, the Company did not
deem it necessary to take any other steps in response to Section 162(m) on the
assumption that no Named Executive Officer's compensation would exceed the
$1,000,000 deductibility limitation for any such fiscal year, and this
assumption proved to be correct with one immaterial exception.
With respect to fiscal 1997, Mr. Krasnoff's compensation could have
exceeded $1,000,000 by a modest amount inasmuch as Mr. Krasnoff's base salary
for 1997 was approximately $516,000 and his maximum
14
<PAGE> 17
incentive bonus was 100% of his base salary. Accordingly, prior to the start of
fiscal 1997, the Company and Mr. Krasnoff entered into an agreement providing
that to the extent that Mr. Krasnoff's fiscal 1997 compensation would (but for
such agreement) exceed $1,000,000, payment of the excess would be deferred until
fiscal 1998. In fact, Mr. Krasnoff's fiscal 1997 compensation (as defined for
purposes of Section 162(m)) was less than $1,000,000 inasmuch as the maximum
incentive bonus did not become payable.
With respect to fiscal 1998, the Company and Mr. Krasnoff have again
entered into a deferral agreement in the same form as the fiscal 1997 agreement
described in the preceding paragraph.
Summary
The Compensation Committee believes that the total compensation for fiscal
1997 to Mr. Krasnoff and the other executive officers of the Company was fair
both to them and to the Company and its shareholders. The Committee bases this
conclusion on the following factors:
1. target cash compensation levels approximate the marketplace median
and rise above that level only when Company performance warrants, and
therefore fixed compensation costs have been relatively low;
2. the grant of stock options has been judicious; and
3. the compensation program, while conservative, has enabled the
Company to retain and attract top executive talent.
Respectfully submitted,
Abraham Appel
Ulric Haynes, Jr.
Edwin W. Martin, Jr.
15
<PAGE> 18
PERFORMANCE GRAPH
The following graph compares the annual change in the cumulative total
return on the Company's Common Stock during the Company's last five fiscal years
with the annual change in the cumulative total return of the Standard & Poor's
Composite-500 Index and the Standard & Poor's Manufacturing-Diversified
Industries Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) PALL CORPORATION S&P 500 S&P MANUFACTURING
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 82.53 108.73 113.49
1994 79.16 114.34 132.02
1995 117.25 144.19 180.89
1996 125.93 168.08 214.04
1997 134.15 255.48 334.70
</TABLE>
- ---------------
* Assumes that the value of the investment in the Company's Common Stock and the
two S&P indices was $100 on August 1, 1992 (the last day of the Company's 1992
fiscal year), and that all dividends were reinvested.
16
<PAGE> 19
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information with respect to beneficial
ownership of Common Stock as of October 1, 1997 by (a) each current director of
the Company; (b) each Named Executive Officer included in the Summary
Compensation Table above, and (c) all directors and executive officers of the
Company as a group. To the Company's best knowledge, no shareholder of the
Company is currently the beneficial owner of more than 5% of the outstanding
Common Stock. The percentages in the last column are based on the number of
shares outstanding on October 1, 1997. In each case, except as otherwise
indicated in the footnotes to the table, the shares shown in the second column
are owned directly by the individual or members of the group named in the first
column and such individual or group members have sole voting and dispositive
power with respect to the shares shown. For purposes of this table, beneficial
ownership is determined in accordance with the federal securities laws and
regulations; inclusion in the table of shares not owned directly by the named
director or officer does not constitute an admission that such shares are
beneficially owned by the director or officer for any other purpose.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED* OF CLASS
----------------------------------------------------------- ---------------- --------
<S> <C> <C>
Abraham Appel.............................................. 5,043,979(a) 4.0%
Ulric Haynes, Jr. ......................................... 11,833 --
Jeremy Hayward-Surry....................................... 141,705(b) .1
Eric Krasnoff.............................................. 169,135(c) .1
Edwin W. Martin, Jr. ...................................... 33,652 --
David B. Pall.............................................. 648,141(d) .5
Katharine L. Plourde....................................... 14,333 --
Chesterfield F. Seibert.................................... 102,772 --
Heywood Shelley............................................ 39,667(b) --
Alan B. Slifka............................................. 43,329 --
James D. Watson............................................ 50,300 --
Gerhard Weich.............................................. 90,080 --
Derek T.D. Williams........................................ 119,920 .1
Samuel T. Wortham.......................................... 72,518 --
22 current directors and executive officers of the Company
as a group............................................... 7,149,793(e) 6.0
</TABLE>
- ---------------
* Includes shares covered by stock options exercisable within 60 days of
October 1, 1997 as follows: Mr. Appel -- 10,000 shares; Mr. Haynes -- 11,833
shares; Mr. Hayward-Surry -- 112,500 shares; Mr. Krasnoff -- 105,000 shares; Dr.
Martin -- 33,333 shares; Ms. Plourde -- 13,333 shares; Mr. Seibert -- 30,000
shares; Mr. Shelley -- 36,667 shares; Mr. Slifka -- 13,333 shares; Dr.
Watson -- 30,000 shares; Mr. Weich -- 41,250 shares; Mr. Williams -- 75,000
shares; Mr. Wortham -- 41,250 shares; and the 22 current directors and executive
officers of the Company as a group -- 949,698 shares.
(a) These shares are held of record by Canmont Investment Corp. which is
wholly-owned by Mr. Appel and members of his immediate family. Mr. Appel has
sole voting and dispositive power with respect to these shares.
(b) Does not include 80,000 shares beneficially owned by a Trust under Will
of Maurice G. Hardy. Messrs. Hayward-Surry and Shelley are two of the three
trustees of the Trust; the trustees have sole voting and dispositive power with
respect to the shares owned by the Trust.
(c) Includes 22,598 shares owned by two trusts established for the benefit
of Mr. Krasnoff's children. Mr. Krasnoff is trustee of these trusts and as such
has sole voting and dispositive power with respect to these shares.
(d) Includes 607,769 shares owned by Dr. Pall's wife and as to which Dr.
Pall disclaims voting or dispositive power.
17
<PAGE> 20
(e) Includes 80,000 shares beneficially owned by a Trust under Will of
Maurice G. Hardy (see note (b) above), 22,598 shares beneficially owned by Mr.
Krasnoff as trustee (see note (c) above) and 607,769 shares owned by Dr. Pall's
wife as to which Dr. Pall disclaims voting or dispositive power (see note (d)
above).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules thereunder of the Securities and Exchange Commission require the
Company's directors and officers to file reports of their ownership and changes
in ownership of Common Stock with the Commission. Personnel of the Company
generally prepare these reports on the basis of information obtained from each
director and officer. Based on such information, the Company believes that all
reports required by Section 16(a) of the Exchange Act to be filed by its
directors and officers during the fiscal year ended August 2, 1997 were filed on
time except as follows: In April 1997 Dr. James Watson, a director of the
Company, exercised a director stock option (paying part of the exercise price by
delivery of previously-owned Company stock). The report of this transaction was
not filed by the deadline (ten days after the end of the month in which it
occurred) but was filed thereafter.
INFORMATION CONCERNING INDEPENDENT AUDITORS
KPMG Peat Marwick LLP ("Peat Marwick") acted as the Company's independent
auditors for the fiscal year ended August 2, 1997 and have been selected to act
in that capacity in fiscal 1998. It is anticipated that representatives of Peat
Marwick will be present at the meeting to respond to appropriate questions and
will have an opportunity, if they desire, to make a statement.
ANNUAL REPORTS
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST
2, 1997, WILL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BEFORE THE
END OF OCTOBER, AS REQUIRED BY LAW. SHAREHOLDERS MAY OBTAIN A COPY OF THE FORM
10-K REPORT UPON WRITTEN REQUEST TO DIANE FOSTER, INVESTOR RELATIONS MANAGER,
PALL CORPORATION, 25 HARBOR PARK DRIVE, PORT WASHINGTON, N.Y. 11050-4630, FAX
516-484-3649. IN RESPONSE TO SUCH REQUEST, THE COMPANY WILL FURNISH WITHOUT
CHARGE THE FORM 10-K REPORT, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL
SCHEDULES AND A LIST OF EXHIBITS. COPIES OF EXHIBITS WILL BE FURNISHED ON
REQUEST; THE COMPANY RESERVES THE RIGHT TO CHARGE A REASONABLE FEE FOR EXHIBITS.
The Company's Annual Report to shareholders for the fiscal year ended
August 2, 1997 is concurrently being furnished to shareholders of record at the
record date for the meeting. Additional copies of the Annual Report may be
obtained upon request to Diane Foster by telephone at 516-484-3600 or in writing
at the address or fax number in the preceding paragraph.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
In order to be considered for inclusion in the Company's proxy statement
and form of proxy for the 1998 annual meeting of shareholders, any shareholder
proposal must be received by the Secretary of the Company prior to June 19,
1998.
October 17, 1997
<PAGE> 21
PALL CORPORATION
Annual Meeting of Shareholders - November 20, 1997
The undersigned hereby appoints DAVID B. PALL, ERIC KREASNOFF and JEREMEY
HAYWARD-SURRY, and each of them, with full power of substitution, proxies of the
undersigned to vote all shares of the Common Stock of Pall Corporation (the
"Company") which the undersigned would be entitled to vote if present at, and
to act for the undersigned at, the annual meeting of shareholders of the Company
to be held on Thursday, November 20, 1997, at 2:30 p.m., and at any adjournment
thereof, on the matters indicated on the reverse side hereof.
This proxy is solicited by the Board of Directors of the Company and, when
properly executed, will be voted in accordance with the instructions specified
on the reverse side. If no instructions are specified, this proxy will be voted
FOR the election of all nominees for director named on the reverse side hereof
(or for a substitute nominee if any of those named should become unavailable).
On any other business which may properly come before the meeting, this proxy
will be voted in accordance with the judgment of the persons named above as
proxies.
- ------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Note: Please sign exactly as your name(s) appear(s) hereon. Joint owners should
each sign. When signing as attorney-in-fact, executor, administrator, trustee,
guardian or corporate officer, please give full title as such.
- -------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 22
[x] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ----------------------------- 1. Election of Directors
PALL CORPORATION For Withheld For All
Eric Krasnoff ALL ALL Except
- ----------------------------- David B. Pall [ ] [ ] [ ]
Chesterfield F.
Mark box at right if an [ ] Seibert
address change has been James D. Watson
noted on the reverse side
If you wish to withhold authority for any
particular nominee(s), mark the "For All
RECORD DATE SHARES: Except" box and print the name(s) of such
nominee(s) below.
-----------------------------------------
2. The transaction of such other business as
may properly come before the meeting or
Please be sure to --------- any adjournments thereof.
sign and date this Date
Proxy.
- -----------------------------
Shareholder sign
here
-------------- The signer(s) hereby revoke(s) all proxies
Co-owner sign heretofore given by the signer(s) to vote
here -------------- at said meeting or any adjournment thereof.
DETACH CARD DETACH CARD
