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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended November 1, 1997
Commission File No. 1-4311
PALL CORPORATION
Incorporated in New York State I.R.S. Employer Identifi-
cation # 11-1541330
2200 Northern Boulevard, East Hills, N.Y. 11548
Telephone Number (516) 484-5400
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
At December 8, 1997, 124,766,593 shares of common stock of the Registrant were
outstanding.
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PALL CORPORATION
<TABLE>
<CAPTION>
INDEX TO FORM 10-Q
------------------
<S> <C>
COVER SHEET 1
INDEX TO FORM 10-Q 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets - November 1, 1997
and August 2, 1997 3
Condensed consolidated statements of earnings -
three months ended November 1, 1997 and November 2, 1996 4
Condensed consolidated statements of cash flows -
three months ended November 1, 1997 and November 2, 1996 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition and
results of operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 10
SIGNATURES 10
EXHIBIT INDEX 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
November 1, August 2,
ASSETS 1997 1997
Current Assets: ----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 31,433 $ 17,972
Short-term investments 50,400 37,500
Accounts receivable, net of allowances
for doubtful accounts of $7,449
and $6,602, respectively 248,522 266,604
Inventories - Note 2 203,579 198,080
Taxes receivable 42,551 40,262
Deferred income taxes 19,500 20,971
Other 29,428 25,215
----------- -----------
Total Current Assets 625,413 606,604
Property, plant and equipment, net of
accumulated depreciation of $362,457
and $345,493, respectively 511,650 504,046
Other assets 162,708 154,974
----------- -----------
Total Assets $ 1,299,771 $ 1,265,624
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 102,646 $ 123,974
Accounts payable 55,308 53,200
Accrued liabilities:
Salaries and commissions 34,676 34,239
Other 69,424 57,319
----------- -----------
104,100 91,558
Income taxes 24,427 27,620
Current portion of long-term debt 12,588 4,677
Dividends payable 17,801 --
----------- -----------
Total Current Liabilities 316,870 301,029
Long-term debt, less current portion 109,598 62,126
Deferred income taxes 29,103 27,678
Other non-current liabilities 49,898 49,958
----------- -----------
Total Liabilities 505,469 440,791
----------- -----------
Stockholders' Equity:
Common stock, $.10 par value 12,796 12,796
Capital in excess of par value 92,893 92,893
Retained earnings 750,321 749,923
Treasury stock, at cost (50,583) (12,837)
Foreign currency translation 1,841 (4,722)
Minimum pension liability (4,361) (4,348)
Stock option loans (8,382) (8,820)
Cumulative unrealized investment losses (223) (52)
----------- -----------
Total Stockholders' Equity 794,302 824,833
----------- -----------
Total Liabilities and
Stockholders' Equity $ 1,299,771 $ 1,265,624
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands,
except per share data)
Three Months Ended
-------------------------
Nov. 1, Nov. 2,
1997 1996
-------- --------
<S> <C> <C>
Net sales $237,351 $235,791
Costs and expenses:
Cost of sales 105,611 98,248
Selling, general and
administrative expenses 90,987 93,950
Research and development 14,190 13,138
Merger related expenses -- 3,911
Interest expense, net 988 656
-------- --------
Total costs and expenses 211,776 209,903
Earnings before income taxes 25,575 25,888
Provisions for income taxes 7,161 8,604
-------- --------
Net earnings $ 18,414 $ 17,284
======== ========
Earnings per share $ 0.15 $ 0.14
Dividends declared per share $ 0.1400 $ 0.1225
Average number of shares
outstanding 126,956 125,437
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
--------------------------
Nov. 1, Nov. 2,
1997 1996
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 57,159 $ 29,466
INVESTING ACTIVITIES:
Investments and licenses (6,171) --
Capital expenditures (20,276) (23,534)
Disposals of fixed assets 214 528
Short-term investments (12,900) (3,450)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (39,133) (26,456)
FINANCING ACTIVITIES:
Net short-term borrowings (24,808) (17,906)
Long-term borrowings 59,044 2,728
Payments on long-term debt (1,400) (1,288)
Net proceeds from exercise of stock options 1,494 4,265
Purchase of treasury stock (39,017) --
Dividends paid -- (14,133)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (4,687) (26,334)
-------- --------
CASH FLOW FOR PERIOD 13,339 (23,324)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,972 44,118
EFFECT OF EXCHANGE RATE CHANGES ON CASH 122 (133)
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,433 $ 20,661
======== ========
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 1,851 $ 2,248
Income taxes paid (net of refunds) 11,024 22,281
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein is unaudited. However, such
information reflects all adjustments which are, in the opinion of management,
necessary to present fairly (i) the financial position of the Company at
November 1, 1997 and August 2, 1997, (ii) the results of its operations for the
three months ended November 1, 1997 and November 2, 1996, and (iii) its cash
flows for the three months ended November 1, 1997 and November 2, 1996. These
financial statements should be read in conjunction with the financial statements
and notes set forth in the Company's Annual Report and Form 10-K for the fiscal
year ended August 2, 1997.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
The major classes of inventory are as follows: (in thousands)
Nov. 1, Aug. 2,
1997 1997
-------------------------
<S> <C> <C>
Raw materials and components $ 80,402 $ 79,545
Work-in-process 26,882 22,065
Finished goods 96,295 96,470
-------------------------
Total inventory $203,579 $198,080
=========================
</TABLE>
NOTE 3 - LONG-TERM DEBT
On October 27, 1997, the Company entered into a long-term debt agreement
to borrow $40 million at 6.31%. Payments are due in installments through the
year 2002.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
I. Results of Operations
Sales for the quarter were $237.4 million, an increase of 1/2%, compared to
$235.8 million last year. Excluding the adverse effects of exchange rates of
$11.1 million, sales would have increased by 5 1/2%. A detailed summary of sales
by market and geographic region is given below.
Sales by Market
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
------------------------- EXCHANGE % CHANGE
NOV. 1, NOV. 2, % RATE IN LOCAL
1997 1996 CHANGE DIFFERENCE CURRENCY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Patient Protection $ 54,544 $ 58,248 (6 1/2) $ (2,561) (2)
Other 67,081 68,701 (2 1/2) (3,386) 2 1/2
-------- -------- --------
Total Health Care 121,625 126,949 (4) (5,947) 1/2
Microelectronics 22,251 22,439 (1) (1,436) 5 1/2
Other 37,326 36,155 3 (1,474) 7 1/2
-------- -------- --------
Total
Fluid Processing 59,577 58,594 1 1/2 (2,910) 6 1/2
Aeropower 56,149 50,248 11 1/2 (2,235) 16
-------- --------
TOTAL $237,351 $235,791 1/2 $(11,092) 5 1/2
-------- -------- --------
</TABLE>
Sales by Geographic Region
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
------------------------ EXCHANGE % CHANGE
NOV. 1, NOV. 2, % RATE IN LOCAL
1997 1996 CHANGE DIFFERENCE CURRENCY
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asia $ 45,121 $ 46,410 (3) $ (3,723) 5
Europe 80,327 83,457 (4) (7,307) 5
Western
Hemisphere 111,903 105,924 5 1/2 (62) 5 1/2
-------- -------- --------
TOTAL $237,351 $235,791 1/2 $(11,092) 5 1/2
-------- -------- --------
</TABLE>
The Aeropower market had the best performance for the quarter. Sales in this
market increased 16% in local currency led by a sales increase of 37% in the
Aerospace segment. This growth, which was mostly in the Western Hemishpere, came
from both Military and Commercial segments which grew 42% and 34%, respectively.
Sales in the Health Care market were flat with the Patient Protection segment
decreasing 2%; blood filter sales in this segment
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decreased by 2%, whereas, the rest of the Health Care market increased by 2 1/2%
led by a 21% increase in the Food & Beverage segment.
On a geographic basis, sales in each region grew between 5% and 5 1/2% in local
currency.
Quarter-on-quarter, cost of sales as a percentage of sales increased by nearly
3% over last year, mainly due to the effects of exchange rates and product mix.
This was partially offset by a reduction in selling, general and administrative
expenses (SG&A), which decreased 1 1/2%; the reduction in SG&A is in line with
expectations and reflects the savings as a result of the restructuring last
year.
Pretax margins for the quarter and before merger expenses last year declined by
nearly 2% mainly due to the reduction in the gross profit. Earnings per share
for the quarter were 15 cents compared to 14 cents last year (17 cents last
year, after pro forma tax effect, excluding merger expenses). The Company
estimates that earnings per share for the current quarter were further reduced
by about 4 cents due to the effects of exchange rates.
The tax rate for the current quarter was 28% compared to 30% (before effects of
merger expenses) last year. The reduction in the tax rate is mainly due to
increased tax benefits as a result of changes made in the Puerto Rico
operations and increased manufacturing at the plant in Ireland.
II. Liquidity and Capital Resources
Net cash provided by operating activities increased by about $28 million mainly
due to increases in accounts payable, accruals and taxes payable. At the end of
the current quarter approximately $13 million of accruals relating to
environmental and other expenses incurred in the third quarter of fiscal 1997
are reflected on the balance sheet.
For the quarter, capital expenditures and depreciation and amortization were $20
million and $17 million, respectively. The Company also spent $6 million for
investments and licenses during the quarter. Long-term debt increased by $58
million and short-term borrowings decreased by $25 million.
On October 6, 1997, the Company announced a stock buy-back program of up to $150
million. The repurchased shares will be available for general corporate purposes
including the exercise of stock options. Through the end of the quarter $39
million has been expended resulting in the buy-back of 1.8 million shares.
Also on October 6, 1997, the Company announced that it had signed an agreement
to purchase all of the outstanding capital stock of the Swiss holding company
Argentaurum AG, including its Rochem subsidiaries. Rochem manufactures and sells
proprietary advance design reverse osmosis nanofiltration and ultrafiltration
systems for treating and desalinizing sea water, purifying landfill leachate and
other municipal and industrial waste water applications. The Company expects to
pay between $48 - $64 million depending on the operating profits earned by
Argentaurum in the current calendar year. The closing of this transaction is
expected before the end of January 1998. The transaction will be accounted for
as an asset purchase.
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On November 6, 1997, the Company announced that it had signed a Letter of
Intent to establish a strategic alliance with V.I. Technologies (VITEX) for
viral inactivation technology for red blood cells and platelets. Under the
agreement, Pall and VITEX will jointly develop this proprietary technology,
leading to an exclusive worldwide distribution agreement for the Company. The
Company will make milestone-driven equity payments to VITEX of up to $26
million over 5 years, including a commitment to invest at the time of VITEX's
initial public offering. The Company expects to sign a definitive agreement
within 4 months.
On November 17, 1997, the Company announced that it had reached a settlement
with Micron Separations Inc. (MSI) to resolve their twelve year patent dispute.
Under the terms agreed , MSI will pay the Company $13.5 million which is in
addition to the $6 million previously paid by MSI during 1996. The current
quarter financial statements do not include the $13.5 million payment which is
expected to be received before the end of March 1998.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See the Exhibit Index immediately following this page.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three
months ended November 1, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PALL CORPORATION
December 12, 1997 /s/ Jeremy Hayward-Surry
- -------------------- --------------------------------
Date Jeremy Hayward-Surry
President and Treasurer -
Chief Financial Officer
December 12, 1997 /s/ Viraj J. Patel
- -------------------- --------------------------------
Date Viraj J. Patel
Chief Corporate
Accountant
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<TABLE>
<CAPTION>
Exhibit Index
------------------
Exhibit
Number Description of Exhibit
- ------------- ------------------------------
<S> <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.
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.
10 (a) Employment Agreement made as of January 5, 1998
between the Registrant and John Adamovich.
27 Financial Data Schedule (only filed electronically).
</TABLE>
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement.
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 5, 1998, between PALL CORPORATION, a New
York corporation (the "Company"), and JOHN ADAMOVICH ("Executive"). In
consideration of the mutual agreements hereinafter set forth, the parties hereto
agree 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") beginning
January 5, 1998 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 not be earlier than the later of (i)
January 4, 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 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 (i) that the Board
of Directors (acting by its Compensation Committee) has authorized the making of
this
<PAGE> 2
Agreement and expressed its present intention that during the Term of
Employment Executive will be a Group Vice President and the Treasurer of the
Company and (ii) that under the by-laws of the Company as now in effect the
Treasurer is the chief financial officer of the Company. Neither the failure of
any future Board of Directors to elect Executive to the offices just named nor
any amendment of the by-laws shall, however, be deemed to relieve either party
hereto of any of his or its obligations under this Agreement.
(b) If 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 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.
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Section 3. Compensation During Term of Employment
(a) Base Salary. With respect to the period beginning January 5, 1998
and ending at the end of the Term of Employment, the Company shall pay to
Executive base compensation (in addition to the compensation provided for
elsewhere in this Agreement) at such rate as the Board of Directors may
determine (the amount so determined by the Board of Directors being herein
called the "Base Salary") but at not less than the rate of $250,000 per annum
(hereinafter called the "Original Base Salary") adjusted for each Contract Year
(as hereinafter defined) beginning with the Contract Year which starts August 1,
1998, 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
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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.
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 the resolution fixing
such higher Base Salary provides otherwise), for the purpose of determining the
Minimum Base Salary for subsequent Contract Years: (1) 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 of
Directors fixes a Base Salary for the Contract Year beginning August 1, 1998
which is higher than the Minimum Base
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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 August 1, 1998, 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 August 1, 1998
will be the average of stockholders' equity as of August 2, 1997 and
August 1, 1998) 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
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<PAGE> 6
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 year 1998, "Zero Bonus Percentage" shall mean a Return on
Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on Equity of
18%. For fiscal years after fiscal 1998, the Company shall determine the Zero
Bonus Percentage and the Maximum Bonus Percentage consistent 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 70% 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 70% of
Base Salary in the same proportion that Return on
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<PAGE> 7
Equity increases from the Zero Bonus Percentage to the Maximum Bonus Percentage.
Thus, for example, if Return on Equity for fiscal 1998 is 15.25% (the midpoint
between 12.5% and 18%), the Bonus Compensation shall be an amount equal to 35%
of Executive's Base Salary (the midpoint between zero percent of Base Salary and
70% 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 1998 with respect to Bonus Compensation for the fiscal year
ending August 1, 1998), based on the then current projections of Return
on Equity, and
(ii) the balance thereof not later than January 15th 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.
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<PAGE> 8
(c) Fringe Benefits and Perquisites. (i) 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 at the same level as Executive. 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), at such time and
on such terms and conditions as each such plan provides.
(ii) The Company has two profit-sharing plans in which employees at the
level of Executive are entitled to participate, to wit: the Pall Corporation
Profit-Sharing Plan, which is a qualified plan under Section 401(a) of the
Internal Revenue Code (the "qualified plan"), and the Pall Corporation
Supplementary Profit-Sharing Plan, which is not a qualified plan (the
"supplementary plan") (collectively "the profit-sharing plans"). Executive will
not be entitled to participate in the profit-sharing plans with respect to 1998
because to participate therein an employee must have been an employee of the
Company for at least six months prior to the start of the plan year (which is
the calendar year). The Company agrees that at the time that contributions are
made for 1998 to the accounts of participants in the profit-sharing plans, the
Company will establish an account for Executive under the
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<PAGE> 9
supplementary plan and will make a contribution to the supplementary plan for
his account in the amount that would have been contributed to his accounts under
the qualified and supplementary plans with respect to 1998 had he been eligible
to participate in those plans with respect to 1998, based on his "Compensation",
as defined for purposes of Section 3.4 of the qualified plan, for the period
from the beginning of the Term of Employment hereunder to and including August
1, 1998. With respect to all plan years after 1998, Executive shall have those
rights that he has by the terms of the profit-sharing plans, and there shall be
no special or additional contribution by virtue of this paragraph.
(d) Vacations. 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, is incapable of performing his
principal duties hereunder for an aggregate of 130 working days out of any
period of twelve 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 twelve-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
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<PAGE> 10
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, the following: (i) 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 and (ii) for the
period from the end of the month in which such death or termination for
disability occurs until the earlier of (x) the first anniversary of the date of
death or termination and (y) the date on which the Term of Employment would have
ended but for such death or termination for disability, monthly payments at
one-half of the rate of Executive's Base Salary plus one-half of Executive's
Bonus Compensation (prorated to the last day of such period) which would have
been payable with respect to such period but for such death or termination.
(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
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<PAGE> 11
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 Section 4(b) 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 Section 4(b) 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 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 the 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 data 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 Article 12 of the Company's Restated Certificate of
Incorporation
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<PAGE> 12
dated November 23, 1993 and filed by the New York Department of State on
December 7, 1993.
Section 5. Covenant Not to Compete.
For a period of eighteen 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 twelve 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, individual 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 6. 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.
-12-
<PAGE> 13
Section 7. 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 8. 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
-13-
<PAGE> 14
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 9. Mergers and Consolidations; Assignability
In the event that the Company, or any entity resulting from any merger
or consolidation referred to in this Section 9 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 9, 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 10. 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,
-14-
<PAGE> 15
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 11. 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 12. Entire Contract
This instrument 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 13. 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 its principal office for the
-15-
<PAGE> 16
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 on which it is received by the overnight delivery service or, if
delivered personally, on the date so delivered.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PALL CORPORATION
By: /s/ Jeremy Hayward-Surry
------------------------------
Title: President
/s/ John Adamovich
------------------------------------
John Adamovich
-16-
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