<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 Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
PALL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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 0-12.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PALL CORPORATION
2200 NORTHERN BOULEVARD
EAST HILLS, NEW YORK 11548
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 19, 1998
---------------------
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 19, 1998
at 2:00 P.M. for the following purposes:
(1) to elect four directors for a three-year term;
(2) to consider and vote upon a proposal to approve the adoption of
the Company's 1998 Employee Stock Option Plan; and
(3) to transact such other business as may properly come before the
meeting.
The close of business on October 8, 1998 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 19, 1998
<PAGE> 3
PALL CORPORATION
2200 NORTHERN BOULEVARD
EAST HILLS, NEW YORK 11548
October 19, 1998
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 19, 1998, at 2:00 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 19, 1998. 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 may 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 and for the approval of the 1998 Employee Stock Option Plan. 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, 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 8, 1998 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 124,247,002 shares of
Common Stock outstanding and entitled to vote on the record date. Each
shareholder is entitled to one vote for each share held. The holders of a
majority of the shares issued and outstanding on the record date, present in
person or represented by proxy, will constitute a quorum at the meeting.
<PAGE> 4
[BOARD NOMINEES AND DIRECTORS PHOTOS AND CREDITS]
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 John Haskell, Jr., Katharine Plourde, Heywood Shelley and Alan Slifka,
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 Ms. Plourde and Messrs. Haskell, Shelley and Slifka. 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.
Set forth below is information with respect to the nominees and each other
present director of the Company continuing in office after the meeting. The
principal occupations of each director during at least the past five years is
shown in the fourth column and the notes thereto. (Derek Williams, who is
presently Executive Vice President and a director of the Company, is retiring as
an officer on October 31, 1998, after 27 years of distinguished service. Mr.
Williams will continue as a director until the annual meeting, when his term
expires.)
<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............ 83 Founder Director President, Appel Consultants, 1969 1999
Inc., consultants on financing
and foreign trade, Toronto,
Canada
John H.F. Haskell, Managing Director, Warburg
Jr.*................... 66 Director Dillon Read LLC, investment May 1998
banking firm, New York, 1998
N.Y.(a)
Ulric Haynes, Jr......... 67 Director Executive Dean for University 1994 1999
International Relations,
Hofstra University, Hempstead,
N.Y. since September 1,
1996(b)
Jeremy Hayward-Surry..... 55 President and Director Officer of the Company(c) 1993 1999
Eric Krasnoff............ 46 Chairman and Chief Officer of the Company(d) 1994 2000
Executive Officer and
Director
Edwin W. Martin, Jr...... 67 Director (e) 1993 1999
Katharine L. Plourde*.... 46 Director (f) 1995 1998
Chesterfield F. Retired
Seibert................ 73 Director 1971 2000
Heywood Shelley*......... 71 Director Attorney(g) 1990 1998
Alan B. Slifka*.......... 69 Director (h) 1964 1998
James D. Watson.......... 70 Director (i) 1988 2000
</TABLE>
- ---------------
* Nominee for election at the meeting.
** Mr. Appel is a member of the Audit, Compensation and Nominating
Committees of the Board of Directors. Mr. Haskell is a member of the Nominating
Committee. Mr. Haynes is a member of the Compensation Committee. Messrs.
Krasnoff, Hayward-Surry and Shelley 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.
(footnotes on next page)
3
<PAGE> 6
(a) Mr. Haskell is a director of The Equitable Companies Incorporated.
(b) Mr. Haynes, who was the U.S. Ambassador to Algeria in 1977-1981, was
Dean of the Business School at Hofstra University from August 1991 through
August 1996.
(c) Mr. Hayward-Surry has been President of the Company since July 1994 and
prior thereto was Executive Vice President from November 1992. He was also
Treasurer and Chief Financial Officer of the Company from November 1992 to
January 1998. Mr. Hayward-Surry is a director of V.I. Technologies, Inc.
(d) Mr. Krasnoff has been Chairman and Chief Executive Officer of the
Company since July 1994 and prior thereto was President and Chief Operating
Officer from October 1993.
(e) 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 a director of Roslyn Bancorp Inc.
(f) Ms. Plourde was a Principal and analyst at the investment banking firm
of Donaldson, Lufkin & Jenrette, Inc., New York, N.Y. until November 1997. Since
that time she has engaged in private investing and serving on the boards of
directors of the Company and of a not-for-profit organization.
(g) Mr. Shelley was a member of the firm of Carter, Ledyard & Milburn, New
York, New York, through December 1997 and since then has been counsel to that
firm, which 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, New York.
Dr. Watson, who shared the Nobel Prize for medicine in 1962, is a director of
Diagnostic Products Corporation and SIBIA Neurosciences, Inc.
------------------------
There were seven meetings of the Board of Directors of the Company during
fiscal 1998, including one meeting by conference telephone. 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 14 meetings of the
Executive Committee during fiscal 1998 and in addition certain actions were
taken by unanimous written consent without a meeting.
The duties and responsibilities of the Audit Committee include, among other
things, review of the Company's financial statements, consideration of the
nature and scope of the work to be performed by the Company's independent
auditors, oversight of the results of such work, review of such auditors'
letters to management which evaluate (as part of their annual audit of the
Company's financial statements) the internal control systems of the Company,
discussions with representatives of management of particular areas of the
Company's operations, and meeting with the Company's internal audit managers to
review their plans and to discuss internal audit reports. The Audit Committee
met twice during fiscal 1998.
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
4
<PAGE> 7
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 three times in fiscal
1998 and in addition took certain actions by unanimous written consent without a
meeting.
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 twice in fiscal 1998. 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 1998, 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 four
of seven 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, and Mr. Shelley is paid an additional $750 a month for his service
on the Executive Committee. Directors who are employees receive no additional
compensation for serving as directors.
Dr. David B. Pall, who founded the Company in 1946, retired from the Board
of Directors in May 1998 but agreed to continue to perform consulting services
for the Company on request. Dr. Pall's services are performed under a Consulting
Agreement which became effective upon his retirement as a full-time officer of
the Company in 1992 and which continues in effect until terminated by either
party on six months' notice. Dr. Pall is paid for his services under the
Consulting Agreement at the rate of $1,500 a day, and during fiscal 1998 the
Company paid him $34,500 under the Agreement. 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, 1998, 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 $155,000 per year. The
Company and its officers and directors are also insured under two excess
insurance policies, each dated August 1, 1998, with National Union Fire
Insurance Company of Pittsburgh, Pennsylvania and Executive Risk Specialty
Insurance Company with respect to liability arising from the performance by
officers and directors of their corporate duties. The total annual premium paid
by the Company for these two policies is $109,020.
Under the Company's Stock Option Plan for Non-Employee Directors (the
"Director Plan") approved by shareholders in 1995, 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.
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
5
<PAGE> 8
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. Seibert and Watson and Dr. Pall, who were
re-elected at the 1997 annual meeting for a three-year term, were each granted
an option on that date to purchase 10,000 shares of Common Stock at an exercise
price of $21.28 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 1, 1998. 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(C)
- ------------------ ------ -------- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Eric Krasnoff.................. 1998 $537,004 $214,802 $84,394(a) 180,000 $73,772
Chairman and 1997 516,308 232,339 63,704(b) -0- 73,142
Chief Executive Officer 1996 491,787 491,787 120,000 72,525
Jeremy Hayward-Surry........... 1998 367,588 110,276 75,000 44,900
President 1997 353,548 120,206 -0- 50,184
1996 336,762 252,572 75,000 48,316
Derek T.D. Williams............ 1998 275,899 47,822 50,000 -0-
Executive Vice President 1997 263,721 51,803 -0- 313
and Chief Operating Officer 1996 233,611 101,232 50,000 9,824
(retiring effective 10/31/98)
Gerhard Weich.................. 1998 265,836 39,917 30,000 19,853
Group Vice President 1997 282,259 35,250 -0- 5,794
1996 298,971 74,743 30,000 844
Samuel T. Wortham.............. 1998 219,648 79,337 30,000 37,614
Group Vice President 1997 211,224 88,714 -0- 35,428
1996 207,018 144,913 30,000 27,109
</TABLE>
- ---------------
(a) Comprised of $64,275 for the cost of legal and accounting services and
$20,119 for the provision of a company car.
(b) Comprised of $45,360 for the cost of legal and accounting services and
$18,344 for the provision of a company car.
(c) 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 Internal Revenue Service to determine "imputed interest," were
as follows in fiscal 1998: Mr. Krasnoff -- $26,601; Mr.
Hayward-Surry -- $15,912; Mr. Weich -- $10,853; and Mr. Wortham -- $20,272. Also
includes employer contributions under the Company's Profit-Sharing Plan and
Supplementary Profit-Sharing Plan, which contributions for fiscal 1998 were as
follows: Mr. Krasnoff -- $47,171; Mr. Hayward-Surry -- $28,988; and Mr.
Wortham -- $17,342.
6
<PAGE> 9
OPTIONS
The following tables set forth information concerning grants of stock
options to, and exercises of stock options by, the Named Executive Officers
during fiscal 1998, and the number and value of unexercised options held by each
of them at August 1, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE EXPIRATION ---------------------------
NAME GRANTED(1) IN FISCAL YEAR PRICE(2) DATE 5% 10%
- ---- ---------- -------------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric Krasnoff.................. 120,000 3.9 $20.3750 11/07/02 $675,000 $1,492,680
60,000 2.0 20.5625 07/07/03 340,890 753,210
Jeremy Hayward-Surry........... 75,000 2.5 20.3750 11/07/02 421,875 932,925
Derek T.D. Williams............ 50,000 1.6 20.3750 11/07/02 281,250 621,950
Gerhard Weich.................. 30,000 1.0 20.3750 11/07/02 168,750 373,170
Samuel T. Wortham.............. 30,000 1.0 20.3750 11/07/02 168,750 373,170
</TABLE>
- ---------------
(1) The options in this table become exercisable in four cumulative installments
on each of the first through fourth anniversary dates of the date of grant.
(2) Fair market value of a share of the Company's Common Stock on the date of
grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric Krasnoff............. -0- -0- 145,000 240,000 $519,063 $337,500
Jeremy Hayward-Surry...... -0- -0- 137,500 112,500 543,750 145,313
Derek T.D. Williams....... -0- -0- 75,000 75,000 190,625 96,875
Gerhard Weich............. 10,000 $30,625 50,000 45,000 133,438 58,125
Samuel T. Wortham......... -0- -0- 50,000 45,000 133,438 58,125
</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 July 31, 1998,
which was $22.3125 per share) and the aggregate exercise price for such
shares.
CONTRACTS WITH NAMED EXECUTIVE OFFICERS
The Company has employment contracts with Messrs. Krasnoff, Hayward-Surry
and Wortham, the three U.S.-based Named Executive Officers. 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 1999, as fixed by
the Compensation Committee, are as follows: Mr. Krasnoff -- $558,500; Mr.
Hayward-Surry -- $382,300, and Mr. Wortham -- $228,400. These contracts also
provide for annual incentive bonuses determined by a formula under which a bonus
equal in amount to a percentage of base salary becomes payable if the
7
<PAGE> 10
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 1999,
the Bonus Threshold is 12.5% and the Maximum Bonus Percentage is 17%. For fiscal
years after fiscal 1999, 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 28% 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 42% of Mr. Wortham's base salary. The formula currently used
by the Chief Executive Officer in determining the business segment component of
bonuses for executive officers is described below under Compensation Committee
Report on Executive Compensation -- Annual Incentive Bonuses.
Each of these three employment contracts is for a "Term of Employment"
which will continue until terminated by either party on not less than two years'
notice except that (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 determined by (1) multiplying
"Final Pay" (as defined) by 60% and (2) reducing the product of such
multiplication 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
$130,000 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 1998,
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. Also, at the start of the 30-day period
8
<PAGE> 11
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.
Pall Deutschland Gmbh Holding, the Company's subsidiary in Germany, has an
employment contract with Mr. Weich which provides for an annual salary for
fiscal 1999 of 490,500 Deutsche Marks ("DM") (equal to approximately $276,100 at
August 1, 1998). This contract also provides for an annual incentive bonus
determined under the return on equity formula described above, with a maximum
bonus of 10% of base salary beginning in fiscal 1999. Also, Mr. Weich, who is in
charge of a separate segment of the Company's business, may receive an
additional bonus based on the results of operations of that business segment.
Under Mr. Weich's employment contract, the Chief Executive Officer of the
Company has discretion to determine the amount of this additional bonus, up to a
maximum amount of 15% of Mr. Weich's base salary beginning in fiscal 1999. 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 without any required
advance 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. 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 ($65,400 in fiscal 1998). 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
1998, 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 Internal Revenue Code to $160,000.
Under the Company's Supplementary Pension Plan (which is not a qualified
plan under the Internal Revenue 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 1998) 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 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 a participant 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
9
<PAGE> 12
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. Mr. Williams' Pensionable Salary (based on fiscal years
through fiscal 1998) is 154,467 pounds sterling (equal to approximately $253,300
at August 1, 1998). Pursuant to the terms of the Pension Fund, Mr. Williams
elected to receive a lump-sum payment in the amount of L343,292 on September 30,
1997 (equal to approximately $555,600 at that date). Consequently, effective
upon his retirement on October 31, 1998, Mr. Williams will receive a pension
under the Pension Fund and the Supplementary Scheme initially in the amount of
L74,652 per annum (equal to approximately $121,900 at August 1, 1998).
Mr. Weich is a participant in pension plans and supplementary executive
pension arrangements provided by certain of the Company's European subsidiaries.
His pension benefits as so supplemented are based upon Pensionable Service and
Pensionable Income, where Pensionable Service is generally defined as up to 40
years of uninterrupted full-time employment between ages 20 and 65, and
Pensionable Income is defined as the average of 13 times monthly average base
salary for the three years ended the July 1 preceding retirement. Mr. Weich's
benefit formula for each year of Pensionable Service is (i) 0.3% of Pensionable
Income up to the German Social Security Salary Ceiling as of the July 1
preceding his retirement (DM 100,800 as of July 1, 1998, equal to approximately
$55,400 at that date), 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
33 years of Pensionable Service and would have been entitled to a total annual
pension of DM 179,575 (approximately $101,200). 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 190,464 (approximately
$107,300). 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 described above. 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 provisions
of the Company's existing stock option plans pertaining to such installment
payments are substantially the same as the provisions described below under
Proposal to Adopt the 1998 Employee Stock Option Plan -- Installment Payment
Provisions. 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 3,
1997, the start of the Company's 1998 fiscal year, to October 1, 1998. 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, 1998. All of
the indebtedness shown in the table is non-interest-bearing and payable on
demand.
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<PAGE> 13
<TABLE>
<CAPTION>
AMOUNT OF INDEBTEDNESS
---------------------------
LARGEST OCTOBER 1, 1998
-------- ---------------
<S> <C> <C>
Peter Cope................................................. $115,625 $115,625
Thomas Gsell............................................... 180,999 180,999
Jeremy Hayward-Surry....................................... 270,665 251,681
Erwin Kirnbauer............................................ 285,469 285,469
Paul Kohn.................................................. 137,437 137,437
Eric Krasnoff.............................................. 467,326 467,326
John Miller................................................ 172,081 172,081
David B. Pall.............................................. 168,743 168,743
Akio Satake................................................ 71,855 -0-
Heywood Shelley............................................ 121,033 121,033
Robert Simkins............................................. 75,580 -0-
Donald Stevens............................................. 97,938 75,164
James D. Watson............................................ 231,250 231,250
Gerhard Weich.............................................. 204,374 204,374
Samuel T. Wortham.......................................... 352,469 352,469
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation program for executive officers consists of four
parts:
1. base salary;
2. annual incentive bonus;
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 11 U.S.-based and 5 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 for a
broad group of comparable general industry companies. Specific industry sector
data is also reviewed for the aerospace (including military) and biomedical
sectors. 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.
11
<PAGE> 14
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 1998, this minimum mandatory increase
was 2.28%, based on the CPI increase from June 1996 to June 1997. With the CPI
increase as a floor, the Compensation Committee adjusted base salaries for
fiscal 1998, as it does each year, to reflect individual performance for the
past year, internal relationships and marketplace practices as shown by data
supplied by Wyatt. Such data indicated that (a) in calendar 1997, average merit
increases for all employees in manufacturing industries were approximately 4
percent, (b) in calendar 1997, average budgeted merit increases for executive
officers in all industries were approximately 4.1 percent, (c) in calendar 1996,
average salary increases for chief executive officers in all industries were
approximately 6.1 percent, and (d) in calendar 1996, average salary increases
for all executive officers in non-durable goods manufacturing industries were
approximately 5.9 percent. Base salary increases for fiscal 1998 were 4% for all
twelve of the Company's executive officers.
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, 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") are based on two
separate measures -- (1) Company-wide R.O.E. and (2) results of operations of
the appropriate Business Segment. In fiscal 1998, 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.
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. For fiscal 1998 the maximum Business Segment bonus was
equal to 28% of base salary for U.S.-based executive officers and 10% to 14% of
base salary for overseas-based executive officers. (Beginning with fiscal 1999,
the percentages in the preceding sentence will increase to 42% for U.S.-based
executive officers and 15% to 27% for those based overseas. However, the R.O.E.
component of the bonus for these officers will be correspondingly reduced so
that their maximum total bonus as a percentage of base salary will not be
increased.) 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 1998, no bonus was payable unless R.O.E. for fiscal 1998
exceeded 12.5% (the "Bonus Threshold"), and the maximum bonus was payable if
R.O.E. equaled or exceeded 18% (the "Maximum Bonus Percentage"). If R.O.E. was
more than 12.5% but less than 18%, the bonus would increase
12
<PAGE> 15
pro rata from zero at R.O.E. of 12.5% to the maximum bonus at R.O.E. of 18%. 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 1998
R.O.E. was 15.25% -- 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 1999 are 12.5%
and 17%, respectively.
With respect to the U.S.-based executive officers whose fiscal 1998 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 1998
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 market 75th percentile. Awards for fiscal 1998, which resulted from R.O.E.
of 14.7%, were 40% of base salary for Mr. Krasnoff, as Chief Executive Officer,
and 30% of base salary for Mr. Hayward-Surry, as President (i.e., target bonus
awards were not achieved in fiscal 1998). As to each of the six U.S.-based
executive officers whose bonus for fiscal 1998 included a Business Segment
component, his bonus for fiscal 1998 was 16.8% 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 stock option plans of the Company, although not exclusively for the
benefit of executive officers (about 1,000 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 1998. 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, group vice
president, etc. With respect to options granted in fiscal 1997 and 1998, these
grant levels were fixed after review of marketplace practice and on the basis of
recommendations by Wyatt.
Effective since the beginning of the 1996 fiscal year, it has been the
Company's policy, on the recommendation of Wyatt, to make across-the-board
option grants at intervals of approximately two years, with interim grants only
for promotions and new hires.
In fiscal 1998, option grants to executive officers were in the following
respective amounts: 180,000 shares to Mr. Krasnoff, Chairman and Chief Executive
Officer; 75,000 shares to Mr. Hayward-Surry, President; 50,000 shares to Mr.
Williams, Executive Vice President and Chief Operating Officer; 45,000 shares to
John Adamovich who joined the Company in January 1998 to become Chief Financial
Officer, and 25,000 or 30,000 shares to each of 15 Group Vice Presidents and
Senior Vice Presidents. All of these grants were within the range of option
grants recommended by Wyatt and were designed to provide "total direct
compensation"
13
<PAGE> 16
in fiscal 1998 (base salary plus bonus plus the two-year average of the present
value of option grants) which would approximate the market 75th percentile in
the event that "target" bonuses became payable under the Incentive Bonus Plan.
Total direct compensation is the sum of base salary, short-term incentive
compensation and the present value of long-term incentive compensation.
In view of the Company's policy of not granting options to executive
officers each year, the significance of option grants is better understood by
taking an average over a period of years. During the five-year period from the
beginning of fiscal 1994 to the end of fiscal 1998, the average per annum option
grants to all executive officers as a group (not including special options
granted to the chief executive officer of a company acquired by the Company in
fiscal 1997) were for 404,200 shares, representing about one-third of one
percent (0.33%) of the shares of Common Stock outstanding at the end of fiscal
1998.
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 Internal Revenue 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 1998 Compensation of the Chief Executive Officer
Mr. Krasnoff's base salary for fiscal 1998 was $537,004, which was
approximately 3% below the market median rate for chief executive officers as
determined by Wyatt. Mr. Krasnoff's incentive bonus for fiscal 1998 was 40% of
base salary. Mr. Krasnoff's total cash compensation (base salary plus incentive
bonus) for fiscal 1998 was 3% above the market median and 19% below the market
75th percentile, as determined by Wyatt.
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 1998, 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.
14
<PAGE> 17
In light of Section 162(m), the Company's 1993, 1995 and 1998 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 and 1998, Mr. Krasnoff's compensation could
have exceeded $1,000,000 by a modest amount inasmuch as Mr. Krasnoff's base
salary for each of those years exceeded $500,000 and his maximum incentive bonus
was 100% of his base salary. Accordingly, prior to the start of each of those
fiscal years, the Company and Mr. Krasnoff entered into an agreement providing
that to the extent that Mr. Krasnoff's compensation for the fiscal year would
(but for such agreement) exceed $1,000,000, payment of the excess would be
deferred until January of the following fiscal year. In fact, Mr. Krasnoff's
compensation (as defined for purposes of Section 162(m)) was less than
$1,000,000 for each of fiscal 1997 and 1998 inasmuch as the maximum incentive
bonus did not become payable for either year.
With respect to fiscal 1999, Mr. Krasnoff's compensation as presently fixed
will not exceed $1,000,000 for purposes of Section 162(m). This results from the
facts that (i) by the terms of the employment contract between the Company and
Mr. Krasnoff, approximately half of the bonus for each fiscal year is payable in
January of the following year and (ii) for purposes of sec. 162(m), compensation
not paid within two-and-a-half months after the end of a fiscal year is not
deemed compensation for that year (even though deemed compensation for financial
reporting and proxy statement purposes). Thus, about half of Mr. Krasnoff's
fiscal 1998 bonus of $214,802 will be deemed fiscal 1999 compensation for
purposes of sec. 162(m) and only about half of his fiscal 1999 bonus will be
deemed compensation in that fiscal year for purposes of sec. 162(m). Therefore,
even if Mr. Krasnoff were to earn the maximum bonus of 100% of his base salary
for fiscal 1999 ($558,500), his sec. 162(m) compensation would be less than
$1,000,000. Accordingly, no deferral agreement has been entered into for fiscal
1999.
Summary
The Compensation Committee believes that the total compensation for fiscal
1998 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 (which includes the Company).
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
<TABLE>
<CAPTION>
END OF S&P
FISCAL YEARS PALL CORPORATION S&P 500 MANUFACTURING
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 95.92 105.16 116.33
1995 142.08 132.62 159.39
1996 152.60 154.59 188.60
1997 162.55 235.19 294.92
1998 149.88 280.54 290.24
</TABLE>
- ---------------
* Assumes that the value of the investment in the Company's Common Stock and the
two S&P indices was $100 on July 31, 1993 (the last day of the Company's 1993
fiscal year), and that all dividends were reinvested.
16
<PAGE> 19
PROPOSAL TO ADOPT THE 1998 EMPLOYEE
STOCK OPTION PLAN
The shareholders will be asked at the meeting to vote on a proposal to
approve the adoption of the Pall Corporation 1998 Employee Stock Option Plan
(the "Plan"). On July 7, 1998, the Plan was established by the Compensation
Committee of the Board of Directors of the Company (the "Committee") and
ratified and approved by the Board of Directors, subject to shareholder
approval.
The Plan provides for the issuance of options to purchase a maximum
aggregate of 4,000,000 shares of the Company's Common Stock (subject to
adjustment for stock splits and other capital adjustments). Options under the
Plan may be issued (i) to "executive officers" of the Company (as the term is
defined in the rules of the Securities and Exchange Commission), and (ii) to
other employees (including officers) of the Company and its subsidiaries who, in
the judgment of the Committee, are in a position to contribute significantly to
the Company's success ("eligible employees"). Options may not be granted on more
than 300,000 shares (subject to adjustment for stock splits and other capital
adjustments) to any individual within any period of 24 consecutive months. It is
estimated that there are presently approximately 1,000 employees (including 15
executive officers) whom the Committee may consider for the grant of options.
Directors who are not employees of the Company are not eligible for options
under the Plan. The Committee has not yet taken any action or considered any
proposal with respect to specific grants of options under the Plan.
The Board of Directors believes that substantial benefits accrue to the
Company from the granting of stock options to employees. Such options encourage
employees to acquire a proprietary interest in the Company through stock
ownership and thereby afford them a greater incentive to enhance the value of
the Common Stock through their own efforts in improving the Company's business.
The Board approved the Plan for these reasons and because the number of shares
remaining available for option grants under the Company's existing employee
stock option plans on the date on which the Plan was approved by the Board (July
7, 1998) was deemed by the Board to be inadequate. The number of shares
available for future grants under the existing employee plans on July 7, 1998
was 176,783, representing less than one-seventh of one percent of the shares
then outstanding. Accordingly, the Board of Directors and management believe
that approval of the Plan is in the best interests of the Company. A copy of the
Plan will be furnished to any shareholder upon written request made to the
Corporate Secretary of the Company at the address shown on the cover page of
this proxy statement.
Under the New York Business Corporation Law (the "BCL"), the affirmative
vote of a majority of the votes duly cast at the meeting on this proposal is
required for the adoption of the Plan. In addition, under the rules of the New
York Stock Exchange (the "NYSE"), the total vote cast on this proposal must
represent over 50% in interest of all shares entitled to vote. Thus, a
shareholder who does not vote will not affect the outcome of the vote so long as
at least 50% of the outstanding shares of Common Stock are voted on this
proposal. An abstention will not constitute a "vote cast" for purposes of the
BCL majority vote requirement but will count as a negative "vote cast" for
purposes of the NYSE 50% vote requirement. Brokers who hold shares of Common
Stock as nominees will have discretionary authority to vote such shares if they
have not received voting instructions from the beneficial owners by the tenth
day before the meeting, provided that this proxy statement is transmitted to the
beneficial owners at least 15 days before the meeting.
THE BOARD RECOMMENDS A VOTE FOR THE ADOPTION OF THE PALL CORPORATION 1998
EMPLOYEE STOCK OPTION PLAN.
DURATION AND ADMINISTRATION OF THE PLAN
The Plan will terminate on July 6, 2008, unless earlier terminated by
resolution of the Board of Directors. The Plan may be amended from time to time
by the Board, except that no amendment affecting the aggregate number of shares
which may be issued under the Plan will be effective unless approved by the
shareholders within twelve months from the date of the adoption of such
amendment by the Board of Directors. Neither termination nor any amendment of
the Plan may alter or impair the rights or obligations of any person, without
his or her consent, under any option theretofore granted pursuant to the Plan.
17
<PAGE> 20
The Plan will be administered by the Committee, which consists of three
directors of the Company who are (i) "non-employee directors" as defined in Rule
l6b-3 under the Securities Exchange Act of 1934 and (ii) "outside directors" as
defined in the regulations of the Internal Revenue Service under Section 162(m)
of the Internal Revenue Code. The duties of the Committee include the selection
of executive officers and other eligible employees for grants of options, the
determination of the number of shares covered by each option, and the
formulation, within the limitations of the Plan, of a form of option.
SECURITIES SUBJECT TO THE PLAN
Not more than 4,000,000 shares of the Common Stock of the Company may be
issued pursuant to the Plan except that in the event of stock splits, stock
dividends, combinations, exchanges of shares or similar capital adjustments, the
Committee must make an appropriate adjustment in the number and kind of shares
subject to the Plan and each outstanding option thereunder, and the option price
per share under each outstanding option. If any option expires without having
been fully exercised, the shares with respect to which such option has not been
exercised will be available for further options.
INCENTIVE OR NONQUALIFIED STOCK OPTIONS
The Plan provides that options granted thereunder may, at the election of
the Committee, be either (a) incentive stock options meeting the requirements
for such options set forth in Section 422 of the Code ("ISOs") or (b) options
which do not qualify as incentive stock options ("nonqualified options").
EXERCISE OF OPTIONS
The Plan provides that the exercise price of an option shall be the fair
market value of the stock subject to the option at the time the option is
granted, as determined in good faith by the Committee. On October 1, 1998, the
mean between the high and low sales prices of a share of Common Stock as
reported for New York Stock Exchange composite transactions was $21.875. Under
the Plan, the Committee may grant options which are exercisable at any time
before the expiration of ten years from the date such option is granted. All
ISOs granted by the Company to any one person (under the Plan or otherwise) may
not become exercisable in any calendar year for shares having an aggregate fair
market value (determined as of the dates such incentive stock options were
granted) exceeding $100,000.
The Plan provides that no option may be exercised unless the optionee has
been, at all times from the date of grant of the option to the date of exercise,
an employee of the Company or a subsidiary, except that (a) if the optionee
shall cease to be an employee by reason of his disability or retirement under an
approved retirement program of the Company or a subsidiary, the option shall
remain in full force and effect and may be exercised until it expires by its
terms (however, an ISO exercised more than three months after termination of
employment by reason of retirement, or more than one year after termination of
employment by reason of disability will cease to be treated as an ISO for
federal income tax purposes), or (b) if the optionee shall die, his estate or
any person acquiring the right to exercise the option by reason of his death may
exercise so much of the option as the optionee was entitled to exercise at the
time of death at any time within one year of death (but in no event later than
the date on which the option would otherwise expire by its terms). See also
Change in Control below.
INSTALLMENT PAYMENT PROVISIONS
The Plan provides that the Committee has the power to grant either (a)
options requiring full cash payment of the option price at the time of exercise
or (b) options permitting the optionee to pay the option exercise price in
installments. In the latter case, the optionee will be required at the time of
exercise to make such cash payment, if any, as is required by Section 221.4(b)
of Regulation U of the Board of Governors of the Federal Reserve System
("Regulation U"). Regulation U requires that at the time of exercise, an
optionee must make any cash payment necessary so that the amount owed on account
of the option exercise price does not exceed the "good faith loan value" of the
stock acquired upon exercise of the option. The cash payment which the Company
currently requires to comply with Regulation U is the amount, if any, by which
the option
18
<PAGE> 21
exercise price exceeds 50% of the market value of the Common Stock at the time
of exercise. The Committee also has the power to require installment payments of
principal following exercise, but the present practice of the Committee under
the Company's existing option plans is not to require such installment payments.
The unpaid balance of the option exercise price will be payable on demand.
The Company's present policy is to demand payment no later than five years and
nine months after the exercise of an option or, if earlier, at the expiration of
30 days after the optionee ceases to be employed by the Company or a subsidiary
for any reason other than death or retirement in accordance with a retirement
plan of the Company or a subsidiary.
An optionee who elects to pay the option exercise price in installments is
not required to pay interest on the unpaid balance but will be deemed to have
received taxable income for federal income tax purposes in an amount equal to
the interest foregone by the Company (except that no interest is imputed if the
total amount of an optionee's indebtedness outstanding under all loans from the
Company does not exceed $10,000). The amount of such "imputed interest" will be
determined on the basis of the federal short-term rate as in effect from time to
time. An optionee who elects to itemize deductions on his or her federal income
tax return (and on state tax returns in states which conform to the federal law
in this regard) will be entitled to deduct the amount of the imputed interest as
"investment interest" deductible to the extent of the optionee's investment
income.
The Plan also provides that upon exercise of an option as to which the
optionee has elected to make payment of the exercise price in installments, the
shares will be issued in the optionee's name and the optionee will have all the
rights of a shareholder, including the right to vote such shares and the right
to receive dividends. However, the optionee is required to pledge the shares to
the Company as collateral for the unpaid balance of the option exercise price
and is allowed to withdraw the shares from his pledge only upon payment of the
balance of the option exercise price of the shares withdrawn plus (if less than
all of the pledged shares are withdrawn) any additional amount required so that
the margin requirements of Regulation U continue to be met as to the remaining
balance owed by the optionee to the Company.
PAYMENT OF EXERCISE PRICE WITH COMPANY STOCK
In addition to the methods of payment of the option exercise price in cash
and under the installment payment provisions just described, options issued
under the Plan may provide that the person exercising the option, at his or her
election, shall have the right to make payment by delivering to the Company
shares of Common Stock of the Company having a total fair market value equal to
the option exercise price, or a combination of cash and such shares having a
total fair market value equal to the option exercise price. For this purpose,
the fair market value of a share of Common Stock will be the mean between the
high and low sale prices of the Common Stock on the trading date preceding the
option exercise date, as such prices are reported for New York Stock Exchange
composite transactions. Only shares which have been beneficially owned by the
person exercising the option for at least six months may be delivered in payment
of the option exercise price.
TRANSFERABILITY OF OPTIONS
No option is transferable by the optionee except by will or by the laws of
descent and no option may be exercised during the optionee's lifetime by anyone
other than the optionee except that, at the discretion of the Committee, a
nonqualified option may provide that the option is transferable to any "family
member" of the optionee, as the term "family member" is defined in the General
Instructions to Form S-8 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
19
<PAGE> 22
CHANGE IN CONTROL
In the event of a "Change in Control" of the Company (as defined below),
options outstanding under the Plan on the day preceding the date of the Change
in Control (x) will become exercisable in full on the date of the Change in
Control (i.e., to the extent that any option or portion thereof is not yet
exercisable, the right to exercise such option in full will be accelerated), and
(y) will remain fully exercisable, whether or not the optionee ceases to be an
employee of the Company or a subsidiary, until the date on which the option
would otherwise expire by its terms by the passage of time.
A "Change in Control" for purposes of the Plan shall mean any of the
following:
(i) the earlier of (a) the tenth day after the first date of public
announcement that any person has become an "Acquiring Person," meaning in
general any person who or which, together with all such person's affiliates
and associates, is the beneficial owner of 20% or more of the Company's
Common Stock, and (b) the tenth business day (or such later date as may be
determined by the Company's Board of Directors prior to such time as any
person becomes an Acquiring Person) after either the date on which any
person (other than the Company, any subsidiary of the Company or any
employee benefit plan of the Company or any of its subsidiaries) commences
a tender or exchange offer, or the date of the first public announcement
that any such person intends to commence a tender or exchange offer, the
consummation of which in either case would result in any person becoming
the beneficial owner of shares of Common Stock aggregating 20% or more of
the shares of Common Stock then outstanding; or
(ii) during any time when there is an Acquiring Person, any
reclassification of securities (including any reverse stock split), or
recapitalization or reorganization of the Company or other transaction or
series of transactions involving the Company which has the effect, directly
or indirectly, of increasing by more than 1% the proportionate share of the
outstanding shares of any class of equity securities of the Company or any
of its subsidiaries beneficially owned by any Acquiring Person or any
affiliate or associate of an Acquiring Person; or
(iii) the consolidation of the Company with, or merger with and into,
any other person, the consolidation of any person with the Company, or the
merger of any person with and into the Company in which all or part of the
Common Stock shall be changed into or exchanged for other stock or
securities, or cash or any other property, or the sale or other transfer by
the Company or one or more of its subsidiaries, in one or more
transactions, of assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its subsidiaries taken as a
whole to any other person other than the Company or one or more of its
wholly-owned subsidiaries; or
(iv) the date on which the number of duly elected and qualified
directors of the Company who were not either elected by the Company's Board
of Directors or nominated by the Board of Directors for election by the
shareholders shall equal or exceed one-third of the total number of
directors of the Company as fixed by its by-laws.
However, no Change in Control will be deemed to occur, and no rights
arising upon a Change in Control pursuant to the Plan will exist, to the extent
that the Board of Directors of the Company so determines by resolution adopted
prior to the Change in Control. Any such resolution may be rescinded or
countermanded by the Board at any time. If the Board so determines by resolution
that no Change in Control will be deemed to occur, and such resolution is not
rescinded or countermanded, the Board will have the right to authorize the
cancellation and termination of all options then outstanding under the Plan as
of a date to be fixed by the Board, provided that not less than 30 days written
notice of the date so fixed shall be given to each optionee. Each optionee will
have the right during such period (whether or not the optionee ceases to be an
employee of the Company or a subsidiary during such period) to exercise his or
her options as to all or any part of the shares covered thereby, including any
shares as to which the options have not yet become exercisable.
20
<PAGE> 23
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the Plan will be either ISOs or nonqualified options.
For federal income tax purposes, assuming that the shares acquired by the holder
of an ISO are not disposed of within two years from the date the option was
granted or one year from the date the option was exercised, (i) the Company
receives no deduction either upon the grant or the exercise of an ISO or upon a
subsequent sale of the shares by the optionee and (ii) the optionee realizes no
income for tax purposes either at the time of the grant or exercise of the ISO.
Instead, the optionee will realize income or loss only upon his or her
subsequent sale of the option shares, and the optionee's income, in the amount
of any excess of the sale price over the option exercise price, will be taxed as
long-term capital gain. If, however, the shares are disposed of within either of
the two periods mentioned above, the tax consequences for the Company and the
optionee will be essentially as described below for nonqualified options.
The recipient of a nonqualified option will not realize any taxable income
upon the grant of the option. Upon exercise of such option, the optionee will
realize ordinary income in an amount generally measured by the excess, if any,
of the fair market value of the shares on the date of exercise over the option
exercise price. The Company will be entitled to a deduction in the same amount
as the ordinary income realized by the optionee. Upon the sale of such shares,
the optionee will realize short-term or long-term capital gain or loss,
depending upon the length of time the shares are held. Such gain or loss will be
measured by the difference between the sale price of the shares and the market
price of the shares on the date of exercise.
The payment of the option exercise price by delivery of Common Stock of the
Company would constitute a non-taxable exchange by the optionee and would not
affect the ISO status of the Common Stock issued upon the exercise of the
option. However, if the Common Stock delivered in payment was previously
acquired pursuant to the exercise of an ISO and had not been held for the
requisite period (two years from the date of option grant and one year from the
date of exercise), the exchange would constitute a premature disposition for
purposes of the ISO holding period requirements. The tax consequences to the
Company resulting from the payment of the option exercise price by the delivery
of Common Stock will not be different from such consequences when payment is
made in cash as described above.
See Installment Payment Provisions above for a discussion of the tax
consequences of paying the exercise price of an option in non-interest-bearing
installments.
21
<PAGE> 24
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information with respect to beneficial
ownership of Common Stock as of October 1, 1998, by (a) the only shareholder
which, to the Company's knowledge, is the beneficial owner of more than 5% of
the outstanding Common Stock, (b) each current director of the Company, (c) each
Named Executive Officer included in the Summary Compensation Table above, and
(d) all current directors and executive officers of the Company as a group. The
percentages in the last column are based on the number of shares outstanding on
October 1, 1998. 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 executive 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>
T. Rowe Price Associates, Inc...................... 6,486,800(a) 5.2
100 E. Pratt Street
Baltimore, Maryland 21202
Abraham Appel...................................... 5,052,545(b) 4.1
John H.F. Haskell, Jr. ............................ 6,000 --
Ulric Haynes, Jr. ................................. 6,667 --
Jeremy Hayward-Surry............................... 204,599(c) .2
Eric Krasnoff...................................... 269,135(d) .2
Edwin W. Martin, Jr. .............................. 16,995 --
Katharine L. Plourde............................... 21,000 --
Chesterfield F. Seibert............................ 106,105 .1
Heywood Shelley.................................... 32,000(c) --
Alan B. Slifka..................................... 49,996 --
James D. Watson.................................... 53,633 --
Gerhard Weich...................................... 110,830 .1
Derek T.D. Williams................................ 95,760 .1
Samuel T. Wortham.................................. 96,268 .1
25 current directors and executive officers of the
Company as a group............................... 6,662,243(e) 5.4
</TABLE>
- ---------------
* Includes shares covered by stock options currently exercisable or
becoming exercisable within 60 days of October 1, 1998 as follows: Mr.
Appel -- 16,667 shares; Mr. Haynes -- 6,667 shares; Mr. Hayward-
Surry -- 175,000 shares; Mr. Krasnoff -- 205,000 shares; Dr. Martin -- 14,167
shares; Ms. Plourde -- 20,000 shares; Mr. Seibert -- 33,333 shares; Mr.
Shelley -- 20,000 shares; Mr. Slifka -- 20,000 shares; Dr. Watson -- 33,333
shares; Mr. Weich -- 65,000 shares; Mr. Williams -- 50,000 shares; Mr.
Wortham -- 65,000 shares; and the 25 current directors and executive officers of
the Company as a group -- 1,091,417 shares.
(a) The information as to the beneficial ownership of Common Stock by T.
Rowe Price Associates, Inc., an investment adviser registered under Section 203
of the Investment Advisers Act of 1940, was obtained from its statement on
Schedule 13G dated February 12, 1998, filed with the Securities and Exchange
Commission. Such statement discloses that as of December 31, 1997, T. Rowe Price
Associates, Inc. had sole voting power with respect to 939,597 shares of Common
Stock and sole dispositive power with respect to 6,486,800 shares of Common
Stock.
22
<PAGE> 25
(b) These shares are held of record by Canmont Investment Corp. which is
wholly-owned by Mr. Appel and members of his immediate family. Mr. Appel has
sole voting and dispositive power with respect to these shares.
(c) Does not include 60,000 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.
(d) 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.
(e) Includes 60,000 shares beneficially owned by a Trust under Will of
Maurice G. Hardy (see note (c) above), and 22,598 shares beneficially owned by
Mr. Krasnoff as trustee (see note (d) above).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 as amended (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 1, 1998 (and prior fiscal years except as disclosed in prior years' proxy
statements) were filed on time except that reports for option grants to three
directors of the Company -- to Dr. Watson in 1995 and to Mr. Appel and Dr.
Martin in 1996 -- were not timely filed but were filed subsequently.
INFORMATION CONCERNING INDEPENDENT AUDITORS
KPMG Peat Marwick LLP ("KPMG") acted as the Company's independent auditors
for the fiscal year ended August 1, 1998 and have been selected to act in that
capacity in fiscal 1999. It is anticipated that representatives of KPMG 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
1, 1998, 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 1, 1998 is being furnished concurrently herewith 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 1999 annual meeting of shareholders, any shareholder
proposal must be received by the Secretary of the Company prior to June 21,
1999. In addition, the form of proxy issued with the Company's 1999 proxy
statement will confer discretionary authority to vote for or against any
proposal made by a shareholder at the 1999 annual meeting and which is not
included in the Company's proxy statement. However, under the rules of the
Securities and Exchange Commission, such discretionary authority may not be
exercised if the shareholder proponent has given the Secretary of the Company
notice of such proposal prior to September 6, 1999 and certain other conditions
provided for in the Commission's rules have been satisfied.
October 19, 1998
23
<PAGE> 26
PALL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS -- NOVEMBER 19, 1998
The undersigned hereby appoints ERIC KRASNOFF, JEREMY HAYWARD-SURRY and HEYWOOD
SHELLEY, 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 19, 1998, at 2:00 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)
AND FOR APPROVAL OF THE ADOPTION OF THE 1998 EMPLOYEE STOCK OPTION PLAN. 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, SIGN, DATE AND RETURN PROMPTLY USING 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? DO YOU HAVE ANY COMMENTS?
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
<PAGE> 27
-
|X| PLEASE MARK VOTES
- AS IN THIS EXAMPLE
___________________________________________________________
PALL CORPORATION
___________________________________________________________
__
Mark box at right if address change or comment has | |
been noted on the reverse side of this card. | |
__
RECORD DATE SHARES:
____________
Please be sure to sign and date this Proxy. |Date |
____________________________________________|____________|
| |
| |
|______Shareholder sign here_________Co-owner sign here___|
DETACH CARD
______
|
|
1. Election of Directors:
For All With- For All
John H.F. Haskell, Jr. Nominees hold Except
Katharine L. Plourde __ __ __
Heywood Shelley | | | | | |
Alan B. Slifka | | | | | |
__ __ __
If you wish to withhold authority for any particular
nominee(s), mark the "For All Except" box and print the
name(s) of such nominee(s) below.
_______________________________________________________
For Against Abstain
__ __ __
2. Adoption of the 1998 Employee | | | | | |
Stock Option Plan | | | | | |
__ __ __
3. The transaction of such other business as may properly
come before the meeting or any adjournment thereof.
The signer(s) hereby revoke(s) all proxies heretofore given
by the signer(s) to vote at said meeting or any adjournment
thereof.
DETACH CARD
<PAGE> 28
Appendix A
(not a part of the Proxy Statement)
PALL CORPORATION
1998 EMPLOYEE STOCK OPTION PLAN
Pall Corporation (the "Company"), in order to retain and attract
personnel for positions of responsibility with the Company and its subsidiaries
and to provide additional incentive to such personnel by offering them an
opportunity to obtain a proprietary interest in the Company, hereby authorizes
options to be granted to "executive officers" and "eligible employees" (as those
terms are hereinafter defined) of the Company and its subsidiaries to purchase
shares of Common Stock of the Company ("shares") upon the terms and conditions
described below in this Pall Corporation 1998 Employee Stock Option Plan (the
"Plan").
1. Administration of the Plan. The Plan shall be administered, and the
options under the Plan shall be granted, by the Compensation Committee of the
Company as from time to time constituted (the "Committee"). The Committee shall
consist of three members of the Board of Directors who are appointed by the
Board and are (i) "Non-Employee Directors" as defined in Rule 16b-3 of the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934 (the "Exchange Act") or any successor regulation, and (ii)
"outside directors" as defined in the regulations of the Internal Revenue
Service under Section 162(m) of the Internal Revenue Code of 1986 as amended
(the "Code"). The members of the Committee shall serve, without compensation, at
the pleasure of the Board. Subject to the provisions of the Plan, the Committee
shall be authorized to interpret the Plan and the options granted under the
Plan, to establish, amend and rescind any rules and regulations relating to the
Plan, to determine the terms and provisions of the options described in Section
4 hereof, and to make all other decisions necessary or advisable for the
administration of the Plan. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option in the
manner and to the extent the Committee deems desirable to carry it into effect.
Any decision of the Committee in the administration of the Plan, as described
herein, shall be final and conclusive. The Committee may act only by a majority
of its members in office, except that the members thereof may authorize any one
or more of their number or any officer of the Company to execute and deliver
documents on behalf of the Committee. No member of the Committee shall be liable
for anything done or omitted to be done by him or her or by any other member of
the Committee in connection with the Plan, except for his or her own willful
misconduct or as expressly provided by statute.
2. Number of Shares Subject to Option. The aggregate number of shares
which may be issued under the Plan is four million (4,000,000) shares of Common
Stock of the Company. Such shares may be either authorized but unissued or
reacquired shares. If after July 7, 1998 the Company effects one or more stock
splits, stock dividends, combinations, exchanges of shares or similar capital
adjustments, the number and kind of shares with respect to which options may be
granted under the Plan, the number of shares which may be granted to any
individual as limited by Section 3 hereof, the number and kind of shares subject
to each outstanding option and
<PAGE> 29
the option price per share under each such option shall be proportionately and
appropriately adjusted by the Committee. If any option granted under the Plan,
or any portion thereof, shall expire or terminate for any reason without having
been exercised in full, the shares with respect to which it has not been
exercised shall be available for further options under the Plan.
With respect to incentive stock options granted under this Plan and
under all stock option plans of the Company and its parent and subsidiary
corporations, the aggregate fair market value (determined at the time the option
is granted) of the stock with respect to which such incentive stock options are
exercisable for the first time by the optionee during any calendar year shall
not exceed $100,000.
3. Eligible Optionees. Options may be granted only (a) to executive
officers of the Company as that term is defined in Rule 405 of the Securities
and Exchange Commission under the Securities Act of 1933 as amended (the
"Securities Act") or successor regulation ("executive officers"), and (b) to
other employees (including officers) of the Company and of such other
corporations as are subsidiary corporations of the Company at the time of grant
who, in the judgment of the Committee, are in a position to contribute
significantly to the Company's success ("eligible employees"). The Committee is
hereby given the authority to select the particular executive officers and
eligible employees to whom options under the Plan are to be granted, to
determine the number of shares to be optioned to each such executive officer and
eligible employee (except that options may not be granted under this Plan to any
individual during any period of 24 consecutive months on more than an aggregate
of 300,000 shares, subject to adjustment in accordance with the third sentence
of Section 2 hereof) and to grant one or more options under the Plan to any such
executive officer or eligible employee from time to time, irrespective of
whether one or more options have been granted to such individual under previous
stock option plans of the Company. In exercising its authority under the
foregoing provisions of this paragraph, each member of the Committee, as
authorized by Section 717(a) of the New York Business Corporation Law, shall be
entitled to rely on information, opinions, reports and statements prepared or
presented by (i) one or more officers of the Company or any subsidiary of the
Company whom the member believes to be reliable and competent in the matters
presented or (ii) counsel, public accountants or other persons as to matters
which the member believes to be within such person's professional or expert
competence. Nothing in the Plan or in any option granted under the Plan shall
confer any rights on any officer or other employee to continue in the employ of
the Company or any of its subsidiary corporations or shall interfere in any way
with the right of the Company or any of its subsidiary corporations, as the case
may be, to terminate his or her employment at any time.
4. Terms of Options. Options granted under the Plan may be "incentive
stock options" meeting the requirements for such options prescribed by Section
422 of the Code, or may be options not so qualifying as incentive stock options
("nonqualified options"). The determination as to whether or not an option
granted under the Plan is intended to be an incentive stock option shall be made
by the Committee.
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Each option granted under the Plan shall comply with the following terms
and conditions:
(a) The option price shall be the fair market value of the shares
subject to the option at the time the option is granted. Fair market value
shall be as determined in good faith by the Committee. In no event shall
the option price be less than the par value of the shares.
(b) The option shall not be transferable by the optionee otherwise
than by will or the laws of descent and distribution, and shall be
exercisable during his or her lifetime only by him or her except that, at
the discretion of the Committee, a nonqualified option may provide that
the option is transferable to any "family member" of the optionee, as the
term "family member" is defined in the General Instructions to Form S-8
promulgated by the Commission under the Securities Act.
(c) An option shall not be exercisable
(i) after the expiration of ten years from the date it is
granted (the "date of grant"); and
(ii) unless counsel for the Company shall be satisfied that
the issuance of shares upon exercise will be in
compliance with the Securities Act and applicable state
laws; and
(iii) unless written notice of exercise, in form satisfactory
to the Committee, is given to the Company; and
(iv) unless the optionee has been, at all times during the
period beginning with the date of grant of an option
and ending on the date of exercise thereof, an employee
of the Company or of one of its subsidiary corporations,
or of a corporation or a parent or subsidiary of a
corporation assuming the option in a transaction to
which Section 424(a) of the Code applies, except that
(A) if the optionee shall cease to be an employee by
reason of his or her disability or by reason of
his or her retirement under an approved retirement
program of the Company or a subsidiary thereof
while holding an option which has not expired and
has not been fully exercised, the option shall
remain in full force and effect and may be
exercised in accordance with its terms until it
expires by its terms by the passage of time or is
canceled or terminated in accordance with its
terms (it being understood, however, that
incentive stock option federal income tax
treatment will not be
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<PAGE> 31
accorded with respect to an option exercise made
more than three months after the optionee ceased
to be an employee by reason of such retirement or
one year after he ceased to be an employee by
reason of disability within the meaning of Section
22(e)(3) of the Code or successor section); and
(B) if any person to whom an option has been granted
shall die holding an option which has not been
fully exercised, his or her estate or any person
who acquired the right to exercise the option by
bequest or inheritance or by reason of the death
of such person may, at any time within one year
after the date of such death (but in no event
after the option has expired by its terms by the
passage of time or has been canceled or terminated
in accordance with its terms) exercise the option
with respect to any shares as to which the
decedent could have exercised the option at the
time of his or her death; and
(v) unless the person exercising the option makes payment to
the Company in full in United States dollars by cash or
check of such amount as is sufficient to satisfy the
Company's obligation, if any, to withhold federal, state
and local taxes by reason of such exercise or makes such
other arrangement satisfactory to the Committee as will
enable the Company to satisfy such obligation.
(d) Each option granted under the Plan shall be evidenced by an
instrument in such form as the Committee shall prescribe from time to time
in accordance with the Plan and all applicable laws and regulations and
shall be subject to such terms and conditions relating to the time at
which the option may first be exercised and the number of shares with
respect to which it may thereafter be exercised from time to time (for
example, in cumulative annual or other periodic installments), and to such
additional terms and conditions not inconsistent with the Plan or
applicable laws and regulations, as the Committee may in its discretion
determine. Each nonqualified option granted under the Plan shall state
that it is not to be treated as an incentive stock option. Each option
granted under the Plan shall require that the person exercising the option
shall, at the time notice of exercise is given pursuant to Section
4(c)(iii) hereof, make full payment in United States dollars by cash or
check of the option exercise price of the shares being acquired except
that, at the election of the Committee, an option may provide that, at the
time notice of exercise is given pursuant to Section 4(c)(iii) hereof, the
person exercising the option, at his or her election, shall either make
full payment in United States dollars by cash or check of the option
exercise price of the shares being acquired (sometimes hereafter called
the "purchase price") or agree to pay such purchase price on an
installment payment basis on the following terms and conditions:
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<PAGE> 32
(i) The installments payable shall be the minimum amounts
required to be paid by Section 221.4(b) of Regulation U
of the Board of Governors of the Federal Reserve System
as in effect as of the date of exercise of the option
(hereinafter "Regulation U") or such greater installment
payments as the Committee may prescribe.
(ii) The person exercising the option shall not be required
to pay interest to the Company on the unpaid balance of
the purchase price.
(iii) The unpaid balance of the purchase price shall be
immediately payable in full upon demand made by the
Company to the optionee (or to the successor owner of
the stock if the optionee has died).
(iv) The shares for which the option is exercised shall be
issued to and registered in the name of the person
exercising the option but shall be endorsed by the
person exercising the option in blank (either on the
certificate or on a separate stock power) and held by
the Company as collateral security for the unpaid
balance of the purchase price. The person exercising the
option shall not be permitted to sell, withdraw, pledge
or otherwise dispose of all or any part of such
collateral except at a time when such sale, withdrawal,
pledge or other disposition is permitted by Regulation
U. Subject to compliance with the immediately preceding
sentence, the person exercising the option shall have
the right at any time and from time to time to withdraw
part or all of the shares from the collateral so held by
the Company upon payment of the unpaid balance of the
purchase price of the shares withdrawn. For purposes of
determining such unpaid balance, each payment made
otherwise than to obtain withdrawal of shares under the
immediately preceding sentence shall be applied pro
rata to all shares which at the time of such payment are
held by the Company as collateral for the payment of the
purchase price by the person exercising the option. Upon
default by the person exercising the option in the
making of any payment due under the foregoing provisions
of this subparagraph (d), the Company shall have with
respect to the collateral all of the rights of a secured
party under the Uniform Commercial Code as in effect in
the State of New York.
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<PAGE> 33
(E) The person exercising an option shall be entitled,
from the date of exercise of such option, to all
of the rights of a shareholder, including the
right to vote the shares and to receive and retain
all dividends paid thereon.
(e) The Committee is authorized in its discretion and with
the consent of the optionee to make amendments, not in conflict with
the Plan or any applicable law or regulation, in the terms of any
option granted under the Plan.
(f) In addition to the methods of payment of the option
exercise price authorized by subparagraph (d) next above, the option
may provide that the person exercising the option, at his or her
election, shall have the right to make payment at the time of
exercise by delivering to the Company shares of Common Stock of the
Company having a total fair market value equal to the option
exercise price, or a combination of cash and such shares having a
total fair market value equal to the option exercise price,
provided, however, that all shares so delivered must have been
beneficially owned by the person exercising the option for at least
six months prior to the option exercise date and, upon request, the
Company shall be given satisfactory proof of such beneficial
ownership. For the purposes of the preceding sentence, the fair
market value of a share of Common Stock shall be the mean between
the high and low sale prices of the Common Stock on the trading day
preceding the option exercise date as such prices are reported by
and for the New York Stock Exchange, Inc. Composite Transactions.
Certificates representing shares delivered to the Company pursuant
to this paragraph shall be duly endorsed or accompanied by
appropriate stock powers, in either case with signature guaranteed
if so required by the Company.
5. Change in Control.
(a) In the event of a "Change in Control" of the Company (as
defined in paragraph (b) below), options outstanding under the Plan
on the day preceding the date on which the Change in Control occurs
(x) shall become exercisable in full on the date of the Change in
Control (i.e., to the extent that any such option or portion thereof
is not yet exercisable, the right to exercise such option in full
shall be accelerated) and (y) shall remain fully exercisable,
irrespective of whether the optionee ceases to be an employee of the
Company or a subsidiary, until the date on which the option would
otherwise expire by its terms by the passage of time.
(b) A "Change in Control" for purposes of the Plan shall
mean the occurrence of any of the following:
(i) the "Distribution Date" as defined in Section 3 of
the Rights Agreement dated as of November 17, 1989
between the Company
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<PAGE> 34
and United States Trust Company of New York, as
Rights Agent as the same may have been amended or
extended to the time in question or in any
successor agreement (the "Rights Agreement"); or
(ii) any event described in Section 11(a)(ii)(B) of the
Rights Agreement; or
(iii) any event described in Section 13 of the Rights
Agreement, or
(iv) the date on which the number of duly elected and
qualified directors of the Company who were not
either elected by the Company's Board of
Directors or nominated by the Board of Directors
or its Nominating Committee for election by the
shareholders shall equal or exceed one-third of
the total number of directors of the Company as
fixed by its by-laws;
provided, however, that no Change in Control shall be deemed to have
occurred, and no rights arising upon a Change in Control pursuant to
paragraph (a) of this Section 5 shall exist, to the extent that the Board
of Directors of the Company so determines by resolution adopted prior to
the Change in Control. Any such resolution may be rescinded or
countermanded by the Board at any time. If the Board so determines by such
resolution, and such resolution has not been rescinded or countermanded as
permitted by the preceding sentence, the Board shall have the right to
authorize (I) the cancellation and termination of all options then
outstanding as of a date to be fixed by the Board, provided, however, that
not less than 30 days written notice of the date so fixed shall be given
to each optionee, and each optionee shall have the right during such
period (irrespective of whether the optionee ceases to be an employee of
the Company or a subsidiary during such period) to exercise his or her
option as to all or any part of the shares covered thereby, including any
shares as to which the option has not yet become exercisable, or (II) the
substitution for each outstanding option of a new option meeting the
requirements of Section 424(a) of the Code.
6. Interpretation. The words "employee", "own", "outstanding" and
"disposition", the term "subsidiary corporation" and any other words or terms
used in the Plan or in the options granted under the Plan which are defined or
used in Section 422 or 424 of the Code shall, unless the context clearly
requires otherwise, have the meanings assigned to them therein, irrespective of
whether or not such options are incentive stock options.
7. Reports and Returns. The appropriate officers of the Company shall
cause to be filed, or furnished to all employees to whom options have been
granted, any reports, returns or other information regarding the options granted
hereunder or any shares issued pursuant to the exercise thereof as may be
required by the Code, the Securities Act, the Exchange Act, the Employee
Retirement Income Security Act of 1974, Regulation U or any other applicable
statute,
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<PAGE> 35
rule or regulation, as any such statute, rule or regulation has been amended to
the time in question.
8. Amendment. The Plan may be amended at any time and from time to time
by the Board of Directors of the Company, but no amendment increasing the
aggregate number of shares which may be issued under options granted pursuant to
the Plan or affecting this sentence shall be effective unless the same be
approved by the shareholders of the Company not later than the date 12 months
after the Board adopts the amendment. No amendment of the Plan shall alter or
impair any of the rights or obligations of any person, without his or her
consent, under any option theretofore granted under the Plan.
9. Termination. The Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) upon the adoption of a resolution of the Board of Directors of
the Company terminating the Plan; or
(b) July 6, 2008.
No termination of the Plan shall alter or impair any of the rights or
obligations of any person, without his or her consent, under any option
theretofore granted under the Plan.
10. Shareholder Approval. The Plan shall be submitted to the shareholders
of the Company for their approval before July 7, 1999. No option granted
hereunder shall be exercisable until such approval has been obtained. If the
shareholders do not approve the Plan before July 7, 1999, the Plan shall
terminate and any options theretofore granted hereunder shall thereupon be void
without further action of the Company. The shareholders shall be deemed to have
approved the Plan only if it is approved at a meeting of the shareholders duly
held before July 7, 1999, by vote taken in the manner required by the laws of
the State of New York.
[Note: This Plan was adopted by the
Board of Directors on July 7, 1998
and is to be submitted for approval by
shareholders at the annual meeting
on November 19, 1998]
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