<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended January 31, 1998
Commission File No. 1-4311
PALL CORPORATION
Incorporated in New York State I.R.S. Employer Identifi-
cation # 11-1541330
2200 Northern Boulevard, East Hills, N.Y. 11548
Telephone Number (516) 484-5400
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
At March 9, 1998, 124,090,501 shares of common stock of the Registrant were
outstanding.
<PAGE> 2
PALL CORPORATION
INDEX TO FORM 10-Q
-----------------------------------
<TABLE>
<S> <C>
COVER SHEET 1
INDEX TO FORM 10-Q 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets - January 31, 1998
and August 2, 1997 3
Condensed consolidated statements of earnings -
three months and six months ended January 31, 1998 4
and February 1, 1997.
Condensed consolidated statements of cash flows -
six months ended January 31, 1998 and February 1, 1997 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition and
results of operations 8
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 12
Item 6. Exhibits and reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands)
January 31, August 2,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,814 $ 17,972
Short-term investments 57,700 37,500
Accounts receivable, net of allowances
for doubtful accounts of $7,343
and $6,602, respectively 246,439 266,604
Inventories - Note 2 207,094 198,080
Taxes receivable 40,774 40,262
Deferred income taxes 18,750 20,971
Other 40,447 25,215
----------- -----------
Total Current Assets 622,018 606,604
Property, plant and equipment, net of
accumulated depreciation of $371,689
and $345,493, respectively 507,516 504,046
Other assets 177,818 154,974
----------- -----------
Total Assets $ 1,307,352 $ 1,265,624
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 162,360 $ 123,974
Accounts payable 58,678 53,200
Accrued liabilities:
Salaries and commissions 25,694 34,239
Other 57,114 57,319
----------- -----------
82,808 91,558
Income taxes 27,505 27,620
Current portion of long-term debt 12,452 4,677
Dividends payable 19,227 --
----------- -----------
Total Current Liabilities 363,030 301,029
Long-term debt, less current portion 105,914 62,126
Deferred income taxes 30,314 27,678
Other non-current liabilities 51,179 49,958
----------- -----------
Total Liabilities 550,437 440,791
----------- -----------
Stockholders' Equity:
Common stock, $.10 par value 12,796 12,796
Capital in excess of par value 92,893 92,893
Retained earnings 758,219 749,923
Treasury stock, at cost (85,374) (12,837)
Foreign currency translation (9,319) (4,722)
Minimum pension liability (3,916) (4,348)
Stock option loans (8,040) (8,820)
Cumulative unrealized investment losses (344) (52)
----------- -----------
Total Stockholders' Equity 756,915 824,833
----------- -----------
Total Liabilities and
Stockholders' Equity $ 1,307,352 $ 1,265,624
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
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<TABLE>
<CAPTION>
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, (in thousands,
except per share data) except per share data)
Three Months Ended Six Months Ended
------------------------------- -------------------------------
Jan.31, Feb. 1, Jan.31, Feb. 1,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 259,004 $ 260,759 $ 496,355 $ 496,550
Costs and expenses:
Cost of sales 115,384 109,627 220,995 207,875
Selling, general and
administrative expenses 97,626 96,228 188,613 190,178
Research and development 14,565 12,670 28,755 25,808
Other (income) expenses, net (7,778) -- (7,778) 3,911
Interest expense, net 1,728 737 2,716 1,393
--------- --------- --------- ---------
Total costs and expenses 221,525 219,262 433,301 429,165
Earnings before income taxes 37,479 41,497 63,054 67,385
Provisions for income taxes 9,933 12,529 17,094 21,133
--------- --------- --------- ---------
Net earnings $ 27,546 $ 28,968 $ 45,960 $ 46,252
========= ========= ========= =========
Earnings per share
Basic $ 0.22 $ 0.23 $ 0.37 $ 0.37
Diluted $ 0.22 $ 0.23 $ 0.36 $ 0.36
Dividends declared per share $ 0.155 $ 0.14 $ 0.295 $ 0.2625
Average number of shares
outstanding
Basic 124,714 125,974 125,861 125,711
Diluted 125,461 127,288 126,561 127,138
See accompanying Notes to Condensed Consolidated Financial Statements.
4
</TABLE>
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<TABLE>
<CAPTION>
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
-----------------------------
Jan. 31, Feb. 1,
1998 1997
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 66,070 $ 34,604
INVESTING ACTIVITIES:
Investments and licenses (19,162) (2,000)
Capital expenditures (37,058) (46,815)
Disposals of fixed assets 796 784
Short-term investments (20,200) (15,550)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (75,624) (63,581)
FINANCING ACTIVITIES:
Net short-term borrowings 37,047 20,528
Long-term borrowings 60,576 9,284
Payments on long-term debt (4,380) (2,626)
Net proceeds from exercise of stock options 2,605 14,838
Purchase of treasury stock (74,999) --
Sale of treasury stock -- 3,375
Dividends paid (17,801) (28,237)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,048 17,162
-------- --------
CASH FLOW FOR PERIOD (6,506) (11,815)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,972 44,118
EFFECT OF EXCHANGE RATE CHANGES ON CASH (652) (915)
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,814 $ 31,388
======== ========
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 5,156 $ 4,384
Income taxes paid (net of refunds) 12,133 30,141
See accompanying Notes to Condensed Consolidated Financial Statements.
5
</TABLE>
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PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein is unaudited. However, such
information reflects all material adjustments which are, in the opinion of
management, necessary to present fairly (i) the financial position of the
Company at January 31, 1998 and August 2, 1997, (ii) the results of its
operations for the three months and six months periods ended January 31, 1998
and February 1, 1997, and (iii) its cash flows for the six months ended January
31, 1998 and February 1, 1997. These financial statements should be read in
conjunction with the financial statements and notes set forth in the Company's
Annual Report and Form 10-K for the fiscal year ended August 2, 1997.
NOTE 2 - INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
(in thousands)
Jan. 31, Aug. 2,
1997 1997
----------------------------
<S> <C> <C>
Raw materials and components $ 82,475 $ 79,545
Work-in-process 29,900 22,065
Finished goods 94,719 96,470
----------------------------
Total inventory $207,094 $198,080
============================
</TABLE>
NOTE 3 - NEW ACCOUNTING STANDARD
The Company adopted SFAS No. 128, Earnings per Share in the current quarter.
This statement mandates dual presentation of basic and diluted earnings per
share. Dilutive earnings per share considers the potential effect of dilution on
earnings assuming exercise of all stock options that meet certain criteria.
Basic and dilutive earnings per share are the same in the current quarter and
for the comparable quarter last year. For the six months, calculation of
dilutive earnings per share resulted in one cent dilution in both periods.
6
<PAGE> 7
NOTE 4 - OTHER MATTERS
On October 6, 1997, the Company announced a stock buy-back program of up to $150
million. The repurchased shares will be available for general corporate
purposes, including the exercise of stock options. Through the end of the second
quarter, the Company reacquired 3.4 million of its shares for $75 million.
Also on October 6, 1997, the Company announced that it had signed an agreement
to purchase all of the outstanding capital stock of the Swiss holding company
Argentaurum AG, including its Rochem subsidiaries. The Company completed its
acquisition in January 1998. Through the end of the current quarter the Company
has made an advance payment of $13 million against the expected total purchase
price of approximately $60 million. The final amount will be determined and paid
in April 1998 upon completion of an audit by Rochem's external auditors. The
Company will account for this transaction under the purchase method of
accounting and expects to take a one-time charge in the third quarter for
acquired in-process research and development. The effect of including Rochem's
sales and earnings for the month of January did not have a material impact on
the current quarter's results of operations.
On October 27, 1997, the Company entered into a long-term debt agreement to
borrow $ 40 million at 6.31%. Payments are due in installments through the year
2002. Proceeds from the borrowings were used principally for the stock buy-back
as discussed above.
On October 6, 1997, the Company announced a stock buy-back program of up to
$150 million. The repurchased shares will be available for general corporate
purposes, including the exercise of stock options. Through the end of the
second quarter, the Company reacquired 3.4 million of its shares for $75
million.
Also on October 6, 1997, the Company announced that it had signed an agreement
to purchase all of the outstanding capital stock of the Swiss holding company
Argentaurum AG, including its Rochem subsidiaries. The Company completed its
acquisition in January 1998. Through the end of the current quarter the Company
has made an advance payment of $13 million against the expected total purchase
price of approximately $60 million. The final amount will be determined and
paid in April 1998 upon completion of an audit by Rochem's external auditors.
The Company will account for this transaction under the pruchase method of
accounting and expects to take a one-time charge in the third quarter for
acquired in-process research and development. The effect of including Rochem's
sales and earnings for the month of January did not have a material impact on
the current quarter's results of operations.
On October 27, 1997, the Company entered into a long-term debt agreement to
borrow $40 million at 6.31%. Payments are due in installments through the year
2002. Proceeds from the borrowings were used principally for the stock buy-back
as discussed above.
The second quarter of fiscal 1998 includes one-time income of $13.5 million
from Micron Separations Inc., which was found to have infringed the Company's
Nylon membrane patent. The one-time income from the patent litigation
settlement is reported net of legal and professional fees related to the patent
litigation; a settlement, including costs, of $2.5 million with the Department
of Defense concerning a long standing disagreement over a sale dating back
nearly 10 years; and a write-off of $2.2 million of inventory and equipment due
to the acquisition of new technology.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
I. Results of Operations
Sales for the quarter were $259.0 million, a decrease of 1/2%, compared to
$260.8 million last year. Excluding the adverse effects of exchange rates, sales
in local currency increased by 4 1/2%. Sales for the six months were flat and in
local currency were up 5%. Price increases had no effect on sales in the second
quarter and the first half of the year. A detailed summary of sales by market
and geographic region is given below.
Sales by market
<TABLE>
<CAPTION>
SECOND QUARTER ENDED EXCHANGE % CHANGE
JAN. 31, FEB. 1, % RATE IN LOCAL
1998 1997 CHANGE DIFFERENCE CURRENCY
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Patient Protection $ 62,638 $ 63,245 (1) $ (3,100) 4
Other 69,218 73,596 (6) (4,047) (1/2)
------- ------- --------
Total Health Care 131,856 136,841 (3 1/2) (7,147) 1 1/2
Microelectronics 22,996 22,809 1 (1,796) 8 1/2
Other 40,577 41,146 (1 1/2) (2,209) 4
------- ------- --------
Total
Fluid Processing 63,573 63,955 (1/2) (4,005) 5 1/2
Aeropower 63,575 59,963 6 (2,862) 11
------- ------- -------
TOTAL $259,004 $260,759 (1/2) $(14,014) 4 1/2
------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED EXCHANGE % CHANGE
JAN. 31, FEB. 1, % RATE IN LOCAL
1998 1997 CHANGE DIFFERENCE CURRENCY
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Patient Protection $117,182 $121,493 (3 1/2) $ (5,661) 1
Other 136,299 142,297 (4) (7,433) 1
------- ------- --------
Total Health Care 253,481 263,790 (4) (13,094) 1
Microelectronics 45,247 45,248 - (3,232) 7
Other 77,903 77,301 1 (3,683) 5 1/2
------- ------- --------
Total
Fluid Processing 123,150 122,549 1/2 (6,915) 6
Aeropower 119,724 110,211 8 1/2 (5,097) 13 1/2
------- ------- -------
TOTAL $496,355 $496,550 - $(25,106) 5
------- ------- --------
</TABLE>
8
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Sales by geographic region
<TABLE>
<CAPTION>
SECOND QUARTER ENDED EXCHANGE % CHANGE
JAN. 31, FEB. 1, % RATE IN LOCAL
1998 1997 CHANGE DIFFERENCE CURRENCY
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asia $ 42,415 $ 48,240 (12) $( 5,517) (1/2)
Europe 90,866 92,980 (2 1/2) ( 8,356) 6 1/2
Western
Hemisphere 125,723 119,539 5 (141) 5 1/2
------- ------- -------
TOTAL $259,004 $260,759 (1/2) $(14,014) 4 1/2
------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED EXCHANGE % CHANGE
JAN. 31, FEB. 1, % RATE IN LOCAL
1998 1997 CHANGE DIFFERENCE CURRENCY
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asia $ 87,536 $ 94,650 (7 1/2) $( 9,240) 2 1/2
Europe 171,193 176,437 (3) (15,663) 6
Western
Hemisphere 237,626 225,463 5 1/2 (203) 5 1/2
------- ------- -------
TOTAL $496,355 $496,550 - $(25,106) 5
------- ------- --------
</TABLE>
For the quarter, Health Care sales were up 1 1/2% in local currency. Within this
market, the Patient Protection segment grew 4%, led by Europe which grew 7% and
the US which grew 6%, while Asia declined by 7%. The growth in Europe was helped
by additional countries adopting national blood filtration policies. The Western
Hemisphere amounts benefited from the adoption of 100% platelet filtration in
Canada. Worldwide, sales of blood filters increased 2% with sales to blood
centers up 8%, however, sales to hospitals decreased by 2%.
Sales within the Pharmaceuticals segment increased by 3%. Sales in the Western
Hemisphere and Europe increased by 7% and 5%, respectively, while sales in Asia
declined by 15%.
For the quarter, Aeropower sales increased by 11% led by the Aerospace segment
with 13% growth and Industrial Hydraulics 9%. Within the Aerospace segment
commercial sales increased by 25%, while military sales were flat.
Sales in the Fluid Processing market, excluding Microelectronics, increased by
4% led by Asia with 24% growth. Sales in the US grew 4% due mainly to a 78%
increase in Stratapac filter sales. Sales in Europe declined by 12% due to
weakness in the Power Generation market, particularly in the United Kingdom.
Sales in the Microelectronics
9
<PAGE> 10
segment increased by 8 1/2%, with increases of 13% in the US, 8% in Europe and
6% in Asia.
Cost of sales as a percentage of sales increased by about 2.5% for the quarter
and six months mainly due to the effects of currency. Net interest expense is
higher for the quarter and the six months on a comparable basis as the Company's
average debt, net of cash and short-term investments was also higher for the
same comparable periods. Excluding special items, pretax margins for the quarter
and six months declined by 4.4% and 3.2%, respectively, partly due to the
adverse effects of exchange rates and the increase in total costs and expenses.
During the quarter the Company recorded one-time income of $13.5 million from
the patent litigation settlement with Micron Separations, Inc. Offset against
this income were related legal and professional fees; a settlement, including
costs, of $2.5 million with the Department of Defense concerning a long standing
disagreement over a sale dating back nearly 10 years; and a write-off of $2.2
million of inventory and equipment due to the acquisition of new technology.
The underlying tax rate for the six months was 26%. The reduction in the tax
rate is due principally to the Company's efforts to move production into
manufacturing facilities in Ireland and Puerto Rico as well as proportionately
lower profits in high tax rate countries.
Earnings per share on a diluted basis for the quarter and six months were 22
cents and 36 cents, respectively, compared to 23 cents and 36 cents for the same
periods last year.
II. Liquidity and Capital Resources
Net cash provided by operating activities increased by about $32 million, mainly
as a result of increases in accounts payable and accruals and a decrease in the
inventory levels. At the end of the quarter approximately $11 million of
accruals related to the environmental matters are reflected on the balance
sheet.
For the six months, capital expenditures and depreciation and amortization
expenses were $37 million and $35 million, respectively. The Company also spent
$19 million for investments and licenses which included a $13 million advance
payment for the acquisition of the Swiss holding company Argentaurum AG,
including its Rochem subsidiaries. The Company expects the total purchase price
for this acquisition will be approximately $60 million. The final amount will be
determined and paid in April 1998 upon completion of an audit by Rochem's
external auditors. In connection with this acquisition the Company expects to
take a one-time charge in the third quarter for acquired in-process research and
development.
On October 6, 1997, the Company announced a stock buy-back program of up to $150
million. The repurchased shares will be available for general corporate
purposes,
10
<PAGE> 11
including the exercise of stock options. Through the end of the second quarter,
the Company reacquired 3.4 million of its shares for $75 million.
Debt and short-term borrowings, net of cash and short-term investments increased
by $77 million from the beginning of the year for the reasons mentioned above.
Proceeds were principally used for the stock buy-back mentioned above.
Compliance With Year 2000
The Company has been assessing the impact that the Year 2000 issue will have on
its computer systems since 1996. In response to these assessments, which are
ongoing, the Company has developed a plan to inventory critical systems and
develop solutions to those systems that are found to have date-related
deficiencies. Project plans call for the completion of the solution
implementation phase and testing of those solutions prior to any anticipated
impact on our systems. The Company is also surveying critical suppliers and
customers to determine the status of their Year 2000 compliance programs. Based
on the work to date, and assuming that the project plans, which continue to
evolve, can be implemented as planned, the Company believes that future costs
relating to the Year 2000 issue will not have a material impact on its
consolidated financial position, results of operations or cash flows.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders of the Company was held November 20,
1997. Proxies for the meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934.
(b) Not required.
(c) The election of four directors, each to serve for a three year term,
was voted upon at the meeting. Holders of 110,032,795 shares of common
stock voted either in person or by proxy. The number of votes cast for
each nominee were as indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Eric Krasnoff
For: 108,205,484 Withheld: 1,827,311
David B. Pall
For: 108,252,822 Withheld: 1,779,973
Chesterfield F. Seibert
For: 108,190,214 Withheld: 1,842,581
James D. Watson
For: 108,244,303 Withheld: 1,788,492
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See the Exhibit Index on page 14.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three months
ended January 31, 1998.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PALL CORPORATION
March 13, 1998 /s/ John Adamovich, Jr.
- ------------------ ------------------------------------
Date John Adamovich, Jr.
Chief Financial Officer
and Treasurer
March 13, 1998 /s/ Viraj J. Patel
- ------------------ ------------------------------------
Date Viraj J. Patel
Chief Corporate
Accountant
13
<PAGE> 14
Exhibit Index
------------------
Exhibit
Number Description of Exhibit
- ------- ----------------------
2 * Agreement and Plan of Reorganization and Merger
made on October 27, 1996, by and among the
Registrant, Pall Acquisition Corporation and
Gelman Sciences Inc., filed as Exhibit A to The
Proxy Statement - Prospectus constituting Part I of
the Registrant's Registration Statement on
Form S-4 (Registration No. 333-17417).
3 ( i )* Restated Certificate of Incorporation of the Registrant
as amended through November 23, 1993, filed as
Exhibit 3 (i) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 30, 1994.
3 (ii )* By-Laws of the Registrant as amended on November
21, 1995, filed as Exhibit 3 (ii) to the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ended October 28, 1995.
10 (a) Employment Agreement made as of January 12, 1998
between the Registrant and Steven Chisolm.
27 Financial Data Schedule (only filed electronically).
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement.
14
<PAGE> 1
[ELECTED VICE PRESIDENT FORM]
[SPLIT BONUS, 1/98]
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 12, 1998 between PALL CORPORATION, a New
York corporation (the "Company") and Steven Chisolm ("Executive").
WHEREAS, the parties desire to terminate, as of January 11, 1998, any
employment agreement between them then in effect, and to enter into a new
employment agreement, on the terms and conditions hereinafter set forth, for a
term beginning January 12, 1998.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT AND TERM
The Company hereby employs Executive, and Executive hereby agrees to
serve, as an executive employee of the Company with the duties set forth in
Section 2, for a term (hereinafter called the "Term Of Employment") beginning
January 12, 1998 and ending, unless sooner terminated under Section 4, on the
effective date specified in a notice of termination given by either party to the
other except that such effective date shall not be earlier than the second
anniversary of the date on which such notice is given.
<PAGE> 2
SECTION 2. DUTIES
(a) Executive agrees that during the Term of Employment he will
hold such offices or positions with the Company, and perform
such duties and assignments relating to the business of the
Company, as the Board of Directors or the Chief Executive
Officer of the Company shall direct except that Executive
shall not be required to hold any office or position or to
perform any duties or assignment inconsistent with his
experience and qualifications.
(b) If the Board of Directors or the Chief Executive Officer of
the Company so directs, Executive shall serve as an officer of
one or more subsidiaries of the Company (provided that the
duties of such office are not inconsistent with Executive's
experience and qualifications) and part or all of the
compensation to which Executive is entitled hereunder may be
paid by such subsidiary or subsidiaries. However, such
employment and/or payment of Executive by a subsidiary or
subsidiaries shall not relieve the Company from any of its
obligations under this Agreement except to the extent of
payments actually made to Executive by a subsidiary.
(c) During the Term of Employment Executive shall,
2
<PAGE> 3
except during customary vacation periods and periods of
illness, devote substantially all of his business time and
attention to the performance of his duties hereunder and to
the business and affairs of the Company and its subsidiaries
and to promoting the best interests of the Company and its
subsidiaries and he shall not, either during or outside of
such normal business hours, engage in any activity inimical to
such best interests.
SECTION 3. COMPENSATION DURING TERM OF EMPLOYMENT
(a) Base Salary. With respect to the period beginning January 12,
1998 and ending at the end of the Term of Employment, the
Company shall pay to Executive base compensation (in addition
to the compensation provided for elsewhere in this Agreement)
at such rate as the Chief Executive Officer may determine (the
amount so determined by the Chief Executive Officer being
herein called the "Base Salary") but at not less than the rate
of $143,000 per annum (hereinafter called the "Original Base
Salary") adjusted for each Contract Year (as hereinafter
defined) beginning with the Contract Year which starts August
1, 1998, as follows: The term "Contract Year" as used herein
means the period from August 1 of each year through July 31 of
the
3
<PAGE> 4
following year. For each Contract Year during the Term of
Employment beginning with the Contract Year which starts
August 1, 1998, the minimum compensation payable to Executive
under this Section 3(a) (hereinafter called the "Minimum Base
Salary") shall be determined by increasing (or decreasing) the
Original Base Salary by the percentage increase (or decrease)
of the Consumer Price Index (as hereinafter defined) for the
month of June immediately preceding the start of the Contract
Year in question over (or below) the Consumer Price Index for
June 1997. The term "Consumer Price Index" as herein used
means the "Consumer Price Index for all Urban Consumers"
compiled and published by the Bureau of Labor Statistics of
the United States Department of Labor for "New York - Northern
New Jersey - Long Island, NY-NJ-CT". To illustrate the
operation of the foregoing provisions of this Section 3(a):
Executive's Base Salary for the Contract Year August 1, 1998
through July 31, 1999 shall be not less than the Original Base
Salary adjusted by the percentage increase (or decrease) of
the Consumer Price Index for June 1998 over (or below) said
Index for June 1997. Further adjustment in the Minimum Base
Salary shall be made for each ensuing Contract Year, in each
case (i)
4
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using the Consumer Price Index for June 1997 as the base
except as provided in the immediately following paragraph
hereof and (ii) applying the percentage increase (or decrease)
in the Consumer Price Index since said base month to the
Original Base Salary to determine the Minimum Base Salary. The
Base Salary shall be paid in such periodic installments as the
Company may determine but not less often than monthly.
If with respect to any Contract Year (including the
Contract Year beginning August 1, l998) the Board of Directors
fix the Base Salary at an amount higher than the Minimum Base
Salary, then (unless the order fixing such higher Base Salary
provides otherwise), for the purpose of determining the
Minimum Base Salary for subsequent Contract Years: (i) the
amount of the higher Base Salary so fixed shall be deemed
substituted for the Original Base Salary wherever the Original
Base Salary is referred to in the immediately preceding
paragraph hereof, and (ii) the base month for determining the
Consumer Price Index adjustment shall be June of the calendar
year in which the Contract Year to which such higher Base
Salary is applicable begins (e.g., if the Board of Directors
fix a Base Salary for the Contract Year beginning August 1,
1998
5
<PAGE> 6
which is higher than the Minimum Base Salary, then June 1998
would become the base month for the purposes of making the CPI
adjustment to determine the Minimum Base Salary for subsequent
Contract Years).
(b) Bonus Compensation. (i) Formula Bonus Compensation. With
respect to each fiscal year of the Company falling in whole or
in part within the Term of Employment beginning with the
fiscal year in which the Term Commencement Date occurs,
Executive shall be entitled to a bonus (in addition to his
Base Salary) in such amount and computed in such manner as
shall be determined by the Board of Directors but in no event
shall the bonus payable to Executive under this 3(b) be less
than an amount computed by applying to the fiscal year in
question the following bonus formula:
"Formula Bonus Compensation" means the amount, if any, payable
to Executive under this 3(b)(i) and "Bonus Compensation" means
the total amount payable under 3(b)(i) and 3(b)(ii).
"Average Equity" means the average of stockholders'
equity as shown on the fiscal year-end consolidated balance
sheet of the Company as of the end of the fiscal year with
respect to which
6
<PAGE> 7
Bonus Compensation is being computed hereunder and as of the
end of the immediately preceding fiscal year (e.g., "Average
Equity" to be used in computing Bonus Compensation for the
fiscal year ending August 1, 1998 will be the average of
stockholders' equity as of August 2, 1997 and August 1, 1998)
except that the amount shown as the "equity adjustment from
foreign currency translation" on each such consolidated
balance sheet shall be disregarded and the amount of
$3,744,000 shall be the equity adjustment (increase) from
foreign currency translation used to determine stockholders'
equity at each such year-end balance sheet date.
"Net Earnings" means the after-tax consolidated net
earnings of the Company and its subsidiaries as certified by
its independent accountants for inclusion in the annual report
to stockholders.
"Return on Equity" means Net Earnings as a percentage
of Average Equity.
For fiscal year 1998, "Zero Bonus Percentage" shall
mean a Return on Equity of 12.5% and "Maximum Bonus
Percentage" shall mean a Return on Equity of 18.0%. For fiscal
years after fiscal 1998 the Company shall determine the Zero
Bonus Percentage
7
<PAGE> 8
and the Maximum Bonus Percentage, consistent in each case with
expected results based upon the Company's normal projection
procedures, or based on sound statistical or trend data, and
the determination by the Company of such percentages shall be
conclusive and binding on Executive.
If Return on Equity for the fiscal year in question
is the Zero Bonus Percentage or less, no Formula Bonus
Compensation shall be payable. If Return on Equity equals or
exceeds the Maximum Bonus Percentage, the Formula Bonus
Compensation payable to Executive shall be 42% of his Base
Salary. If Return on Equity is more than the Zero Bonus
Percentage and less than the Maximum Bonus Percentage, the
Formula Bonus Compensation shall be increased from zero
percent of Base Salary towards 42% of Base Salary in the same
proportion that Return on Equity increases from the Zero Bonus
Percentage to the Maximum Bonus Percentage. Thus, for example,
if Return on Equity for fiscal 1998 is 15.25% (the midpoint
between 12.5% and 18.0%) the Formula Bonus Compensation shall
be an amount equal to 21% of Executive's Base Salary (the
midpoint between zero percent of Base Salary and 42% of Base
Salary).
(ii) Business Segment Bonus Compensation. Inasmuch
8
<PAGE> 9
as Executive's services for the Company relate
primarily to the operations of a subsidiary, a
division or other segment of the overall operations
of the Company and its subsidiaries (a "Business
Segment"), Executive shall be considered for
additional bonus compensation for each fiscal year
based on the results of operations of such Business
Segment for such fiscal year. The amount of such
additional bonus compensation, if any, shall be
determined by the Chief Executive Officer in his sole
discretion but in no event shall such additional
bonus compensation exceed 28% of Executive's Base
Salary.
(iii) Payment of Bonus Compensation. The Bonus compensation
shall be paid in installments as follows:
(iv) 50% of the amount thereof in August next following
the end of the fiscal year with respect to which the
Bonus Compensation is payable, and
(v) the balance thereof not later than January 15th next
following the end of the fiscal year with respect to
which the Bonus Compensation is payable.
With respect to any fiscal year of the Company
9
<PAGE> 10
which falls in part but not in whole within the Term of
Employment, the Bonus Compensation to which Executive is
entitled under this Section 3(b) and Section 3(c) shall be
prorated on the basis of the number of days of such fiscal
year falling within the Term of Employment except that if the
Term of Employment ends within five days before or after the
end of a fiscal year, there shall be no proration and the
Bonus Compensation shall be payable with respect to the full
fiscal year ending within such five-day period.
(c) Fringe Benefits and Perquisites. (i) During the Term of
Employment, Executive shall enjoy the customary perquisites of
office, including, but not limited to, office space and
furnishings, secretarial services, expense reimbursements and
any similar emoluments customarily afforded to senior
executive officers of the Company at the same level as
Executive. Executive shall also be entitled to receive or
participate in all "fringe benefits" and employee benefit
plans provided or made available by the Company to its
executives or management personnel generally (such as, but not
limited to, group hospitalization, medical, life and
disability insurance, and pension, retirement, profit-sharing
and stock option or purchase plans), at such time and
10
<PAGE> 11
on such terms and conditions as each such plan provides.
(d) Vacations. Executive shall be entitled each year to a vacation
or vacations in accordance with the policies of the Company as
determined by the Board or by an authorized senior officer of
the Company from time to time. The Company shall not pay
Executive any additional compensation for any vacation time
not used by Executive.
SECTION 4. TERMINATION BY REASON OF DISABILITY, DEATH, RETIREMENT OR CHANGE OF
CONTROL
(a) Disability or Death. If, during the Term of Employment,
Executive, by reason of physical or mental disability, is
incapable of performing his principal duties hereunder for an
aggregate of 130 working days out of any period of twelve
consecutive months, the Company at its option may terminate
the Term of Employment effective immediately by notice to
Executive given within 90 days after the end of such
twelve-month period. If Executive shall die during the Term of
Employment or if the Company terminates the Term of Employment
pursuant to the immediately preceding sentence by reason of
Executive's disability, the Company shall pay to Executive, or
to Executive's legal
11
<PAGE> 12
representatives, or in accordance with a direction given by
Executive to the Company in writing, the following: (i)
Executive's Base Salary to the end of the month in which such
death or termination for disability occurs and Executive's
Bonus Compensation prorated to said last day of the month and
(ii) for the period from the end of the month in which such
death or termination for disability occurs until the earlier
of (x) the first anniversary of the date of death or
termination and (y) the date on which the Term of Employment
would have ended but for such death or termination for
disability, monthly payments at one-half of the rate of
Executive's Base Salary plus one-half of Executive's Bonus
Compensation (prorated to the last day of such period) which
would have been payable with respect to such period but for
such death or termination.
(b) Retirement. (i) The Term of Employment shall end
automatically, without action by either party, on Executive's
65th birthday unless, prior to such birthday, Executive and
the Company have agreed in writing that the Term of Employment
shall continue past such 65th birthday. In that event, unless
the parties have agreed otherwise, the Term of Employment
shall be automatically renewed and
12
<PAGE> 13
extended each year, as of Executive's birthday, for an
additional one-year term, unless either party has given a
Non-Renewal Notice. A Non-Renewal Notice shall be effective as
of Executive's ensuing birthday only if given not less than 60
days before such birthday, and shall state that the party
giving such notice elects that this Agreement shall not
automatically renew itself further, with the result that the
Term of Employment shall end on Executive's ensuing birthday.
(ii) If the Term of Employment ends pursuant to this paragraph
by reason of a notice given by either party as herein
permitted or automatically at age 65 or any subsequent
birthday, the Company shall pay to Executive, or to another
payee specified by Executive to the Company in writing,
Executive's Base Salary and Bonus Compensation prorated to the
date on which the Term of Employment ends. (iii) Anything
hereinabove to the contrary notwithstanding, if any provision
of this paragraph violates federal or applicable state law
relating to discrimination on account of age, such provision
shall be deemed modified or suspended to the extent necessary
to eliminate such violation of law. If at a later date, by
reason of changed circumstances or otherwise, the enforcement
of such provision as
13
<PAGE> 14
set forth herein would no longer constitute a violation of
law, then it shall be enforced in accordance with its terms as
set forth herein.
(c) Change of Control. In event of a Change of Control (as
hereinafter defined), Executive shall have the right to
terminate the Term of Employment, by notice to the Company
given at any time after such Change of Control, effective on
the date specified in such notice, which date shall not be
more than (but can be less than) one year after the giving of
such notice. A Change of Control shall be deemed to have
occurred at such time as a majority of the directors then in
office are not Continuing Directors as defined in subparagraph
(C)(6) of Article 12 of the Company's Restated Certificate of
Incorporation dated November 23, 1993 and filed by the New
York Department of State on December 7, 1993.
Section 5. COVENANT NOT TO COMPETE
For a period of eighteen months after the end of the Term of Employment
if the Term of Employment is terminated by notice to the Company given by
Executive under Section 1 or Section 4 hereof, or for a period of twelve months
after the end of the Term of Employment if the Term of Employment is terminated
by notice to Executive given by the Company under Section 1 or Section 4
14
<PAGE> 15
hereof or terminates under Section 4 by reason of Executive attaining the age of
65, Executive shall not render services to any corporation, individual or other
entity engaged in any activity, or himself engage directly or indirectly in any
activity, which is competitive to any material extent with the business of the
Company or any of its subsidiaries, provided, however, that if the Company
terminates under Section 1 following a Change of Control (as defined in Section
4(c)), the foregoing covenant not to compete shall not apply.
SECTION 6. COMPANY'S RIGHT TO INJUNCTIVE RELIEF
Executive acknowledges that his services to the Company are of a unique
character, which gives them a peculiar value to the Company, the loss of which
cannot be reasonably or adequately compensated in damages in an action at law,
and that therefore, in addition to any other remedy which the Company may have
at law or in equity, the Company shall be entitled to injunctive relief for a
breach of this Agreement by Executive.
SECTION 7. INVENTIONS AND PATENTS
All inventions, ideas, concepts, processes, discoveries, improvements
and trademarks (hereinafter collectively referred to as intangible rights),
whether patentable or registrable or not, which are conceived, made, invented or
suggested either by Executive alone or by Executive in
15
<PAGE> 16
collaboration with others during the Term of Employment, and whether or not
during regular working hours, shall be disclosed to the Company and shall be the
sole and exclusive property of the Company. If the Company deems that any of
such intangible rights are patentable or otherwise registrable under any
federal, state or foreign law, Executive, at the expense of the Company, shall
execute all documents and do all things necessary or proper to obtain patents
and/or registrations and to vest the Company with full title thereto.
SECTION 8. TRADE SECRETS AND CONFIDENTIAL INFORMATION
Executive shall not, either directly or indirectly, except as required
in the course of his employment by the Company, disclose or use at any time,
whether during or subsequent to the Term of Employment, any information of a
proprietary nature owned by the Company, including but not limited to, records,
data, formulae, documents, specifications, inventions, processes, methods and
intangible rights which are acquired by him in the performance of his duties for
the Company and which are of a confidential information or trade-secret nature.
All records, files, drawings, documents, equipment and the like, relating to the
Company's business, which Executive shall prepare, use, construct or observe,
shall be and remain the Company's sole property. Upon the termination of his
employment or at any
16
<PAGE> 17
time prior thereto upon request by the Company, Executive shall return to the
possession of the Company any materials or copies thereof involving any
confidential information or trade secrets and shall not take any material or
copies thereof from the possession of the Company.
SECTION 9. MERGERS AND CONSOLIDATIONS; ASSIGNABILITY
In the event that the Company, or any entity resulting from any merger
or consolidation referred to in this Section 9 or which shall be a purchaser or
transferee so referred to, shall at any time be merged or consolidated into or
with any other entity or entities, or in the event that substantially all of the
assets of the Company or any such entity shall be sold or otherwise transferred
to another entity, the provisions of this Agreement shall be binding upon and
shall inure to the benefit of the continuing entity in or the entity resulting
from such merger or consolidation or the entity to which such assets shall be
sold or transferred. Except as provided in the immediately preceding sentence of
this Section 9, this Agreement shall not be assignable by the Company or by any
entity referred to in such immediately preceding sentence. This Agreement shall
not be assignable by Executive, but in the event of his death it shall be
binding upon and inure to the benefit of his legal representatives to the extent
required to effectuate the terms hereof.
17
<PAGE> 18
SECTION 10. CAPTIONS
The captions in this Agreement are not part of the provisions hereof,
are merely for the purpose of reference and shall have no force or effect for
any purpose whatsoever, including the construction of the provisions of this
Agreement, and if any caption is inconsistent with any provisions of this
Agreement, said provisions shall govern.
SECTION 11. CHOICE OF LAW
This Agreement is made in, and shall be governed by and construed in
accordance with the laws of, the State of New York.
SECTION 12. ENTIRE CONTRACT
This instrument contains the entire agreement of the parties on the
subject matter hereof except that the rights of the Company hereunder shall be
deemed to be in addition to and not in substitution for its rights under the
Company's standard printed form of "Employee's Secrecy and Invention Agreement"
or "Employee Agreement" if heretofore or hereafter entered into between the
parties hereto so that the making of this Agreement shall not be construed as
depriving the Company of any of its rights or remedies under any such Secrecy
and Invention Agreement or Employee Agreement. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of
18
<PAGE> 19
any waiver, change, modification, extension or discharge is sought.
SECTION 13. NOTICES
All notices given hereunder shall be in writing and shall be sent by
registered or certified mail or delivered by hand, and, if intended for the
Company, shall be addressed to it (if sent by mail) or delivered to it (if
delivered by hand) at its principal office for the attention of the President of
the Company, or at such other address and for the attention of such other person
of which the Company shall have given notice to Executive in the manner herein
provided, and, if intended for Executive, shall be delivered to him personally
or shall be addressed to him (if sent by mail) at his most recent residence
address shown in the Company's employment records or at such other address or to
such designee of which Executive shall have given notice to the Company in the
manner herein provided. Each such notice shall be deemed to be given on the date
of mailing thereof or, if delivered personally, on the date so delivered.
SECTION 14. TERMINATION OF ANY PRIOR EMPLOYMENT AGREEMENT
Any Employment Agreement in effect between the Company and Executive on
the date hereof is hereby terminated by mutual consent effective January 11,
1998 and is superseded and replaced by this Agreement.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
PALL CORPORATION
BY: /S/ JEREMY HAYWARD-SURRY
----------------------------------------
JEREMY HAYWARD-SURRY
PRESIDENT AND
CHIEF FINANCIAL OFFICER
EXECUTIVE
/S/ STEVEN CHISOLM
----------------------------------------
STEVEN CHISOLM
20
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<PERIOD-END> JAN-31-1998
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<RECEIVABLES> 253,782
<ALLOWANCES> 7,343
<INVENTORY> 207,094
<CURRENT-ASSETS> 622,018
<PP&E> 879,205
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0
0
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