<PAGE> 1
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 1, 1998
Commission File Number 1-4311
PALL CORPORATION
2200 Northern Boulevard, East Hills, N.Y. 11548
(516) 484-5400
Incorporated in New York State I.R.S. Employer Identification
Number 11-1541330
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange
Title of Class on Which Registered
------------------------- -----------------------------
Common Stock $.10 par value New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $2,737,000,000, based on the closing price on October 8, 1998.
The number of common shares, $.10 par value outstanding of the registrant was
124,247,002 shares on October 8, 1998.
Total number of pages - 162 Exhibit index located on page 18
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's Proxy Statement for the 1998 annual meeting of
shareholders, previously filed, (hereinafter referred to as the "Proxy
Statement") are incorporated by reference into Items 10, 11, 12 and 13.
Portions of the registrant's Annual Report to Shareholders for the fiscal year
ended August 1, 1998, filed as Exhibit 13 hereto, (hereinafter referred to as
the "Annual Report to Shareholders") are incorporated by reference into items 1,
3, 5, 7 and 8.
<PAGE> 2
2
PART I
------
ITEM 1. BUSINESS.
- -----------------------------
(a) General development of business.
Pall Corporation, incorporated in July 1946, and its subsidiaries (hereinafter
collectively called "the Company" unless the context requires otherwise) is a
leading supplier of fine filters mainly made by the Company using its
proprietary filter media, and other fluid clarification and separations
equipment for the removal of solid, liquid and gaseous contaminants from a wide
variety of liquids and gases.
The Company's business is best analyzed by the following three principal
markets, or industry segments, in which it sells its products:
(1) Health care.
(2) Aeropower.
(3) Fluid processing.
During the past five years, the Company has continued its development of fluid
clarification and separations products and of their sale in a wide variety of
markets.
(b) Financial information about industry segments.
Reference is made to page 28 of the Annual Report to Shareholders.
(c) Narrative description of business.
1) Reference is made to the section titled "Company Profile" contained in the
inside cover of the Annual Report to Shareholders. The products sold are mainly
filters made with proprietary Pall filter media produced by chemical film
casting, melt-blowing of polymer fibers, papermaking and metallurgical
processes. Metal and plastic housings and a wide variety of appurtenant devices,
are also made.
(A) Health Care Segment:
The Health Care Segment consists of two sub segments: BioPharmaceuticals and
Medical. The BioPharmaceuticals sub segment includes the following markets:
BioPharmaceuticals, Specialty Materials, Food & Beverage; sales in the Medical
sub segment are primarily to hospitals and blood centers. For a description of
these markets refer to the inside cover and pages 6, 7, 10 and 11 of the Annual
Report to Shareholders. BioPharmaceutical sales in fiscal 1998 were $294,202,000
or 27% of total sales; Medical sales in fiscal 1998 were $260,124,000 or 24% of
total sales. Sales in this market are made through the Company's own personnel
and through distributors. Backlog information is omitted, as it is not
considered meaningful to an understanding of this segment of the Company's
business. The Company feels that safety, efficacy, ease of use, technical
support, as well as price, are the principal competitive factors in this market,
although economy of use is important. A principal list of competitors is
included in the inside cover of the Annual Report to Shareholders.
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3
(B) Aeropower Segment:
The Aeropower segment includes the following markets: Aerospace and Industrial
Hydraulics. For a description of these markets refer to the inside cover and
pages 14, 15, 18 and 19 of the Annual Report to Shareholders. Sales in fiscal
1998 were $258,490,000 or 24% of total sales. Backlog at August 1, 1998 was
approximately $76,360,000. The backlog at August 1, 1998 is equal to about three
months of sales. The Company's sales to aerospace and military customers are
made principally through its own personnel and manufacturers' representatives;
sales to Industrial Hydraulics customers are made through Company personnel and
through distributors. The Company believes that product performance and quality,
and service to the customer, as well as price, are the principal competitive
factors in this market segment. A principal list of competitors is included in
the inside cover of the Annual Report to Shareholders.
(C) Fluid Processing Segment:
The Fluid Processing Segment encompasses the following markets: Microelectronics
and Industrial Process. For a description of these markets refer to the inside
cover and pages 8, 9, 12, 13, 16 and 17 of the Annual Report to Shareholders.
Sales in this market in fiscal 1998 were $274,469,000 or 25% of total sales. The
Company's products are sold to customers in these markets through its own
personnel, and through distributors and manufacturers' representatives. Backlog
information is omitted, as it is not considered material for an understanding of
this segment of the Company's business. The Company believes that performance
and quality of product and service, as well as price, are determinative in most
sales. A principal list of competitors is included in the inside cover of the
Annual Report to Shareholders.
(D) The following comments relate to the three segments discussed above:
(i) Raw materials:
Most raw materials used by the Company are available from multiple sources of
supply. A limited number of materials are proprietary products of major chemical
companies. The Company believes that it could find satisfactory substitutes for
these materials if they should become unavailable, and has in fact done so
several times in the past.
(ii) Patents:
The Company owns a broad range of patents covering its filter media, filter
designs and other products, but it considers these to be mainly defensive, and
relies on its proprietary manufacturing methods and engineering skills. However,
it does act against infringers when it believes such action is economically
justified.
2) The following comments relate to the Company's business in general:
(a) With limited exceptions, research activities conducted by the
Company are company-sponsored. Such expenditures totaled
$58,540,000 in 1998, $53,747,000 in 1997 and $53,772,000 in
1996.
(b) There was no one customer to whom sales were made totaling 10%
or more of consolidated sales in fiscal 1998, 1997 or 1996.
(c) The Company is in substantial compliance with federal, state
and local laws regulating the discharge of materials into the
environment or otherwise relating to the protection of the
environment. To date, compliance with environmental matters
has not had a material effect upon the Company's capital
expenditures or competitive position.
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4
In May 1997, the Company's newly acquired subsidiary, Gelman Sciences
received a permit from the State of Michigan which requires that all
processed water discharged meet the standards set by the State. Based
on the permit obtained from the State and upon review of environmental
issues at its other facilities, the Company decided to record a pre-tax
charge of $10,000,000 in the third quarter of fiscal year 1997. The
Company started the clean up process at its Ann Arbor facility in
fiscal 1998. In the opinion of management, the Company is in
substantial compliance with applicable environmental laws. Because
regulatory standards under environmental laws are becoming increasingly
stringent, there can be no assurance that future developments will not
cause the Company to incur material environmental liabilities or costs.
For a further description of the environmental issues see Item 3, Legal
Proceedings.
(d) At August 1, 1998, the Company employed approximately 8,900 persons.
(d) Financial information about foreign and domestic operations and export
sales.
Reference is made to page 29 of the Annual Report to Shareholders.
<PAGE> 5
5
<TABLE>
<CAPTION>
ITEM 2. PROPERTIES.
Location Type Industry Segment Size (square feet)
- -------- ---- ---------------- ------------------
OWNED:
<S> <C> <C> <C>
Glen Cove, NY Office & laboratory Research Center 65,000
East Hills, NY Office, plant & Executive Office &
warehouse All Segments 326,000
Pt. Washington, NY Office, laboratory All 215,000
& training center
Hauppauge, NY Plant, office Health Care & Fluid
& laboratory Processing 75,000
Cortland, NY Plants, office Health Care & Fluid
Processing 338,000
Putnam, CT Plant All 62,000
Pinellas Park, FL Plant, office Aeropower 152,000
Ft. Myers, FL Plant, warehouse Aeropower 111,000
New Port Richey, FL Plant Aeropower 164,000
Pensacola, FL Plant Health Care 58,000
Covina, CA Plant, office &
laboratory Health Care 176,000
Ann Arbor, MI Plant & office Health Care 180,000
Fajardo, Puerto Rico Plants Health Care & Fluid
Processing 259,000
Portsmouth, U.K. Plant, office, warehouse All 331,000
Ilfracombe, U.K. Plant & office Health Care & Fluid
Processing 112,000
Redruth, U.K. Plant, warehouse Aeropower 123,000
Newquay, U.K. Plant & office Health Care & Fluid
Processing 106,000
Tipperary, Ireland Plant Health Care, Aeropower 178,000
Frankfurt, Germany Office & warehouse All 72,000
Paris, France Office & warehouse All 65,000
Limay, France Warehouse All 23,000
Tsukuba, Japan Plant, laboratory &
warehouse All 119,000
LEASED:
Clearwater, FL Office Aeropower 23,000
New Iberia, LA Plant Fluid Processing 60,000
Houston, TX Plant & office Fluid Processing 40,000
Northborough, MA Plant & office Health Care 38,000
Exton, PA Office Fluid Processing 13,000
Toronto, Montreal, Canada Office & warehouse Health Care & Fluid
Processing 18,000
Frankfurt, Hamburg, Germany Office & warehouse All 104,000
Oud Beijerland, Netherlands Plant, office, warehouse Fluid Processing 12,000
Milan, Italy Office & warehouses All 54,000
Vienna, Austria Office & warehouse All 13,000
Basel, Switzerland Office & warehouse All 13,000
Madrid, Spain Office & warehouse All 28,000
Warsaw, Poland Office All 4,000
Tokyo, Osaka, Japan Offices All 39,000
Singapore Office & warehouse All 17,000
Seoul, South Korea Office All 7,000
Beijing, China Office & warehouse All 9,000
Melbourne, Sydney Office & warehouse
& Perth, Australia All 21,000
Hong Kong Office All 2,000
Auckland, New Zealand Office & warehouse All 6,000
</TABLE>
In the opinion of management, these premises are suitable and adequate to meet
the Company's requirements.
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6
ITEM 3. LEGAL PROCEEDINGS.
In February 1988, an action was filed in the Circuit Court for Washtenaw
County, Michigan ("Court") by the State of Michigan ("State") against Gelman
Sciences Inc. ("Gelman")(a subsidiary acquired by the Company in February 1997)
requesting reimbursement of costs the State had expended in investigating
contamination near Gelman's Ann Arbor facility, which the State alleged was
caused by Gelman's disposal of waste water from its manufacturing process.
Pursuant to a consent judgment entered into by Gelman and the State in October
1992 and amended in September 1996, which resolved that litigation, Gelman is
remediating the contamination without admitting wrongdoing. In July 1997 and in
October 1997 the State notified Gelman that it believes that Gelman is not in
full compliance with the consent judgment and that Gelman is potentially liable
for stipulated penalties of more than $100,000, which penalties may continue to
accrue. Gelman disputes these assertions and has been vigorously contesting
them.
Reference is also made to Commitments and Contingencies on page 37 of the Annual
Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of shareholders during the fourth
quarter of fiscal year 1998.
<PAGE> 7
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Reference is made to the section titled "Common Stock Prices and Cash Dividends"
on page 38 of the Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA.
Reference is made to page 39 of the Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Reference is made to pages 21-23 of the Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to pages 24-38 (excluding the sections titled "Common Stock
Prices and Cash Dividends" and "Six-Year Sales" on page 38) of the Annual Report
to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
None.
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PART III 8
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of directors:
Reference is made to "Election of Directors" on page 3 of the Proxy
Statement.
None of the persons listed in the section of the Proxy Statement referred to
in the preceding paragraph has been involved in those legal proceedings
required to be disclosed by Item 401(f) of Regulation S-K during the past
five years.
(b) Identification of executive officers:
<TABLE>
<CAPTION>
Year in which
Service as
Age at Officer of
Oct. 15 Pall Corp.
Name 1998 Position Held Began
- ---- ---- ------------- -----
<S> <C> <C> <C>
Eric Krasnoff* 46 Chairman and Chief
Executive Officer 1986
Jeremy Hayward-Surry* 55 President 1989
Derek T.D. Williams** 66 Executive Vice President
and Chief Operating Officer 1985
John Adamovich, Jr. 45 Group Vice President and Treasurer,
Chief Financial Officer 1998
Peter S. Cope 44 Group Vice President 1994
Clifton Hutchings 60 Group Vice President 1993
Paul Kohn 52 Group Vice President 1996
Donald B. Stevens 53 Group Vice President 1994
Gerhard Weich 62 Group Vice President 1993
Arnold Weiner 61 Group Vice President 1986
Marcus Wilson 43 Group Vice President 1998
Samuel T. Wortham 51 Group Vice President 1990
Steven Chisolm 40 Senior Vice President 1998
Charles Grimm 58 Senior Vice President 1998
Akio Satake 61 Senior Vice President 1995
Robert Simkins 54 Senior Vice President 1994
</TABLE>
* Member of the Executive Committee of the Board of Directors.
** Retires effective October 31, 1998.
None of the persons listed above is related.
Messrs. Krasnoff, Hayward-Surry and Williams are directors of Pall Corporation.
For more than the past five years, the principal occupation of each person
listed above has been their employ by the registrant, except for Mr. Adamovich,
who joined the Company in January 1998. Previously, Mr. Adamovich was
partner-in-charge of Professional Practice in the Long Island office of KPMG
Peat Marwick LLP and while at that firm, he served as engagement partner for its
audits of the Company's financial statements for each of the years in the seven
year period ending July 29, 1995.
Executive officers are elected by the Board of Directors annually, to serve
until the next annual organizational meeting of the Board.
None of the above persons has been involved in those legal proceedings required
to be disclosed by Item 401(f) of Regulation S-K, during the past five years.
<PAGE> 9
9
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to "Compensation and Other Benefits of Senior Management"
beginning on page 6 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to "Beneficial Ownership of Common Stock" on page 22 of the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
Disclosure of information relating to delinquent filers required by Item 405
of Regulation S-K is set forth on the last page of the Proxy Statement.
<PAGE> 10
10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a. Certain documents filed as part of the Form 10-K:
(l) The following documents are incorporated by reference to the indicated
pages of the 1998 Annual Report to Shareholders, filed as Exhibit 13
hereto.
<TABLE>
Item
<S> <C>
Independent Auditors' Report 24
Consolidated Statements of Earnings - years ended
August 1, 1998, August 2, 1997 and August 3, 1996 24
Consolidated Balance Sheets - August 1, 1998
and August 2, 1997 25
Consolidated Statements of Stockholders' Equity -
years ended August 1, 1998, August 2, 1997 and August 3, 1996 26
Consolidated Statements of Cash Flows - years ended
August 1, 1998, August 2, 1997 and August 3, 1996 27
Notes to Consolidated Financial Statements 28-38
(2) The following schedules are filed herewith:
Name of Schedule
II Valuation and qualifying accounts 15
Independent auditors' report on schedules 16
</TABLE>
Schedules not listed above have been omitted either because they are
not applicable or the required information is shown in the financial statements
or in the notes thereto.
<PAGE> 11
(3) Exhibits filed herewith: 11
Page
Exhibit of 1998
Number Description of Exhibit Form 10-K
- --------------------------------------------------------------------------------
3(i)* Restated Certificate of Incorporation of the Registrant as
amended through November 23, 1993, filed as Exhibit 3(i) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended July 30, 1994 (the "1994 10-K").
3(ii) By-Laws of the Registrant as amended on October 9, 1998. 22-42
4 Note: The exhibits filed herewith do not include the
instruments with respect to long-term debt of the Registrant
and its subsidiaries, inasmuch as the total amount of debt
authorized under any such instrument does not exceed 10% of
the total assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant agrees, pursuant to Item
601(b) (4) (iii) of Regulation S-K, that it will furnish a
copy of any such instrument to the Securities and Exchange
Commission upon request.
10.1*(a) Amended And Restated Employment Agreement dated October 6,
1997 between the Registrant and Eric Krasnoff, filed as
Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 2, 1997 (the "1997 10-K").
10.2*(a) Letter agreement dated July 17, 1997 between the Registrant
and Eric Krasnoff, filed as Exhibit 10.4 to the 1997 10-K.
10.3*(a) Amended And Restated Employment Agreement dated October 6,
1997 between the Registrant and Jeremy Hayward-Surry, filed
as Exhibit 10.5 to the 1997 10-K.
10.4*(a) Service Agreement dated November 28, 1995 between Pall Europe
Limited and Derek Thomas Donald Williams, filed as Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 3, 1996 (the "1996 10-K").
10.5*(a) Service Agreement dated November 28, 1995 between Pall Europe
Limited and Clifton Stanley Hutchings, filed as Exhibit 10.9
to the 1996 10-K.
10.6*(a) Service Agreement dated November 28, 1995 between Pall
Deutschland GmbH Holding and Gerhard Friedrich Weich, filed
as Exhibit 10.10 to the 1996 10-K.
10.7*(a) Employment Agreement dated February 1, 1992 between the
Registrant and Arnold Weiner, filed as Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended August 1, 1992 (the "1992 10-K").
10.8*(a) Amendment dated July 19, 1993 to Employment Agreement dated
February 1, 1992 between the Registrant and Arnold Weiner,
filed as Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1993 (the "1993
10-K").
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 12
12
Page
Exhibit of 1998
Number Description of Exhibit Form 10-K
10.9*(a) Second Amendment dated August 1, 1995 to Employment Agreement
dated February 1, 1992 between the Registrant and Arnold
Weiner, filed as Exhibit 10.13 to the 1996 10-K.
10.10*(a) Third Amendment dated October 6, 1997 to Employment
Agreement dated February 1, 1992 between the Registrant and
Arnold Weiner, filed as Exhibit 10.12 to the 1997 10-K.
10.11(a) Fourth Amendment dated August 1, 1998 to Employment Agreement 43-47
dated February 1, 1992 between the Registrant and
Arnold Weiner.
10.12*(a) Employment Agreement dated February 1, 1992 between the
Registrant and Samuel Wortham, filed as Exhibit 10.15 to the
1992 10-K.
10.13*(a) Amendment dated July 19, 1993 to Employment Agreement dated
February 1, 1992 between the Registrant and Samuel Wortham,
filed as Exhibit 10.4 to the 1993 10-K.
10.14*(a) Second Amendment dated August 1, 1995 to Employment
Agreement dated February 1, 1992 between the Registrant and
Samuel Wortham, filed as Exhibit 10.16 to the 1996 10-K.
10.15(a) Third Amendment dated August 1, 1998 to Employment Agreement
dated February 1, 1992 between the Registrant and Samuel
Wortham. 48-53
10.16*(a) Employment Agreement dated August 1, 1994 between the
Registrant and Peter Cope, filed as Exhibit 10.13 to the 1994
10-K.
10.17*(a) Amendment dated August 1, 1995 to Employment Agreement dated
August 1, 1994 between the Registrant and Peter Cope, filed
as Exhibit 10.18 to the 1996 10-K.
10.18(a) Second Amendment dated August 1, 1998 to Employment Agreement
dated August 1, 1994 between the Registrant and Peter Cope. 54-59
10.19*(a) Employment Agreement dated August 1, 1994 between the
Registrant and Robert Simkins, filed as Exhibit 10.14 to the
1994 10-K.
10.20*(a) Amendment dated August 1, 1995 to Employment Agreement dated
August 1, 1994 between the Registrant and Robert Simkins,
filed as Exhibit 10.20 to the 1996 10-K.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of
Form 10-K.
<PAGE> 13
13
Page
Exhibit of 1998
Number Description of Exhibit Form 10-K
10.21(a) Second Amendment dated August 1, 1998 to Employment
Agreement dated August 1, 1994 between the Registrant and
Robert Simkins. 60-65
10.22*(a) Employment Agreement dated September 26, 1994 between the
Registrant and Donald B. Stevens, filed as Exhibit 10.17 to
the 1994 10-K.
10.23*(a) Amendment dated August 1, 1995 to Employment Agreement dated
September 26, 1994 between the Registrant and Donald B.
Stevens, filed as Exhibit 10.24 to the 1996 10-K.
10.24(a) Second Amendment dated August 1, 1998 to Employment
Agreement dated September 26, 1994 between the Registrant
and Donald B. Stevens. 66-71
10.25*(a) Employment Agreement dated August 5, 1996 between the
Registrant and Paul Kohn, filed as Exhibit 10.25 to the 1996
10-K.
10.26(a) First Amendment dated August 1, 1998 to Employment Agreement
dated August 5, 1996 between the Registrant and Paul Kohn. 72-76
10.27*(a) Employment Agreement made as of January 5, 1998 between the
Registrant and John Adamovich, filed as Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended November 1, 1997.
10.28*(a) Employment Agreement made as of January 12, 1998 between the
Registrant and Steven Chisolm, filed as Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended January 31, 1998.
10.29(a) First Amendment dated August 1, 1998 to Employment Agreement
dated January 12, 1998 between the Registrant and Steven
Chisolm. 77-82
10.30(a) Employment Agreement made as of August 1, 1998 between the
Registrant and Charles R. Grimm. 83-102
10.31(a) Service Agreement dated August 1, 1998 between Pall Europe
Limited and Marcus Albert Wilson. 103-114
10.32*(a) Pall Corporation Supplementary Profit Sharing Plan as
amended and restated February 15, 1995, filed as Exhibit
10.26 to the 1996 10-K.
10.33*(a) Pall Corporation Supplementary Pension Plan (As amended
effective October 6, 1997), filed as Exhibit 10.25 to the
1997 10-K.
10.34*(a) Pall Corporation Profit Sharing Plan, as amended and
restated as of January 1, 1997, filed as Exhibit 10.26 to
the 1997 10-K.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 14
14
Page
Exhibit of 1998
Number Description of Exhibit Form 10-K
- --------------------------------------------------------------------------------
10.35*(a) Pall Corporation 1993 Stock Option Plan, filed as Exhibit
10.22 to the 1993 10-K.
10.36*(a) Pall Corporation 1991 Stock Option Plan, filed as Exhibit
10.42 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 3, 1991 (the "1991 10-K").
10.37*(a) Pall Corporation 1988 Stock Option Plan, as amended through
October 8, 1991, filed as Exhibit 10.32 to the 1991 10-K.
10.38*(a) Pall Corporation Stock Option Plan for Non-Employee
Directors, filed as Exhibit 10.26 to the Registrant's Form
10-Q for the quarterly period ended October 28, 1995.
10.39*(a) Pall Corporation 1995 Employee Stock Option Plan, filed as
Exhibit 10.27 to the Registrant's Form 10-Q for the
quarterly period ended October 28, 1995.
10.40*(a) Principal Rules of the Pall Supplementary Pension Scheme,
filed as Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 29, 1995 (the "1995
10-K").
10.41*(a) Pall Deutschland GmbH Holding, Concept Of An Additional
Pension Plan For Senior Executives, filed as Exhibit 10.35
to the 1996 10-K.
13 Annual Report to Shareholders for the year ended August 1,
1998 115-160
21 Subsidiaries of Pall Corporation. 161
23 Consent of Independent Auditors. 162
27 Financial Data Schedule (only filed electronically).
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
b. Reports on Form 8-K:
The registrant filed no reports on Form 8-K during the three months ended
August 1, 1998.
<PAGE> 15
15
SCHEDULE II
PALL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED AUGUST 1, 1998,
AUGUST 2, 1997 AND AUGUST 3, 1996
<TABLE>
<CAPTION>
Balance at Charged to Write-off of Balance
Beginning Costs and Uncollectible at End
Description of Year Expenses Accounts of Year
--------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Year ended August 1, 1998:
Allowance for doubtful
accounts $ 6,602,000 1,915,000 $ 2,638,000 $ 5,879,000
Year ended August 2, 1997:
Allowance for doubtful
accounts $ 5,998,000 1,417,000 $ 813,000 $ 6,602,000
Year ended August 3, 1996:
Allowance for doubtful
accounts $ 6,318,000 1,851,000 $ 2,171,000 $ 5,998,000
</TABLE>
<PAGE> 16
[KPMG PEAT MARWICK LLP LETTERHEAD]
16
Independent Auditors' Report on Schedule
The Board of Directors
Pall Corporation:
Under date of September 2, 1998, we reported on the consolidated balance sheets
of Pall Corporation and subsidiaries as of August 1, 1998 and August 2, 1997,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period ended August 1, 1998,
as contained in the Company's fiscal 1998 annual report to stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the Company's annual report on Form 10-K for fiscal year 1998. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedule as
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
Melville, New York
September 2, 1998
<PAGE> 17
17
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
/s/ Jeremy Hayward-Surry
PALL CORPORATION
October 27, 1998 By: Jeremy Hayward-Surry
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Eric Krasnoff Chairman of the Board and October 28, 1998
- ----------------- Chief Executive Officer
Eric Krasnoff
/s/ Jeremy Hayward-Surry President and Director October 28, 1998
- -------------------------
Jeremy Hayward-Surry
/s/ John Adamovich, Jr. Chief Financial Officer October 28, 1998
- ----------------------- and Treasurer
John Adamovich, Jr.
/s/ Viraj J. Patel Chief Accountant (Chief October 28, 1998
- ------------------- Accounting Officer)
Viraj J. Patel
/s/ Abraham Appel Director October 28, 1998
- ------------------
Abraham Appel
/s/ John H. F. Haskell, Jr. Director October 28, 1998
- ---------------------------
John H. F. Haskell, Jr.
/s/ Ulric S. Haynes, Jr. Director October 28, 1998
- ------------------------
Ulric S. Haynes, Jr.
/s/ Edwin W. Martin Director October 28, 1998
- -------------------
Edwin W. Martin
/s/ Katharine Plourde Director October 28, 1998
- ---------------------
Katharine L. Plourde
/s/ Chesterfield F. Seibert Director October 28, 1998
- ---------------------------
Chesterfield F. Seibert
/s/ Heywood Shelley Director October 28, 1998
- --------------------
Heywood Shelley
/s/ Alan B. Slifka Director October 28, 1998
- ------------------
Alan B. Slifka
/s/ James D. Watson Director October 28, 1998
- --------------------
James D. Watson
/s/ Derek T.D. Williams Director October 28, 1998
- ------------------------
Derek T.D. Williams
</TABLE>
<PAGE> 18
18
EXHIBIT INDEX
Page
Exhibit of 1998
Number Description of Exhibit Form 10-K
3(i)* Restated Certificate of Incorporation of the Registrant as
amended through November 23, 1993, filed as Exhibit 3(i) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended July 30, 1994 (the "1994 10-K").
3(ii) By-Laws of the Registrant as amended on October 9, 1998. 22-42
4 Note: The exhibits filed herewith do not include the
instruments with respect to long-term debt of the Registrant
and its subsidiaries, inasmuch as the total amount of debt
authorized under any such instrument does not exceed 10% of
the total assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant agrees, pursuant to Item
601(b) (4) (iii) of Regulation S-K, that it will furnish a
copy of any such instrument to the Securities and Exchange
Commission upon request.
10.1*(a) Amended And Restated Employment Agreement dated October 6,
1997 between the Registrant and Eric Krasnoff, filed as
Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 2, 1997 (the "1997 10-K").
10.2*(a) Letter agreement dated July 17, 1997 between the Registrant
and Eric Krasnoff, filed as Exhibit 10.4 to the 1997 10-K.
10.3*(a) Amended And Restated Employment Agreement dated October 6,
1997 between the Registrant and Jeremy Hayward-Surry, filed
as Exhibit 10.5 to the 1997 10-K.
10.4*(a) Service Agreement dated November 28, 1995 between Pall
Europe Limited and Derek Thomas Donald Williams, filed as
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 3, 1996 (the "1996 10-K").
10.5*(a) Service Agreement dated November 28, 1995 between Pall
Europe Limited and Clifton Stanley Hutchings, filed as
Exhibit 10.9 to the 1996 10-K.
10.6*(a) Service Agreement dated November 28, 1995 between Pall
Deutschland GmbH Holding and Gerhard Friedrich Weich, filed
as Exhibit 10.10 to the 1996 10-K.
10.7*(a) Employment Agreement dated February 1, 1992 between the
Registrant and Arnold Weiner, filed as Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended August 1, 1992 (the "1992 10-K").
10.8*(a) Amendment dated July 19, 1993 to Employment Agreement dated
February 1, 1992 between the Registrant and Arnold Weiner,
filed as Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1993 (the "1993
10-K").
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 19
19
Page
Exhibit of 1998
Number Description of Exhibit Form 10-K
10.9*(a) Second Amendment dated August 1, 1995 to Employment
Agreement dated February 1, 1992 between the Registrant and
Arnold Weiner, filed as Exhibit 10.13 to the 1996 10-K.
10.10*(a) Third Amendment dated October 6, 1997 to Employment
Agreement dated February 1, 1992 between the Registrant and
Arnold Weiner, filed as Exhibit 10.12 to the 1997 10-K.
10.11(a) Fourth Amendment dated August 1, 1998 to Employment 43-47
Agreement dated February 1, 1992 between the
Registrant and Arnold Weiner.
10.12*(a) Employment Agreement dated February 1, 1992 between the
Registrant and Samuel Wortham, filed as Exhibit 10.15 to the
1992 10-K.
10.13*(a) Amendment dated July 19, 1993 to Employment Agreement dated
February 1, 1992 between the Registrant and Samuel Wortham,
filed as Exhibit 10.4 to the 1993 10-K.
10.14*(a) Second Amendment dated August 1, 1995 to Employment
Agreement dated February 1, 1992 between the Registrant and
Samuel Wortham, filed as Exhibit 10.16 to the 1996 10-K.
10.15(a) Third Amendment dated August 1, 1998 to Employment Agreement
dated February 1, 1992 between the Registrant and Samuel
Wortham. 48-53
10.16*(a) Employment Agreement dated August 1, 1994 between the
Registrant and Peter Cope, filed as Exhibit 10.13 to the
1994 10-K.
10.17*(a) Amendment dated August 1, 1995 to Employment Agreement dated
August 1, 1994 between the Registrant and Peter Cope, filed
as Exhibit 10.18 to the 1996 10-K.
10.18(a) Second Amendment dated August 1, 1998 to Employment
Agreement dated August 1, 1994 between the Registrant and
Peter Cope. 54-59
10.19*(a) Employment Agreement dated August 1, 1994 between the
Registrant and Robert Simkins, filed as Exhibit 10.14 to the
1994 10-K.
10.20*(a) Amendment dated August 1, 1995 to Employment Agreement dated
August 1, 1994 between the Registrant and Robert Simkins,
filed as Exhibit 10.20 to the 1996 10-K.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 20
20
Page
Exhibit of 1998
Number Description of Exhibit Form 10-K
10.21(a) Second Amendment dated August 1, 1998 to Employment
Agreement dated August 1, 1994 between the Registrant and
Robert Simkins. 60-65
10.22*(a) Employment Agreement dated September 26, 1994 between the
Registrant and Donald B. Stevens, filed as Exhibit 10.17 to
the 1994 10-K.
10.23*(a) Amendment dated August 1, 1995 to Employment Agreement dated
September 26, 1994 between the Registrant and Donald B.
Stevens, filed as Exhibit 10.24 to the 1996 10-K.
10.24(a) Second Amendment dated August 1, 1998 to Employment
Agreement dated September 26, 1994 between the Registrant
and Donald B. Stevens. 66-71
10.25*(a) Employment Agreement dated August 5, 1996 between the
Registrant and Paul Kohn, filed as Exhibit 10.25 to the 1996
10-K.
10.26(a) First Amendment dated August 1, 1998 to Employment Agreement
dated August 5, 1996 between the Registrant and Paul Kohn. 72-76
10.27*(a) Employment Agreement made as of January 5, 1998 between the
Registrant and John Adamovich, filed as Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended November 1, 1997.
10.28*(a) Employment Agreement made as of January 12, 1998 between the
Registrant and Steven Chisolm, filed as Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended January 31, 1998.
10.29(a) First Amendment dated August 1, 1998 to Employment Agreement
dated January 12, 1998 between the Registrant and Steven
Chisolm. 77-82
10.30(a) Employment Agreement made as of August 1, 1998 between the
Registrant and Charles R. Grimm. 83-102
10.31(a) Service Agreement dated August 1, 1998 between Pall Europe
Limited and Marcus Albert Wilson. 103-114
10.32*(a) Pall Corporation Supplementary Profit Sharing Plan as
amended and restated February 15, 1995, filed as Exhibit
10.26 to the 1996 10-K.
10.33*(a) Pall Corporation Supplementary Pension Plan (As amended effective
October 6, 1997), filed as Exhibit 10.25 to the 1997 10-K.
10.34*(a) Pall Corporation Profit Sharing Plan, as amended and
restated as of January 1, 1997, filed as Exhibit 10.26 to
the 1997 10-K.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 21
21
Page
Exhibit of 1998
Number Description of Exhibit Form 10-K
10.35*(a) Pall Corporation 1993 Stock Option Plan, filed as Exhibit
10.22 to the 1993 10-K.
10.36*(a) Pall Corporation 1991 Stock Option Plan, filed as Exhibit
10.42 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 3, 1991 (the "1991 10-K").
10.37*(a) Pall Corporation 1988 Stock Option Plan, as amended through
October 8, 1991, filed as Exhibit 10.32 to the 1991 10-K.
10.38*(a) Pall Corporation Stock Option Plan for Non-Employee
Directors, filed as Exhibit 10.26 to the Registrant's Form
10-Q for the quarterly period ended October 28, 1995.
10.39*(a) Pall Corporation 1995 Employee Stock Option Plan, filed as
Exhibit 10.27 to the Registrant's Form 10-Q for the
quarterly period ended October 28, 1995.
10.40*(a) Principal Rules of the Pall Supplementary Pension Scheme,
filed as Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 29, 1995 (the "1995
10-K").
10.41*(a) Pall Deutschland GmbH Holding, Concept Of An Additional
Pension Plan For Senior Executives, filed as Exhibit 10.35
to the 1996 10-K.
13 Annual Report to Shareholders for the year ended August 1,
1998 115-160
21 Subsidiaries of Pall Corporation. 161
23 Consent of Independent Auditors. 162
27 Financial Data Schedule (only filed electronically).
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE> 1
Exhibit 3(ii)
PALL CORPORATION
BY-LAWS
(as amended on October 9, 1998)
ARTICLE I
Offices
Section 1.01 Offices. The principal office of the corporation shall
be as stated in the certificate of incorporation. The corporation may also have
offices and places of business at such other places within and without the State
of New York as the board of directors may from time to time determine.
ARTICLE II
Stockholders
Section 2.01 Annual Meeting. The annual meeting of the stockholders
for the election of directors (and the transaction of such other business as may
properly come before it) shall be held on such date within six months after the
end of each fiscal year of the corporation, and at such time and place within
the State of New York, as are fixed by resolution of the board of directors and
stated in the notice of meeting.
Section 2.02 Special Meetings. Special meetings of the shareholders
for any purpose or purposes may be called by the president (or, in case of the
absence or disability of the president, by any vice president) and must be
called by him on the written request of a majority of the directors in office or
<PAGE> 2
of the holders of 50% of the shares then outstanding and entitled to vote. Such
request shall state the date and hour, the place within the City of Glen Cove or
the City of New York, and the purpose or purposes of the meeting, and must be
delivered or mailed to the president or such vice president not later than
fifteen days prior to the proposed date of the meeting.
Section 2.03 Notice of Meetings. Written or printed notice of each
meeting of stockholders, stating the purpose or purposes for which the meeting
is called and the date and hour when and the place within the State of New York
where it is to be held, shall be signed by the president or a vice president, or
by the secretary or an assistant secretary, and a copy thereof shall be mailed
to each stockholder of record entitled to vote at such meeting not less than ten
nor more than forty days before the meeting, directed to his address as it
appears on the books of the corporation, but if a stockholder shall have
requested that notice be sent to another address in a writing previously filed
with the secretary, then to such address. Except as required by statute, notice
of any adjourned meeting shall not be required.
Section 2.04 Quorum. At any meeting of the shareholders, the holders
of a majority of the shares entitled to vote then issued and outstanding,
present in person or represented by proxy, shall constitute a quorum except as
otherwise provided by law or by the certificate of incorporation.
A lesser interest may adjourn any meeting from time to time, and the
meeting may be held as adjourned without further notice.
-2-
<PAGE> 3
When a quorum is present or represented at any meeting, a majority of the
stock represented thereat shall, except where a larger vote is required by law,
by the certificate of incorporation, or by these by-laws, decide any question
brought before such meeting.
Section 2.05 Proxies and Voting. Each stockholder of record shall be
entitled to one vote for each share of stock registered in the name of such
stockholder on the books of the corporation, and such votes may be cast either
in person or by proxy. Every proxy must be executed in writing by the
stockholder or by his duly authorized attorney. No proxy shall be valid after
the expiration of eleven months from the date of its execution unless a longer
duration shall have been specified therein, and every proxy shall be revocable
at the pleasure of the person executing it or of his personal representatives or
assigns.
Section 2.06 Inspectors of Election. Elections of directors shall be
conducted by two inspectors of election, neither of whom shall be a candidate
for the office of director, appointed either by the chief executive officer, or,
if he fails to appoint, by a per capita vote of the stockholders personally
present at the election. The inspectors, before entering on the discharge of
their duties, shall be sworn faithfully to execute the duties of inspectors with
strict impartiality and according to the best of their ability, and shall
execute a written certificate of the results of the election.
-3-
<PAGE> 4
ARTICLE III
Board of Directors
Section 3.01 Number and Term of Office. The board of directors shall
consist of not less than three nor more than twelve directors, all of whom shall
be of full age, and at least one of whom shall be a citizen of the United States
and a resident of the State of New York; the number of directors shall be twelve
until the annual meeting of shareholders on November 19, 1998 and eleven
thereafter. The directors shall have power from time to time, and at any time,
when the stockholders as such are not assembled in a meeting, regular or
special, to increase their own number within the limits as to number of
directors set forth in the certificate of incorporation. If the number of
directors be increased, the additional directors may be elected by a majority of
the directors in office at the time of the increase, or if not so elected prior
to the next annual meeting of the stockholders, they shall be elected thereat by
the stockholders. Directors may, but need not, be stockholders.
Section 3.02 Powers. The business of the corporation shall be
managed by the board of directors which shall have and may exercise all the
powers of the corporation, except such as are expressly conferred upon the
stockholders by law, by the certificate of incorporation, or by these by-laws.
-4-
<PAGE> 5
Section 3.03 Executive Committee. There may be an executive
committee of not less than three directors appointed by the board who may meet
from time to time on notice to all by any one of their own number. They may
consult with and advise the officers of the corporation in the management of its
business and, when the board of directors is not in session, shall have all the
authority of the board, except with respect to those matters as to which Section
712 of the Business Corporation Law of New York withholds authority from any
committee of the board. Vacancies shall be filled by the board of directors at
any regular or special meeting. The executive committee shall keep regular
minutes of its proceedings and report the same to the board when required.
Section 3.04 Regular Meetings. Regular meetings of the board of
directors may be held without call or formal notice at such places either within
or without the State of New York and at such times as the board may from time to
time by vote determine. A regular meeting of the board of directors for the
election of officers and for such other business as may come before the meeting
may be held without call or formal notice immediately after, and at the same
place as, the annual meeting of stockholders or any special meeting of
stockholders at which a board of directors is elected.
Section 3.05 Special Meetings. Special meetings of the board of
directors may be held at any place either within or without the State of New
York at any time when called by the chief executive officer or secretary or a
majority of the directors,
-5-
<PAGE> 6
written notice of the time and place thereof having been given to each director
as follows: (a) by delivering a copy of such notice to the director personally
no later than the second day preceding the date of the meeting, or (b) by
sending a copy of such notice addressed to the director at his mailing address
as it appears on the books of the corporation, such notice to be sent no less
than ten days before the date of the meeting if sent by ordinary mail or no
later than the third business day before the date of the meeting if sent by
overnight mail or by a courier service (such as Federal Express) which
guarantees next day delivery, or (c) by transmitting such notice to the director
by telecopier (to a telecopier number which has been furnished by him to the
Secretary of the corporation) no later than the second business day preceding
the date of the meeting.
Section 3.06 Quorum. Either of the following shall constitute a
quorum of the board of directors, to wit:
(a) One-half of the total number of directors or
(b) any four directors, of whom at least two shall also be principal
officers of the corporation;
but a lesser number may adjourn any meeting. A quorum of any committee shall be
a majority of the members thereof except that any committee may, by unanimous
action, determine that a lesser number of members (not less than half) shall
constitute a quorum. A majority of the members in attendance at any meeting
shall, except where a larger number is required by law, by the certificate
-6-
<PAGE> 7
of incorporation, or by these by-laws, decide any question brought before such
meeting.
Section 3.07 Classification of Directors. Upon election of directors
at the annual meeting of stockholders in 1971, the board of directors shall be
divided into three classes, as nearly equal in number as possible, and no class
shall include less than three directors. The terms of office of the directors
initially classified shall be as follows: that of the first class shall expire
at the next annual meeting of stockholders in 1972, the second class at the
annual meeting next following July 31, 1973 and the third class at the annual
meeting next following July 31, 1974.
At each annual meeting after such initial classification and election in
1971, directors to replace those whose terms expire at such annual meeting shall
be elected to hold office until the third succeeding annual meeting after their
election. If after the initial classification of directors the number of
directors is changed:
(1) Any newly created directorships or any decrease in directorships
shall be so apportioned among the classes as to make all classes as nearly
equal in number as possible; and
(2) When the number of directors is increased by the board and any
newly created directorships are filled by the board, there shall be no
classification of the additional directors until the next annual meeting
of stockholders.
Section 3.08 Action by the Board Without a Meeting. Any action
required or permitted to be taken by the board or any
-7-
<PAGE> 8
committee thereof may be taken without a meeting if all members of the board or
the committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
board or committee shall be filed with the minutes of the proceedings of the
board or committee.
Section 3.09 Participation in Meetings by Telephone. Any one or more
members of the board or any committee thereof may participate in a meeting of
such board or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 3.10 Audit, Compensation and Nominating Committees. There
may be an Audit Committee, a Compensation Committee, and a Nominating Committee,
each consisting of not less than three directors appointed by the Board, each of
which Committees may meet from time to time on notice to all members thereof by
any member thereof. Such Committees shall keep regular minutes of their
proceedings and report the same to the Board. The Audit Committee shall have
such powers and perform such functions as are customarily performed by audit
committees of publicly owned corporations including but not limited to such
powers and functions as may be prescribed by applicable rules or requirements of
the Securities and Exchange Commission or of any stock exchange on which
securities of the Corporation are listed. The Compensation
-8-
<PAGE> 9
Committee shall have the power and duty to fix the compensation of officers of
the Corporation from time to time and to authorize and approve the making of
employment contracts between the Corporation and its officers and shall have
such other powers and duties as may be assigned to it by resolution of the
Board. Effective November 21, 1995, the Compensation Committee shall also have,
with respect to each Stock Option Plan of the Corporation, the powers and duties
which, by the terms of such Plan, are delegated to and imposed upon the
Committee administering such Plan, irrespective of whether the Plan denominates
such Committee as the Stock Option Committee or the Compensation Committee. The
Nominating Committee shall have 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 of directors, and to evaluate participation
and contribution of current board members.
Section 3.11 Chairman, etc. The board of directors may elect from
among its members a Chairman, a Founder Chairman (which office may only be
occupied by Dr. David B. Pall) and a Chairman Emeritus, all of whom shall hold
such titles at the pleasure of the board. The persons having the titles Founder
Chairman and Chairman Emeritus shall not thereby be or be deemed officers of the
corporation.
-9-
<PAGE> 10
ARTICLE IV
Officers and Agents
Section 4.01 (a) Corporate Officers and Agents. The officers of the
corporation shall be a chairman, a president, one or more executive vice
presidents (one of whom may be designated the chief operating officer of the
corporation), one or more group vice presidents, a secretary, a treasurer and a
controller. The officers hereinabove in this paragraph referred to shall be
elected annually by the board of directors and shall hold office until their
respective successors are chosen and qualified. The corporation may have such
other officers and agents as may be deemed necessary who shall be chosen in such
manner and hold their positions for such terms and have such authority and
duties as from time to time may be determined by the board of directors. The
salaries of the officers of the corporation shall be fixed by the board of
directors or, if there is a Compensation Committee of the board, then by said
Committee. One person may hold more than one office except to the extent
prohibited by law. In all cases where the duties of any officer, agent or
employee are not specifically prescribed by the by-laws or by the board of
directors, such officer, agent or employee shall follow the orders and
instructions of the chief executive officer or of such other corporate officer
as may be designated by the chief executive officer.
(b) Appointment of Non-Corporate Vice Presidents, etc. In addition
to corporate officers elected by the board of directors pursuant to subparagraph
(a) next above, the chief executive
-10-
<PAGE> 11
officer may appoint and remove one or more employees as divisional or
non-corporate vice presidents and one or more persons (who may but need not be
employees of the corporation) as assistant secretaries, assistant treasurers and
assistant controllers. The chief executive officer may at his option also
include as part of the title of any such divisional or non-corporate vice
president so appointed a designation which will indicate the principal position
or area of responsibility of such appointee and/or the designation "senior vice
president". Persons so appointed in accordance with this paragraph shall report
to, be under the supervision of and have such authority and duties as may be
specified from time to time by the chief executive officer or by such other
corporate officer as the chief executive officer may designate. Such appointed
vice presidents, assistant secretaries, assistant treasurers and assistant
controllers shall not be or be deemed officers of the corporation. Each such
appointment shall be in writing filed with the secretary. Such appointments
shall expire annually at the organizational meeting of the board of directors
following the annual meeting of shareholders or at such other time as the chief
executive officer may specify or determine.
Section 4.02 Chairman. The chairman shall be the chief executive
officer of the corporation. He shall have supervision of its affairs and
business subject to the direction of the board of directors. The chairman shall
preside at all meetings of the stockholders, of the board of directors and of
the executive committee unless he shall designate another officer or director to
-11-
<PAGE> 12
preside at any such meeting. He shall, unless otherwise directed by the board of
directors, attend in person or by substitute appointed by him, or shall execute
on behalf of the corporation written instructions appointing a proxy or proxies
to represent the corporation at, all meetings of the stockholders of any
corporation in which the corporation shall hold any stock and may, on behalf of
the corporation, in person or by substitute or by proxy, execute written waivers
of notice and consents with respect to any such meetings. At all such meetings
and otherwise, the chairman in person or by substitute or proxy as aforesaid,
may vote the stock so held by the corporation and may execute written consents
and other instruments with respect to such stock and may exercise any and all
rights and powers incident to the ownership of said stock, subject however to
the instructions, if any, of the board of directors. The chairman shall have
custody of the treasurer's bond, if any.
Section 4.03 President and Vice Presidents. The president and the
vice presidents shall assist the chairman and shall perform such duties as may
be assigned to them by the chairman or by the board of directors. In the absence
of the chairman, the president (or, in the absence of the president and the
chairman, the executive vice presidents in order of their seniority) shall have
the powers and perform the duties of the chairman. Seniority of the executive
vice presidents may be determined in accordance with such designation as may be
made for the purpose from time to time by the board of directors, and in the
-12-
<PAGE> 13
absence of any designation shall be determined by length of service with the
corporation except that an executive vice president who has been designated
chief operating officer shall thereby be deemed the executive vice president
with the greatest seniority.
Section 4.04 Secretary. The secretary shall keep the minutes of all
proceedings of the directors and of the shareholders. He shall attend to the
giving of notices to the shareholders and directors, or of other notices
required by law or by these by-laws. He shall have custody of the seal of the
corporation and shall affix such seal to deeds, contracts and other written
instruments when authorized by the board of directors. He shall have charge of
the stock certificate book and stock ledger and such other books and papers as
the board may direct, and he shall perform all other duties incident to the
office of secretary.
Section 4.05 Treasurer. The treasurer shall be the chief financial
officer of the corporation. The treasurer shall have the care and custody of all
funds, securities, evidences of indebtedness and other personal property of the
corporation and shall deposit the same in accordance with the instructions of
the board of directors. He shall receive and give receipts and acquittances for
moneys paid in on account of the corporation, and shall pay out of the funds on
hand all bills, payrolls and other just debts of the corporation of whatever
nature upon maturity of the same. He shall enter regularly in books belonging to
the corporation, to be kept by him for that purpose, full and accurate accounts
of all moneys received and paid out by him on account of
-13-
<PAGE> 14
the corporation, and he shall perform all other duties incident to the office of
the treasurer and, upon request of the board, he shall make such reports to it
as may be required at any time. He shall, if required by the board, give the
corporation a bond in such sums and with such sureties as shall be satisfactory
to the board, conditioned upon the faithful performance of his duties and for
the restoration to the corporation in case of his death, resignation, retirement
or removal from office of all books, papers, vouchers, money and other property
of whatever kind in his possession, or under his control belonging to the
corporation.
Section 4.06 Compensation of Officers. The officers shall receive
such salary or compensation as may be determined by the Compensation Committee.
ARTICLE V
Removals, Resignations and Vacancies
Section 5.01 Directors. Any director may resign at any time by
giving written notice thereof to the chief executive officer, and such
resignation shall take effect at the time therein specified. Whenever any
vacancy shall occur in the board of directors by death, resignation or
otherwise, the same shall be filled without undue delay by a majority vote of
the remaining members of the board at any regular or special meeting. The person
so chosen shall hold office until the next annual meeting or until his successor
shall have been chosen at a special meeting of the stockholders.
-14-
<PAGE> 15
Section 5.02 Officers. The board of directors may, at any meeting
called for the purpose, remove from office any officer of the corporation. Any
officer may resign at any time by giving written notice thereof to the chief
executive officer, and such resignation shall take effect at the time therein
specified. Any vacancy occurring in the offices of chairman, president,
executive vice president, group vice president, secretary, treasurer or any
other corporate office, whether owing to removal, resignation, death or any
other reason, may be filled by the board of directors, and the officers so
chosen shall hold office at the pleasure of the board of directors.
ARTICLE VI
Stock
Section 6.01 Certificates. Certificates of stock shall be signed in
the name of the corporation by the chairman or the president and by the
secretary or an assistant secretary and shall be sealed with the seal of the
corporation. Certificates for each class of authorized stock shall be
consecutively numbered, and the names and residences of the owners, the date of
issue, the number of shares and the amount paid therefor shall be entered in the
stock books. Certificates of stock shall be in such form consistent with law as
shall be prescribed by the board of directors. The seal of the corporation
attached to any stock certificate may be a facsimile, engraved or printed. Where
any stock certificate is signed by a transfer agent or transfer clerk
-15-
<PAGE> 16
and by a registrar, the signatures of any officer of the corporation appearing
upon such certificate may be facsimiles, engraved or printed.
Section 6.02 Lost Certificates. In case of the alleged loss,
destruction or mutilation of a certificate or certificates of stock, the board
of directors may direct the issuance of a new certificate or certificates in
lieu thereof upon such terms and conditions in conformity with law as it may
prescribe.
Section 6.03 Transfer of Shares. Upon surrender to the corporation
or to a transfer agent of the corporation of a certificate of stock duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, and cancel the old certificate. The
corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as may be required by the laws of New York.
Section 6.04 Closing of Transfer Books or Fixing of Record Date. The
board of directors may prescribe a period not exceeding fifty days prior to the
date of a meeting of the stockholders or prior to the last day on which the
consent or dissent of stockholders may be effectively expressed for any purpose
without a meeting, during which no transfer of stock on the books may be made;
or in lieu of prohibiting the transfer of stock, may fix a time not more than
fifty days prior to the date of any meeting of stockholders or prior to the last
day on which the consent or dissent of stockholders may be effectively expressed
for any purpose without a meeting, as the time as of which stockholders
-16-
<PAGE> 17
entitled to notice of and to vote at such a meeting or whose consent or dissent
is required or may be expressed for any purpose, as the case may be, shall be
determined; and all persons who were holders of record of voting stock at such
time and no others shall be entitled to notice of and to vote at such meeting or
to express their consent or dissent, as the case may be. The board of directors
may also fix a time not exceeding fifty days preceding the time fixed for the
payment of any dividend or the making of any distribution, or for the delivery
of evidences of rights, or evidences of interests arising out of any change,
conversion or exchange of capital stock, as a record time for the determination
of the stockholders entitled to receive any such dividend, distribution rights
or interest, or, at its option, in lieu of so fixing a record time, may
prescribe a period not exceeding fifty days prior to the date for such payment,
distribution or delivery during which no transfer of stock on the books of the
corporation may be made.
-17-
<PAGE> 18
ARTICLE VII
Miscellaneous
Section 7.01 Waiver of Notice. Whenever, in accordance with the laws
of the State of New York, or the by-laws of the corporation, the stockholders or
directors are required to meet after call, notice, lapse of time or other
prerequisite, a meeting may be held without call, notice, lapse of time or other
prerequisite, upon written waivers signed before or after the meeting by all
persons entitled to notice and stating the time and place of such meeting. The
presence at any meeting of a person or persons entitled to notice thereof shall
be deemed a waiver of such notice as to such person or persons.
Section 7.02 Indemnification. The Corporation shall indemnify any
person made or threatened to be made a party to any action or proceeding,
whether civil or criminal (and whether or not by or in the right of the
corporation or of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise), by reason of the fact that such person, his testator or
intestate, is or was a director or officer of the corporation or served any
other corporation of any type or kind, domestic or foreign, or any partnership,
joint venture, trust, employee benefit plan or other enterprise in any capacity
at the request of the corporation, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees, actually and
necessarily incurred as a result of such action or proceeding, or any appeal
-18-
<PAGE> 19
therein, provided that (i) no indemnification may be made to or on behalf of any
person if a judgment or other final adjudication adverse to such person
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled; (ii) no indemnification shall be
required in connection with the settlement of any pending or threatened action
or proceeding, or any other disposition thereof except a final adjudication,
unless the corporation has consented to such settlement or other disposition,
and (iii) the corporation shall not be obligated to indemnify any person by
reason of the adoption of this Section 7.02 if and to the extent such person is
entitled to be indemnified under a policy of insurance as such policy would
apply in the absence of the adoption of this Section 7.02.
Reasonable expenses, including attorneys' fees, incurred in
defending any action or proceeding, whether threatened or pending, shall be paid
or reimbursed by the corporation in advance of the final disposition thereof
upon receipt of an undertaking by or on behalf of the person seeking
indemnification to repay such amount to the corporation to the extent, if any,
such person is ultimately found not to be entitled to indemnification.
Notwithstanding any other provision hereof, no amendment or repeal
of this Section 7.02, or any other corporate action or agreement which prohibits
or otherwise limits the right of any
-19-
<PAGE> 20
person to indemnification or advancement or reimbursement of expenses hereunder,
shall be effective as to any person until the 60th day following notice to such
person of such action, and no such amendment or repeal or other corporate action
or agreement shall deprive any person of any right hereunder arising out of any
alleged or actual act or omission occurring prior to such 60th day.
The corporation is hereby authorized, but shall not be required, to
enter into agreements with any of its directors, officers or employees providing
for rights to indemnification and advancement and reimbursement of reasonable
expenses, including attorneys' fees, to the extent permitted by law, but the
corporation's failure to do so shall not in any manner affect or limit the
rights provided for by this Section 7.02 or otherwise.
For purposes of this Section 7.02, the term "the corporation" shall
include any legal successor to the corporation, including any corporation which
acquires all or substantially all of the assets of the corporation in one or
more transactions. For purposes of this Section 7.02, the corporation shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the corporation or any subsidiary
thereof also imposes duties on, or otherwise involves services by, such person
to the plan or participants or beneficiaries of the plan, and excise taxes
assessed on a person with respect to an employee benefit plan pursuant to
applicable law shall be considered fines.
-20-
<PAGE> 21
The rights granted pursuant to or provided by the foregoing
provisions of this Section 7.02 shall be in addition to and shall not be
exclusive of any other rights to indemnification and expenses to which any such
person may otherwise be entitled by law, contract or otherwise.
ARTICLE VIII
Amendments
Section 8.01 By Stockholders. The stockholders may make, amend and
repeal the by-laws of the corporation at any annual meeting or at any special
meeting called for the purpose.
Section 8.02 By Directors. Subject to the provisions of Section 8.03
hereof, the board of directors shall have power to make, amend and repeal the
by-laws of the corporation, by vote of a majority of all the directors, at any
regular or special meeting of the board.
Section 8.03 By Stockholders Only. The board of directors shall have
no power to amend or repeal any of the provisions of Sections 2.02, 2.03, 2.04,
or this Section 8.03, and any such provisions may be amended or repealed only in
the manner provided in Section 8.01. Notwithstanding the foregoing, however, the
board of directors may amend this Section 8.03 if the sole effect of such
amendment is to add to the list of the provisions which may only be amended in
the manner set forth in Section 8.01.
-21-
<PAGE> 1
Exhibit 10.11
[ELECTED VICE PRESIDENT FORM]
[SINGLE BONUS]
FOURTH AMENDMENT
Amendment Dated August 1, 1998 to Employment Agreement Dated
February 1, 1992, as amended July 19, 1993, August 1, 1995
and October 6, 1997
Pall Corporation, a New York Corporation ("the Company") and Arnold
Weiner ("Executive") hereby agree, that the Employment Agreement between
them dated February 1, 1992, as amended July 19, 1993, August 1, 1995 and
October 6, 1997 is hereby further amended effective August 1, 1998 by
changing Section 3(b) thereof to read and provide as follows:
(b) Bonus Compensation. With respect to each fiscal year of the Company
falling in whole or in part within the Term of Employment beginning with
the fiscal year ending July 31, 1999, Executive shall be entitled to a
bonus (in addition to his Base Salary) in such amount and computed in such
manner as shall be determined by the Board of Directors but in no event
shall the bonus payable to Executive under this Section 3(b) be less than
an amount computed by applying to the fiscal year in question the
following bonus formula:
"Bonus Compensation" means the amount, if any, payable to Executive
under this Section 3(b).
<PAGE> 2
"Average Equity" means the average of stockholders' equity as shown
on the fiscal year-end consolidated balance sheet of the Company as of the
end of the fiscal year with respect to which Bonus Compensation is being
computed hereunder and as of the end of the immediately preceding fiscal
year (e.g., "Average Equity" to be used in computing Bonus Compensation
for the fiscal year ending July 31, 1999 will be the average of
stockholders' equity as of August 2, 1998 and July 31, 1999) 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 1999, "Zero Bonus Percentage"
2
<PAGE> 3
shall mean a Return on Equity of 12.5% and "Maximum Bonus Percentage"
shall mean a Return on Equity of 17.0%. For fiscal years after fiscal 1999
the Company shall determine the Zero Bonus Percentage 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 Bonus Compensation shall be payable. If
Return on Equity equals or exceeds the Maximum Bonus Percentage, the Bonus
Compensation payable to Executive shall be 70% of his Base Salary. If
Return on Equity is more than the Zero Bonus Percentage and less than the
Maximum Bonus Percentage, the Bonus Compensation shall be increased from
zero percent of Base Salary towards 70% of Base Salary in the same
proportion that Return on Equity increases from the Zero Bonus Percentage
to the Maximum Bonus Percentage. Thus, for example, if Return on Equity
for fiscal 1999 is 14.75% (the midpoint between 12.5% and 17.0%) the Bonus
Compensation shall be an amount equal to 35%
3
<PAGE> 4
of Executive's Base Salary (the midpoint between zero percent of Base
Salary and 70% of Base Salary).
The Bonus Compensation shall be paid in installments as follows:
(i) 50% of the amount thereof in August next following the end of the
fiscal year with respect to which the Bonus Compensation is payable,
and
(ii) the balance thereof not later than January 15th next following the
end of the fiscal year with respect to which the Bonus Compensation
is payable.
With respect to any fiscal year of the Company which falls in part
but not in whole within the Term of Employment, the Bonus Compensation to
which Executive is entitled under this Section 3(b) shall be prorated on
the basis of the number of days of such fiscal year falling within the
Term of Employment except that if the Term of Employment ends within five
days before or after the end of a fiscal year, there shall be no proration
and the Bonus Compensation shall be payable with respect to the full
fiscal year ending within such five-day period.
4
<PAGE> 5
Except as expressly amended hereby, said Employment Agreement dated
February 1, 1992, as amended July 19, 1993, August 1, 1995 and October 6,
1997 shall remain in full force and effect in accordance with its terms.
PALL CORPORATION
BY: /s/ JEREMY HAYWARD-SURRY
-----------------------------------
JEREMY HAYWARD-SURRY
PRESIDENT
EXECUTIVE
/s/ ARNOLD WEINER
-----------------------------------
ARNOLD WEINER
5
<PAGE> 1
Exhibit 10.15
[ELECTED VICE PRESIDENT FORM]
[SPLIT BONUS]
THIRD AMENDMENT
Amendment Dated August 1, 1998 to Employment Agreement Dated
February 1, 1992, as amended
July 19, 1993 and August 1, 1995
Pall Corporation, a New York Corporation ("the Company") and Samuel
T. Wortham ("Executive") hereby agree, that the Employment Agreement
between them dated February 1, 1992, as amended July 19, 1993 and August
1, 1995, is hereby further amended effective August 1, 1998 by changing
Section 3(b) thereof to read and provide as follows:
(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 Section 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,
<PAGE> 2
if any, payable to Executive under this Section 3(b)(i) and "Bonus
Compensation" means the total amount payable under Section 3(b)(i) and
Section 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 Formula Bonus Compensation is
being computed hereunder and as of the end of the immediately preceding
fiscal year (e.g., "Average Equity" to be used in computing Bonus
Compensation for the fiscal year ending July 31, 1999 will be the average
of stockholders' equity as of August 2, 1998 and July 31, 1999) 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.
2
<PAGE> 3
"Return on Equity" means Net Earnings as a percentage of Average
Equity.
For fiscal year 1999, "Zero Bonus Percentage" shall mean a Return on
Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on
Equity of 17%. For fiscal years after fiscal 1999 the Company shall
determine the Zero Bonus Percentage 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 28% 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 28% of Base
Salary in the same proportion that Return on Equity increases from the
Zero Bonus Percentage to the Maximum Bonus Percentage. Thus,
3
<PAGE> 4
for example, if Return on Equity for fiscal 1999 is 14.75% (the midpoint
between 12.5% and 17%) the Formula Bonus Compensation shall be an amount
equal to 14% of Executive's Base Salary (the midpoint between zero percent
of Base Salary and 28% of Base Salary).
(ii) Business Segment Bonus Compensation. Inasmuch 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 42% of Executive's Base Salary.
(iii) Payment of Bonus Compensation. The Bonus Compensation shall be paid in
installments as follows:
(iv) 50% of the estimated amount thereof in August next following the end
of the fiscal year with respect to which the Bonus Compensation is
4
<PAGE> 5
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 which falls in part
but not in whole within the Term of Employment, the Bonus Compensation to
which Executive is entitled under this Section 3(b) shall be prorated on
the basis of the number of days of such fiscal year falling within the
Term of Employment except that if the Term of Employment ends within five
days before or after the end of a fiscal year, there shall be no proration
and the Bonus Compensation shall be payable with respect to the full
fiscal year ending within such five-day period.
5
<PAGE> 6
Except as expressly amended hereby, said Employment Agreement dated
February 1, 1992, as amended July 19, 1993 and August 1, 1995 shall remain
in full force and effect in accordance with its terms.
PALL CORPORATION
BY: /s/ JEREMY HAYWARD-SURRY
-----------------------------------
JEREMY HAYWARD-SURRY
PRESIDENT
EXECUTIVE
/s/ SAMUEL T. WORTHAM
-----------------------------------
SAMUEL T. WORTHAM
6
<PAGE> 1
Exhibit 10.18
[ELECTED VICE PRESIDENT FORM]
[SPLIT BONUS]
SECOND AMENDMENT
Amendment Dated August 1, 1998 to Employment Agreement Dated
August 1, 1994, as amended
August 1, 1995
Pall Corporation, a New York Corporation ("the Company") and Peter
Cope ("Executive") hereby agree, that the Employment Agreement between
them dated August 1, 1994, as amended August 1, 1995, is hereby further
amended effective August 1, 1998 by changing Section 3(b) thereof to read
and provide as follows:
(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 Section 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,
<PAGE> 2
if any, payable to Executive under this Section 3(b)(i) and "Bonus
Compensation" means the total amount payable under Section 3(b)(i) and
Section 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 Formula Bonus Compensation is
being computed hereunder and as of the end of the immediately preceding
fiscal year (e.g., "Average Equity" to be used in computing Bonus
Compensation for the fiscal year ending July 31, 1999 will be the average
of stockholders' equity as of August 2, 1998 and July 31, 1999) 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.
2
<PAGE> 3
"Return on Equity" means Net Earnings as a percentage of Average
Equity.
For fiscal year 1999, "Zero Bonus Percentage" shall mean a Return on
Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on
Equity of 17%. For fiscal years after fiscal 1999 the Company shall
determine the Zero Bonus Percentage 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 28% 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 28% of Base
Salary in the same proportion that Return on Equity increases from the
Zero Bonus Percentage to the Maximum Bonus Percentage. Thus,
3
<PAGE> 4
for example, if Return on Equity for fiscal 1999 is 14.75% (the midpoint
between 12.5% and 17%) the Formula Bonus Compensation shall be an amount
equal to 14% of Executive's Base Salary (the midpoint between zero percent
of Base Salary and 28% of Base Salary).
(ii) Business Segment Bonus Compensation. Inasmuch 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 42% of Executive's Base Salary.
(iii) Payment of Bonus Compensation. The Bonus Compensation shall be paid in
installments as follows:
(iv) 50% of the estimated amount thereof in August next following the end
of the fiscal year with respect to which the Bonus Compensation is
4
<PAGE> 5
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 which falls in part
but not in whole within the Term of Employment, the Bonus Compensation to
which Executive is entitled under this Section 3(b) shall be prorated on
the basis of the number of days of such fiscal year falling within the
Term of Employment except that if the Term of Employment ends within five
days before or after the end of a fiscal year, there shall be no proration
and the Bonus Compensation shall be payable with respect to the full
fiscal year ending within such five-day period.
5
<PAGE> 6
Except as expressly amended hereby, said Employment Agreement dated
August 1, 1994, as amended August 1, 1995 shall remain in full force and
effect in accordance with its terms.
PALL CORPORATION
BY: /s/ JEREMY HAYWARD-SURRY
-----------------------------------
JEREMY HAYWARD-SURRY
PRESIDENT
EXECUTIVE
/s/ PETER COPE
-----------------------------------
PETER COPE
6
<PAGE> 1
Exhibit 10.21
[ELECTED VICE PRESIDENT FORM]
[SPLIT BONUS]
SECOND AMENDMENT
Amendment Dated August 1, 1998 to Employment Agreement Dated
August 1, 1994, as amended
August 1, 1995
Pall Corporation, a New York Corporation ("the Company") and Robert
Simkins ("Executive") hereby agree, that the Employment Agreement between
them dated August 1, 1994, as amended August 1, 1995, is hereby further
amended effective August 1, 1998 by changing Section 3(b) thereof to read
and provide as follows:
(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 Section 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,
<PAGE> 2
if any, payable to Executive under this Section 3(b)(i) and "Bonus
Compensation" means the total amount payable under Section 3(b)(i) and
Section 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 Formula Bonus Compensation is
being computed hereunder and as of the end of the immediately preceding
fiscal year (e.g., "Average Equity" to be used in computing Bonus
Compensation for the fiscal year ending July 31, 1999 will be the average
of stockholders' equity as of August 2, 1998 and July 31, 1999) 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.
2
<PAGE> 3
"Return on Equity" means Net Earnings as a percentage of Average
Equity.
For fiscal year 1999, "Zero Bonus Percentage" shall mean a Return on
Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on
Equity of 17%. For fiscal years after fiscal 1999 the Company shall
determine the Zero Bonus Percentage 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 28% 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 28% of Base
Salary in the same proportion that Return on Equity increases from the
Zero Bonus Percentage to the Maximum Bonus Percentage. Thus,
3
<PAGE> 4
for example, if Return on Equity for fiscal 1999 is 14.75% (the midpoint
between 12.5% and 17%) the Formula Bonus Compensation shall be an amount
equal to 14% of Executive's Base Salary (the midpoint between zero percent
of Base Salary and 28% of Base Salary).
(ii) Business Segment Bonus Compensation. Inasmuch 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 42% of Executive's Base Salary.
(iii) Payment of Bonus Compensation. The Bonus Compensation shall be paid in
installments as follows:
(iv) 50% of the estimated amount thereof in August next following the end
of the fiscal year with respect to which the Bonus Compensation is
4
<PAGE> 5
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 which falls in part
but not in whole within the Term of Employment, the Bonus Compensation to
which Executive is entitled under this Section 3(b) shall be prorated on
the basis of the number of days of such fiscal year falling within the
Term of Employment except that if the Term of Employment ends within five
days before or after the end of a fiscal year, there shall be no proration
and the Bonus Compensation shall be payable with respect to the full
fiscal year ending within such five-day period.
5
<PAGE> 6
Except as expressly amended hereby, said Employment Agreement dated
August 1, 1994, as amended August 1, 1995 shall remain in full force and
effect in accordance with its terms.
PALL CORPORATION
BY: /s/ JEREMY HAYWARD-SURRY
-----------------------------------
JEREMY HAYWARD-SURRY
PRESIDENT
EXECUTIVE
/s/ ROBERT SIMKINS
-----------------------------------
ROBERT SIMKINS
6
<PAGE> 1
Exhibit 10.24
[ELECTED VICE PRESIDENT FORM]
[SPLIT BONUS]
SECOND AMENDMENT
Amendment Dated August 1, 1998 to Employment Agreement Dated
September 26, 1994, as amended August 1, 1995
Pall Corporation, a New York Corporation ("the Company") and Donald
B. Stevens ("Executive") hereby agree, that the Employment Agreement
between them dated September 26, 1994, as amended August 1, 1995, is
hereby further amended effective August 1, 1998 by changing Section 3(b)
thereof to read and provide as follows:
(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 Section 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,
<PAGE> 2
if any, payable to Executive under this Section 3(b)(i) and "Bonus
Compensation" means the total amount payable under Section 3(b)(i) and
Section 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 Formula Bonus Compensation is
being computed hereunder and as of the end of the immediately preceding
fiscal year (e.g., "Average Equity" to be used in computing Bonus
Compensation for the fiscal year ending July 31, 1999 will be the average
of stockholders' equity as of August 2, 1998 and July 31, 1999) 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.
2
<PAGE> 3
"Return on Equity" means Net Earnings as a percentage of Average
Equity.
For fiscal year 1999, "Zero Bonus Percentage" shall mean a Return on
Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on
Equity of 17%. For fiscal years after fiscal 1999 the Company shall
determine the Zero Bonus Percentage 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 28% 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 28% of Base
Salary in the same proportion that Return on Equity increases from the
Zero Bonus Percentage to the Maximum Bonus Percentage. Thus,
3
<PAGE> 4
for example, if Return on Equity for fiscal 1999 is 14.75% (the midpoint
between 12.5% and 17%) the Formula Bonus Compensation shall be an amount
equal to 14% of Executive's Base Salary (the midpoint between zero percent
of Base Salary and 28% of Base Salary).
(ii) Business Segment Bonus Compensation. Inasmuch 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 42% of Executive's Base Salary.
(iii) Payment of Bonus Compensation. The Bonus Compensation shall be paid in
installments as follows:
(iv) 50% of the estimated amount thereof in August next following the end
of the fiscal year with respect to which the Bonus Compensation is
4
<PAGE> 5
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 which falls in part
but not in whole within the Term of Employment, the Bonus Compensation to
which Executive is entitled under this Section 3(b) shall be prorated on
the basis of the number of days of such fiscal year falling within the
Term of Employment except that if the Term of Employment ends within five
days before or after the end of a fiscal year, there shall be no proration
and the Bonus Compensation shall be payable with respect to the full
fiscal year ending within such five-day period.
5
<PAGE> 6
Except as expressly amended hereby, said Employment Agreement dated
September 26, 1994, as amended August 1, 1995 shall remain in full force
and effect in accordance with its terms.
PALL CORPORATION
BY: /s/ JEREMY HAYWARD-SURRY
-----------------------------------
JEREMY HAYWARD-SURRY
PRESIDENT
EXECUTIVE
/s/ DONALD B. STEVENS
-----------------------------------
DONALD B. STEVENS
6
<PAGE> 1
Exhibit 10.26
FIRST AMENDMENT
Amendment Dated August 1, 1998 to Employment Agreement Dated
August 5, 1996
Pall Corporation, a New York Corporation ("The Company") and Paul
Kohn ("Executive") hereby agree that the Employment Agreement between them
dated August 5, 1996 is hereby amended effective August 1, 1998 by
changing Section 3(b) as follows:
(b) Bonus Compensation. With respect to each fiscal year of the Company
falling in whole or in part within the Term of Employment beginning with
the fiscal year ending July 31, 1999, Executive shall be entitled to a
bonus (in addition to his Base Salary) in such amount and computed in such
manner as shall be determined by the Board of Directors but in no event
shall the bonus payable to Executive under this Section 3(b) be less than
an amount computed by applying to the fiscal year in question the
following bonus formula:
"Bonus Compensation" means the amount, if any, payable to Executive
under this Section 3(b).
"Average Equity" means the average of stockholders' equity as shown
on the fiscal year-end consolidated balance sheet of the Company as of the
end of the fiscal year with respect to which Bonus Compensation is being
computed hereunder and
<PAGE> 2
as of the end of the immediately preceding fiscal year (e.g., "Average
Equity" to be used in computing Bonus Compensation for the fiscal year
ending July 31, 1999 will be the average of stockholders' equity as of
August 2, 1998 and July 31, 1999) 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 1999, "Zero Bonus Percentage" shall mean a Return on
Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on
Equity of 17.0%. For fiscal years after fiscal 1999 the Company shall
determine the Zero Bonus Percentage and the Maximum Bonus Percentage,
consistent in
2
<PAGE> 3
each case with expected results based upon the Company's normal projection
procedures, or based on sound statistical or trend data, and the
determination by the Company of such percentages shall be conclusive and
binding on Executive.
If Return on Equity for the fiscal year in question is the Zero
Bonus Percentage or less, no Bonus Compensation shall be payable. If
Return on Equity equals or exceeds the Maximum Bonus Percentage, the Bonus
Compensation payable to Executive shall be 70% of his Base Salary. If
Return on Equity is more than the Zero Bonus Percentage and less than the
Maximum Bonus Percentage, the Bonus Compensation shall be increased from
zero percent of Base Salary towards 70% of Base Salary in the same
proportion that Return on Equity increases from the Zero Bonus Percentage
to the Maximum Bonus Percentage. Thus, for example, if Return on Equity
for fiscal 1999 is 14.75% (the midpoint between 12.5% and 17.0%) the Bonus
Compensation shall be an amount equal to 35% of Executive's Base Salary
(the midpoint between zero percent of Base Salary and 70% of Base Salary).
The Bonus Compensation shall be paid in installments as follows:
3
<PAGE> 4
(i) 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
(ii) the balance thereof not later than January 15th next following the
end of the fiscal year with respect to which the Bonus Compensation
is payable.
With respect to any fiscal year of the Company which falls in part
but not in whole within the Term of Employment, the Bonus Compensation to
which Executive is entitled under this Section 3(b) shall be prorated on
the basis of the number of days of such fiscal year falling within the
Term of Employment except that if the Term of Employment ends within five
days before or after the end of a fiscal year, there shall be no proration
and the Bonus Compensation shall be payable with respect to the full
fiscal year ending within such five-day period.
4
<PAGE> 5
Except as Expressly amended hereby, said Employment Agreement dated
August 5, 1996 shall remain in full force and effect in accordance with
its terms.
PALL CORPORATION
BY: /s/ JEREMY HAYWARD-SURRY
-----------------------------------
JEREMY HAYWARD-SURRY
PRESIDENT
EXECUTIVE
/s/ PAUL KOHN
-----------------------------------
PAUL KOHN
5
<PAGE> 1
Exhibit 10.29
[ELECTED VICE PRESIDENT FORM]
[SPLIT BONUS]
FIRST AMENDMENT
Amendment Dated August 1, 1998 to Employment Agreement Dated
January 12, 1998
Pall Corporation, a New York Corporation ("the Company") and Steven
Chisolm ("Executive") hereby agree, that the Employment Agreement between
them dated January 12, 1998 is hereby amended effective August 1, 1998 by
changing Section 3(b) thereof to read and provide as follows:
(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 Section 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 Section 3(b)(i)
<PAGE> 2
and "Bonus Compensation" means the total amount payable under Section
3(b)(i) and Section 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 Formula Bonus Compensation is
being computed hereunder and as of the end of the immediately preceding
fiscal year (e.g., "Average Equity" to be used in computing Bonus
Compensation for the fiscal year ending July 31, 1999 will be the average
of stockholders' equity as of August 2, 1998 and July 31, 1999) 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
2
<PAGE> 3
percentage of Average Equity.
For fiscal year 1999, "Zero Bonus Percentage" shall mean a Return on
Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on
Equity of 17%. For fiscal years after fiscal 1999 the Company shall
determine the Zero Bonus Percentage 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 28% 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 28% 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 1999 is
3
<PAGE> 4
14.75% (the midpoint between 12.5% and 17%) the Formula Bonus Compensation
shall be an amount equal to 14% of Executive's Base Salary (the midpoint
between zero percent of Base Salary and 28% of Base Salary).
(ii) Business Segment Bonus Compensation. Inasmuch 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 42% of Executive's Base Salary.
(iii) Payment of Bonus Compensation. The Bonus Compensation shall be paid in
installments as follows:
(iv) 50% of the estimated amount thereof in August next following the end
of the fiscal year with respect to which the Bonus Compensation is
payable, and
4
<PAGE> 5
(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 which falls in part
but not in whole within the Term of Employment, the Bonus Compensation to
which Executive is entitled under this Section 3(b) shall be prorated on
the basis of the number of days of such fiscal year falling within the
Term of Employment except that if the Term of Employment ends within five
days before or after the end of a fiscal year, there shall be no proration
and the Bonus Compensation shall be payable with respect to the full
fiscal year ending within such five-day period.
5
<PAGE> 6
Except as expressly amended hereby, said Employment Agreement dated
January 12, 1998 shall remain in full force and effect in accordance with
its terms.
PALL CORPORATION
BY: /s/ JEREMY HAYWARD-SURRY
-----------------------------------
JEREMY HAYWARD-SURRY
PRESIDENT
EXECUTIVE
/s/ STEVEN CHISOLM
-----------------------------------
STEVEN CHISOLM
6
<PAGE> 1
Exhibit 10.30
[ELECTED VICE PRESIDENT]
SPLIT BONUS
EMPLOYMENT AGREEMENT
AGREEMENT made as of August 1, 1998 between PALL CORPORATION, a New
York corporation (the "Company") and Charles R. Grimm ("Executive").
WHEREAS, the parties desire to terminate, as of July 31, 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 August 1, 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
August 1, 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 or not
customarily performed by a corporate officer. The Company represents
to Executive that the Board of Directors (acting by its Compensation
Committee) has authorized the making of this Agreement and expressed
its present intention that during the Term of Employment Executive
will be an elected officer of the Company. The failure of any future
Board of Directors to elect Executive as an officer of the Company
shall not, however, be deemed to relieve either party hereto of any
of his or its obligations under this Agreement.
(b) If the Board of Directors or the Chief Executive Officer of the
Company so directs, Executive shall serve as an officer of one or
more subsidiaries of the Company (provided that the duties of such
office are not inconsistent with Executive's experience and
2
<PAGE> 3
qualifications and are duties customarily performed by a corporate
officer) and part or all of the compensation to which Executive is
entitled hereunder may be paid by such subsidiary or subsidiaries.
However, such employment and/or payment of Executive by a subsidiary
or subsidiaries shall not relieve the Company from any of its
obligations under this Agreement except to the extent of payments
actually made to Executive by a subsidiary.
(c) During the Term of Employment Executive shall, except during
customary vacation periods and periods of illness, devote
substantially all of his business time and attention to the
performance of his duties hereunder and to the business and affairs
of the Company and its subsidiaries and to promoting the best
interests of the Company and its subsidiaries and he shall not,
either during or outside of such normal business hours, engage in
any activity inimical to such best interests.
SECTION 3. COMPENSATION DURING TERM OF EMPLOYMENT
(a) Base Salary. With respect to the period beginning August 3, 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
3
<PAGE> 4
rate as the Board of Directors may determine (the amount so
determined by the Board being herein called the "Base Salary") but
at not less than the rate of $172,000 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, 1999, as follows: The term "Contract Year" as used herein
means the period from August 1 of each year through July 31 of the
following year. For each Contract Year during the Term of Employment
beginning with the Contract Year which starts August 1, 1999, 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 1998. 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,
4
<PAGE> 5
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, 1999 through July 31, 2000 shall be not less than the
Original Base Salary adjusted by the percentage increase (or
decrease) of the Consumer Price Index for June 1999 over (or below)
said Index for June 1998. Further adjustment in the Minimum Base
Salary shall be made for each ensuing Contract Year, in each case
(i) using the Consumer Price Index for June 1998 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, l999) the Board of Directors fixes the Base
Salary at an amount higher than the Minimum Base Salary, then
(unless the resolution fixing such higher Base Salary provides
otherwise), for the purpose of determining the Minimum Base Salary
for subsequent Contract Years: (1) the amount of the higher Base
5
<PAGE> 6
Salary so fixed shall be deemed substituted for the Original Base
Salary wherever the Original Base Salary is referred to in the
immediately preceding paragraph hereof, and (ii) the base month for
determining the Consumer Price Index adjustment shall be June of the
calendar year in which the Contract Year to which such higher Base
Salary is applicable begins (e.g., if the Board fixes a Base Salary
for the Contract Year beginning August 1, 1999 which is higher than
the Minimum Base Salary, then June 1999 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 Section
3(b) be less than an amount computed by applying to the fiscal year
in question the following bonus
6
<PAGE> 7
formula:
"Formula Bonus Compensation" means the amount, if any, payable
to Executive under this Section 3(b)(i) and "Bonus Compensation"
means the total amount payable under Section 3(b)(i) and Section
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
Formula Bonus Compensation is being computed hereunder and as of the
end of the immediately preceding fiscal year (e.g., "Average Equity"
to be used in computing Bonus Compensation for the fiscal year
ending July 31, 1999 will be the average of stockholders' equity as
of August 2, 1998 and July 31, 1999) 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
7
<PAGE> 8
accountants for inclusion in the annual report to stockholders.
"Return on Equity" means Net Earnings as a percentage of
Average Equity.
For fiscal year 1999, "Zero Bonus Percentage" shall mean a
Return on Equity of 12.5% and "Maximum Bonus Percentage" shall mean
a Return on Equity of 17%. For fiscal years after fiscal 1999 the
Company shall determine the Zero Bonus Percentage 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 28% 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 28% of Base Salary in the same
proportion that
8
<PAGE> 9
Return on Equity increases from the Zero Bonus Percentage to the
Maximum Bonus Percentage. Thus, for example, if Return on Equity for
fiscal 1999 is 14.75% (the midpoint between 12.5% and 17%) the
Formula Bonus Compensation shall be an amount equal to 14% of
Executive's Base Salary (the midpoint between zero percent of Base
Salary and 28% of Base Salary).
(ii) Business Segment Bonus Compensation. Inasmuch 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 42% of Executive's Base Salary.
(iii) Payment of Bonus Compensation. The Bonus Compensation shall be paid
in installments as follows:
(iv) 50% of the estimated amount thereof in August
9
<PAGE> 10
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 which falls in
part but not in whole within the Term of Employment, the Bonus
Compensation to which Executive is entitled under this Section 3(b)
shall be prorated on the basis of the number of days of such fiscal
year falling within the Term of Employment except that if the Term
of Employment ends within five days before or after the end of a
fiscal year, there shall be no proration and the Bonus Compensation
shall be payable with respect to the full fiscal year ending within
such five-day period.
(c) Fringe Benefits and Perquisites. During the Term of Employment,
Executive shall enjoy the customary perquisites of office, including
but not limited to office space and furnishings, secretarial
services, expense reimbursements, and any similar emoluments
customarily afforded to senior executive officers of the Company at
the same level as Executive.
10
<PAGE> 11
Executive shall also be entitled to receive or participate in all
"fringe benefits" and employee benefit plans provided or made
available by the Company to its executives or management personnel
generally, such as, but not limited to, group hospitalization,
medical, life and disability insurance, and pension, retirement,
profit-sharing and stock option or purchase plans.
(d) 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
11
<PAGE> 12
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 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
12
<PAGE> 13
Executive's 65th birthday unless, prior to such birthday, Executive
and the Company have agreed in writing that the Term of Employment
shall continue past such 65th birthday. In that event, unless the
parties have agreed otherwise, the Term of Employment shall be
automatically renewed and extended each year, as of Executive's
birthday, for an additional one-year term, unless either party has
given a Non-Renewal Notice. A Non-Renewal Notice shall be effective
as of Executive's ensuing birthday only if given not less than 60
days before such birthday, and shall state that the party giving
such notice elects that this Agreement shall not automatically renew
itself further, with the result that the Term of Employment shall
end on Executive's ensuing birthday. (ii) If the Term of Employment
ends pursuant to this paragraph by reason of a notice given by
either party as herein permitted or automatically at age 65 or any
subsequent birthday, the Company shall pay to Executive, or to
another payee specified by Executive to the Company in writing,
Executive's Base Salary and Bonus Compensation prorated to the date
on which the Term of Employment ends. (iii) Anything hereinabove to
the contrary notwithstanding, if any provision of this paragraph
13
<PAGE> 14
violates federal or applicable state law relating to discrimination
on account of age, such provision shall be deemed modified or
suspended to the extent necessary to eliminate such violation of
law. If at a later date, by reason of changed circumstances or
otherwise, the enforcement of such provision as set forth herein
would no longer constitute a violation of law, then it shall be
enforced in accordance with its terms as set forth herein.
(c) Change of Control. In 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.
14
<PAGE> 15
SECTION 5. COVENANT NOT TO COMPETE
For a period of eighteen months after the end of the Term of
Employment if the Term of Employment is terminated by notice to the Company
given by Executive under Section 1 or Section 4 hereof, or for a period of
twelve months after the end of the Term of Employment if the Term of Employment
is terminated by notice to Executive given by the Company under Section 1 or
Section 4 hereof or terminates under Section 4 by reason Of Executive 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.
15
<PAGE> 16
SECTION 7. INVENTIONS AND PATENTS
All inventions, ideas, concepts, processes, discoveries,
improvements and trademarks (hereinafter collectively referred to as intangible
rights), whether patentable or registrable or not, which are conceived, made,
invented or suggested either by Executive alone or by Executive in collaboration
with others during the Term of Employment, and whether or not during regular
working hours, shall be disclosed to the Company and shall be the sole and
exclusive property of the Company. If the Company deems that any of such
intangible rights are patentable or otherwise registrable under any federal,
state or foreign law, Executive, at the expense of the Company, shall execute
all documents and do all things necessary or proper to obtain patents and/or
registrations and to vest the Company with full title thereto.
SECTION 8. TRADE SECRETS AND CONFIDENTIAL INFORMATION
Executive shall not, either directly or indirectly, except as
required in the course of his employment by the Company, disclose or use at any
time, whether during or subsequent to the Term of Employment, any information of
a proprietary nature owned by the Company, including but not limited to,
records, data, formulae, documents, specifications, inventions, processes,
methods and intangible
16
<PAGE> 17
rights which are acquired by him in the performance of his duties for the
Company and which are of a confidential information or trade-secret nature. All
records, files, drawings, documents, equipment and the like, relating to the
Company's business, which Executive shall prepare, use, construct or observe,
shall be and remain the Company's sole property. Upon the termination of his
employment or at any time prior thereto upon request by the Company, Executive
shall return to the possession of the Company any materials or copies thereof
involving any confidential information or trade secrets and shall not take any
material or copies thereof from the possession of the Company.
SECTION 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
17
<PAGE> 18
this Section 9, this Agreement shall not be assignable by the Company or by any
entity referred to in such immediately preceding sentence. This Agreement shall
not be assignable by Executive, but in the event of his death it shall be
binding upon and inure to the benefit of his legal representatives to the extent
required to effectuate the terms hereof.
SECTION 10. CAPTIONS
The captions in this Agreement are not part of the provisions
hereof, are merely for the purpose of reference and shall have no force or
effect for any purpose whatsoever, 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
18
<PAGE> 19
standard printed form of "Employee's Secrecy and Invention Agreement" or
"Employee Agreement" if heretofore or hereafter entered into between the parties
hereto so that the making of this Agreement shall not be construed as depriving
the Company of any of its rights or remedies under any such Secrecy and
Invention Agreement or Employee Agreement. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
SECTION 13. NOTICES
All notices given hereunder shall be in writing and shall be sent by
registered or certified mail or 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 Secretary of
the Company, or at such other address and for the attention of such other person
of which the Company shall have given notice to Executive in the manner herein
provided, and, if intended for Executive, shall be delivered to him personally
or shall be addressed to him (if sent by mail) 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
19
<PAGE> 20
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 July 31,
1998 and is superseded and replaced by this Agreement.
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
BY: /s/ CHARLES R. GRIMM
-----------------------------------
CHARLES R. GRIMM
20
<PAGE> 1
Exhibit 10.31
SERVICE AGREEMENT
AN AGREEMENT dated 1 August 1998 between PALL EUROPE LIMITED of Europa House,
Havant Street, Portsmouth PO1 3PD, ("the Company") of the one part and MARCUS
ALBERT WILSON of 22, The Peak, Rowlands Castle, Hampshire PO9 6AH ("the
Executive") of the other part
WHEREBY IT IS AGREED as follows:-
1. EMPLOYMENT AND TERM
SUBJECT as hereinafter provided the Company hereby agrees to employ the
Executive, and the Executive hereby agrees to act as an executive employee
of the Company with the duties set forth in Clause 3 hereof, from the date
hereof and thereafter until either party gives to the other not less than
two year's previous written notice such notice to expire at any time.
2. GENERAL
THERE shall be deemed to form part of the terms and conditions of this
Agreement the Terms and Conditions of Employment for Monthly Paid Staff
(as amended from time to time) and the terms of the Company's Technical
Patent and Confidentiality Agreement, copies of which the executive
acknowledges having received PROVIDED ALWAYS that in the event of conflict
between any part of those terms and this Agreement the terms and
conditions of this Agreement shall prevail.
<PAGE> 2
3. DUTIES
(A) THE Executive agrees that during the continuance of this Agreement
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 its Chairman shall direct except that
the Executive shall not be required to hold any office or position
or to perform any duties or assignment inconsistent with his
experience and qualifications or not customarily performed by an
officer of the Company.
(B) If the Board of Directors or its Chairman so directs, the Executive
shall without further remuneration serve as an officer of or perform
services for one or more subsidiary or associated company of the
Company provided that the duties of such office are not inconsistent
with the Executive's experience and qualifications and are duties
customarily performed by an officer of the Company. The Executive
hereby agrees that the Company shall be entitled from time to time
to second the Executive to any subsidiary or associated company of
the Company without prejudice to the rights of the Executive
hereunder or the other provisions of this Agreement and the Company
shall be at liberty to appoint other persons to act jointly with the
Executive whether in such secondment or in his normal duties
hereunder.
(C) During the continuance of this Agreement the Executive shall, except
during customary periods of holiday and periods of illness, devote
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 subsidiary and associated companies and to promoting the best
interests of the Company and its subsidiary and associated
companies.
<PAGE> 3
(D) The Executive shall not during the continuance of his employment
hereunder (except as a representative of the Company or with the
consent in writing of the Board of Directors of the Company) be
directly or indirectly engaged or concerned in the conduct of any
other business nor shall he be directly or indirectly interested in
any such business save through his holding or being interested in
investments (quoted or unquoted) not representing more than five per
cent of the issued investments of any class of any one company.
4. SALARY AND OTHER BENEFITS
(A) THE Company shall pay to the Executive during the continuance of his
employment hereunder a salary at the annual rate set out in the
Schedule hereto (or such rate as may from time to time be agreed or
determined upon and notified by the Company to the Executive). In
the event of any alternation of salary being so agreed or notified
the alteration shall thereafter have effect as if it were
specifically provided for as a term of this Agreement. Such salary
shall be inclusive of any other sums receivable as Director's fees
or other remuneration from the Company or any of its subsidiary or
associated companies. The said salary shall be payable by equal
monthly payments in arrears by the last day of each month.
(B) Bonus Compensation
With respect to each fiscal year of the Company falling in whole or
in part within the Term of Employment beginning with the fiscal year
ending July 31, 1999, Executive shall be entitled to a bonus (in
addition to his Base Salary) in such amount and computed in such
manner as shall be determined by the Board of Directors but in no
event shall the bonus payable to Executive under this Section 3(b)
be less than an amount computed by applying to the fiscal year in
question the following bonus formula:
<PAGE> 4
"Bonus Compensation" means the amount, if any, payable to Executive
under this Section 3(b).
"Average Equity" means the average of stockholders' equity as shown
on the fiscal year-end consolidated balance sheet of the Company as
of the end of the fiscal year with respect to which Bonus
Compensation is being computed hereunder and as of the end of the
immediately preceding fiscal year (e.g., "Average Equity" to be used
in computing Bonus Compensation for the fiscal year ending July 31,
1999 will be the average of stockholders' equity as of August 2,
1998 and July 31, 1999) 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 1999, "Zero Bonus Percentage" shall mean a Return on
Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return
on Equity of 17.0%. For fiscal years after fiscal 1999 the Company
shall determine the Zero Bonus Percentage 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.
<PAGE> 5
If Return on Equity for the fiscal year in question is the Zero
Bonus Percentage or less, no Bonus Compensation shall be payable. If
Return on Equity equals or exceeds the Maximum Bonus Percentage, the
Bonus Compensation payable to Executive shall be 35% of his Base
Salary. If Return on Equity is more than the Zero Bonus Percentage
and less than the Maximum Bonus Percentage, the Bonus Compensation
shall be increased from zero percent of Base Salary towards 35% 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 1999 is 14.75%
(the midpoint between 12.5% and 17.0%) the Bonus Compensation shall
be an amount equal to 17.5% of Executive's Base Salary (the midpoint
between zero percent of Base Salary and 35% of Base Salary).
The Bonus Compensation shall be paid in instalments as follows:
(i) 50% of the amount thereof in October next following the end of
the fiscal year with respect to which the Bonus Compensation
is payable, and
(ii) the balance thereof not later than March 31st next following
the end of the fiscal year with respect to which the Bonus
Compensation is payable.
With respect to any fiscal year of the Company which falls in part
but not in whole within the Term of Employment, the Bonus
Compensation to which Executive is entitled under this Section 3(b)
shall be prorated on the basis of the number of days of such fiscal
year falling within the Term of Employment except that if the Term
of Employment ends within five days before or after the end of a
fiscal year, there shall be no proration and the Bonus Compensation
shall be
<PAGE> 6
payable with respect to the full fiscal year ending within such
five-day period.
(C) There shall be refunded to the Executive all out-of-pocket expenses
properly incurred by him in the performance of his duties including
expenses of entertainment, subsistence and travelling. The Executive
shall produce to the Company at its request all supporting vouchers
and documents in respect of such expenses.
(D) The Executive shall be entitled without loss of remuneration to such
holiday in each year (in addition to Bank and other public holidays
occurring when not on holiday) as stated in the Terms and Conditions
of Employment for Monthly Paid Staff or as may otherwise be
determined by the Board of Directors to be taken at such time or
times as may be approved by the Board of Directors. No holiday
entitlement may be carried out from year to year and the Executive
shall not be entitled to be paid in lieu of untaken holiday.
(E) The Executive shall be entitled to participate in such benefit
schemes as may be provided by the Company from time to time
including but not limited to medical insurance and life insurance,
and the executive supplementary pension scheme in accordance with
the rules and regulations and announcements applicable to the said
schemes from time to time in force.
(F) The Company shall provide a motor car for the use of the Executive
for the performance of his duties under this Agreement. The motor
car shall have an engine capacity of not less than two litres and be
of such make and model as shall be determined by the Board of
Directors to be consistent with the Executive's office or position.
The Company shall bear the cost of maintaining, insuring, testing
and
<PAGE> 7
taxing the motor car. The Executive is authorised to use the motor
car for private purposes.
5. TERMINATION
(A) THIS Agreement shall be subject to termination by the Company:-
(i) by not less than six months' notice given at any time while
the Executive is incapacitated by reason of ill health, mental
disability or accident and shall have been so incapacitated
for an aggregate of 130 working days (whether or not
consecutive);
(ii) by summary notice if the Executive shall have committed any
serious breach or have repeated or have continued (after
warning) any material breach of his obligations hereunder or
shall have been guilty of conduct tending to bring himself or
the Company or any of its subsidiary or associated companies
into disrepute or shall have become bankrupt or compounded
with his creditors generally or have been convicted of any
criminal offence involving a custodial sentence;
(iii) at any time after the Executive's 65th birthday (irrespective
of whether the Executive is age 65 when this Agreement is
entered into), by notice to the Executive effective on the
date specified in such notice,
(B) In the event of a Change in Control (as hereinafter defined) of the
Company, the Executive shall have the right to terminate this
<PAGE> 8
Agreement by giving not less than 3 months' and not more than 24
months' prior written notice to the Company such notice to be given
not more than 24 months following such Change in Control
(C) Upon the termination of this Agreement howsoever arising the
Executive shall at any time or from time to time thereafter upon the
request of the Company, resign without claim for compensation from
Office as a Director of the Company and all offices held by him in
subsidiary and associated companies of the Company and should he
fail to do so the Company is hereby irrevocably authorised to
appoint some person in his name and on his behalf to sign and do any
documents or things necessary or requisite to give effect thereto.
If the Executive shall cease to be an officer of the Company or any
of its subsidiary or associated companies this Agreement shall not
hereby automatically determine.
6. COMPANY'S RIGHTS TO INJUNCTIVE RELIEF
THE 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 the
Executive.
7. HEADINGS
THE headings in this Agreement are not part of the provisions hereof, are
merely for the purposes 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 heading is inconsistent with any provisions of
this Agreement, the said provisions shall govern.
<PAGE> 9
8. IN this Agreement:-
(i) words and phrases defined for the purposes of Section 736 of the
Companies Act 1985 shall bear the same meaning;
(ii) "associated company" means any company which is (a) a company having
an ordinary share capital of which not less than 25 per cent is
owned directly or indirectly by the Company applying the provisions
of Section 838 of the Income and Corporation Taxes Act 1988 in the
determination of ownership or (b) a holding company of the Company
or a subsidiary of any such holding company or (c) a company to
which the Company or any of its subsidiaries renders managerial,
administrative or technical service otherwise than in the ordinary
course of its business;
(iii) "the Board of Directors" means the Board of Directors of the Company
as the same may be constituted from time to time and includes any
duly appointed committee thereof;
(iv) "Change of Control" - a Change in control of the Company shall be
deemed to have occurred if:
(a) the Company or its holding company sells or agrees to sell the
whole or substantially the whole of the undertaking and assets
of the Company; or
(b) the Company or its holding company sells or agrees to sell the
whole or not less than 50% of the equity share capital of the
Company; or
<PAGE> 10
(c) a member of the Company or its holding company obtains control
of the composition of the Board of Directors of the Company.
For the purpose of this paragraph (c) the composition of the
Company's Board of Directors shall be deemed to be controlled
by a member if (but only if) the member by the exercise of
some power exercisable by it without the consent or
concurrence of any other person can appoint or remove all or a
majority of the Directors of the Company.
9. CHOICE OF LAW
THIS Agreement is made in, and shall be governed by and construed in
accordance with the laws of England.
10. 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 form of Technical Patent and
Confidentiality 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 Technical Patent and Confidentiality Agreement. This Agreement
may not be changed orally, but only by an agreement in writing signed by
the parties hereto.
11. NOTICES
ALL notices given hereunder shall be in writing and shall be sent by
registered post or delivered by hand, and, if intended for the Company,
shall be addressed to it (if sent by post) or delivered to it (if
delivered by hand) at
<PAGE> 11
its registered office for the attention of the Secretary of the Company,
or at such other address and for the attention of such other person of
which the Company shall have given notice to the Executive in the manner
herein provided, and, if intended for the Executive, shall be delivered to
him personally or shall be addressed to him (if sent by post) at his most
recent residence address shown in the Company's employment records or at
such other address or to such designee of which the 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 posting thereof or, if
delivered personally, on the date so delivered.
12. TERMINATION OF ANY PRIOR EMPLOYMENT AGREEMENT
THIS Agreement is in substitution for all previous employment agreements
in effect between the Company and Executive on the date hereof which shall
be deemed to have been terminated by mutual consent as from the date of
commencement of this Agreement.
<PAGE> 12
IN WITNESS WHEREOF the Company has affixed its Common Seal and the Executive has
set his hand and seal the day and year first above written.
THE COMMON SEAL OF )
PALL EUROPE LIMITED )
was hereunto affixed )
in the presence of:- ) /s/ DTD WILLIAMS
/s/ DM LOUCH
SIGNED SEALED AND DELIVERED )
by the said ) /s/ MARCUS ALBERT WILSON
)
in the presence of: ) /s/ JK HAYWARD-SURRY
SCHEDULE
Pursuant to Clause 4 (A) the annual salary of the Executive shall be pound
sterling
<PAGE> 1
Exhibit 13
[LOGO] Pall Corporation 1998 Annual Report
[PHOTOS OMITTED]
<PAGE> 2
[GRAPHIC OMITTED]
COMPANY PROFILE
Pall Corporation is a specialty materials and engineering company with the
broadest-based filtration and separations capabilities in the world. We serve a
diverse, global customer base in three major markets: Health Care, Aeropower and
Fluid Processing. Our proprietary products are used to purify raw materials,
keep equipment running efficiently, ensure product quality and clean up and
minimize waste.
OUR VISION
We strive to be the one-stop source of engineered solutions to the high-end
filtration, separations and purification needs of our customers. By addressing
the totality of customer needs, we can provide the most cost effective products
and become a true consultant and partner of our customer.
MARKET POTENTIAL
Market potential represents Pall's potential at 100% market penetration for
existing products and those ready for release from R&D, in each of our markets
at our selling price. It is a measure of opportunity and is not intended to be
achievable. We endeavor to augment our opportunities through new products, new
markets and expanded geographic presence.
FINANCIAL HIGHLIGHTS
Years Ended
(In thousands, except per share data) August 1, 1998 August 2, 1997
- --------------------------------------------------------------------------------
Net Sales $1,087,285 $1,062,008
Earning Before Income Taxes $ 134,985 $ 86,127
Net Earnings $ 93,633 $ 67,318
Earnings Per Share $ .75 $ .53
Total Assets at Year End $1,346,919 $1,265,624
Working Capital $ 208,399 $ 305,575
Stockholders' Equity $ 765,615 $ 824,833
Average Shares Outstanding 125,070 126,319
Equity Per Share Outstanding at Year End $ 6.18 $ 6.48
Pall at a Glance------>
<PAGE> 3
Pall at a Glance
HEALTH CARE: BIOPHARMACEUTICALS
BioPharmaceuticals, Specialty Materials, Food & Beverage
Pall is an innovator and leader in the supply of filtration systems, validation
services and proprietary membranes fundamental to developers and manufacturers
of pharmaceuticals, biopharmaceuticals, blood fractions, therapeutic biologicals
and food and beverages, as well as producers of diagnostic tests and users of
laboratory-scale filtration devices.
* Market Potential: $3 billion. Competitors: CUNO, Millipore, Sartorius
[THE FOLLOWING TABLES WERE DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
Breakdown of Sales
(amounts in millions)
1998 1997
27% $294.2 $298.9
HEALTH CARE: MEDICAL
Pall filters provide unparalleled protection from foreign leukocyte and viral
contamination, bacteria and particulates. Used extensively in blood centers and
hospitals for patients requiring blood transfusions, open heart surgery, organ
transplants, dialysis, intraveneous feeding and breathing therapy, they help
improve patient outcomes, shorten hospital stays and lower health care costs.
* Market potential: $4.3 billion. Competitors: Asahi Medical, Maco Pharma,
Terumo
[THE FOLLOWING TABLES WERE DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
Breakdown of Sales
(amounts in millions)
1998 1997
24% $260.1 $256.5
AEROPOWER
Pall is a leading supplier to the aerospace market for use on aircraft, ships
and land-based vehicles. Industrial customers include power generation plants
and manufacturers of aluminum, paper, automobiles and mobile equipment. Our
Total Contamination Control approach helps extend the useful life of fluids and
systems, increasing productivity and minimizing waste.
* Market Potential: $2.8 billion. Competitors: Donaldson, Hydac, Koito
Manufacturing, Mark IV Industries, Parker Hannifin, Schroeder, Taisei
[THE FOLLOWING TABLES WERE DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
Breakdown of Sales
(amounts in millions)
1998 1997
24% $258.5 $243.2
FLUID PROCESSING
In this diverse market, Pall serves producers of oil, gas, electricity,
chemicals, semiconductors, computer terminals, disc drives, thin film rigid
discs, photographic film, municipal water and others. Our wide range of
sophisticated products enhance fluid purity by removing microscopic and larger
contaminants that can devastate production equipment, product yields and
quality.
* Market Potential: $7 billion. Competitors: CUNO, Graver, Millipore, Roki
Techno, Ronnigen-Petter, US Filter
* Total Market Potential = $17 billion
[THE FOLLOWING TABLES WERE DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
Breakdown of Sales
(amounts in millions)
1998 1997
25% $274.5 $263.4
<PAGE> 4
[GRAPHIC OMITTED]
Strategic Accomplishments
The strategic acquisitions of Pall Filtron in 1995 and Pall Gelman Sciences in
1997 added unique ultrafiltration and microfiltration systems, products scaled
for lab use, new proprietary membranes and environmental monitoring devices.
This has enabled us to branch out confidently both upstream into the drug
discovery and development labs and downstream of production into the reuse and
discharge of waste for the biopharmaceutical industry. We can now support the
purification needs of an entire industry.
[THE FOLLOWING TABLES WERE DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sales by Market Segment
(amounts in millions)
1998 Sales: 1997 Sales:
6% Specialty Materials $35.0 $39.7
1998 Sales: 1997 Sales:
9% Food & Beverage $49.1 $52.5
1998 Sales: 1997 Sales:
38% BioPharmaceuticals $210.1 $206.7
The purchase of Pall Medsep in 1995 positioned us as a significant player in the
blood bank market, adding integrated blood collection and processing systems to
our prominent blood filter position. Pall has the broadest range of products.
Strategic alliances with other technology leaders pursuing pathogen
inactivation, long-term platelet storage and novel cord stem cell
transplantation therapies have secured a path for product diversification and
future growth.
[THE FOLLOWING TABLES WERE DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sales by Market Segment
(amounts in millions)
1998 Sales: 1997 Sales:
47% Medical $260.1 $256.5
Military-related sales once accounted for 10% of Pall's sales, a figure now
under 5%. More recently, dramatic cuts in defense budgets spurred Pall to focus
on commercial opportunities. Our design and engineering capabilities were
augmented and manufacturing operations streamlined as we gained prominence in
North America. We then looked toward Europe and in 1992 reached a distribution
arrangement with Satair, which in 1994 also picked up distribution for Asia.
Today, our products can be found on virtually every aircraft flying.
[THE FOLLOWING TABLES WERE DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sales by Market Segment
(amounts in millions)
1998 Sales: 1997 Sales:
48% Aerospace $124.5 $110.8
1998 Sales: 1997 Sales:
52% Industrial Hydraulics $134.0 $132.4
Pall has many significant product technologies and alliances with other key
leaders to provide a full systems approach. To highlight a few: several
alliances over the past four years will enable semiconductor producers to create
the next wave of high-tech products. Our 1998 alliance with Coors Ceramics and
the U.S. Department of Energy will create a new generation of materials to
benefit all industries we serve. Our 1998 acquisition of Pall Rochem increases
our participation in the $4 billion municipal and industrial water markets.
[THE FOLLOWING TABLES WERE DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL]
Sales by Market Segment
(amounts in millions)
1998 Sales: 1997 Sales:
32% Microelectronics $ 87.6 $ 93.9
1998 Sales: 1997 Sales:
68% Industrial Process $186.9 $169.5
<PAGE> 5
DEAR SHAREHOLDER,
This is the right time to be a filter company. Filtration is the means to purity
and safety, and the demand for purity and safety is increasing inexorably. We
expect those qualities in the products we buy and of the processes that produce
them.
Pall is the largest and broadest-based company in our industry by a factor of
three, in part because our products enable technologies. As individual
consumers, we may be oblivious to efforts to manufacture products that are pure
and safe. But we experience the demand for those qualities firsthand in the
health care systems that strive to keep us well. Our blood filters protect
patients from the dangerous effects of blood transfusions and have paved the way
for modern chemotherapy and other lifesaving treatments. Our chemical and gas
filters allow semiconductor manufacturers to pack more information into smaller
spaces. Pall filter systems keep airplanes flying and ensure that the air we
breathe on board is safe. Our products are essential to the removal of bacteria
and viruses from pharmaceuticals. Not surprisingly, virtually every manufacturer
and health care provider in the world is a current or potential Pall customer.
Sadly, contamination of the earth's natural resources is growing apace with the
demands for greater purity. It's shocking that only 2% of earth's water is fit
to drink. New, drug-resistant bacteria and viruses plague both hospitals and our
blood supply. Our air is laden with microparticles and chemicals. For these and
other serious problems, Pall products are often the last and best line of
defense. We work daily around the globe to advance our technology to meet these
challenges.
Balanced geographical presence is important to us, and 60% of our sales are
overseas. Unfortunately, there is no entirely satisfactory defense against the
adverse movement of foreign-currency exchange rates. The U.S. dollar
strengthened throughout 1998, particularly against the yen and Deutsche mark.
This hurt our results to the tune of 4% in revenues and a whopping 15 cents in
earnings per share.
[PHOTOS OMITTED]
Eric Krasnoff, Chairman and Chief Executive Officer
Jeremy Hayward-Surry, President
<PAGE> 6
LETTER TO SHAREHOLDERS
Our European sales grew 14% in 1998 in local currency. Even sales in Asia
increased 2% despite the tremendous hammering of its local economies, while
Western Hemisphere sales grew a modest 3%. We saw increases in market share in
each of our key markets and geographies. We lost a battle to exchange rates, but
we are winning more customers each year.
So far in fiscal 1999, exchange rates have been more favorable. Whatever the end
result, we are optimistic that our growth will continue. But we will never leave
this to chance. Enhancing shareholder value is our first priority. What actions
have we taken to further this priority? Pall repurchased $85 million of our own
stock in 1998 with authorization from our Board of Directors to purchase an
additional $65 million in fiscal 1999. We increased our dividend for a record
24th year in a row. Our dividend rate was about 3% at year's end, placing Pall
in the top 10% of dividend-paying companies.
Our strong balance sheet allows us to repurchase shares, increase dividend
payments and make acquisitions while maintaining prudent debt levels. At the end
of fiscal 1998 our net debt to net debt and equity ratio stood at 26%, a modest
and appropriate amount for a company of our size and cash flow.
[PHOTOS OMITTED]
<PAGE> 7
[PHOTOS OMITTED]
Pall's underlying income tax rate has dropped from 30% in 1996 to 25% in 1998.
We expect to maintain this rate through 1999. A prime contributor to this is our
manufacturing plant in Ireland, with its 10% tax rate. In line with this, we
have also substantially increased our manufacturing presence in Puerto Rico.
We have implemented an aggressive program to improve earnings. This includes
both strategic initiatives to reengineer how we manufacture, distribute and
service our products and some good old-fashioned belt tightening. We are adamant
that, barring some debacle in the world economy, Pall's earnings per share will
grow robustly in fiscal 1999.
Our growth strategy has three pillars: internal R&D, geographic expansion and
acquisitions and alliances. In fiscal 1998 each of these contributed. More than
20% of total revenues came from products launched in the past three years. We
have a vigorous pipeline of products in advanced stages of development to fuel
future business.
We established a direct Pall presence in Belgium, New Zealand and Argentina.
Greater political and economic stability in South America created the right
climate to increase our activities in that region.
Pall announced a key acquisition and a major technology partnership in 1998. We
acquired Rochem, a German manufacturer of reverse osmosis filtration systems.
Pall Rochem is a major player in landfill leachate clean-up and shipboard
drinking-water desalination applications. Rochem technology is being expanded
into a broad range of promising areas for purifying water.
3
<PAGE> 8
LETTER TO SHAREHOLDERS
Our largest technology partnership is with VI Technologies (Vitex). Vitex is the
only company to market a virally inactivated plasma product in the U.S. Pall is
making staged equity payments of up to $26 million to Vitex at certain
milestones. In exchange, Pall receives exclusive marketing rights to technology
for the viral and bacterial inactivation of red cells and platelets. This is a
multi-billion dollar opportunity. The final systems will combine Pall blood
filters with Vitex inactivation chemistry, to ensure the safest blood supply
possible.
1998 saw great progress in our efforts to expand the practice of blood
filtration. In July, the United Kingdom joined a growing roster of countries to
mandate leukocyte reduced blood products for all of its citizens. The
announcement cited concerns for nvCJD, a new and fatal variant of Mad Cow
disease that has already killed 28 Europeans. The U.K. also acted based on other
proven benefits of blood filtration...reduced transfusion reactions, protection
against a host of human viruses and prevention of immune suppression. With less
than 20% of the world's blood currently being filtered, we will continue to work
aggressively to bring the protection of filtration to all transfusion
recipients.
A few months later the Blood Products Advisory Committee of the U.S. FDA voted
unanimously to recommend that blood filtration be extended to all blood products
in the U.S. They stated that the many benefits of leukocyte filtration
[PHOTOS OMITTED]
<PAGE> 9
[THE FOLLOWING TABLES WERE DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
Sales (in billions)
1993 1994 1995 1996 1997 1998
.773 .796 .926 1.07 1.06 1.09
Dividends per Share (in dollars)
1993 1994 1995 1996 1997 1998
.31 .36 .41 .47 .54 .61
Diluted Earnings per Share (in dollars)
1993 1994 1995 1996 1997 1998
.65 .84 1.00 1.13 .53 .75
far exceed the cost. While non-binding, the FDA generally follows the
recommendations of its expert committees. We eagerly await further developments.
There were two significant changes to our Board of Directors this year. Dr.
David B. Pall, who founded Pall Corporation 52 years ago, retired from the
Board. He remains active as a consultant to the company. Dr. Pall is one of the
great inventors of the 20th century and continues to inspire all those who work
with him. We extend an enthusiastic welcome to our newest Board member, John H.
F. Haskell, Jr. John is a Managing Director of Warburg Dillon Read LLC. His vast
expertise in investment banking and international affairs is a valuable
resource.
Pall management is focused on its core markets. We strongly believe that each
can be developed to provide reliable double-digit sales and earnings growth. Of
course, all of the opportunity in the world is useless without the means to
capitalize on it. We have strived to create a work environment where both
individuals and groups prosper. Pall employees are first class and a true
competitive asset. They pride themselves on melding our copious technology into
pragmatic solutions to customer problems. In the pages to follow, seven of our
senior officers describe how Pall provides innovativesolutions to our customers'
most vexing problems.
On behalf of our senior management team and all of our employees around the
globe, I invite you to share our excitement and optimism for the future.
/s/ Eric Krasnoff
Eric Krasnoff
Chairman and Chief Executive Officer
5
<PAGE> 10
A Safer Blood Supply
A Matter of Time
[PHOTOS OMITTED]
Leukocyte filtration saves lives and the health care systems of the world
measurable hard dollars. Clinical studies confirm that patients receiving Pall
filtered blood suffer fewer complications, spend less time in the hospital and
cost less to treat. Filtration is now being seen by clinicians and patient
advocacy groups as the first and best line of defense against newer diseases
entering into the blood supply.
There are 25 infectious agents that are known to be blood borne. A 26th disease,
nvCJD, the human form of Mad Cow disease, is suspected of being transmitted
through donor white cells. This added risk, coupled with the known benefits of
leukocyte reduction, led the U.K. government to join others adopting national
routine filtration policies. The landmark U.K. decision is pressuring other
parts of the world to take similar action. This occurred in the U.S. where in
mid-September the Food and Drug Administration's Blood Products Advisory
Committee advocated, "routine leukoreduction of all non-leukocyte transfusion
blood components... ." These exciting developments confirm our belief that all
blood will ultimately be filtered. It is no longer a question of why filter, but
when. Pall is the largest provider of blood filters and filtration systems for
hospitals and blood banks in this multi-billion dollar market and stands ready
to meet world demand.
[PHOTOS OMITTED]
6
<PAGE> 11
No single action has more potential to improve the safety of the blood supply
than the adoption of routine leukocyte filtration. Our acquisition of Pall
Medsep placed us at the center of the blood processing community -- a key focus
for routine filtration.
We also embarked on a number of exciting ventures that will further enhance the
safety and availability of the world's blood supply. We are coupling our blood
expertise and systems capabilities with others developing technologies to:
disable pathogens, including HIV; store platelets indefinitely vs. the five days
possible now; and use placental stem cells to treat cancer patients in place of
bone marrow. These emerging technologies represent significant potential and are
indicative of our commitment to blood processing in the years ahead.
[PHOTOS OMITTED]
Sam Wortham
President, Pall Medical
<PAGE> 12
Pressure is mounting for municipal utilities and water companies to invest in
the future of their systems to meet higher standards. Specifications for new
water systems include requirements for the filtration of bacteria and cysts, the
elimination of viruses and the removal of organic cancer causing compounds. Pall
is uniquely positioned to bring the market solutions for these problems. We have
already received significant orders for municipal water filtration and have
identified over $300 million worth of business to begin to cultivate. Our vast
experience in bacterial and viral filtration, our legacy of innovation and our
engineered systems capabilities should enable Pall to emerge as a leader in this
business.
[PHOTOS OMITTED]
Don Stevens
President, Pall Industrial Process
<PAGE> 13
The Rime of the Ancient Mariner
- - Samuel Taylor Coleridge
"Water, water, every where,
Nor any drop to drink."
Technologies that purify water for use and reuse represent one of the great
business opportunities of the next century and a new $4 billion market for Pall.
Incredibly, only 2% of earth's water is fit for consumption. Tough new
regulations governing drinking water standards are being implemented in the U.S.
with similar legislation expected abroad. Even in the U.S., where drinking water
quality is "good," as many as 50 million people drink water that does not meet
the requirements of the amended Safe Drinking Water Act. These new standards are
not consistently met by the treatment methods common to the municipal water
industry. This void has created a tremendous long-term opportunity for Pall to
supplant old technology with highly-effective membrane systems.
Membrane filtration systems are already prevalent in industry where water
consumption to run plants and produce products is enormous. Industry has long
had requirements to purify water to standards that surpass those that the
municipal market must now meet. Our goal is to parlay our industrial experience
to meet the increasingly stringent quality requirements of the municipal market
and to do so at the lowest cost of ownership. The industry, conservative when it
comes to adopting new technologies, is confirming that membranes provide cleaner
water at significantly lower operating costs than previously expected.
[PHOTOS OMITTED]
9
<PAGE> 14
[PHOTOS OMITTED]
From R&D to Rx
Precision. Consistency. Safety.
Few industries shoulder more awesome responsibility for product quality and
innovation than biopharmaceutical producers and their regulators. As consumers,
we place absolute faith in this industry's ability to protect us and, in large
measure, it has. The importance of filtration in a market in which the slightest
deviation in process can change the product is well understood by the industry.
For its vigilance in developing and applying consistent products and services
for pharmaceutical use, Pall has earned this industry's trust.
Pall's role is evolving along with this vital industry. We built our business
targeting the more critical applications in the process. The emergence of the
biotechnology market, and its reliance on growing active biomolecules in what is
effectively cell plasma, created the need for virus filtration. This opened an
important new field for Pall. As in other industries, filtration and separations
opportunities abound throughout these plants, from the introduction of raw
materials, to the production process, to the process fluids and waste streams.
In the past few years we have expanded our product portfolio (the result of R&D,
acquisitions and licensing agreements), and now offer the means to integrate all
purification steps throughout the plant. But our goal goes beyond serving as an
integrated supplier to this industry. As always, our mission is to continuously
provide upgraded technologies, those that make customers more efficient and
profitable producers of high-quality products. We have just begun to scratch the
surface of this growing multi-billion dollar potential.
[PHOTOS OMITTED]
10
<PAGE> 15
Our acquisitions of Filtron and Gelman signify more than purchases of lab
supplies and customer lists. The shared goal of biopharmaceutical producers and
regulators alike is to safely and quickly introduce promising drugs to the
public. Achieving this is largely dependent upon the successful hand-off of new
products from R&D to manufacturing. Through our efforts, strengthened by our
acquisitions and alliances, we now can offer our customers' R&D staffs the
widest range of filter media to experiment with and the confidence that the same
material will be available for each stage of production scale-up. Pall customers
have unprecedented ability to validate only once instead of after each
development phase. The bottom line to customers is lower development costs and,
most important, faster drug introductions. Every day shaved from the launch of a
new drug may add $2-3 million to the bottom line.
[PHOTOS OMITTED]
Peter Cope
President, Pall BioPharmaceuticals
<PAGE> 16
The semiconductor industry is cyclical. Regardless, preparations must continue
for the next upswing. Our customers understand this. During this slowdown, they
have time to meet with us to evaluate our new technologies and systems - pre-wet
filters for chemical processing; integrated filter/purifiers for process gases;
ultrafiltration for water filtration; and Pall's chemical mechanical polishing
systems. Our CMP system is the only one being used in production environments
and is fast becoming the industry standard. We're using our broad product
portfolio, the result of strategic alliances and rapid product introductions, to
provide filtration and purification technologies and systems throughout the
entire supply chain. When the upswing begins, Pall will be at the forefront.
[PHOTOS OMITTED]
Steve Chisolm
Senior Vice President,
Pall Microelectronics
<PAGE> 17
The Sleeping Giant
Twenty years ago there was no computer industry. Today world economies and
financial markets rise and fall on its strength. The industry will grow
explosively, contract with little or no warning, then take off again. Today's
market is hurt by oversupply of DRAM chips, the Asian economic crisis, and
slowed demand for PCs. Even the "millennium bug" is suspected of suppressing
growth. In spite of its vagaries, the electronics industry remains among Pall's
most exciting and promising markets.
The computer industry has indeed revolutionized society but the reality is, the
revolution has just begun. There's evidence that the industry will return to
strong growth late in 1999. This will be fueled largely by increased global
dependence upon microprocessor-based products and peripheral equipment. The Year
2000 dilemma may be diverting corporate information technology budgets to
software issues now. But when critical computer controlled operations fail, the
most expedient solution may be to replace the hardware. Digital wireless
technology, another nascent market, is poised to take off and is expected to
have a dramatic impact on demand. These events should reinvigorate production.
This industry is intensely reliant upon filtration and purification
technologies. Few filter companies besides Pall can meet its rigorous
performance requirements. Although hampered by market volatility and currency,
we have held our ground, even gained market share. With a host of innovative new
products and key alliances, we are well placed to grow when the industry starts
up again.
[PHOTOS OMITTED]
13
<PAGE> 18
Flying High
with the Market
The world travels by jet. Global economies, multinational trading, low fares,
frequent departures and direct flights have spawned a generation of air
travelers. As a result, airlines are reporting record profits. Major aircraft
manufacturers will build more than 800 commercial jets this year and in each of
the next 20 years. In fact, most of their production capacity is booked into the
next century.
Today's advanced aircraft require ten times more filtration, in dollar terms,
than their predecessors reflecting more efficient engines and control systems
that demand better technology. Each of these new aircraft will generate about 25
years of replacement-filter business throughout its service life. The world
fleet collectively represents an annual filter market valued at $150 million.
The high stakes, critical performance requirements and "razor blade" nature of
this industry hold tremendous appeal for Pall, the market's dominant player. The
commercial aerospace after-market is the fastest growing of our Aeropower
businesses.
[PHOTOS OMITTED]
14
<PAGE> 19
Pall Aerospace is one of the few companies to successfully transition from being
primarily a defense contractor to dominating the commercial aircraft business.
Whilst others downsized in the early 1990s, we streamlined and focused on the
growing commercial market. We invested millions of dollars in engineering and
manufacturing to develop and market innovative, cost-effective products, then
built a strong global distribution system. We were the first to introduce
filtration that removes a wide variety of bacteria and viruses from aircraft
cabin air, allowing passengers and crew to breathe recycled air that is cleaner
than fresh air. The industry and the traveling public are openly enthusiastic
about this capability.
[PHOTOS OMITTED]
Clif Hutchings
President, Pall Aeropower Group
<PAGE> 20
Our vision is to be recognized globally as "the only" filtration and separations
company capable of providing a totally integrated spectrum of process enhancing
technologies -- at the best economics. Our scientists and engineers are expert
at finding new applications for existing Pall products as well as developing new
solutions and products that provide our customers with a competitive edge in
their marketplace. Many leading-edge companies that have partnered with Pall
have been rewarded with improved performance and the desired economic returns.
These demonstrated successes are leading to accelerated market penetration and
growth.
[PHOTOS OMITTED]
Akio Satake
Senior Vice President,
President, Nihon Pall
<PAGE> 21
Workhorse Industries Undergoing
Revolutionary Change
The balance between commodity and critical filtration applications in the
petroleum refining and chemicals industries is shifting, creating a market of
enormous potential for Pall. Until recently these producers were satisfied with
commodity-type filters and reserved Pall's sophisticated technologies for the
few applications they deemed "critical". Today refiners and chemical companies
face unprecedented pressure to produce products and utilize processes that are
environmentally benign. Unscheduled downtime, often the result of equipment
failure, siphons company profits and is another major focus of their attention.
These industries are investing billions of dollars to meet urgent environmental
and operational imperatives, challenges that are not effectively met by
traditional filtration and separations methods. Their efforts are leading to
revolutionary changes, among them new appreciation for the importance of fine
filtration and separations technologies throughout their plants.
Pall began adding separations capabilities to its product portfolio in 1992 with
these specific industries in mind. This gave us access to a wide range of
applications that were previously out of reach. By linking all of our
sophisticated process enhancing technologies, customers are better equipped to
meet their environmental drivers, operating efficiencies and profitability
requirements. We've been working with industry leaders to demonstrate our
differentiated product and service performance. As a result, Pall's sales in
these markets have grown over 50% in the last three years, but are still just a
fraction of the $3 billion potential.
[PHOTOS OMITTED]
17
<PAGE> 22
Time is Money
As world economies grow, the need to build a solid infrastructure and industrial
base grows with them. Requirements for power, electrical transmission, steel,
construction equipment, machine tools and paper, drive their industrialization.
Double-digit growth in these industries has given way to high single-digits, yet
this multi-billion dollar marketplace continues to hold significant opportunity
for Pall.
These industries must be able to operate efficiently, economically and reliably
24 hours a day. The wheels of industry literally cannot afford to stop turning.
Downtime is not an annoyance, it is a disaster. We all know the inconvenience of
a power failure at home, but for a utility, the impact is measured in tens of
thousands of dollars in lost revenues. A bearing failure in a paper mill will
inundate the plant in tons of scrap costing thousands. Flaws in aluminum can
stock cost the manufacturer more then the value of the material. They may also
result in lost customers. These industries depend upon clean hydraulic, lube,
fuel, coolant, and wash fluids to achieve continuous, reliable operations.
Pall's total systems approach ensures optimum cleanliness and protection
throughout the process.
[PHOTOS OMITTED]
18
<PAGE> 23
We are known as a company with terrific and innovative products and, more
importantly, as a problem solver. We are scientists and engineers with
contamination control expertise, process knowledge and the ability to
troubleshoot and service our customers' systems. We also sell filters... .
Customers today want to focus on producing their products and to outsource all
other aspects of their operation. Pall's vast array of capabilities enables them
to maintain their focus while we worry about the quality of fluids throughout
their systems. Our new line of diagnostic and monitoring products alert them to
potential problems in their fluid systems before they cause equipment failures
or destroy valuable product so they can take preventive measures.
[PHOTOS OMITTED]
Bob Simkins
Senior Vice President,
Pall Industrial Hydraulics
<PAGE> 24
Financial Contents
21 Management's Discussion and Analysis of Financial
Condition and Results of Operations
24 Consolidated Statements of Earnings
24 Independent Auditors' Report
25 Consolidated Balance Sheets
26 Consolidated Statements of Stockholders' Equity
27 Consolidated Statements of Cash Flows
28 Financial Information About Industry Segments
29 Financial Information About Foreign and Domestic
Operations and Export Sales
30 Notes to Consolidated Financial Statements
38 Common Stock Prices and Cash Dividends
38 Six-Year Sales
39 Six-Year Financial History
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1998 Compared to 1997
Results of Operations
Review of Consolidated Results
Sales for the year increased 2 1/2% to $1,087 million compared to last year's
$1,062 million. Local currency sales increased 6 1/2% including $15 million of
Rochem related business. Adverse foreign currency exchange rates reduced sales
by 4% or $43 million. A detailed summary of sales by industry and geographic
segments is contained in the tables below.
Earnings for the year were $94 million, equal to 75 cents per share (all
references to earnings per share are on a diluted basis) compared to $67 million
or 53 cents per share last year. Earnings for the current year include
non-recurring income of $8 million pretax), equal to 4 cents per share (after
pro forma tax effect), reflecting a payment received in settlement of a
successful patent litigation, net of certain one-time costs, and a one-time
charge of $27 million, equal to 21 cents per share to write off the in-process
research and development related to the acquisition of Rochem. Earnings for the
prior year include the effects of the Gelman Sciences merger and restructuring
and other one-time charges aggregating $96 million (pretax), equal to 49 cents
per share (after pro forma tax effect). Excluding non-recurring items, earnings
for the current year were 92 cents per share compared to $1.02 per share last
year. Exchange rates reduced earnings by about 15 cents.
Year-on-year, cost of sales (excluding inventory write-downs in 1997) as a
percentage of sales increased by 1.6% mainly due to the adverse effects of
exchange rates. Selling, general and administrative expenses as a percentage of
sales increased by about 1/2%.
Other charges, net for the year, represent a $27 million write-off of in-process
research and development acquired in connection with the Rochem acquisition and
non-recurring income of $13.5 million related to the payment by Micron
Separations Inc. ("MSI") to Pall in settlement of patent litigation, net of
certain one-time costs. In the third quarter last year, the Company completed
its merger with Gelman Sciences. The total cost related to this merger was $34
million. Also in the same quarter the Company recorded a charge of $62 million
related to the restructuring of its other business lines, environmental clean up
costs and to provide for a judgment awarded against it.
Year-on-year, net interest expense is higher principally because the Company's
average debt, net of cash and short-term investments, was also higher for the
same comparable periods. Proceeds from borrowings were used to finance the
Company's share buy-backs and the Rochem acquisition.
Pretax margins (before one-time charges) declined by nearly 3% due to the
adverse effect of exchange rates, higher research and development expenses and
the increase in net interest expense. The underlying tax rate for the year was
25% compared to 29% last year reflecting the Company's efforts to move
production into its manufacturing facilities in Ireland and Puerto Rico, as well
as proportionately lower profits in high tax rate countries.
Review of Industry and Geographic Segments
<TABLE>
<CAPTION>
Exchange % Change
% rate in local
1998 1997 Change difference currency
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Medical $ 260,124 $ 256,484 1 1/2 $ (9,711) 5
BioPharmaceuticals 294,202 298,894 (1 1/2) (12,615) 2 1/2
- -------------------------------------------------------------------------------------------------------
Total Health Care 554,326 555,378 -- (22,326) 4
- -------------------------------------------------------------------------------------------------------
Microelectronics 87,608 93,893 (6 1/2) (5,886) (1/2)
Industrial Process 186,861 169,530 10 (6,942) 14 1/2
- -------------------------------------------------------------------------------------------------------
Total Fluid Processing 274,469 263,423 4 (12,828) 9
- -------------------------------------------------------------------------------------------------------
Aerospace 124,449 110,784 12 1/2 (1,164) 13 1/2
Industrial Hydraulics 134,041 132,423 1 (7,137) 6 1/2
- -------------------------------------------------------------------------------------------------------
Total Aeropower 258,490 243,207 6 1/2 (8,301) 9 1/2
- -------------------------------------------------------------------------------------------------------
Total $1,087,285 $1,062,008 2 1/2 $(43,455) 6 1/2
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Exchange % Change
% rate in local
1998 1997 Change difference currency
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asia $ 174,110 $ 192,027 (9 1/2) $(21,350) 2
Europe 397,880 368,767 8 (21,616) 14
Western Hemisphere 515,295 501,214 3 (489) 3
- -------------------------------------------------------------------------------------------------------
Total $1,087,285 $1,062,008 2 1/2 $(43,455) 6 1/2
=======================================================================================================
</TABLE>
Sales in the Health Care market increased by 4% in local currency. Growth in
this market was affected by price reductions in the Medical segment of about 2%.
By geography, Health Care sales in Europe increased by 11%, in the Western
Hemisphere 2%, while sales in Asia declined by 6%. Sales in the Fluid Processing
market
[PHOTO OMITTED]
John Adamovich, Chief Financial Officer, Group Vice President and Treasurer
<PAGE> 26
increased 9%. Growth in this market was held back by the Microelectronics
segment where sales declined by 1/2% including a 9% decline in Western
Hemisphere sales. This decline was primarily due to curtailment of new
fabrication plant construction. Sales in the Industrial Process segment
increased by 14 1/2% helped by the acquisition of Rochem along with the
double-digit increases in both Europe and Asia. Sales in the Aeropower market
increased by 9 1/2% led by the Aerospace segment by 13 1/2%. Commercial
aerospace sales increased 21% and military sales increased 4%, respectively. By
geography, Aerospace sales in all three regions increased in double-digits.
The consolidated operating profit rate for the year (before one-time charges)
came in at 20.4% compared to 22.4% last year. Profit rates for all segments were
affected by the adverse effects of exchange rates. Health Care's profit rate
declined by nearly 3% and was also affected by the continued price pressures in
the Medical segment. Fluid Processing's profit rate declined by 2.3% and was
affected by product mix as well as exchange rates. The profit rate in the
Aeropower market came in at 23.6% which was the same as last year. By geography,
the profit rate in the Western Hemisphere came in nearly 1% below last year's
due to lower margins on Microelectronics sales and price reductions in the
Medical segment. Profit rates in Europe and Asia were adversely affected by
exchange rates. Europe's profit rate declined by nearly 2% as it was also
affected by continued price pressures in the Medical segment. Asia's profit rate
declined by 5.5% due once again to the effects of exchange rates as well as the
unsettled general economic climate in that part of the world.
Liquidity and Capital Resources
During the year the Company spent $83 million for acquisitions and investments
and licenses. The Company paid $63 million for the acquisition of Rochem and $9
million towards its investment in V.I. Technologies, Inc. ("VITEX"). Capital
expenditures for the year amounted to $85 million. On October 6, 1997, the
Company announced a stock buy-back program of up to $150 million. Through the
end of the year, the Company had bought back 3.9 million of its shares for a
total cost of $85 million. The Company expects to finish this buy-back program
in fiscal 1999.
Debt and short-term borrowings, net of cash and short-term investments,
increased by $132 million mainly as a result of the Rochem acquisition and the
stock buy-back program.
The Company considers its existing lines of credit along with the cash it
generates from operations to be sufficient for its future growth. The Company
anticipates that capital expenditures in fiscal 1999 will be about $90 million.
Other Matters
Since 1996, the Company has been assessing the impact that the Year 2000 issue
will have on its information systems. In response to these assessments, the
Company 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. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of such changes, and the Company's inability
to implement such changes could have a material impact on its financial
statements. Based on preliminary analyses, the Company expects that its critical
systems and applications will be compliant by the end of fiscal 1999 and it
estimates that the expenditures necessary to achieve compliance will not be
material to its financial statements.
The Company is also surveying critical suppliers, service providers and
distributors to determine the status of their Year 2000 compliance programs. The
Company's reliance on suppliers, service providers and distributors, and
therefore, proper functioning of their information systems and software means
that failure by such suppliers, service providers and distributors to address
their own Year 2000 issues could have a material impact on the Company's plan to
achieve Year 2000 compliance and therefore, its financial statements.
The recent turmoil in Asia and its repercussions to other parts of the world are
of concern to the Company. Inasmuch as these events affect the Company's
operations around the world the Company monitors these events closely and takes
necessary steps to minimize the risk that this will not materially affect its
financial statements; some of these measures include hedging balance sheet
exposures through forward exchange contracts and borrowing in local currency,
monitoring of customer account balances and assessment of customers' financial
strengths. In addition, the Company's diverse manufacturing and customer base
limits its exposures so that any one event is not likely to have a material
impact on its financial statements.
Recently the Financial Accounting Standards Board issued Statements (SFAS) Nos.
130, 131, 132 and 133 related to Reporting Comprehensive Income, Segment
Disclosures, Pension and Other Post Retirement Benefit Disclosures and
Accounting for Derivative Instruments and Hedging Activities. The Company will
adopt SFAS Nos. 130, 131 and 132 in fiscal 1999 and adopt SFAS No. 133 in fiscal
2000.
1997 Compared to 1996
Results of Operations
Review of Consolidated Results
Sales for 1997 decreased by 1% to $1,062 million from $1,072 million in 1996.
Exchange rates adversely impacted sales by $35 million. Excluding the effects of
exchange rates, sales would have increased by 2 1/2%.
Cost of sales (before the inventory write-down) as a percentage of sales
increased by nearly 2%, mainly due to the adverse effects of exchange rates.
Selling, general and administrative expenses remained at the same level as 1996,
mainly due to the restructuring after the Company's merger with Gelman Sciences.
22
<PAGE> 27
At the beginning of the third quarter in 1997, the Company completed its merger
with Gelman Sciences. The combined companies incurred merger related expenses of
$14 million. Upon consummation of the merger, the combined companies
restructured their operations to streamline the manufacturing, sales and
overhead functions, and as a result recorded a pretax charge of $20 million.
Along with the Gelman restructuring, the Company performed a comprehensive
review of its existing business segments. In the Aeropower market, the Company
decided to further consolidate its U.S. production and operating facilities to
maintain greater efficiency in manufacturing and overhead functions and to
recognize inventory write-downs due to changes in demand. As a result, the
Company recorded a pretax charge of $6 million. In the Health Care and Fluid
Processing markets, the review identified certain products that were superseded
by the introduction of new products. As the gross margins on the older products
continued to decline, the Company decided to write-down these products. The
review also identified certain manufacturing, sales and overhead personnel who
were made redundant. The total pretax charge related to these items was $24
million. The Company also wrote-down machinery and equipment and recorded a
pretax charge of $15.5 million. Factors leading to the write-down were new
product introductions, a decline in the gross margins of older products and
inadequate cash flows.
On April 19, 1995, a jury verdict of $7 million was rendered against the
Company. The Company had appealed the verdict; however, on April 9, 1997 the
judgment was affirmed. The Company recorded a pretax charge of $6.5 million
under the judgment, net of insurance recoveries and legal costs, in the third
quarter of 1997. The judgment awarded was paid in the fourth quarter. On May 9,
1997, Gelman received a permit from the State of Michigan to clean up
contaminated water. The permit required that all processed water discharged meet
the standards set by the State. Based on the permit obtained from the State of
Michigan and upon review of environmental issues at its other facilities, the
Company decided to record a pretax charge of $10 million in the third quarter.
A summary table of all the charges is included in the notes to the consolidated
financial statements.
Pretax margins (before one-time charges) declined by about 2% mainly due to the
reduction in gross margins. The Company's effective tax rate for 1997 (before
one-time charges) was approximately 29% compared to 30% in 1996. Earnings per
share for 1997 were 53 cents compared to $1.13 in 1996. Excluding the effect of
one-time charges in both years, earnings per share (after pro forma tax effect)
for 1997 and 1996 would have been $1.02 and $1.14, respectively.
Review of Industry and Geographic Segments
<TABLE>
<CAPTION>
Exchange % Change
% rate in local
1997 1996 Change difference currency
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Medical $ 256,484 $ 265,897 (3 1/2) $ (8,075) (1/2)
BioPharmaceuticals 298,894 304,938 (2) (10,040) 1 1/2
- ------------------------------------------------------------------------------------------------------------
Total Health Care 555,378 570,835 (2 1/2) (18,115) 1/2
- ------------------------------------------------------------------------------------------------------------
Microelectronics 93,893 103,600 (9 1/2) (5,144) (4 1/2)
Industrial Process 169,530 162,923 4 (5,614) 7 1/2
- ------------------------------------------------------------------------------------------------------------
Total Fluid Processing 263,423 266,523 (1) (10,758) 3
- ------------------------------------------------------------------------------------------------------------
Aerospace 110,784 99,915 11 (871) 11 1/2
Industrial Hydraulics 132,423 135,160 (2) (5,487) 2
- ------------------------------------------------------------------------------------------------------------
Total Aeropower 243,207 235,075 3 1/2 (6,358) 6
- ------------------------------------------------------------------------------------------------------------
Total $1,062,008 $1,072,433 (1) $(35,231) 2 1/2
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Exchange % Change
% rate in local
1997 1996 Change difference currency
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asia $ 192,027 $ 183,901 4 1/2 $(17,097) 13 1/2
Europe 368,767 387,533 (5) (18,082) --
Western Hemisphere 501,214 500,999 -- (52) --
- ------------------------------------------------------------------------------------------------------------
Total $1,062,008 $1,072,433 (1) $(35,231) 2 1/2
============================================================================================================
</TABLE>
Sales in the Health Care market increased by 1/2%, as sales in the Medical
segment were affected by price reductions of about 2% and sales in the
BioPharmaceuticals segment were affected by global market consolidation in the
Pharmaceutical industry. Both the Western Hemisphere and Europe saw price
decreases in the range of 2% - 5%.
Sales in the Fluid Processing market increased by 3%. Growth in this market was
held back by the Microelectronics segment, where sales declined by 4 1/2%. This
reduction in sales was due to curtailment of new fabrication plant construction.
Micro-electronics sales declined by 17% in the Western Hemisphere, but increased
in Europe and Asia. Sales in the Industrial Process segment increased by 7 1/2%
led by increases in the Industrial, Oil & Gas and Chemical & Petrochemical
subsegments. Sales in the Power Generation subsegment were weak due to closures
of nuclear facilities in the U.S. Sales increases in the Industrial Process
segment by geography were as follows: Western Hemisphere 2 1/2%, Europe 4 1/2%
and Asia 25%.
Sales in the Aeropower market increased by 6%, led by Commercial Aerospace sales
which increased 23%. By geography, sales in the Western Hemisphere, Europe and
Asia increased by 8%, 5% and 3 1/2%, respectively.
23
<PAGE> 28
CONSOLIDATED STATEMENTS OF EARNINGS
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended
- --------------------------------------------------------------------------------------------------
(In thousands, except per share data) August 1, 1998 August 2, 1997 August 3, 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $1,087,285 $1,062,008 $1,072,433
- --------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of sales 473,859 468,413 429,728
Selling, general and administrative expenses 392,809 376,904 378,809
Research and development 58,540 53,747 53,772
Gelman merger and restructuring charges -- 30,621 --
Other charges, net 19,222 43,360 2,800
Interest expense, net 7,870 2,836 3,587
----------------------------------------------
Total Costs and Expenses 952,300 975,881 868,696
- --------------------------------------------------------------------------------------------------
Earnings Before Income Taxes: 134,985 86,127 203,737
Provision for income taxes 41,352 18,809 60,903
- --------------------------------------------------------------------------------------------------
Net Earnings $ 93,633 $ 67,318 $ 142,834
- --------------------------------------------------------------------------------------------------
Earnings Per Share:
Basic $ 0.75 $ 0.53 $ 1.14
Diluted $ 0.75 $ 0.53 $ 1.13
- --------------------------------------------------------------------------------------------------
Average Shares Outstanding:
Basic 125,070 126,319 125,114
Diluted 125,681 127,470 126,730
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pall Corporation:
We have audited the accompanying consolidated balance sheets of Pall Corporation
and subsidiaries as of August 1, 1998 and August 2, 1997, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended August 1, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pall Corporation and
subsidiaries as of August 1, 1998 and August 2, 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 1, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Melville, New York
September 2, 1998
24
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(In thousands, except per share data) August 1, 1998 August 2, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 12,125 $ 17,972
Short-term investments 16,800 37,500
Accounts receivable, net of allowances for doubtful accounts
of $5,879 and $6,602, respectively 291,535 266,604
Inventories 227,254 198,080
Prepaid expenses 22,705 19,844
Taxes receivable 6,941 40,262
Deferred income taxes 15,915 20,971
Other current assets 9,214 5,371
-------------------------------
Total Current Assets 602,489 606,604
- ---------------------------------------------------------------------------------------------------------
Property, Plant and Equipment:
Land 29,263 29,219
Buildings and improvements 313,094 299,935
Machinery and equipment 498,661 447,904
Furniture and fixtures 64,307 58,533
Transportation equipment 15,088 13,948
-------------------------------
920,413 849,539
Less: Accumulated depreciation and amortization 399,821 345,493
-------------------------------
Property, Plant and Equipment, Net 520,592 504,046
- ---------------------------------------------------------------------------------------------------------
Other Assets 223,838 154,974
- ---------------------------------------------------------------------------------------------------------
Total Assets $ 1,346,919 $ 1,265,624
=========================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 134,615 $ 123,974
Accounts payable 66,773 53,200
Accrued liabilities:
Salaries and commissions 39,998 34,239
Payroll taxes 6,969 5,882
Interest 1,897 2,810
Pension and profit sharing plans 17,415 15,237
Other 34,990 33,390
-------------------------------
101,269 91,558
Income taxes 21,939 27,620
Current portion of long-term debt 50,292 4,677
Dividends payable 19,202 --
-------------------------------
Total Current Liabilities 394,090 301,029
- ---------------------------------------------------------------------------------------------------------
Long-term Debt, Net of Current Portion 111,469 62,126
Deferred Income Taxes 21,514 27,678
Other Non-Current Liabilities 54,231 49,958
- ---------------------------------------------------------------------------------------------------------
Total Liabilities 581,304 440,791
- ---------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, par value $.10 per share; 500,000 shares authorized;
127,958 shares issued 12,796 12,796
Capital in excess of par value 92,893 92,893
Retained earnings 764,927 749,923
Treasury stock, at cost (1998 -- 4,039 shares, 1997 -- 596 shares) (87,281) (12,837)
Cumulative foreign currency translation adjustment (10,416) (4,722)
Minimum pension liability (4,062) (4,348)
Stock option loans (7,140) (8,820)
Cumulative unrealized investment gains (losses) 3,898 (52)
- ---------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 765,615 824,833
- ---------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,346,919 $ 1,265,624
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
Cumulative Cumulative
Years Ended Foreign Unrealized
August 3, 1996, Capital in Currency Minimum Stock Investment
August 2, 1997 Common Excess of Retained Treasury Translation Pension Option Gains
and August 1, 1998 Stock Par Value Earnings Stock Adjustment Liability Loans (Losses) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 29, 1995 $ 12,751 $ 91,212 $667,389 $(60,389) $ 12,471 $(5,145) $(7,880) $ 163 $710,572
Net earnings 142,834 142,834
Cash dividends declared (54,343) (54,343)
Issuance of 1,216 shares
for stock options and
employee plans 20 (850) (16) 19,979 19,133
Purchase of 433 shares (10,000) (10,000)
Translation adjustment (10,411) (10,411)
Minimum pension liability 516 516
Stock option loans (922) (922)
Net unrealized investment losses (391) (391)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at August 3, 1996 12,771 90,362 755,864 (50,410) 2,060 (4,629) (8,802) (228) 796,988
Net earnings 67,318 67,318
Cash dividends declared (65,928) (65,928)
Issuance of 1,978 shares for
stock options and employee
plans 25 2,361 (7,331) 34,368 29,423
Sale of 150 treasury shares 170 3,205 3,375
Translation adjustment (6,782) (6,782)
Minimum pension liability 281 281
Stock option loans (18) (18)
Net unrealized investment gains 176 176
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at August 2, 1997 12,796 92,893 749,923 (12,837) (4,722) (4,348) (8,820) (52) 824,833
Net earnings 93,633 93,633
Cash dividends declared (75,501) (75,501)
Issuance of 488 shares for stock
options and employee plans (3,128) 10,554 7,426
Purchase of 3,928 shares (84,998) (84,998)
Translation adjustment (5,694) (5,694)
Minimum pension liability 286 286
Stock option loans 1,680 1,680
Net unrealized investment gains 3,950 3,950
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at August 1, 1998 $12,796 $92,893 $764,927 $(87,281) $(10,416) $(4,062) $(7,140) $3,898 $765,615
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
Years Ended
- ------------------------------------------------------------------------------------------------
(In thousands) August 1, 1998 August 2, 1997 August 3, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 93,633 $ 67,318 $ 142,834
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Write-off of purchased in-process research
and development 27,000 -- --
Gelman merger, restructuring and other charges -- 69,609 2,217
Depreciation and amortization of property,
plant and equipment 64,587 55,854 51,516
Amortization of intangibles 8,492 6,972 6,329
Deferred income taxes (17,640) (13,261) 5,921
Provision for doubtful accounts 1,915 1,417 989
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (20,159) (20,038) (37,990)
Inventories (31,351) (20,762) (25,988)
Other assets 17,722 (30,627) (19,001)
Accounts payable 10,714 (11,252) 16,220
Accrued expenses 8,269 6,111 10,891
Income taxes payable (4,716) (13,635) 2,455
Other liabilities 2,316 1,025 2,612
-----------------------------------------
Net Cash Provided by Operating Activities 160,782 98,731 159,005
- ------------------------------------------------------------------------------------------------
Investing activities:
Acquisitions, net of cash acquired (64,747) -- --
Investments and licenses (18,400) (13,865) (44,545)
Capital expenditures (85,121) (88,605) (88,452)
Disposals of fixed assets 3,672 1,300 5,413
Short-term investments 20,700 33,950 1,400
Benefits protection trust (4,241) (1,319) (2,596)
-----------------------------------------
Net Cash Used by Investing Activities (148,137) (68,539) (128,780)
- ------------------------------------------------------------------------------------------------
Financing activities:
Notes payable 8,888 (6,933) 26,775
Long-term borrowings 119,959 15,768 2,360
Payments on long-term debt (13,798) (17,515) (10,865)
Net proceeds from exercise of stock options 9,106 29,405 18,211
Purchase of treasury stock (84,998) -- (10,000)
Sale of treasury stock -- 3,375 --
Dividends paid (56,299) (80,061) (52,224)
-----------------------------------------
Net Cash Used by Financing Activities (17,142) (55,961) (25,743)
- ------------------------------------------------------------------------------------------------
Cash Flow for Year (4,497) (25,769) 4,482
Cash and Cash Equivalents at Beginning of Year 17,972 44,118 40,923
Effect of Exchange Rate Changes on Cash (1,350) (377) (1,287)
- ------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 12,125 $ 17,972 $ 44,118
================================================================================================
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 14,242 $ 9,180 $ 10,525
Income taxes paid (net of refunds) 34,370 66,718 63,235
Shares issued upon acquisition of Gelman -- 267,615 --
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 32
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Years
- -------------------------------------------------------------------------------------
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to Unaffiliated Customers:
Health Care $ 554,326 $ 555,378 $ 570,835
Aeropower 258,490 243,207 235,075
Fluid Processing 274,469 263,423 266,523
-------------------------------------------------
Total $ 1,087,285 $ 1,062,008 $ 1,072,433
- -------------------------------------------------------------------------------------
Operating Profit:
Health Care $ 124,396(a) $ 88,530(b) $ 153,032(c)
Aeropower 58,482(a) 47,176(b) 52,686
Fluid Processing 19,531(a) 42,122(b) 55,394(c)
-------------------------------------------------
Subtotal 202,409 177,828 261,112
Interest expense, net (7,870) (2,836) (3,587)
General corporate expenses (59,554) (88,865)(b) (53,788)
-------------------------------------------------
Total $ 134,985 $ 86,127 $ 203,737
- -------------------------------------------------------------------------------------
Identifiable Assets:
Health Care $ 542,947 $ 502,480 $ 529,650
Aeropower 210,760 195,113 184,374
Fluid Processing 292,403 276,627 289,524
-------------------------------------------------
Subtotal 1,046,110 974,220 1,003,548
Corporate 300,809 291,404 287,638
-------------------------------------------------
Total $ 1,346,919 $ 1,265,624 $ 1,291,186
- -------------------------------------------------------------------------------------
Capital Expenditures:
Health Care $ 43,234 $ 46,165 $ 43,981
Aeropower 9,414 8,544 13,193
Fluid Processing 25,271 24,302 24,218
-------------------------------------------------
Subtotal 77,919 79,011 81,392
Corporate 7,202 9,594 7,060
-------------------------------------------------
Total $ 85,121 $ 88,605 $ 88,452
- -------------------------------------------------------------------------------------
Depreciation:
Health Care $ 28,791 $ 26,511 $ 25,665
Aeropower 10,809 9,466 8,852
Fluid Processing 19,900 16,012 13,358
-------------------------------------------------
Subtotal 59,500 51,989 47,875
Corporate 5,087 3,865 3,641
-------------------------------------------------
Total $ 64,587 $ 55,854 $ 51,516
=====================================================================================
</TABLE>
(a) Includes $19,222 of other charges, net to write off in-process research
and development related to the Rochem acquisition, net of other income
(Health Care - $(10,278), Aeropower - $2,500, Fluid Processing - $27,000).
(b) Includes a charge of $95,930 related to Gelman merger, restructuring and
other charges (Health Care - $41,735, Aeropower - $10,124, Fluid
Processing - $8,561 and Corporate Expenses - $35,510).
(c) Includes a charge of $2,800 related to Gelman's environmental remediation
costs (Health Care - $2,520, Fluid Processing - $280).
28
<PAGE> 33
FINANCIAL INFORMATION ABOUT
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Pall Corporation and Subsidiaries
<TABLE>
<CAPTION>
Fiscal Years
- ----------------------------------------------------------------------------------------
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to Unaffiliated Customers:
Western Hemisphere $ 515,295 $ 501,214 $ 500,999
Europe 397,880 368,767 387,533
Asia 174,110 192,027 183,901
-------------------------------------------------
Total $ 1,087,285 $ 1,062,008 $ 1,072,433
- ----------------------------------------------------------------------------------------
Transfers Between Geographic Areas:
Western Hemisphere $ 104,194 $ 79,784 $ 99,041
Europe 32,565 31,906 21,549
Asia 3,020 1,990 3,552
-------------------------------------------------
Total $ 139,779 $ 113,680 $ 124,142
- ----------------------------------------------------------------------------------------
Total Sales:
Western Hemisphere $ 619,489 $ 580,998 $ 600,040
Europe 430,445 400,673 409,082
Asia 177,130 194,017 187,453
Eliminations (139,779) (113,680) (124,142)
-------------------------------------------------
Total $ 1,087,285 $ 1,062,008 $ 1,072,433
- ----------------------------------------------------------------------------------------
Operating Profit:
Western Hemisphere $ 125,295(a) $ 76,173(b) $ 125,203(c)
Europe 62,470(a) 74,533(b) 110,449
Asia 14,974 23,899(b) 029,104
Eliminations (330) 3,223 (3,644)
-------------------------------------------------
Subtotal 202,409 177,828 261,112
Interest expense, net (7,870) (2,836) (3,587)
General corporate expenses (59,554) (88,865)(b) (53,788)
-------------------------------------------------
Total $ 134,985 $ 086,127 $ 203,737
- ----------------------------------------------------------------------------------------
Identifiable Assets:
Western Hemisphere $ 550,091 $ 523,012 $ 529,919
Europe 374,810 314,680 339,946
Asia 133,622 149,484 150,151
Eliminations (12,413) (12,956) (16,468)
-------------------------------------------------
Subtotal 1,046,110 974,220 1,003,548
Corporate 300,809 291,404 287,638
-------------------------------------------------
Total $ 1,346,919 $ 1,265,624 $ 1,291,186
========================================================================================
</TABLE>
(a) Includes $19,222 of other charges, net to write off in-process research
and development related to the Rochem acquisition, net of other income
(Western Hemisphere - $(9,978), Europe - $29,200).
(b) Includes a charge of $95,930 related to Gelman merger, restructuring and
other charges (Western Hemisphere - $39,904, Europe - $17,284, Asia -
$3,232 and Corporate Expenses - $35,510).
(c) Includes a charge of $2,800 related to Gelman's environmental remediation
costs.
Export sales to unaffiliated customers by the Company's U.S. operations
approximately totaled $74,000, $65,000, and $66,000 in fiscal years 1998, 1997
and 1996, respectively. The Company considers its foreign operations to be of
major importance to its future growth prospects, and does not believe the risk
of its foreign business differs materially from its domestic business, except
for the risk of currency fluctuations.
Transfers between geographic areas are generally priced on the basis of a markup
of manufacturing costs to achieve an appropriate sharing of the profit between
the parties.
29
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pall Corporation and Subsidiaries
(In thousands, except per share data)
Accounting Policies and Related Matters
The Company
The Company manufactures and markets filtration and separations products and
systems to a diverse group of customers within three segments, Health Care,
Aeropower and Fluid Processing, throughout the world.
The Company's fiscal year ends on the Saturday closest to July 31, except that
its foreign subsidiaries are on a July 31 fiscal year. The years ended August 1,
1998, August 2, 1997 and August 3, 1996 comprise 52, 52 and 53 weeks,
respectively.
Presentation and Use of Estimates
The financial statements of the Company are presented on a consolidated basis
with its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company accounts for its 20% investment in Oiltools International Ltd.
("Oiltools") under the equity method of accounting. It considers other
investments (which are less than 20% owned) as available-for-sale securities; as
such, these investments are carried at fair value. Unrealized gains and losses
on these securities are reported as a separate component of stockholders'
equity, until realized. Realized gains and losses are recognized in earnings
upon sale.
To prepare the Company's financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that may effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Translation of Foreign Currencies
Financial statements of foreign subsidiaries have been translated into U.S.
dollars at exchange rates as follows: (i) balance sheet accounts at year-end
rates, and (ii) income statement accounts at weighted average rates. Translation
gains and losses are reflected in stockholders' equity, while transaction gains
and losses are reflected in income. Transaction (losses) gains in fiscal years
1998, 1997 and 1996 amounted to $(1,075), $(2,108) and $1,171, respectively.
The equity in, and advances to, foreign subsidiaries approximately totaled
$306,000 and $252,000 at August 1, 1998 and August 2, 1997, respectively.
Cash and Cash Equivalents
The Company considers all financial instruments purchased with a maturity of
three months or less, other than its investments in Puerto Rico, to be cash
equivalents. The Company holds all cash equivalents until maturity.
Short-Term Investments
Short-term investments, consisting principally of certificates of deposit and
repurchase agreements secured by government obligations, are held to maturity
and are carried at cost, which approximates fair value.
Inventories
Inventories are valued at the lower of cost (principally on the first-in,
first-out method) or market.
Long-Lived Assets
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective assets,
principally on the straight-line basis. Costs related to patents and trademarks
are amortized using the straight-line method over the estimated useful lives,
generally for periods ranging up to 20 years. Goodwill and other intangible
assets are amortized over periods ranging up to 20 years.
The Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of, during 1997. The effect of
adopting this standard was not material. The Company periodically reviews its
long-lived assets for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable.
Revenue Recognition
Revenue is recognized when a product is shipped or a service is performed.
Stock Options
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock option plans. Accordingly, no compensation expense is recognized when
options are granted. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, Accounting for Stock-Based Compensation, which became
effective for the Company during fiscal 1997. As permitted by SFAS No. 123, the
Company decided to retain the accounting prescribed by APB No. 25 for its stock
option plans and to present the SFAS No. 123 information in the footnotes to its
financial statements.
30
<PAGE> 35
Income Taxes
The Company and its domestic subsidiaries file a consolidated Federal income tax
return.
Taxes on income are provided using the asset and liability method. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse.
Earnings Per Share
The Company adopted SFAS No. 128, Earnings per Share in the current year and,
accordingly, all earnings per share for prior periods presented have been
restated. This statement mandates dual presentation of basic and diluted
earnings per share. Basic earnings per share is determined by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share considers the potential
effect of dilution on basic earnings per share assuming exercise of all stock
options that meet certain criteria.
Acquisitions
Effective January 1, 1998, the Company acquired all of the outstanding capital
stock of the Swiss holding company Argentaurum AG, including its Rochem
subsidiaries ("Rochem"). Rochem manufactures and sells proprietary advanced
design reverse osmosis nanofiltration and ultra filtration systems for treating
and desalinizing sea water, purifying landfill leachate and other municipal and
industrial wastewater applications. This acquisition was accounted for under the
purchase method of accounting and, accordingly, the operations of Rochem are
included in the Company's financial statements from the date of acquisition. The
purchase price of approximately $63,000 exceeded the fair market value of the
net assets acquired by approximately $49,000. The Company wrote off $27,000 of
the excess purchase price attributable to in-process research and development
acquired and the remaining amount was allocated to goodwill and patents. The
acquisition of Rochem would not have materially affected the financial
statements of the Company had the results of operations been included in the
Company's financial statements of prior years.
On February 3, 1997, the Company acquired Gelman Sciences Inc. ("Gelman"). The
acquisition was effected through the exchange of 1.3047 shares of Company common
stock for each share of Gelman common stock. The Company issued 10,607 shares of
its common stock for the acquisition. The transaction was accounted for as a
pooling-of-interests and, accordingly, all financial data for prior periods have
been restated.
Gelman Merger, Restructuring and Other Charges, net
Other charges, net in fiscal 1998 includes the $27,000 write-off in the third
quarter, attributable to in-process research and development the Company
acquired as part of the Rochem acquisition and one-time income of $13,500 in the
second quarter of 1998 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 $2,500 with
the Department of Defense concerning a long standing disagreement over a sale
dating back nearly 10 years and write-offs of $2,200 of inventory and equipment
due to the acquisition of new technology.
In February 1997, the Company completed its merger with Gelman. The combined
companies incurred merger related expenses of $10,519. These expenses include
amounts paid to investment advisors, attorneys, accountants, change in control
payments to certain executive officers of Gelman and other incidental expenses
related to the merger. Also, during the first quarter of fiscal 1997, Gelman
paid $3,911 in connection with the termination of its proposed merger
transaction with Memtec Ltd.
Upon consummation of the merger, the combined companies restructured their
operations to streamline the manufacturing, sales and overhead functions. As a
result, the combined companies recorded a pretax charge of $19,645 in the third
quarter of 1997.
Along with the Gelman restructuring, the Company performed a comprehensive
review of its existing business segments. In the Aeropower segment, the Company
decided to further consolidate its U.S. production and operating facilities to
maintain greater efficiency in manufacturing and overhead functions and to
recognize inventory write-downs due to changes in demand. As a result, the
Company recorded a pretax charge of $6,114 in the third quarter. In the Health
Care and Fluid Processing segments, the review identified certain products that
have been superseded by the introduction of new products. As the gross margins
on the older products continued to decline, the Company decided to write-down
these products. The review also identified certain manufacturing, sales and
overhead personnel who were made redundant. The total pretax charge related to
these items was $23,670 which the Company recorded in the third quarter of 1997.
The Company also wrote-down machinery and equipment and recorded a pretax charge
of $15,571 in the third quarter. Factors leading to the write-down were new
product introductions, a decline in the gross margins of older products and
inadequate cash-flows.
On April 19, 1995, a jury verdict of $7,000 was rendered against the Company.
The Company appealed the judgment; however, on April 9, 1997, the judgment was
affirmed. The Company estimated that its obligation under the judgment,
including insurance recoveries, and legal costs, would be approximately $6,500.
The judgment awarded was paid in the fourth quarter.
On May 9, 1997, Gelman received a permit from the State of Michigan to clean up
contaminated water. The permit requires that all processed water discharged meet
the standards set by the State. Based on the permit obtained from the State of
Michigan and upon review of environmental issues at its other facilities, the
Company decided to record a pretax charge of $10,000 in the third quarter.
31
<PAGE> 36
A detailed summary of all the charges in fiscal 1997 is given below.
<TABLE>
<CAPTION>
Gelman
Merger and Other Charges
Restructuring
Charges Aeropower Other Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merger related
expenses $14,430 $ -- $ -- $14,430
Asset write-offs 11,662 2,625 15,571 29,858
Severance 1,514 771 4,091 6,376(a)
Environmental and legal -- -- 16,500 16,500
Other 3,015 242 3,560 6,817
- --------------------------------------------------------------------------------
Subtotal 30,621 3,638 39,722 73,981
Inventory write-down 3,454 2,476 16,019 21,949(b)
- --------------------------------------------------------------------------------
Total pretax charges $34,075 $6,114 $55,741 $95,930
================================================================================
Cash $18,003 $1,013 $22,688 $41,704
Non-cash 16,072 5,101 33,053 54,226
- --------------------------------------------------------------------------------
Total $34,075 $6,114 $55,741 $95,930
================================================================================
</TABLE>
(a) Approximately 250 employees were made redundant due to work-force
reduction
(b) The inventory write-downs are included in cost of sales.
In the fourth quarter in 1996, Gelman increased its reserves for environmental
remediation costs and recorded a pretax charge of $2,800.
At the end of fiscal 1998 approximately $10,000 of accruals related to
environmental matters are reflected on the balance sheet. At the end of fiscal
1997, approximately $20,000 of accruals relating to environmental matters and
provisions for severance and other obligations were reflected on the balance
sheet.
Inventories
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and components $ 95,861 $ 79,545
Work-in-process 24,168 22,065
Finished goods 107,225 96,470
- --------------------------------------------------------------------------------
Total inventory $227,254 $198,080
================================================================================
</TABLE>
Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Goodwill and other intangibles, net of
accumulated amortization of
$12,234 and $8,114, respectively $ 55,037 $ 40,875
Patents and trademarks, net of
accumulated amortization of
$19,340 and $15,211, respectively 47,175 38,123
Investments 29,218 7,120
Benefits protection trust 29,001 26,475
Prepaid pension expenses 21,229 17,730
Intangible pension assets 4,129 1,792
Other 38,049 22,859
- --------------------------------------------------------------------------------
Total $223,838 $154,974
================================================================================
</TABLE>
Goodwill and other intangibles represent the cost in excess of the tangible net
assets of businesses acquired.
Patents and trademarks include costs related to successfully defending certain
Pall patents, and expenditures made to register new patents and trademarks, as
well as paid-up licenses for third party patents.
In fiscal year 1998, the Company entered into agreements with V.I. Technologies,
Inc. ("VITEX"). VITEX is a leading developer of a broad portfolio of blood
products and systems using its proprietary viral inactivation technologies.
Under the terms of the agreements, the Company made payments aggregating $9,000
for a 7.5% interest in VITEX' common shares and the companies agreed to share
the costs to jointly develop VITEX' pathogen inactivation technology for red
blood cells and platelets. The Company gets exclusive worldwide marketing and
distribution rights to pathogen inactivation systems developed under this
agreement. The agreements contemplate that the Company will make
milestone-driven equity payments to VITEX of up to another $17,000 over five
years at the then-current market price of VITEX common shares. The Company also
invested approximately $8,500 in certain companies to form strategic alliances
which will enable the Company to broaden its portfolio of products.
During fiscal year 1997, the Company acquired a 20% interest in Oiltools.
Oiltools, which specializes in oil field service, sells, distributes and
provides certain manufacturing services for the Company's family of Stratapac(R)
sand control products for use in oil and gas wells. In addition, the Company
acquired assets of some of its distributors in Europe and also made an
investment in one of its distributors in the Aerospace market. The total cost of
these investments was approximately $12,000.
The benefits protection trust was established for the purpose of satisfying
certain previously unfunded pension obligations, in the event of a change of
control of the Company. The August 1, 1998 and August 2, 1997 balance sheets
reflect related liabilities in the amounts of $31,452 and $27,728, respectively.
The trust primarily holds investments in U.S. government obligations, debt
obligations of corporations and financial institutions with high credit ratings.
The Company considers investments held in the trust to be available-for-sale
securities. Contractual maturity dates range from 1998-2028.
Pertinent information related to the trust follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual contributions $ 4,241 $ 1,319 $ 2,596
Total purchases 49,477 49,357 41,779
Total proceeds from sales 53,438 51,632 42,720
Net (losses) gains recognized (29) (18) 584
================================================================================
</TABLE>
Prepaid pension expenses represent the non-current amounts arising from the
excess of cumulative employer contributions and earnings thereon, over accrued
net pension expenses.
32
<PAGE> 37
Intangible pension assets represent, for certain domestic pension arrangements,
the excess of unfunded accumulated benefits over unrecognized prior service
costs. The August 1, 1998 and August 2, 1997 balance sheets reflect additional
long-term pension liabilities of $10,379 and $8,481, respectively and a
reduction in stockholders' equity, net of deferred tax benefits, of $4,062 and
$4,348, respectively.
Notes Payable and Long-Term Debt
At August 1, 1998, the Company had lines of credit totaling approximately
$412,000, of which $134,615 in notes payable had been drawn. Such lines of
credit do not represent legal commitments on the parts of the financial
institutions and no compensating balance is required. The weighted average
interest rates at the end of fiscal 1998 and 1997 were 5.4% and 4.0%,
respectively.
Long-term debt consists of:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
1.18% - 2.66% bank loans in Japan,
due through 2003 $ 43,872 $ 23,430
7.23% term loan, due on June 30, 1999 20,000 20,000
6.31% bank loan, due through 2002 34,000 --
5.99% bank loan, due through 2003 47,500 --
7.38% sale-and-leaseback obligation,
due through 2001 10,052 14,181
5.89% Industrial development bonds due
on July 1, 2004 4,415 4,415
7.5% note payable -- State of Michigan
due through January 6, 2002 425 531
Capitalized leases, 11.15% to 16.5% due in
varying amounts through the year 2005 1,469 1,802
Other 28 2,444
- --------------------------------------------------------------------------------
Total long-term debt 161,761 66,803
Less: current portion 50,292 4,677
- --------------------------------------------------------------------------------
Total long-term debt, net of current portion $111,469 $62,126
================================================================================
</TABLE>
In October 1997, the Company entered into a long-term debt agreement to borrow
$40,000 at 6.31%. Payments are due in installments through the year 2002. In
March 1998, the Company entered into a long-term debt agreement to borrow
$50,000 at 5.99%. Payments are due in installments through the year 2003.
Proceeds from the borrowings were principally used to repurchase shares and to
acquire Rochem.
The aggregate annual maturities of long-term debt during the fiscal years 1999
through 2003 are approximately as follows: 1999, $50,292; 2000, $33,192; 2001,
$42,542; 2002, $18,372; and 2003, $12,896.
Interest expense for 1998, 1997 and 1996 amounted to $13,329, $9,556 and
$11,046, respectively. Interest income for 1998, 1997 and 1996 amounted to
$5,459, $6,720 and $7,459, respectively. Interest in the amounts of $1,497 in
1998, $1,758 in 1997 and $1,608 in 1996 was capitalized. Such amounts were
computed by applying the effective interest rate on the borrowing to the
accumulated expenditures incurred for property, plant and equipment.
Income Taxes
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic operations $ 51,899 $ 4,581 $ 84,002
Foreign operations 83,086 81,546 119,735
- --------------------------------------------------------------------------------
Total $134,985 $86,127 $203,737
================================================================================
</TABLE>
The provisions for income taxes consist of the following items:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal and Puerto Rico $31,864 $ 4,116 $13,286
State 1,500 500 543
Foreign 25,628 27,454 41,153
- --------------------------------------------------------------------------------
Total 58,992 32,070 54,982
- --------------------------------------------------------------------------------
Deferred:
Federal (17,370) (14,454) 3,150
Foreign (270) 1,193 2,771
- --------------------------------------------------------------------------------
Total (17,640) (13,261) 5,921
- --------------------------------------------------------------------------------
Total income tax expense $41,352 $18,809 $60,903
================================================================================
</TABLE>
The tax effects of temporary differences and loss carry-forwards that give rise
to significant portions of the net deferred tax asset (liability) at August 1,
1998 and August 2, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Reclassifacation of prior year deferred taxes,
principally tax credit carry-fowards $ 17,775 $ --
Inventories 09,331 8,499
Pension liabilities 16,358 14,451
Accrued expenses 10,723 12,261
Other 2,709 6,533
- --------------------------------------------------------------------------------
Gross deferred tax asset 56,896 41,744
Valuation allowance (1,450) (2,500)
- --------------------------------------------------------------------------------
Net deferred tax asset 55,446 39,244
- --------------------------------------------------------------------------------
Deferred tax liability:
Plant and equipment (37,601) (40,185)
Pension assets (5,438) (4,429)
Other (3,426) (1,337)
- --------------------------------------------------------------------------------
Total deferred tax liability (46,465) (45,951)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 8,981 $ (6,707)
================================================================================
</TABLE>
The valuation allowance for deferred tax assets as of August 1, 1998 is $1,450,
a net reduction of $1,050 versus the prior year due to the utilization of tax
loss carry-forwards in Germany. In evaluating the reasonableness of the
valuation allowance, management assesses whether it is more likely than not that
some portion, or all, of the deferred tax assets will not be realized.
Ultimately, the realization of deferred tax assets is dependent upon generation
of future taxable income during those periods in which temporary
33
<PAGE> 38
differences become deductible and or credits can be utilized. To this end
management considers the level of historical taxable income, the scheduled
reversal of deferred tax liabilities, tax planning strategies and projected
future taxable income. Based on these considerations, and the indefinite
carry-forward availability of certain deferred tax credits (principally related
to alternative minimum tax), management believes it is more likely than not that
the Company will realize the benefit of these items, net of the August 1, 1998
valuation allowance.
A reconciliation of the provisions for income taxes follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Earnings Earnings Earnings
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense 35.0% 35.0% 35.0%
Tax benefit of Section 936
Puerto Rico operations (2.2) (9.0) (4.8)
Federal tax credits and other effects -- (0.6) (1.5)
Change in valuation allowance (0.8) 2.7 (0.1)
In-process research and development,
write-off, foreign 7.0 -- --
Foreign income and withholding taxes,
net of U.S. foreign tax credits (9.1) (6.7) 1.1
State income taxes, net of Federal
income tax benefit 0.7 0.4 0.2
- --------------------------------------------------------------------------------
Total and effective tax rate 30.6% 21.8% 29.9%
================================================================================
</TABLE>
The Company has two Puerto Rico subsidiaries that are organized as "possessions
corporations" as defined in Section 936 of the Internal Revenue Code. In fiscal
1997, both 936 corporations elected to change from the so-called "percentage
limitation" to the so-called "economic-activity limitation" in computing the
allowable credit against their underlying U.S. tax liability. The former
limitation restricts the credit to a stipulated percentage of their pre-credit
U.S. tax liability. The latter equates the credit to the sum of three separate
gauges of activity, by far the most significant of which to the companies is 60%
of qualified possession wages and fringe benefits. The exemption from Puerto
Rico income tax remains at 90%. Repatriation of these earnings results in the
imposition of a withholding tax of not more than 10%.
Pall's third Puerto Rico subsidiary, incorporated under Puerto Rico law in
November, 1996, is a controlled foreign corporation (CFC) under U.S. tax
principles, the earnings of which are normally subject to U.S. tax only upon
repatriation. In the reconciliation of the computed "expected" tax expense to
the total and effective tax rate, outlined above, the "benefit" attributable to
this subsidiary is combined with the effects of other controlled foreign
corporations.
The Small Business Job Protection Act of 1996 repealed Section 936 of the
Internal Revenue Code which provided a tax credit for U.S. companies with
operations in certain U.S. possessions, including Puerto Rico. For existing
qualifying Puerto Rico operations, such as Pall, Section 936 will be phased out
over a period of several years, with a decreasing credit being available through
the last taxable year beginning before January 1, 2006.
United States income taxes have not been provided on the retained earnings of
foreign subsidiaries (including the Puerto Rico CFC referred to above), which
totaled $202,000, at August 1, 1998 ($199,000 at August 2, 1997). Foreign
subsidiaries have paid, and are expected to continue to pay, dividends out of
accumulated earnings. A portion of such earnings will however be permanently
reinvested and any additional U.S. taxes arising from the repatriation of
earnings available for distribution, less applicable credits for taxes paid
abroad, would not be material.
Common Stock
Shareholder Rights Plan
On November 17, 1989, the Board of Directors adopted a Shareholder Rights Plan.
Under the Plan, each shareholder received a dividend of one right for each share
of the Company's outstanding common stock. Each right entitles the holder to
purchase one share of common stock at an initial exercise price of $60 per
share. Initially, the rights are attached to the common stock and are not
exercisable. The rights become exercisable and will trade separately from the
common stock ten days after any person or group acquires 20% or more of the
Company's outstanding common stock, or ten business days after any person or
group announces a tender offer for 20% or more of the outstanding common stock.
Each right not owned by the acquiror would become exercisable for the number of
shares of common stock of the Company having a market value at that time of
twice the exercise price of the right. Alternatively, the Board of Directors
could exchange the rights not owned by the acquiror for common stock at an
exchange ratio of one share of common stock per right.
The effective date of the rights dividend was December 1, 1989, to shareholders
of record on that date. Such rights are also attached to common stock issued
subsequent to December 1, 1989. The rights will expire on December 1, 1999,
unless earlier redeemed by the Company. The rights are redeemable by the Board
of Directors for .33 cents per right at any time until a 20% position has been
acquired in the Company's common stock by a person or group.
34
<PAGE> 39
Stock Repurchase Programs
On October 6, 1997, the Company's Board of Directors authorized the expenditure
to repurchase shares of the Company's common stock. Through the end of fiscal
1998, the Company purchased 3,928 shares at an aggregate cost of $84,998. The
Company's Board of Directors had authorized similar repurchase programs in prior
years.
The shares repurchased under these programs are held in treasury for use in
connection with the exercise of options granted under the Company's stock option
plans, and for general corporate purposes. At August 1, 1998, the Company held
4,039 treasury shares.
Incentive Compensation Plan
The plan provides additional compensation to officers and key employees of the
Company and its subsidiaries based upon the achievement of specified management
goals. The Compensation Committee of the Board of Directors establishes the
goals on which the Company's executive officers are compensated, and management
establishes the goals for other covered employees. The aggregate amounts charged
to expense in connection with the plan were $7,000 each for fiscal years 1998
and 1997 and $10,000 for fiscal year 1996.
Stock Option Plans
The Company has adopted several plans that provide for the granting of stock
options to officers, employees and non-employee directors, at option prices
equal to the market price of the common stock at date of grant, which results in
no charge to earnings. The forms of option adopted provide that the options may
not be exercised within one year from the date of grant, and expire if not
completely exercised within five years from the date of grant. For the most
part, in any year after the first year, the options can be exercised with
respect to only up to 25% of the shares subject to the option, computed
cumulatively.
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Options exercisable 3,409 2,654
Options available for grant 416 3,310
================================================================================
</TABLE>
Changes in the options outstanding during fiscal years 1996, 1997 and 1998 are
summarized in the following table:
<TABLE>
<CAPTION>
Weighted
Number of Price Average
Options Range Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance -- July 29, 1995 5,914 $ 2.60 - 21.44 $16.96
Fiscal 1996:
Options granted 2,546 16.10 - 27.25 24.30
Options exercised (1,163) 2.60 - 19.88 16.39
Options terminated (106) 2.60 - 24.25 16.43
- --------------------------------------------------------------------------------
Balance -- August 3, 1996 7,191 2.60 - 27.25 19.34
Fiscal 1997:
Options granted 137 17.53 - 26.75 21.77
Options exercised (1,926) 2.60 - 24.25 16.12
Options terminated (158) 2.81 - 26.06 19.84
- --------------------------------------------------------------------------------
Balance -- August 2, 1997 5,244 2.60 - 27.25 20.58
Fiscal 1998:
Options granted 3,081 19.88 - 21.28 20.40
Options exercised (488) 2.60 - 21.33 15.36
Options terminated (198) 10.63 - 24.25 21.94
- --------------------------------------------------------------------------------
Balance -- August 1, 1998 7,639 2.60 - 27.25 20.81
================================================================================
</TABLE>
As of August 1, 1998, 8,055 shares of common stock of the Company were reserved
for the exercise of stock options. To the extent treasury shares are used to
satisfy option exercises, these reserved shares will not be issued.
Using the Black-Scholes option-pricing model, the disclosures required under
SFAS No. 123 are as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted average fair value per option $ 4.90 $ 5.70
Valuation assumptions:
Expected dividend yield 3.0% 2.0%
Expected volatility 25.0% 20.0%
Expected life (years) 5 5
Risk-free interest rate 5.9% 5.7%
================================================================================
Pro forma effects
Reduction in net earnings $3,000 $3,000
Reduction in earnings per share,
basic and diluted $0.02 $ 0.02
================================================================================
</TABLE>
35
<PAGE> 40
Pension and Profit Sharing Plans and Arrangements
Pension Plans
The Company and its subsidiaries provide substantially all domestic and foreign
employees with pension benefits. Pension costs charged to operations totaled
$12,414, $10,739 and $10,532 in fiscal years 1998, 1997 and 1996, respectively.
The Company's pension plans provide benefits based on salary and length of
service. Funding policy for domestic plans is in accordance with ERISA funding
standards; for foreign plans, funding is determined by local tax laws and
regulations. Plan assets are invested primarily in common stocks, bonds and cash
instruments.
Net periodic pension cost for these plans in fiscal years 1998, 1997 and 1996
was:
<TABLE>
<CAPTION>
U.S. Plans Foreign Plans
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 4,365 $ 3,949 $ 3,449 $ 5,307 $ 4,346 $ 4,074
Interest cost on projected
benefit obligation 6,720 6,051 5,700 5,136 5,039 4,279
Return on plan assets (9,961) (16,948) (5,684) (7,147) (6,470) (5,362)
Net amortization and deferrals 6,600 14,394 3,458 (766) (1,086) (863)
- -------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 7,724 $ 7,446 $ 6,923 $ 2,530 $ 1,829 $ 2,128
===================================================================================================================
</TABLE>
The following table presents the plans' funded status and amounts recognized on
the Company's consolidated balance sheets at August 1, 1998 and August 2, 1997:
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Plans Foreign Plans U.S. Plans Foreign Plans
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 55,102 $ 45,692 $ 65,232 $ 55,708 $ 26,976 $ 26,128 $ 10,401 $ 9,016
Accumulated benefit obligation 58,957 48,376 66,980 57,115 31,452 27,728 11,476 9,905
Projected benefit obligation 67,503 56,098 72,712 63,619 38,729 31,000 13,422 12,074
Plan assets 69,109 61,572 116,010 99,309 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation
(in excess of) or less
than plan assets 1,606 5,474 43,298 35,690 (38,729) (31,000) (13,422) (12,074)
Unrecognized net (gain) or loss (11,121) (11,510) (19,942) (15,005) 13,500 9,961 (697) (1,315)
Unrecognized prior service cost 2,008 1,568 374 167 3,545 911 6 --
Unrecognized net obligation or
(asset) date of adoption (2,178) (2,614) (2,501) (3,122) 611 881 333 368
Additional minimum liability -- -- -- -- (10,379) (8,481) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost (liability)
in the consolidated balance
sheets $ (9,685) $ (7,082) $ 21,229 $ 17,730 $(31,452) $(27,728) $(13,780) $(13,021)
====================================================================================================================================
The assumptions used were:
Discount rate 7.00% 7.50% 2.50-7.50% 3.50-8.50% 7.00% 7.50% 2.50-5.90% 3.50-6.50%
Rate of compensation increase 4.75% 4.75% 2.30-4.50% 3.02-5.50% 4.75% 4.75% 2.50-3.00% 3.00-4.00%
Long-term rate of return on
plan assets 10.00% 9.00% 4.50-7.75% 4.50-9.00% 10.00% 9.00% 4.50-7.75% 4.50-9.00%
</TABLE>
The Company and its subsidiaries also participates in certain pension plans
primarily for the benefit of its employees who are union members. Contributions
to these plans were $2,160, $1,464 and $1,481 for fiscal years 1998, 1997 and
1996, respectively.
36
<PAGE> 41
Profit Sharing Plan
The Company's profit sharing plan covers substantially all domestic employees of
the Company and its participating subsidiaries, other than those employees
covered by a union retirement plan. The plan provides that, unless the Board of
Directors decides otherwise, the Company contribute annually the lesser of (a)
the amount which, when added to forfeitures for the year, equals 7.5% of the
amount by which the consolidated net operating income before income taxes of the
Company and its participating subsidiaries exceeds $500, or (b) the amount
deductible for Federal income tax purposes. The profit sharing expense for
fiscal years 1998, 1997 and 1996 was $4,581, $5,207 and $6,092, respectively.
Other Non-Current Liabilities
This consists primarily of accruals for deferred compensation plans and
arrangements, the benefits of which are, and will continue to be, paid to
covered officers and employees. Also included are accruals for environmental
remediation costs.
Contingencies and Commitments
On May 9, 1997, Gelman received a permit to clean up contaminated water at its
Ann Arbor, Michigan, facility. The permit requires that all processed water
discharged meet the standards set by the State. Certain other facilities of the
Company are also involved in environmental proceedings. The situations at these
sites are similar, in that they relate to the acts of third parties and are not
related to ongoing Company operations. The Company's insurers have been notified
and are evaluating coverage. Based on the permit obtained from the State and
upon review of the environmental issues at other facilities the Company decided
to increase its environmental remediation reserves by an additional $10,000 and
recorded a pretax charge in the third quarter of fiscal 1997. The Company
started the clean up process at its Ann Arbor facility in fiscal 1998. In the
opinion of management, the Company is in substantial compliance with applicable
environmental laws. Because regulatory standards under environmental laws are
becoming increasingly stringent, there can be no assurance that future
developments will not cause the Company to incur material environmental
liabilities or costs.
The Company and its subsidiaries are subject to certain other legal actions that
arise in the normal course of business. It is management's opinion that these
other actions will not have a material effect on the Company's financial
position.
The Company and its subsidiaries lease office and warehouse space, automobiles,
computers and office equipment. Rent expense for all operating leases amounted
to approximately $17,000 in 1998, $18,000 in 1997 and $16,000 in 1996. Future
minimum rental commitments at August 1, 1998 for all noncancelable operating
leases with initial terms exceeding one year are $11,100 in 1999; $8,000 in
2000; $6,200 in 2001; $4,400 in 2002; $2,600 in 2003; and $1,200 thereafter.
The Company has employment agreements with its executive officers, the terms of
which expire at various times through January 2003. Such agreements, which have
been revised from time to time, provide for minimum salary levels, adjusted
annually for cost-of-living changes, as well as for incentive bonuses that are
payable if specified management goals are attained. The aggregate commitment for
future salaries at August 1, 1998, excluding bonuses, was approximately $12,000.
Financial Instruments and Risks and Uncertainties
The Company considers the fair value of all financial instruments to be not
materially different from their carrying value at year-end.
The Company's cash and cash equivalents and investments are in high-quality
securities placed with a wide array of financial institutions with high credit
ratings. This investment policy limits the Company's exposure to concentration
of credit risks.
The Company's products are sold to a diverse group of customers throughout the
world. As such, the Company is subject to certain risks and uncertainties as a
result of changes in general economic conditions, sources of supply,
competition, foreign exchange rates, tax reform, litigation and regulatory
developments. The diversity and breadth of the Company's products and geographic
operations mitigate the risk that adverse changes in any event would materially
affect the Company's financial position. Additionally, as a result of the
diversity of its customer base, the Company does not consider itself exposed to
concentration of credit risks. These risks are further minimized by placing
credit limits, ongoing monitoring of the customers' account balances, and
assessment of the customers' financial strengths.
The Company enters into forward exchange contracts, generally with terms of 90
days or less, to manage its foreign currency transaction exposures. Effects of
changes in currency rates on those transactions are therefore minimized and
hedges are accounted for as part of the underlying transactions. The total value
of open contracts at year-end was not material.
Segment and Quarterly Information
The Company's segment information by industry and geographic areas are disclosed
on pages 28 and 29.
Unaudited quarterly financial information appears on page 38.
37
<PAGE> 42
Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except First Second Third Fourth Full
per share data) Quarter Quarter Quarter Quarter Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998:
Net sales $237,351 $259,004 $289,171 $301,759 $1,087,285
Gross profit 131,740 143,620 166,380 171,686 613,426
Earnings before income taxes 25,575 37,479 20,222 51,709 134,985(a)
Net earnings 18,414 27,546 7,947 39,726 93,633
Earnings per share
Basic 0.15 0.22 0.06 0.32 0.75(a)
Diluted 0.14 0.22 0.06 0.32 0.75(a)
1997:
Net sales $235,791 $260,759 $275,339 $290,119 $1,062,008
Gross profit 137,543 151,132 136,240 168,680 593,595
Earnings (loss) before income
taxes 25,888 41,497 (40,410) 59,152 86,127(b)
Net earnings (loss) 17,284 28,968 (22,204) 43,270 67,318
Earnings (loss) per share
Basic 0.14 0.23 (0.18) 0.34 0.53(b)
Diluted 0.14 0.23 (0.18) 0.34 0.53(b)
====================================================================================================
</TABLE>
(a) Includes a one-time charge of $27,000 in the third quarter (decreased
basic and diluted earnings per share by 22 cents, each) to write off
in-process research and development related to the acquisition of Rochem,
offset by $7,778 of other income, net, recorded in the second quarter
(increased basic and diluted earnings per share by 4 cents, each after pro
forma tax effect). These items reduced full-year basic and diluted
earnings per share by 18 cents and 17 cents, after pro forma tax effect,
respectively.
(b) Includes a charge of $95,930 related to Gelman merger, restructuring and
other charges. $3,911 of the charge was recorded in the first quarter
(decreased basic and diluted earnings per share by 3 cents, each after pro
forma tax effect) and the remainder was recorded in the third quarter
(decreased basic and diluted earnings per share by 47 cents, each after
pro forma tax effect). This charge in aggregate reduced full-year basic
and diluted earnings per share by 50 cents and 49 cents, after pro forma
tax effect, respectively.
COMMON STOCK PRICES AND CASH DIVIDENDS
Pall Corporation's Common Stock is listed on the New York and London Stock
Exchanges. The table below sets forth quarterly data relating to the Company's
Common Stock prices and cash dividends declared per share for the past two
fiscal years.
<TABLE>
<CAPTION>
Cash dividends
Fiscal 1998 Fiscal 1997 per common share
- --------------------------------------------------------------------------------
Price per share High Low High Low 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Quarter: First $25.56 $19.50 $28.25 $22.75 $0.1400 $0.1225
Second 22.25 19.44 27.25 22.13 0.1550 0.1400
Third 21.75 19.38 24.50 20.75 0.1550 0.1400
Fourth 22.63 19.38 25.38 22.63 0.1550 0.1400
================================================================================
</TABLE>
There are approximately 7,500 holders of record of the Company's Common Stock.
SIX-YEAR SALES
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Health Care $ 554,326 $ 555,378 $ 570,835 $489,347 $437,324 $430,534
Aeropower 258,490 243,207 235,075 212,806 179,508 176,134
Fluid Processing 274,469 263,423 266,523 224,173 178,979 166,763
- ----------------------------------------------------------------------------------------------------------
Total $1,087,285 $1,062,008 $1,072,433 $926,326 $795,811 $773,431
==========================================================================================================
</TABLE>
38
<PAGE> 43
SIX-YEAR FINANCIAL HISTORY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share data
and number of employees) 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Results for the Year:
Sales 1,087.3 1,062.0 1,072.4 926.3 795.8 773.4
Cost of sales 473.9 468.4 429.7 355.2 304.9 293.3
Selling, general and
administrative expenses 392.8 376.9 378.8 338.7 295.0 294.2
Research and development 58.5 53.8 53.8 50.6 46.2 44.2
Other charges, net 19.2(a) 74.0 2.8(c) -- 3.7(e) 26.7(f)
Interest expense, net 7.9 2.8 3.6 4.1 3.4 6.0
Earnings before taxes 135.0 86.1(b) 203.7 177.7 142.6 109.0
Income taxes 41.4 18.8 60.9 51.8 38.8 28.0
Accounting changes -- -- -- (.8)(d) -- --
Net earnings 93.6 67.3 142.8 125.1 103.8 81.0
Earnings per share:
Basic 0.75 .53 1.14 1.00 .84 .66
Diluted 0.75 .53 1.13 1.00 .84 .65
Dividends declared per share .61 .54 .47 .41 .36 .31
Capital expenditures 85.1 88.6 88.5 74.3 80.0 68.4
Depreciation 64.6 55.9 51.5 46.2 41.2 39.6
- -------------------------------------------------------------------------------------------------------------------------------
Year-End Position:
Working capital 208.4 305.6 290.7 268.9 237.4 211.7
Property, plant and equipment, net 520.6 504.0 498.0 460.5 426.8 384.8
Total assets 1,346.9 1,265.6 1,291.2 1,156.7 1,031.3 965.8
Long-term debt 111.5 62.1 54.4 74.3 75.9 47.0
Total liabilities 581.3 440.8 494.2 446.1 413.6 400.6
Equity 765.6 824.8 797.0 710.6 617.7 565.2
- -------------------------------------------------------------------------------------------------------------------------------
Other Ratios and Statistics:
Net earnings (excluding other charges
and accounting changes) as % of:
Sales 10.6 12.3 13.5 13.6 13.3 12.8
Average total assets 8.9 10.2 11.8 11.5 10.6 10.2
Average equity 14.5 16.1 19.2 18.9 18.0 17.5
Average shares outstanding:
Basic 125.1 126.3 125.1 124.6 123.9 123.4
Diluted 125.7 127.5 126.7 125.5 123.9 124.9
Equity per share 6.18 6.48 6.36 5.70 5.01 4.57
Number of employees at
year-end 8,900 8,500 8,500 7,300 7,000 7,100
Price range of stock during the year:
High 25.56 28.25 29.38 24.00 21.25 23.16
Low 19.38 20.75 19.63 15.75 13.63 16.38
===============================================================================================================================
</TABLE>
(a) Includes a one-time charge of $27.0 million to write off in-process
research and development related to the Rochem acquisition, offset by $7.8
million of the other income, net.
(b) Includes a charge of $95.9 million related to Gelman merger, restructuring
and other charges.
(c) Represents a charge related to Gelman's environmental remediation costs.
(d) Represents a decrease in net earnings as a result of adopting SFAS No. 112
(Employers' Accounting for Postemployment Benefits).
(e) Represents principally the cost of restructuring the German operations and
of writing off a bad debt in the Aeropower operations.
(f) Represents principally the cost of downsizing and further integrating the
military portion of the Aeropower business with the Industrial Fluid Power
business.
39
<PAGE> 44
CORPORATE DIRECTORY
Senior Officers
Eric Krasnoff, Chairman and Chief Executive Officer
Jeremy Hayward-Surry, President
Derek Williams, Executive Vice President and
Chief Operating Officer
John Adamovich, Chief Financial Officer,
Group Vice President and Treasurer
Senior Operating Officers
Steven Chisolm
Peter Cope
Charles Grimm
Clifton Hutchings
Paul Kohn
Akio Satake
Robert Simkins
Donald Stevens
Gerhard Weich
Arnold Weiner
Marcus Wilson
Samuel Wortham
Mary Ann Bartlett, Secretary
Gilbert Weiner, General Counsel
Corporate Officers
Dr. Joseph Adiletta
Dr. Leonard Bensch
Jane Block
Thomas Bormann
Harvey Brandwein
Claude Broussy
Dr. Peter Degen
Terry Flack
Stephen Geibel
Dr. Thomas Gsell
Dr. Richard Gutman
Richard Haas
Patricia Iannucci
Sakae Isohata
Dr. Hyman Katz
Erwin Kirnbauer
Neil MacDonald
John Miller
William Palmer
John Pearson
Reed Sarver
Clarence Treppa
Dr. Barry Wenz
Charles Wolowitz
Board of Directors
Abraham Appel
Ulric Haynes, Jr.
John H.F. Haskell, Jr.
Jeremy Hayward-Surry
Eric Krasnoff
Dr. Edwin Martin, Jr.
Katharine Plourde
Chesterfield Seibert
Heywood Shelley
Alan Slifka
Dr. James Watson
Derek Williams
Design: Bloch Graulich Whelan Inc. / New York
40
<PAGE> 45
CORPORATE INFORMATION
Corporate Headquarters
2200 Northern Blvd.
East Hills, New York 11548
Tel: (516) 484-5400 Fax: (516) 484-3529
Principal Plants
Cortland and Long Island, New York
Fort Myers and New Port Richey, Florida
Covina, California
Putnam, Connecticut
Northborough, Massachusetts
Ann Arbor, Michigan
Fajardo, Puerto Rico
Hamburg, Germany
Tipperary, Ireland
Tsukuba, Japan
Ilfracombe, Newquay, Portsmouth and Redruth,
United Kingdom
Auditors
KPMG Peat Marwick LLP, Melville, New York
Registrar & Transfer Agent
Wachovia Bank, N.A.
The transfer agent is responsible for shareholder records, changes of address,
stock transfers, changes of ownership, issuance of stock certificates, and
distribution of dividends and IRS Forms 1099.
Requests concerning these matters are most efficiently answered by contacting:
Wachovia Bank, N.A.
Wachovia Shareholder Services
P.O. Box 8217
Boston, Massachusetts 02266-8217
Telephone: 1-800-633-4236
Investor Relations
Investor relations inquiries should be directed to:
Pall Corporation
Diane Foster
25 Harbor Park Drive
Port Washington, New York 11050-4630
Telephone: 516-484-3600 Fax: 516-484-3649
E-mail: [email protected]
Requests for financial materials: Telephone 1-800-205-7255
Information on company results can be obtained through conventional press
coverage, SEC filings, Pall's Internet web site at http://www.pall.com or
through Pall's Select-a-fax system at 1-800-664-PALL.
Dividend Reinvestment Plan
Pall Corporation's Dividend Reinvestment Plan allows shareholders to reinvest
dividends and invest additional cash to purchase Pall Corporation Common Stock.
You must be a registered shareholder with a minimum of 50 shares in order
participate. For more information, contact Pall's Transfer Agent or Investor
Relations Department.
Forward-Looking Statements
This annual report contains forward-looking statements that are based on current
Company expectations and are subject to a number of factors that could cause
actual results to differ materially. Such risks include, but are not limited to,
fluctuations in foreign exchange rates, regulatory approval and market
acceptance of new technologies, market demand, competitive pricing
considerations, and global and regional economic conditions and the Year 2000
issue discussed above in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Trademarks
All product names appearing in type form different from that of the surrounding
text are trademarks owned by Pall Corporation or its subsidiaries.
<PAGE> 46
[LOGO OMITTED](R) Pall Corporation
Corporate Headquarters
2200 Northern Boulevard
East Hills, NY 11548-1289 USA
800.645.6532 toll free
516.484.5400 phone
516.484.3529 fax
Visit us on the web at www.pall.com
- --------------------------------------------------------------------------------
Pall Corporation has offices and plants throughout the world in locations such
as: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, France,
Germany, Hong Kong, India, Indonesia, Ireland, Italy, Japan, Korea, Malaysia,
Mexico, the Netherlands, New Zealand, Norway, Poland, Puerto Rico, Russia,
Singapore, Spain, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom, and
the United States. Distributors in all major industrial areas of the world.
Filtration. Separation. Solution.(SM)
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF PALL CORPORATION
Pall Corporation owns 100% of the outstanding capital stock of those companies
listed below, except where otherwise noted:
State or Other Jurisdiction
Name of Company of Incorporation
- --------------- ----------------
Medsep Corporation Delaware
Pall Aeropower Corporation Delaware
Pall Biomedical, Inc. Delaware
Pall International Corporation Delaware
Pall Puerto Rico, Inc. Delaware
Pall Stratapac Ltd. Delaware
Russell Associates Inc. Delaware
Rochem Separations California
Pall Filtron Corporation Massachusetts
Gelman Sciences, Inc. Michigan
Pall Industries, Inc. (e) Puerto Rico
Pall (Canada) Limited Canada
Pall BVBA Belgium
Pall Europe Limited England
Gelman Sciences Ltd. England
Rochem Separations Systems Ltd. (d) England
Pall Deutschland GmbH Holding Germany
Pall GmbH (a) Germany
Pall Rochem GmbH (a) Germany
Pall Italia S.R.L. Italy
Gelman Ireland Ltd. Ireland
Pall France S.A. France
Pall Netherlands B.V. The Netherlands
Romaco B.V. (d) The Netherlands
Pall Norge AS Norway
Pall (Schweiz) A.G. Switzerland
Argentaurum A.G. Switzerland
Pall Austria Filter Ges.m.b.H. Austria
Pall Espana S.A. Spain
Pall Filtron AB (c) Sweden
Pall Filtron Technology B.V. (c) The Netherlands
Pall Poland Limited (a) Poland
Nihon Pall Ltd. Japan
Gelman Sciences Ltd. Japan
Pall Filtration Pte. Ltd. Singapore
Pall Korea Limited South Korea
Pall Filter (Beijing) Co., Ltd. China
Pall Asia International Ltd. Hong Kong
Gelman Sciences Ltd. (b) Australia
Pall Export Sales Corporation, Limited Jamaica
(a) 100% owned by Pall Deutschland GmbH Holding.
(b) 100% owned by Gelman Sciences Inc., Michigan
(c) 100% owned by Pall Filtron Corporation.
(d) 100% owned by Argentaurum BV
(e) 100% owned by Pall Netherlands BV
All subsidiaries listed above are included in the consolidated financial
statements for the fiscal years 1998, 1997 and 1996, or, in the case of
corporations organized since August 1, 1995, from the date of incorporation.
The list does not include inactive subsidiaries.
<PAGE> 1
[KPMG PEAT MARWICK LLP LETTERHEAD]
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
Pall Corporation:
We consent to incorporation by reference in Pall Corporation's Registration
Statements Nos. 33-25640, 33-44399, 33-51151 and 33-64751 on Form S-8, and
Registration Statement No. 333-17417 on Form S-3, of our reports dated
September 2, 1998, relating to the consolidated balance sheets of Pall
Corporation and subsidiaries as of August 1, 1998 and August 2, 1997 and the
related consolidated statements of earnings, stockholders' equity and cash flows
and related schedules for each of the years in the three-year period ended
August 1, 1998, which reports are incorporated by reference or appear in the
annual report on Form 10-K of Pall Corporation for the fiscal year ended August
1, 1998.
/s/ KPMG PEAT MARWICK LLP
--------------------------
KPMG PEAT MARWICK LLP
Melville, New York
October 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-01-1998
<PERIOD-END> AUG-01-1998
<EXCHANGE-RATE> 1
<CASH> 12,125
<SECURITIES> 16,800
<RECEIVABLES> 297,414
<ALLOWANCES> 5,879
<INVENTORY> 227,254
<CURRENT-ASSETS> 602,489
<PP&E> 920,413
<DEPRECIATION> 399,821
<TOTAL-ASSETS> 1,346,919
<CURRENT-LIABILITIES> 394,090
<BONDS> 0
0
0
<COMMON> 12,796
<OTHER-SE> 752,819
<TOTAL-LIABILITY-AND-EQUITY> 1,346,919
<SALES> 1,087,285
<TOTAL-REVENUES> 1,087,285
<CGS> 473,859
<TOTAL-COSTS> 952,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,870
<INCOME-PRETAX> 134,985
<INCOME-TAX> 41,352
<INCOME-CONTINUING> 93,633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,633
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
