<PAGE>
-1-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended January 29, 2000
Commission File No. 1-4311
PALL CORPORATION
Incorporated in New York State I.R.S. Employer Identifi-
cation # 11-1541330
2200 Northern Boulevard, East Hills, N.Y. 11548
Telephone Number (516) 484-5400
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
At March 6, 2000, 123,649,516 shares of common stock of the Registrant were
outstanding.
<PAGE>
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PALL CORPORATION
INDEX TO FORM 10-Q
------------------
COVER SHEET 1
INDEX TO FORM 10-Q 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets - January 29, 2000
and July 31, 1999 3
Condensed consolidated statements of earnings -
three months and six months ended January 29, 2000 4
and January 30, 1999
Condensed consolidated statements of cash flows -
six months ended January 29, 2000 and January 30, 1999 5
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of financial condition and
results of operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of matters to a vote of security holders 13
Item 6. Exhibits and reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
<PAGE>
-3-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
January 29, July 31,
ASSETS 2000 1999
Current Assets: ----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 81,945 $ 86,677
Short-term investments 40,500 50,500
Accounts receivable, net of allowances
for doubtful accounts of $7,171
and $6,623, respectively 283,096 326,197
Inventories - Note 2 203,950 205,867
Other current assets 79,348 74,948
----------------- -----------------
Total Current Assets 688,839 744,189
Property, plant and equipment, net of
accumulated depreciation of $436,298
and $429,012, respectively 506,063 507,016
Other assets 241,087 237,122
----------------- -----------------
Total Assets $ 1,435,989 $ 1,488,327
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 258,067 $ 301,647
Accounts payable and
other current liabilities 179,456 198,979
Income taxes 25,955 20,147
Current portion of long-term debt 52,308 37,506
----------------- -----------------
Total Current Liabilities 515,786 558,279
Long-term debt, less current portion 100,863 116,815
Deferred taxes and other
non-current liabilities 86,935 82,569
----------------- -----------------
Total Liabilities 703,584 757,663
----------------- -----------------
Stockholders' Equity:
Common stock, $.10 par value 12,796 12,796
Capital in excess of par value 92,894 92,893
Retained earnings 750,979 732,970
Treasury stock, at cost (92,608) (82,283)
Stock option loans (5,865) (7,216)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (20,105) (12,149)
Minimum pension liability (2,141) (1,937)
Unrealized investment losses (3,545) (4,410)
----------------- -----------------
(25,791) (18,496)
Total Stockholders' Equity 732,405 730,664
----------------- -----------------
Total Liabilities and
Stockholders' Equity $ 1,435,989 $ 1,488,327
================= =================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
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PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, (in thousands,
except per share data) except per share data)
Three Months Ended Six Months Ended
------------------------------- ---------------------------------
Jan. 29, Jan. 30, Jan. 29, Jan. 30,
2000 1999 2000 1999
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales $ 294,699 $ 278,255 $ 561,821 $ 528,105
Costs and expenses:
Cost of sales - Note 1 136,683 133,764 261,429 251,104
Selling, general and
administrative expenses 98,857 105,684 193,590 202,571
Research and development 11,680 15,034 23,498 29,969
Interest expense, net 3,546 3,035 7,036 5,983
----------- ----------- ------------- ------------
Total costs and expenses 250,766 257,517 485,553 489,627
Earnings before income taxes 43,933 20,738 76,268 38,478
Income taxes 10,105 4,764 17,542 9,043
----------- ----------- ------------- ------------
Net earnings $ 33,828 $ 15,974 $ 58,726 $ 29,435
=========== =========== ============= ============
Earnings per share:
Basic $0.27 $0.13 $0.47 $0.24
Diluted $0.27 $0.13 $0.47 $0.24
Dividends declared per share $0.165 $0.160 $0.325 $0.315
Average number of shares
outstanding:
Basic 123,952 124,595 124,049 124,339
Diluted 124,860 125,067 124,994 124,831
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
-5-
PALL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Six Months Ended
------------------------------
Jan. 29, Jan. 30,
2000 1999
------------ ----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 112,818 $ 43,884
INVESTING ACTIVITIES:
Investments and licenses (3,248) (9,435)
Capital expenditures (28,414) (36,251)
Disposals of fixed assets 3,165 1,198
Short-term investments 10,000 (17,200)
----------- ----------
NET CASH USED BY INVESTING ACTIVITIES (18,497) (61,688)
FINANCING ACTIVITIES:
Net short-term (repayments) borrowings (41,919) 64,305
Long-term borrowings 14,878 2,960
Payments on long-term debt (20,976) (11,524)
Net proceeds from exercise of stock options 5,097 33,445
Purchase of treasury stock (14,604) (30,000)
Dividends paid (39,739) (38,481)
----------- ----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (97,263) 20,705
----------- ----------
CASH FLOW FOR PERIOD (2,942) 2,901
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 86,677 12,125
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,790) 250
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 81,945 $ 15,276
=========== ==========
Supplemental disclosures:
Interest paid (net of amount capitalized) $ 10,336 $ 8,081
Income taxes paid (net of refunds) 17,881 13,449
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
-6-
PALL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein is unaudited. However, such
information reflects all adjustments which are, in the opinion of management,
necessary to present fairly the Company's financial position, results of
operations and cash flows as of the dates and for the periods presented herein.
These financial statements should be read in conjunction with the financial
statements and notes set forth in the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1999.
The results of operations for the first and second quarters of fiscal 1999 have
been adjusted to include $1,567 (1 cent per share) and $4,200 (2 cents per
share), respectively, of previously capitalized start-up costs expensed in cost
of sales when the Company adopted Statement of Position 98-5, "Reporting the
Costs of Start-up Activities" in the third quarter of fiscal year 1999.
NOTE 2 - INVENTORIES
The major classes of inventory are as follows: (in thousands)
Jan. 29, July 31,
2000 1999
-------- --------
Raw materials and components $ 75,327 $ 77,092
Work-in-process 27,193 25,127
Finished goods 101,430 103,648
-------- --------
Total inventory $203,950 $205,867
======== ========
NOTE 3 - COMPREHENSIVE INCOME
The components of comprehensive income for the three months and six months
ended January 29, 2000 and January 30, 1999 were comprised of the following:
<TABLE>
<CAPTION>
(in thousands)
Three months ended Six months ended
-------------------------- --------------------------
Jan. 29, Jan. 30, Jan. 29, Jan. 30,
2000 1999 2000 1999
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net income $33,828 $15,974 $58,726 $29,435
Foreign currency translation adjustment (8,057) (6,067) (8,054) 6,724
Income taxes (726) 365 98 111
------- -------- ------- -------
Foreign currency translation adjustment, net (8,783) (5,702) (7,956) 6,835
Minimum pension liability adjustment 27 (20) (368) (50)
Income taxes (12) 7 164 17
------- ------- ------- -------
Minimum pension liability adjustment, net 15 (13) (204) (33)
Unrealized investment gains (losses) 3,238 1,999 1,330 (6,848)
Income taxes (1,133) (700) (465) 2,396
------- ------- ------- ------
Unrealized investment gains (losses), net 2,105 1,299 865 (4,452)
Total comprehensive income $27,165 $11,558 $51,431 $31,785
======= ======= ======= =======
</TABLE>
<PAGE>
NOTE 4 - SEGMENT INFORMATION -7-
<TABLE>
<CAPTION>
Three Months Ended Three Months Six Months
--------------------------- Six Months Ended Ended Ended
Market Segment Information: Oct. 30, Jan. 29, Jan. 29, Jan. 30, Jan. 30,
(in thousands) 1999 2000 2000 1999 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to Unaffiliated Customers:
Blood $ 48,572 $ 52,387 $100,959 $ 44,803 $ 84,242
Critical Care 18,578 23,752 42,330 21,236 41,847
-------- -------- -------- -------- --------
Medical 67,150 76,139 143,289 66,039 126,089
-------- -------- -------- -------- --------
BioPharmaceuticals 52,940 56,517 109,457 59,086 110,021
Food and Beverage 12,991 13,325 26,316 13,358 24,541
Specialty Materials 8,648 9,215 17,863 9,779 18,839
-------- -------- -------- -------- --------
BioPharmaceuticals 74,579 79,057 153,636 82,223 153,401
-------- -------- -------- -------- --------
Health Care 141,729 155,196 296,925 148,262 279,490
-------- -------- -------- -------- --------
Aerospace 30,013 31,083 61,096 32,061 61,962
Industrial Hydraulics 31,291 34,477 65,768 32,651 63,022
-------- -------- -------- -------- --------
Aeropower 61,304 65,560 126,864 64,712 124,984
-------- -------- -------- -------- --------
Microelectronics 18,822 24,678 43,500 14,202 25,900
Industrial Process 45,267 49,265 94,532 51,079 97,731
-------- -------- -------- -------- --------
Fluid Processing 64,089 73,943 138,032 65,281 123,631
-------- -------- -------- -------- --------
Total $267,122 $294,699 $561,821 $278,255 $528,105
- ------------------------------------------------------------------------------------------------------------------------------
Operating Profit: (a)
Medical $ 14,745 $ 22,050 $ 36,795 $ 13,925 $ 23,762
BioPharmaceuticals 15,733 17,557 33,290 9,214 19,708
-------- -------- -------- -------- --------
Health Care 30,478 39,607 70,085 23,139 43,470
-------- -------- -------- -------- --------
Aeropower 14,865 14,773 29,638 13,184 27,564
Fluid Processing 4,968 6,413 11,381 3,434 5,779
-------- -------- -------- -------- --------
Subtotal 50,311 60,793 111,104 39,757 76,813
General corporate expenses (14,486) (13,314) (27,800) (15,984) (32,352)
Interest expense, net (3,490) (3,546) (7,036) (3,035) (5,983)
-------- -------- -------- -------- --------
Earnings before income taxes $ 32,335 $ 43,933 $ 76,268 $ 20,738 $ 38,478
- ------------------------------------------------------------------------------------------------------------------------------
Geographic Segment Information:
(in thousands)
Sales to Unaffiliated Customers:
Western Hemisphere $122,715 $133,600 $256,315 $120,793 $233,684
Europe 97,458 106,104 203,562 112,050 211,712
Asia 46,949 54,995 101,944 45,412 82,709
-------- -------- -------- -------- --------
Total $267,122 $294,699 $561,821 $278,255 $528,105
- ------------------------------------------------------------------------------------------------------------------------------
Operating Profit:
Western Hemisphere $ 29,073 $ 31,079 $ 60,152 $ 19,003 $ 31,825
Europe 20,002 22,139 42,141 23,770 47,263
Asia 5,433 8,922 14,355 2,556 3,470
Eliminations (4,197) (1,347) (5,544) (5,572) (5,745)
-------- -------- -------- -------- --------
Subtotal 50,311 60,793 111,104 39,757 76,813
General corporate expenses (14,486) (13,314) (27,800) (15,984) (32,352)
Interest expense, net (3,490) (3,546) (7,036) (3,035) (5,983)
-------- -------- -------- -------- --------
Earnings before income taxes $ 32,335 $ 43,933 $ 76,268 $ 20,738 $ 38,478
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Certain components of market segment operating profit for the three months
ended October 30, 1999 have been reclassified to conform to the second
quarter presentation.
<PAGE>
-8-
Note 5 - OTHER MATTERS
On January 20, 2000, the Board of Directors extended the Company's current stock
buy-back program by three years with an authorization to expend up to an
additional $200 million. The repurchased shares will be available for general
corporate purposes, including the exercise of stock options. The Company bought
back an additional $1.6 million and $13 million of its common stock during the
first and second quarters, respectively, and has $10 million remaining under the
October 1997 $150 million authorization program.
On January 31, 2000, the Company purchased a new manufacturing facility,
equipment and certain other assets from Laboratory SpA, a publicly traded
company in Italy, for approximately $15 million. Additional consideration of
approximately $3 million will be paid over the next three years as certain
production levels are achieved. The new facility will be used in the manufacture
of blood product systems.
Gelman continues to remediate the contamination at its Ann Arbor, Michigan
facility, pursuant to a Consent Judgment entered into by the State of Michigan
and Gelman. On February 2, 2000, the State of Michigan advised Gelman of its
intention to file a court motion seeking approximately $4.2 million in penalties
for alleged violations of the Consent Judgment. Gelman disputes these assertions
and has been vigorously contesting them.
<PAGE>
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's discussion & analysis may contain "forward looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. These
statements are based on current Company expectations and are subject to risks
and uncertainties, which could cause actual results to differ materially. In
addition to foreign exchange rates, such risks and uncertainties include, but
are not limited to, regulatory approval, market acceptance of new technologies,
economic conditions and market demand.
I. Results of Operations
Review of Consolidated Results
Sales for the quarter were $294.7 million, an increase of 6%, compared to $278.3
million in the second quarter of last year. Exchange rates, principally the
weakness of certain European currencies partially offset by the strength of the
Japanese Yen against the U.S. dollar, decreased sales by 2%, or $6.1 million. In
local currency, sales increased 8%; excluding the effect of the Stratapac(R)
business divested in the third quarter of fiscal 1999, sales increased 9%. Sales
of $561.8 for the six months, increased 6 1/2% over the prior year's sales of
$528.1 million. In local currency, sales improved by 7 1/2% over the prior
period and 8 1/2% excluding the effect of the 1999 divestiture. Increased blood
filter and Microelectronic sales fueled the growth while, in local currency,
Aeropower contributed to the growth with moderate improvement and
Biopharmaceutical was essentially flat.
Cost of sales at 46.4% and 46.5% as a percentage of sales for the quarter and
six months, respectively, has improved by 1.7% and 1%, respectively, despite the
continued change in mix of blood filter sales. This was largely due to
improvements in the Fluid Processing margins.
Selling, general and administrative expenses and research and development
expenses of $110.5 and $217.1 in the aggregate, for the quarter and six months
were 37.5% and 38.6% of sales. Compared to the same prior year periods, these
costs decreased $10.2 million, or nearly 6%, and $15.5 million or 5 1/2%,
respectively, principally due to the restructuring initiated in the third
quarter of 1999. Part of the restructuring plan involved the consolidation of
certain facilities. The results for the six months of fiscal 2000 include a
profit of $1.3 million from the sale of a property located in the United
Kingdom.
The effective income tax rate for the quarter and six months of both years was
approximately 23%.
The benefits of the restructuring started in the third quarter last year coupled
with on-going cost reduction efforts and local currency growth in the top-line,
<PAGE>
10
can clearly be seen in the earnings. For the second quarter, earnings per
diluted share increased 112% to 27 cents from the 13 cents reported last year.
For the six months, earnings per share increased to 47 cents from 24 cents per
diluted share in the prior year. The prior year amounts have been reduced by two
cents for the quarter and three cents for the six months for a change in an
accounting principle related to start-up costs.
The Company started the year with three goals to help increase its earnings per
share by 30% (excluding last year's one-time charge) and achieve at least a 19%
return on equity. Those goals were:
o Increase local currency sales growth in the range of 8% to 10%
o Stop the reduction in gross margins
o Reduce selling, general and administrative expenses plus R & D as a percentage
of sales by at least 2 percentage points.
These goals are fully intact and the Company believes it can exceed the goal of
30% growth in earnings per share compared to last year's 92 cents (before
restructuring and one-time charges).
Review of Market and Geographic Segments
For the quarter and six months, Medical's sales grew by 17 1/2% and 15%,
respectively, in local currency. Overall, blood filter sales have grown by 18
1/2% in the quarter and 21% for the six months. The sales mix continues to shift
to blood centers, which represented approximately 69% of total blood filter
sales as of the end of the second quarter compared to approximately 53% for the
first six months of 1999. Blood center sales have increased by more than 50% in
the quarter and during the six months reflecting the growth trends in both
Europe and the United States as more countries move towards 100% leukodepletion.
Hospital sales have declined by 23% and 20% in the quarter and for the six
months, respectively. On a year to date basis, Critical Care sales have
increased approximately 3 1/2%.
Based on reported amounts, Biopharmaceutical sales declined 4% in the quarter
attributable to the general weakening of certain European currencies against the
U.S. dollar. However, on a local currency basis, Biopharmaceutical sales were
essentially flat for the quarter and up approximately 2% year to date over the
prior year. Growth in Food and Beverage continued with sales up 4% and 10% for
the quarter and six months in local currency. Sales to pharmaceutical producers
and laboratories declined slightly in the quarter and year to date due to the
timing of large system sales last year as well as some pharmaceutical plant
closures in the United States.
On a reported basis, sales in the Aeropower business segment were essentially
flat for the quarter and six months. On a local currency basis, sales in the
Aeropower segment were up approximately 4% in the quarter buoyed by an 11%
increase in Industrial Hydraulics sales. Industrial Hydraulics sales in the
United States, which suffered in the prior year, have increased 19% in the
quarter and over 12% year to date. Aerospace sales, which were down
approximately 2% during the quarter, were affected by a large military sale in
Europe last year. On a year to date basis, Aeropower sales have increased 4%.
<PAGE>
11
Fluid Processing sales increased 13 1/2% and 10 1/2%, in local currency, during
the quarter and year to date. Driving this growth is the Microelectronics
subsegment, which had 69% local currency growth in the quarter as it benefited
from growth in the semiconductor market. Microelectronic sales have grown by
more than 50% in both Europe and Asia, and doubled in the United States. Sales
in Industrial Process have declined slightly in the quarter and six months.
However after adjusting for the divested Stratapac(R) business, comparable sales
increased by approximately 3% for the quarter and are flat for the six months.
Within Industrial Process, IH Power Generation sales increased 26% in the
quarter and water processing grew by 13%, both driven by growth in the United
States.
During the quarter, consolidated operating profits grew to 20.6% compared to
14.3%, benefiting from the restructuring initiated in the third quarter of 1999.
For the six months, consolidated profit margins were 19.8%, an increase of 5.2%
over the prior year. Operating profit margins have improved in all business
segments. In Medical, the operating profit margin for the quarter has increased
8% and 7% for the six months reflecting the combined effect of the increased
sales volume to blood centers and the restructured selling organization.
Operating profit in Biopharmaceutical improved 11% in the quarter and
approximately 9% year to date due to the joint effect of reduced systems sales
and the restructuring. Aeropower's operating profits grew approximately 2% for
the quarter and remained flat for the six months. Operating profit in Fluid
Processing, which has benefited from improved margins in systems sales, has
grown to 8.7% and 8.2% in the quarter and six months from 5.3% and 4.7% last
year, respectively.
By geography, Western Hemisphere sales have increased 10 1/2% and 9 1/2% for the
quarter and year to date, respectively, while operating profit has improved by
7.6% and 10%, respectively, reflecting the restructuring cost cuts as well as
improved gross margins in Fluid Processing. Reported sales in Asia, which
benefited from the strong Yen, increased 21% and 23% in the quarter and six
months, respectively. In local currency, sales in Asia have increased 11% and
10% for the quarter and year to date, respectively, fueled by growth in
Microelectronics and overall growth in Korea and Singapore . Operating margins
in Asia improved approximately 10% in both the quarter and year to date. In
Europe, reported sales decreased by 5 1/2% in the quarter and 4% for the six
months. However, in local currency, sales have increased by 4 1/2% for both
periods, reflecting the negative impact the weak Euro has had on sales.
Operating profits have declined slightly for the quarter from 21.2% to 20.9%
also as a result of the weak Euro. For the six months, Europe's operating profit
of 20.7% represents a decrease of 1.6% compared to last year.
<PAGE>
12
II. Liquidity and Capital Resources
The Company's balance sheet is affected by the spot exchange rates used at the
end of the quarter for translating local currency amounts into US dollars. In
relation to the spot exchange rates at the end of last year, the European
currencies, except for the British Pound, have generally weakened against the
dollar while the Asian currencies have strengthened against the dollar. During
the six months, net debt declined by approximately $30 million and was flat
during the quarter. The reduction in the six months was comprised of net
reductions of approximately $35 million partially offset by the effect of
foreign currency exchange, primarily in Japan, of approximately $5 million.
Net cash provided by operating activities has increased by $68.9 million
attributable to increased net earnings and collection of receivables partially
offset by decreased payables. During the quarter, the Board of Directors
authorized an extension of the Company's existing stock repurchase program and
also authorized expenditure of up to another $200 million to repurchase the
Company's shares. The Company purchased $14.6 million of treasury stock during
the six months. Capital expenditures and depreciation and amortization expense
for the six months were $28.4 million and $34.9 million, respectively. At the
beginning of the third quarter, the Company closed the purchase of a
manufacturing facility in Italy for a purchase price of $15 million. The
purchase price was paid with cash generated from the Company's operating cash
flows.
III. Other Matters
Year 2000 Compliance
The Company satisfactorily completed its Year 2000 (Y2K) project as scheduled.
During the Y2K rollover period and to date, the Company's information systems
and operations have not experienced any major Y2K related problems.
Additionally, the Company is not aware of any significant Y2K problems impacting
its major customers or suppliers. Although the Company believes its information
systems and operations are Y2K compliant, uncertainties remain relating to
whether Y2K problems may arise in the future. In the event that Y2K issues do
arise, the Company's previously developed Y2K contingency plans remain intact.
The expenditures necessary to achieve Y2K compliance were not material to the
Company's financial statements
Euro Currency Conversion
A new European currency (Euro) was introduced in January 1999 to replace the
separate (legacy) currencies of eleven individual countries. This will entail
changes in our operations as we modify systems and commercial arrangements to
deal with the new currency. Modifications will be necessary in operations such
as payroll, benefits and pension systems, contracts with suppliers and customers
and internal financial reporting systems. A three-year transition period is
expected during which transactions can be made in the legacy currencies. This
may require dual currency processes for our operations. We have identified
issues involved and are developing and implementing solutions. The cost of this
effort is not expected to have a material effect on our business or results of
operations. There is no guarantee, however, that all problems will be foreseen
and corrected, or that no material disruption of our business will occur. The
conversion to the Euro may have competitive implications on our pricing and
marketing strategies; however, any such impact is not known at this time.
<PAGE>
-13-
PART II. OTHER INFORMATION
ITEM 1. 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)
seeking to compel Gelman to investigate and remediate the 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
judgement entered into by Gelman and the State in October 1992 (amended
September 1996 and October 1999), which resolved that litigation, Gelman is
remediating the contamination without admitting wrongdoing. In February 2000 the
State filed a Motion to Enforce Consent Judgement in the Court seeking
approximately $4.2 million in stipulated penalties for alleged violations of the
Consent Judgement and additional injunctive relief. Gelman disputes these
assertions and has been vigorously contesting them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders of the Company was held November 17,
1999. Proxies for the meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934.
(b) Not required.
(c) The matters voted upon and the results of the voting were as follows:
1. Holders of 108,986,355 shares of common stock voted either in
person or by proxy for the election of five directors. The number of
votes cast for each nominee were as indicated below:
Director For Withheld
-------- --- --------
Abraham Appel 106,362,119 2,624,236
Daniel J. Carroll, Jr. 106,404,909 2,581,446
Ulric Haynes, Jr. 106,397,445 2,588,910
Jeremy Hayward-Surry 106,359,509 2,626,846
Edwin W. Martin, Jr. 106,399,371 2,586,984
2. The proposal to adopt a management stock purchase plan was approved
as follows: for 95,904,978; against 12,389,135 and 692,242
abstensions.
3. The proposal to adopt an employee stock purchase plan was approved
as follows: for 107,263,950; against 1,131,497 and 590,908
abstensions.
(d) Not applicable.
<PAGE>
-14-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See the Index to Exhibits for a list of exhibits filed herewith.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three months
ended January 29, 2000.
<PAGE>
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PALL CORPORATION
March 14, 2000 /s/ John Adamovich, Jr.
- -------------- -----------------------
Date John Adamovich, Jr.
Chief Financial Officer
and Treasurer
March 14, 2000 /s/ Lisa Kobarg
- --------------- -----------------------
Date Lisa Kobarg
Chief Corporate
Accountant
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-16-
Exhibit Index
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Exhibit
Number Description of Exhibit
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3 (i)* Restated Certificate of Incorporation of the Registrant
as amended through November 23, 1993, filed as
Exhibit 3 ( i ) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 30, 1994.
3 (ii)* By-Laws of the Registrant as amended on October
5, 1999, filed as Exhibit 3 (ii) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
July 31, 1999.
10(a) Pall Corporation Management Stock Purchase Plan, as
amended on January 19, 2000.
27 Financial Data Schedule.
* Incorporated herein by reference.
(a) Management contract or compensatory plan or arrangement.
<PAGE>
PALL CORPORATION
MANAGEMENT STOCK PURCHASE PLAN
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1. Purpose.
This document sets forth the Pall Corporation Management Stock Purchase
Plan as adopted effective June 29, 1999 and amended effective October 1, 1999
and January 19, 2000.
The purpose of the Plan is to encourage key employees of the
Corporation and its Affiliated Companies to increase their ownership of shares
of the Corporation's Common Stock by providing such employees with an
opportunity to elect to have portions of their total annual compensation paid in
the form of Restricted Units, and to have additional matching Restricted Units
credited with respect thereto.
The Plan also provides certain employees with an opportunity to elect
to defer payment with respect to the Restricted Units credited to them that
become vested. With respect to these provisions, the Plan is intended to
constitute an unfunded plan of deferred compensation for "a select group of
management or highly compensated employees" within the meaning of Sections
201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
2. Definitions.
As used herein, the following terms shall have the following meanings:
"Account" and "Subaccount" shall mean, respectively, the account, and
each Subaccount within such Account, that is established for a Participant
pursuant to Section 8.
"Affiliated Companies" shall mean each direct or indirect subsidiary of
the Corporation.
"Beneficiary" shall mean the person or persons designated by a
Participant in accordance with Section 12 to receive any payment that is
required to be made under the Plan upon the Participant's death.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
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"Bonus" shall mean, with respect to any Eligible Employee for any Plan
Year , the Bonus payable to such Eligible Employee during such year under the
Corporation's Executive Incentive Bonus Plan, or, if applicable, under the terms
of the Eligible Employee's employment agreement with the Corporation, or under
any other plan, program or arrangement of annual incentive compensation
maintained by the Corporation or any of its Affiliated Companies.
"Bonus Payment Date" shall mean each date on which Bonus payments are
made under the Corporation's Executive Incentive Bonus Plan.
"Business Day" shall mean any day on which the Corporation's principal
office in the U.S. is open for business.
"CEO" shall mean the Chief Executive Officer of the Corporation.
"Change in Control" means the occurrence of any of the following:
(a) the "Distribution Date" as defined in Section 3 of
the Rights Agreement dated as of November 17, 1989
between the Corporation and United States Trust
Company of New York, as Rights Agent as the same may
have been amended or extended to the time in question
or in any successor agreement (the "Rights
Agreement"); or
(b) any event described in Section 11(a)(ii)(B) of the
Rights Agreement; or
(c) any event described in Section 13 of the Rights
Agreement; or
(d) the date on which the number of duly elected and
qualified directors of the Corporation who were not
either elected by the Board of Directors or nominated
by the Board of Directors or its Nominating Committee
for election by the shareholders shall equal or
exceed one-third of the total number of directors of
the Corporation as fixed by its by-laws;
provided, however, that no Change in Control shall be deemed to have occurred,
and no rights arising upon a Change in Control as provided in Section 6 shall
exist, to the extent that the Board of Directors so determines by resolution
adopted prior to the Change in Control.
"Closing Price" shall mean, as of any date, the closing price of a
share of Common Stock as reported on the New York Stock Exchange Composite Tape
for such date.
"Committee" shall mean the CEO and such other officers of the
Corporation as the CEO in his discretion may appoint from time to time. The CEO
shall have the power to remove any other member of the Committee at any time.
<PAGE>
"Common Stock" shall mean the shares of common stock ($0.10 par value)
of the Corporation.
"Compensation Committee" shall mean the Compensation Committee of the
Board of Directors.
"Corporation" shall mean Pall Corporation.
"Crediting Date" shall mean, with respect to any Initial Award
Restricted Unit Subaccount, Purchased Restricted Unit Subaccount or Matching
Restricted Unit Subaccount maintained for a Participant under Section 8, the
date as of which Restricted Units, or Matching Restricted Units, were first
credited to such Subaccount pursuant to Section 5(a), (b), (c), (d), or (e).
"Deferred Vested Units" shall mean Vested Units with respect to which
the Participant has elected to defer payment in accordance with the provisions
of Section 7(d) hereof.
"Dividend Equivalent Units" shall mean additional Restricted Units or
additional Deferred Vested Units credited to a Participant's Account pursuant to
Section 5(f) or Section 7(d)(vi).
"Dividend Payment Date" shall mean each date on which the Corporation
pays a dividend on its Common Stock.
"Eligible Employee" shall mean, with respect to any Plan Year, any
Employee who has been designated under Section 4 as eligible to be credited with
Restricted Units for such Plan Year.
"Employee" shall mean any person employed by the Corporation or any of
its Affiliated Companies.
"Involuntary Termination" shall mean the termination of a Participant's
employment with the Corporation and all of its Affiliated Companies by the
Corporation, or by any of its Affiliated Companies, for any reason other than
for disability or for cause.
"Matching Restricted Units" shall mean Restricted Units that are
credited to a Participant's Account pursuant to Section 5(e), to match
Restricted Units that are credited to the Participant's Account under Section
5(b), (c) or (d).
"Participant" shall mean any Employee for whom an Account has been
established, and is being maintained, pursuant to Section 8 hereof.
<PAGE>
"Plan" shall mean the Pall Corporation Management Stock Purchase Plan
as set forth herein and as amended from time to time.
"Plan Year" shall mean the period beginning on August 1 of each
calendar year and ending on July 31 of the following calendar year.
"Restricted Unit" shall mean a Unit credited to a Participant pursuant
to Section 5 that has not yet become vested in accordance with the provisions of
Section 6.
"Retirement" shall mean the termination of a Participant's employment
with the Corporation and all of its Affiliated Companies, if at the time of such
termination of employment the Participant has attained age 62 and is eligible to
receive (i) a Retirement Benefit under Section 3.1, 3.2 or 3.3 of the Pall
Corporation Pension Plan or (ii), in the case of any Participant who is not a
resident of the U.S., a similar type of benefit under any plan or program
maintained by the Corporation or any of its Affiliated Companies (or to which
the Corporation or any of its Affiliated Companies makes contributions) that
provides benefits to Employees upon their retirement.
"Trading Day" shall mean any day on which the New York Stock Exchange
is open for trading.
"Unit" shall mean a unit of measurement equivalent to one share of
Common Stock, with none of the attendant rights of a shareholder of such share,
including, without limitation, the right to vote such share and the right to
receive dividends thereon, except to the extent otherwise specifically provided
herein.
"Vested Unit" shall mean a Unit credited to a Participant pursuant to
Section 5 that has become vested in accordance with the provisions of Section 6.
"Vesting Date" shall mean, with respect to any Restricted Units
credited to a Participant's Account, the date on which such Restricted Units
become vested in accordance with the provisions of Section 6.
3. Maximum Number of Shares of Common Stock Available.
The number of shares of Common Stock that may be distributed with
respect to Restricted Units and Deferred Vested Units credited to Participants
under the Plan, (including Dividend Equivalent Units credited with respect to
such Units) shall be limited to 1,000,000 shares of Common Stock. If any
Restricted Units initially credited to a Participant shall be forfeited, the
number of shares of Common Stock no longer payable with respect to the
<PAGE>
Restricted Units so forfeited shall thereupon be released and shall thereafter
be available for the crediting of new Restricted Units under the Plan. The
limitation provided under this Section 3 shall be subject to adjustment as
provided in Section 9.
The shares of Common Stock distributed under the Plan may be authorized
and unissued shares, shares held in the treasury of the Corporation, or shares
purchased on the open market by the Corporation at such time or times and in
such manner as it may determine. The Corporation shall be under no obligations
to acquire shares of Common Stock for distribution to Participants before
payment in Common Stock is due.
4. Eligibility.
An Employee shall be eligible to be credited with Restricted Units
under Section 5 during any Plan Year only if he or she has been designated by
the Compensation Committee as an Eligible Employee with respect to such year.
Upon the recommendation of the CEO, the Compensation Committee may
select as an Eligible Employee for any Plan Year any Employee who is expected to
make significant contributions during the course of such year to the success of
the Corporation and its Affiliated Companies and to the growth of their
businesses.
Any person who has been selected as an Eligible Employee for any Plan
Year shall continue to be an Eligible Employee in the Plan for each subsequent
Plan Year during the period of his or her employment, subject, however, to the
Compensation Committee's right to terminate such individual's eligibility
effective beginning as of the first base salary payment date or, if earlier, the
first Bonus Payment Date occurring after the date on which the Compensation
Committee makes its determination to terminate such individual's eligibility.
5. Crediting of Restricted Units.
For each Plan Year, Eligible Employees shall be credited with
Restricted Units in accordance with the following provisions:
(a) Initial Award Units. Each Employee who is an Eligible Employee for
the Plan Year that begins on August 1, 1999 shall be credited as of such date
with such number of Restricted Units as the Compensation Committee in its sole
discretion may determine for such Employee. To the extent that the Compensation
Committee in its sole discretion so determines, any Employee who is designated
as an Eligible Employee at any time after August 1, 1999 shall be credited, as
of the date specified by the Compensation Committee in such determination, with
such number of Restricted Units as the Compensation Committee may determine for
such Employee.
(b) Bonus Units. Each Employee who is an Eligible Employee for any Plan
Year beginning on or after August 1, 1999 may elect to have any part or all of
<PAGE>
any Bonus that may become payable to the Participant during such year paid in
the form of Restricted Units that will be credited to his or her Account
hereunder and distributed in accordance with the provisions of this Plan,
instead of being paid to the Eligible Employee in cash. If an Eligible Employee
has so elected, the Eligible Employee's Account shall be credited on the first
Bonus Payment Date during such year with a number of Restricted Units determined
by dividing (i) the total amount of the portion of the Eligible Employee's Bonus
payable during such year which the Eligible Employee elected to have paid in the
form of Restricted Units, by (ii) the Closing Price of a share of Common Stock
on such Bonus Payment Date or, if such date is not a Trading Day, on the next
following day that is a Trading Day. In the event that an Eligible Employee's
Bonus is payable in a unit of currency other than U.S. dollars, the portion of
the bonus which the Eligible Employee has elected to have paid in the form of
Restricted Units shall be converted to U.S. dollars on the Crediting Date (the
first Bonus Payment Date during the Plan Year in which such Bonus is payable) at
a rate equal to the exchange rate of such currency and U.S. dollars on such
Crediting Date as reported in The Wall Street Journal in its issue following the
Crediting Date.
(c) Base Salary Units. Each Employee who is an Eligible Employee for
any Plan Year beginning on or after August 1, 1999 may elect to have up to 50%
of the amount of the base salary otherwise payable to the Eligible Employee on
each payday during such year paid in the form of Restricted Units that will be
credited to his or her Account hereunder and distributed in accordance with the
provisions of this Plan, instead of being paid to the Eligible Employee in cash.
If an Eligible Employee has so elected, the amount specified in such election
shall be withheld from the payment of base salary otherwise required to be made
to the Eligible Employee on each payday during such year, and the Eligible
Employee's Account shall be credited on January 31 and on July 31 of such year,
with a number of Restricted Units determined by dividing (i) the aggregate
amount so withheld from the start of such year, in the case of the Restricted
Units to be credited on January 31, or from January 31, in the case of the
Restricted Units to be credited on July 31, by (ii) the Closing Price of a share
of Common Stock on the applicable crediting date or, if such date is not a
Trading Day, on the next following day that is a Trading Day. In the event that
an Eligible Employee's base salary is payable in a unit of currency other than
U.S. dollars, the aggregate amount withheld shall be converted to U.S. dollars
on the January 31 or July 31 Crediting Date, as the case may be, at a rate equal
to the exchange rate of such currency and U.S. dollars on such Crediting Date as
reported in The Wall Street Journal in its issue following the Crediting Date.
(d) Cash Payment Units. Each Employee who is an Eligible Employee for
any Plan Year beginning on or after August 1, 1999 may make a direct cash
payment to the Corporation at least seven days prior to (i) the first Bonus
Payment Date during such Plan Year and/or (ii) January 31 of such Plan Year. The
Crediting Dates with respect to such direct cash payments shall be (i) the first
Bonus Payment Date of the Plan Year with respect to cash payments made at least
seven days prior to such Bonus Payment Date and (ii) January 31 with respect to
<PAGE>
cash payments made at least seven days prior to that date. In consideration of
any such cash payment, the Eligible Employee shall have his or her Account
credited, on the relevant Crediting Date, with a number of Restricted Units
determined by dividing (i) the amount of such cash payment by (ii) the Closing
Price of a share of Common Stock on such Crediting Date or, if such date is not
a Trading Day, on the next following day that is a Trading Day. In the event
that an Eligible Employee's direct cash payment is made in a unit of currency
other than U.S. dollars, the amount of such payment shall be converted to U.S.
dollars on the relevant Crediting Date, at a rate equal to the exchange rate of
such currency and U.S. dollars on such Crediting Date as reported in The Wall
Street Journal in its issue following the Crediting Date.
The aggregate amount of the direct cash payments that an Eligible
Employee may make under this Section 5(d) during any Plan Year shall not exceed
the sum of (x) the amount by which 50% of the Eligible Employee's base salary
for such year exceeds the portion thereof which the Eligible Employee has
elected under Section 5(c) to have paid in the form of Restricted Units, plus
(y) the amount by which the Bonus payable to the Eligible Employee during such
Plan Year exceeds the portion thereof which the Eligible Employee elected under
Section 5(b) to have paid in the form of Restricted Units.
(e) Matching Units. On each date on which any Restricted Units are
credited to an Eligible Employee's Account pursuant to the provisions of
paragraphs (b), (c) or (d) of this Section 5, there shall also be credited to
the Eligible Employee's Account on that date a number of Matching Restricted
Units equal to (i) 50% of the number of Restricted Units credited on such date,
in the case of Restricted Units credited during the Plan Year beginning on
August 1, 1999, and (ii) 33_% of the number of Restricted Units credited on such
date, in the case of Restricted Units credited during each Plan Year beginning
on or after August 1, 2000.
(f) Dividend Equivalents. Until the Vesting Date for the Restricted
Units that have been credited to a Participant's Account pursuant to paragraphs
(a), (b), (c), (d) and (e) of this Section 5, additional Restricted Units shall
be credited to the Participant's Account, with respect to the Restricted Units
so credited, as of each Dividend Payment Date. The number of additional
Restricted Units to be so credited shall be determined separately for each
Initial Award Restricted Unit Subaccount, for each Purchased Restricted Unit
Subaccount, and for each Matching Restricted Unit Subaccount, maintained for a
Participant pursuant to Section 8. The number of additional Restricted Units to
be credited to each such Subaccount shall be determined by first multiplying (A)
the total number of Restricted Units standing to the Participant's credit in
such Subaccount on the day immediately preceding such Dividend Payment Date
(including all Dividend Equivalent Units credited to such Subaccount on all
previous Dividend Payment Dates), by (B) the per-share dollar amount of the
dividend paid on such Dividend Payment Date and then, dividing the resulting
amount by the Closing Price of one share of Common Stock on such Dividend
Payment Date.
<PAGE>
(g) Election Procedures. Any election made by an Eligible Employee
under paragraph (b) or (c) of this Section 5 shall be made in accordance with,
and shall be subject to, the provisions set forth below.
(i) any such election shall be made in writing, on a form
furnished to the Eligible Employee for such purpose by the Committee
and filed by the Eligible Employee with the Committee.
(ii) An election under Section 5(b) with respect to the Bonus
payable to an Eligible Employee during the Plan Year beginning on
August 1, 1999 shall be made by no later than July 23, 1999. An
election under Section 5(b) with respect to the Bonus payable to an
Eligible Employee during any Plan Year beginning on or after August 1,
2000 shall be made by no later than April 30 of the immediately
preceding Plan Year. An election under Section 5(c) with respect to the
base salary payable to an Eligible Employee during any Plan Year shall
be made on or prior to the last Business Day preceding the start of
such Plan Year. Notwithstanding the foregoing, any Employee who is
hired after the start of a Plan Year but who is designated under
Section 4 as an Eligible Employee for such year may make election under
Section 5(c) with respect to his or her base salary for such year at
any time during the 30-day period commencing on his or her date of
hire; provided, however, that any election so made shall be effective
only with respect to base salary payable to the Eligible Employee for
periods of service beginning after the date on which he or she files
such election with the Committee.
(iii) In his or her election form, the Eligible Employee shall
specify, by dollar amount (which shall be an even multiple of $100) or
by percentage (which shall be an even multiple of 1%), the portion of
his or her Bonus and/or base salary that the Eligible Employee wishes
to have paid in the form of Restricted Units credited to his or her
Account, instead of in cash. The dollar amount or percentage so
specified shall be at least equal to any minimum amount or percentage
which the Committee in its discretion may have determined to be
applicable to elections under Section 5(b) and/or Section 5(c) for the
Plan Year.
(iv) Any election made under Section 5(b) or (c) for any Plan
Year shall be irrevocable.
(h) Other Election Rules. Elections made under Section 5(b) or (c)
shall be subject to the following rules:
(i) If an Eligible Employee who has made an election under
Section 5(b) with respect to the Bonus payable to the Eligible Employee
during any Plan Year terminates employment with the Company and all of
its Affiliated Companies for any reason prior to any Bonus Payment Date
<PAGE>
for such Bonus but is nevertheless entitled to receive a Bonus payment
on such date, the portion of such payment that is otherwise required to
be paid by means of the crediting of Restricted Units to the Eligible
Employee's Account pursuant to his or her election under Section 5(b)
shall not be paid in such form, but shall be paid instead in the form
of a single lump sum cash payment. Such payment shall be made as soon
as practicable after such Bonus Payment Date.
(ii) If an Eligible Employee who has made an election under
Section 5(c) with respect to the base salary payable to the Eligible
Employee during any Plan Year terminates employment with the Company
and all of its Affiliated Companies for any reason prior to any date on
which Restricted Units are to be credited to his or her Account with
respect to amounts withheld from his or her base salary pursuant to
such election, no Restricted Units shall be so credited on such date
but instead, the aggregate amount so withheld as of the date of the
Eligible Employee's termination of employment shall be paid to the
Eligible Employee, without interest thereon, in a single lump sum cash
payment. Payment shall be made on such termination date, or as soon
thereafter as is practicable.
(iii) Any election made by an Eligible Employee under Section
5(b) or (c) shall not be given effect if, at any time during the
12-month period ending on the date as of which any Restricted Units are
otherwise required to be credited to his or her Account pursuant to
such election, the Eligible Employee received a hardship withdrawal
under Section 7.2 of the Pall Corporation Profit-Sharing Plan.
6. Vesting of Units.
Restricted Units credited to a Participant's Account, and Dividend
Equivalent Units credited with respect thereto, shall become vested in
accordance with the provisions set forth below.
(a) All Restricted Units standing to a Participant's credit in any
Initial Award Restricted Unit Subaccount, Purchased Restricted Unit Subaccount
or Matching Restricted Unit Subaccount maintained for the Participant under
Section 8 (including, in each case, all such Units that are Dividend Equivalent
Units) shall become vested on the earliest to occur of the following dates:
(i) the third anniversary of the Crediting Date for such
Subaccount,
(ii) the date of the Participant's death,
(iii) the date as of which the Participant first incurs a
disability that entitles the Participant to a Social Security
certificate of disability award under the Federal Social Security Act,
or
(iv) the date on which a Change in Control occurs.
<PAGE>
(b) If a Participant's employment with the Corporation and all of its
Affiliated Companies terminates as a result of Retirement or Involuntary
Termination prior to the third anniversary of the Crediting Date for any Initial
Reward Restricted Unit Subaccount, Purchased Restricted Unit Subaccount or
Matching Restricted Unit Subaccount maintained for the Participant under Section
8 and prior to the occurrence of a Change in Control, as of the date of such
termination of the Participant's employment
(i) all Units in any such Purchased Restricted Unit Subaccount
(including all such Units that are Dividend Equivalent Units), shall
become vested;
(ii) the Earned Portion (as defined below) of all Units in any
such Initial Award Restricted Unit Subaccount and in any such Matching
Restricted Unit Subaccount (including all such Units that are Dividend
Equivalent Units), shall become vested; and
(iii) the Unearned Portion (as defined below) of all Units in
any such Initial Award Restricted Unit Subaccount and in any such
Matching Restricted Unit Subaccount (including all such Units that are
Dividend Equivalent Units) shall be forfeited, and the Participant
shall have no further rights with respect thereto.
For purposes of the foregoing, the "Earned Portion" of the Units in any
Initial Award Restricted Unit Subaccount and in any Matching Restricted Unit
Subaccount maintained for a Participant shall mean the percentage of such Units
determined by dividing by 36 the number of months in the period beginning on the
Crediting Date for such Subaccount and ending on the date of the Participant's
termination of employment, with any fraction of a month included in such period
treated as a full month; and the "Unearned Portion" of the Units in any such
Subaccount shall mean the percentage of such Units determined by subtracting
from 100% the Earned Portion of such Units, as determined under the preceding
clause.
(c) If a Participant's employment with the Corporation and all of its
Affiliated Companies terminates for any reason other than death, disability,
Retirement or Involuntary Termination prior to the third anniversary of the
Crediting Date for any Initial Award Restricted Unit Subaccount, Purchased
Restricted Unit Subaccount or Matching Restricted Unit Subaccount maintained for
the Participant under Section 8 and prior to the occurrence of a Change in
Control, upon such termination of the Participant's employment
(i) all Units in any such Initial Award Restricted Unit
Subaccount and in any such Matching Restricted Unit Subaccount
<PAGE>
(including all such Units that are Dividend Equivalent Units), shall be
forfeited, and the Participant shall have no further rights with
respect thereto; and
(ii) all Units in any such Purchased Restricted Unit
Subaccount shall become vested.
7. Payment for Vested Units.
Payment with respect to a Participant's Vested Units shall be made in
accordance with the provisions set forth below.
(a) Time for Payment. Payment with respect to a Participant's Vested
Units shall be made to the Participant or, in the event of the Participant's
death, to his or her Beneficiary, as soon as practicable after the Vesting Date
for such Units, except as otherwise provided in paragraph (d) below.
(b) Form of Payment. Except as provided in paragraph (c) below, payment
to be made in accordance with paragraph (a) above with respect to all Restricted
Units that have become vested on any Vesting Date shall be made in the form of a
single lump sum payment consisting of (i) a number of shares of Common Stock
equal to the total number of whole Restricted Units that have become vested on
such Vesting Date, and (ii) a cash payment for any fractional part of a
Restricted Unit that has become vested on such Vesting Date. The amount of such
cash payment shall be determined by multiplying such fractional part by the
Closing Price of a share of Common Stock on the first Trading Day preceding the
date of payment.
(c) Payment on Termination. Payment to be made in accordance with
paragraph (a) above with respect to all Restricted Units that have become vested
pursuant to Section 6(c)(ii) on any Vesting Date shall be made by the issuance
of a number of shares of Common Stock determined by dividing the lesser of (x)
the aggregate value of such Units determined by multiplying the number of such
Units by the Closing Price of a share of Common Stock on the date or dates as of
which such Units were credited to the Participant's Account, or (y) the
aggregate value of such Units determined by multiplying the number of such Units
by the Closing Price of a share of Common Stock on such Vesting Date, by (z) the
Closing Price of a share of Common Stock on such Vesting Date. If such Vesting
Date was not a Trading Day, the Closing Price of a share of Common Stock on the
first Trading Day following such Vesting Date shall be used for purposes of the
preceding sentence. If the number of shares of Common Stock determined in
accordance with the provisions of the second preceding sentence includes a
fractional part of a share, payment with respect to such fractional part shall
be made in cash, in an amount determined by multiplying such fractional part by
the Closing Price of a share of Common Stock on the first Trading Day preceding
the date of payment.
<PAGE>
(d) Deferred Payment. Subject to the provisions of paragraph (e) below,
payment with respect to part or all of a Participant's Restricted Units that
become vested on any Vesting Date pursuant to Section 6(a)(i) shall be deferred,
and shall be made at the time and in the manner hereinafter set forth, if the
Participant so elects in accordance with the following provisions:
(i) An election by the Participant hereunder with respect to
any Restricted Units that become vested on any Vesting Date shall be
made in writing, on a form furnished to the Participant for such
purpose by the Committee. The form shall be filed with the Committee at
least one year prior to such Vesting Date.
(ii) In the Participant's election form, the Participant shall
specify the number of such Restricted Units with respect to which the
Participant wishes to defer payment, and the date on which payment with
respect to such Units shall be made (the "Payment Date").
(iii) The Participant may select, as the Payment Date for such
Units (A) the first Business Day of the calendar year following the
date of termination of his or her employment with the Corporation or
any of its Affiliated Companies for any reason, or (B) the first
Business Day of any earlier calendar month but no earlier than the
first Business Day of the third calendar year following the calendar
year in which the Vesting Date for such Units occurs.
(iv) Any election made hereunder by the Participant shall be
irrevocable.
(v) As of the Vesting Date for any Restricted Units covered
by a deferral election made by a Participant hereunder, the number of
such Units shall be transferred from the Restricted Unit Subaccount or
Matching Restricted Unit Subaccount in which such Units were recorded
to the appropriate Deferred Vested Unit Subaccount established for the
Participant under Section 8.
(vi) Until payment has been made with respect to all of the
Units in any Deferred Vested Unit Subaccount maintained for the
Participant under Section 8, there shall be credited to each such
Subaccount, as of each Dividend Payment Date, a number of additional
Deferred Vested Units determined by first multiplying (A) the total
number of Deferred Vested Units standing to the Participant's credit in
such Subaccount on the day immediately preceding such Dividend Payment
Date (including all Dividend Equivalent Units credited to such
Subaccount on all previous Dividend Payment Dates), by (B) the
per-share dollar amount of the dividend paid on such Dividend Payment
Date and then, dividing the resulting amount by the Closing Price of
one share of Common Stock on such Dividend Payment Date.
<PAGE>
(vii) Except as provided in subparagraph (viii) below, payment
with respect to the Deferred Vested Units in any Deferred Vested Unit
Subaccount maintained for the Participant shall be made on the Payment
Date specified by the Participant in his or her deferral election with
respect to such Units. Payment with respect to the Deferred Vested
Units payable on any Payment Date shall be made (A) by the issuance of
one share of Common Stock for each whole Deferred Vested Unit payable
on such Payment Date, and (B) by a cash payment for any fractional part
of a Deferred Vested Unit payable on such Payment Date. The amount of
such cash payment shall be determined by multiplying such fractional
part by the Closing Price of a share of Common Stock on the first
Trading Day preceding the date of payment.
(viii) Notwithstanding any other provision in this Section 7
to the contrary, payment with respect to any part or all of any
Deferred Vested Unit Subaccount maintained for a Participant may be
made to the Participant on any date earlier than the Payment Date
specified by the Participant in his deferral election for such Units if
(A) the Participant requests such early payment and (B) the Committee,
in its sole discretion, determines that such early payment is necessary
to help the Participant meet an "unforeseeable emergency" within the
meaning of Section 1.457-2(h)(4) of the federal income tax regulations.
The amount that may be so paid may not exceed the amount necessary to
meet such emergency.
(e) Limitations on Deferrals. A deferral election otherwise permitted
to be made under paragraph (d) above shall be subject to the following
limitations:
(i) The Committee may deny any Participant the right to make
such election if it determines, in its sole discretion, that such
deferral election by the Participant might cause the Plan to fail to be
treated as a plan of deferred compensation "for a select group of
management or highly compensated employees" for purposes of ERISA.
(ii) If a Change in Control should occur after the date on
which the Participant's election form is filed with the Committee but
before the date that otherwise would have been the Vesting Date under
Section 6(a)(i) for the Units designated in such form, the
Participant's deferral election shall not be given effect, and payment
with respect to such Units shall be made in accordance with the other
applicable provisions of this Section 7.
(iii) No deferral election shall be effective hereunder if, at
any time during the 12-month period ending on the Vesting Date, the
Participant received a hardship withdrawal under Section 7.2 of the
Pall Corporation Profit-Sharing Plan.
(iv) No amount may be deferred with respect to the
Participant's Vested Units pursuant to a Participant's deferral
election hereunder to the extent that any tax is required to be
withheld with respect to such amount pursuant to applicable federal,
state or local law.
<PAGE>
8. Accounts.
There shall be established on the books and records of the Corporation,
for bookkeeping purposes only, a separate Account for each Participant, to
reflect the Participant's interest under the Plan.
Within each Account so established for each Participant there shall be
established and maintained the following Subaccounts: an "Initial Award
Restricted Unit Subaccount" to reflect all Restricted Units to be credited to
the Participant's Account on any Crediting Date pursuant to Section 5(a); a
"Purchased Restricted Unit Subaccount" to reflect all Restricted Units to be
credited to the Participant's account on any Crediting Date pursuant to Section
5(b), (c) or (d); a "Matching Restricted Unit Subaccount" to reflect all
Matching Restricted Units to be credited to the Participant's Account on any
Crediting Date pursuant to Section 5(e); and a "Deferred Vested Unit Subaccount"
to reflect all Vested Units with respect to which a Participant has elected to
defer payment, and for which the Participant has selected the same Payment Date,
pursuant to Section 7(d).
A Participant's Account and Subaccounts shall be adjusted from time to
time to reflect all Dividend Equivalent Units to be credited thereto pursuant to
Section 5(f) and Section 7(d)(vi), all payments made with respect to the Units
reflected therein pursuant to Section 7, and, in the case of any Initial Award
Restricted Unit Subaccount, Purchased Restricted Unit Subaccount or Matching
Restricted Unit Subaccount maintained for a Participant, any forfeitures of
Units reflected therein pursuant to Section 6.
A Participant's interest in any Deferred Vested Unit Subaccount
maintained for the Participant shall be fully vested and nonforfeitable at all
times.
9. Certain Adjustments to Plan Shares.
In the event of any change in the shares of Common Stock by reason of
any stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares, or any rights
offering to purchase shares of Common Stock at a price substantially below fair
market value, or any similar change affecting the shares of Common Stock, the
number and kind of shares represented by Units credited to Participants'
Accounts shall be appropriately adjusted consistent with such change in such
manner as the Compensation Committee, in its sole discretion, may deem equitable
to prevent substantial dilution or enlargement of the rights granted to, or
available for, the Participants hereunder. The Committee shall give notice to
each Participant of any adjustment made pursuant to this Section and, upon such
notice, such adjustment shall be effective and binding for all purposes.
<PAGE>
10. Listing and Qualification of Common Stock.
The Corporation, in its discretion, may postpone the issuance,
delivery, or distribution of shares of Common Stock with respect to any Vested
Units until completion of such stock exchange listing or other qualification of
such shares under any state or federal law, rule or regulation as the
Corporation may consider appropriate, and may require any Participant or
Beneficiary to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
in compliance with applicable laws, rules and regulations.
11. Taxes.
The Corporation or any of its Affiliated Companies may make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state and local taxes required by law to be withheld
with respect to any payments to be made under the Plan including, but not
limited to (i) deducting the amount so required to be withheld from any other
amount then or thereafter payable to a Participant or Beneficiary, and/or (ii)
requiring a Participant or Beneficiary to pay to the Corporation or any of its
Affiliated Companies the amount so required to be withheld as a condition of the
issuance, delivery, or distribution of any shares of Common Stock. With the
approval of the Compensation Committee, the Committee may permit such amount to
be paid in shares of Common Stock previously owned by the Participant, or a
portion of the shares of Common Stock that otherwise would be distributed to
such Participant in respect to his or her Vested Units, or a combination of cash
and shares of Common Shares.
12. Designation and Change of Beneficiary.
Each Participant shall file with the Committee a written designation of
one or more persons as the Beneficiary who shall be entitled to receive any
amount, or any shares of Common Stock, payable under the Plan upon his or her
death. A Participant may, from time to time, revoke or change his or her
Beneficiary designation without the consent of any previously designated
Beneficiary by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Participant's death, and in no event
shall it be effective as of a date prior to such receipt. If at the date of a
Participant's death, there is no designation of a Beneficiary in effect for the
Participant pursuant to the provisions of this Section 12, or if no Beneficiary
designated by the Participant in accordance with the provisions hereof survives
to receive any amount, or any shares of Common Stock, payable under the Plan by
reason of the Participant's death, the Participant's estate shall be treated as
the Participant's Beneficiary for purposes of the Plan.
<PAGE>
13. Rights of Participants.
A Participant's rights and interests under the Plan shall be subject to
the following provisions:
(a) A Participant shall have the status of a general unsecured creditor
of the Corporation with respect to his or her right to receive any payment under
the Plan. The Plan shall constitute a mere promise by the Corporation or the
applicable Affiliated Company to make payments in the future of the benefits
provided for herein. It is intended that the arrangements reflected in the Plan
be treated as unfunded for tax purposes, as well as for purposes of any
applicable provisions of Title I of ERISA.
(b) A Participant's rights to payments under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
or his or her Beneficiary.
(c) Neither the Plan nor any action taken hereunder shall be construed
as giving any Participant any right to be retained in the employment of the
Corporation or any of its Affiliated Companies.
(d) No Participant shall have the right, by virtue of having been
selected as an Eligible Employee with respect to any Plan Year, to be
automatically treated as an Eligible Employee with respect to any subsequent
Plan Year.
(e) No Restricted Units credited to a Participant's Account, and no
payments made with respect to such Units upon or after they become vested, shall
be considered as compensation under any employee benefit plan of the Corporation
or any of its Affiliated Companies, except as specifically provided in any such
plan or as otherwise determined by the Board of Directors.
14. Administration.
The Plan shall be administered by the Committee. A majority of the
members of the Committee shall constitute a quorum. The Committee may act at a
meeting, including a telephone meeting, by action of a majority of the members
present, or without a meeting by unanimous written consent. In addition to the
responsibilities and powers assigned to the Committee elsewhere in the Plan, the
Committee shall have the authority, in its discretion, to establish from time to
time guidelines or regulations for the administration of the Plan, interpret the
Plan, and make all determinations considered necessary or advisable for the
administration of the Plan; provided, however, that any questions as to the
rights under the Plan of any person who is an Elected Officer under Section
4.01(a), of the By-Laws of the Corporation, as amended on June 29, 1999 or
<PAGE>
thereafter, shall be determined by the Compensation Committee instead of by the
Committee.
The Committee may delegate any ministerial or nondiscretionary function
pertaining to the administration of the Plan to any one or more officers of the
Corporation.
All decisions, actions or interpretations of the Committee or the
Compensation Committee under the Plan shall be final, conclusive and binding
upon all parties. Notwithstanding the foregoing, any determination made by the
Committee or the Compensation Committee after the occurrence of a Change in
Control that denies in whole or in part any claim made by any individual for
benefits under the Plan shall be subject to judicial review, under a "de novo",
rather than a deferential standard.
15. Amendment or Termination.
The Board of Directors may, with prospective or retroactive effect,
amend, suspend or terminate the Plan or any portion thereof at any time;
provided, however, that no amendment, suspension or termination of the Plan
shall adversely affect the rights of any Participant with respect to any Units
previously credited to the Participant's Account, without his or her written
consent.
16. Successor Corporation.
The obligations of the Corporation under the Plan shall be binding upon
any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Corporation, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Corporation. The Corporation agrees that it will make
appropriate provision for the preservation of Participants' rights under the
Plan in any agreement or plan which it may enter into or adopt to effect any
such merger, consolidation, reorganization or transfer of assets.
17. Governing Law.
The Plan shall be governed by and construed in accordance with the laws
of the State of New York.
18. Effective Date.
The Plan was adopted effective as of June 29, 1999 by the Board of
Directors, acting by the Compensation Committee, subject, however, to approval
by the shareholders of the Corporation by a majority of the votes cast in person
or by proxy at the 1999 annual meeting of the Corporation's shareholders.
Restricted Units may be credited to the Accounts of Eligible Employees as
provided herein prior to such shareholder approval, subject to such approval
being obtained at such meeting.
<PAGE>
As adopted by the Compensation Committee of the Board of Directors on June 29,
1999, amended by that Committee by Consent dated October 1, 1999, approved by
shareholders at the annual meeting on November 17, 1999 and further amended by
the Compensation Committee by Consent dated January 19, 2000.
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