-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DX386RGgWCfUC4wBSnFNqtyYthvw9E7AGPZUBGEGToXUoDSIdu+K2E2QsTkl2gcm NwEfdoriP0Xt3siEiwfCNA== 0000950123-94-001679.txt : 19941024 0000950123-94-001679.hdr.sgml : 19941024 ACCESSION NUMBER: 0000950123-94-001679 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19940730 FILED AS OF DATE: 19941021 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PALL CORP CENTRAL INDEX KEY: 0000075829 STANDARD INDUSTRIAL CLASSIFICATION: 3590 IRS NUMBER: 111541330 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04311 FILM NUMBER: 94554347 BUSINESS ADDRESS: STREET 1: 2200 NORTHERN BLVD CITY: EAST HILLS STATE: NJ ZIP: 11548 BUSINESS PHONE: 5164845400 MAIL ADDRESS: STREET 1: 2200 NORTHERN BLVD CITY: EAST HILLS STATE: NJ ZIP: 11548 10-K 1 PALL CORPORATION -- FORM 10-K 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 July 30, 1994 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 an amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant was $1,851,438,000, based upon the closing price on October 3, 1994. The number of common shares, $.10 par value outstanding of the registrant was 115,322,619 shares on October 3, 1994. Total number of pages - 292 Exhibit index located on page 31 DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the 1994 annual meeting of shareholders are incorporated by reference into Items 10, 11 and 12. Portions of the Annual Report to shareholders for the year ended July 30, 1994 are incorporated by reference into Items 1, 7 and 8. 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 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 products and of their sale in a wide variety of markets. (b) Financial information about industry segments. Reference is made to page 39 of the registrant's 1994 Annual Report to Shareholders. (c) Narrative description of business. 1) The Company sells its products in three principal markets. 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 Market: See the following sections of the registrant's 1994 Annual Report to Shareholders, which are incorporated herein by reference: Patient Protection, Hospital and Blood Bank - pages 12-14. BioSupport and OEM Diagnostics - page 15. Pharmaceutical, Biologicals and Bioprocessing - pages 16 and 17. Food and Beverage - pages 18 and 19. Sales of Health Care products in fiscal 1994 were $351,849,000 or 50% of total sales. Sales in this market are made about equally 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. 3 The Company feels that safety, efficacy, ease of use and technical support, rather than price, are the principal competitive factors in this market, although economy of use is important. (B) Aeropower Market: See the following sections of the registrant's 1994 Annual Report to Shareholders, which are incorporated herein by reference: Airborne, Military Land and Marine - pages 22 and 23. Industrial and Mobile Fluid Power - pages 24 and 25. Sales in fiscal 1994 were $179,297,000 or 26% of total sales. Backlog at July 30, 1994 was $48,448,000, a 14% decrease from the prior year backlog of $56,250,000. The backlog at July 30, 1994 is equal to about three months of sales. The Company's sales to aerospace and military customers are made principally through its own personnel; sales to industrial customers are made in about equal proportions through Company personnel and through distributors and manufacturers' representatives. 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. (C) Fluid Processing Market: See the following sections of the registrant's 1994 Annual Report to Shareholders, which are incorporated herein by reference: Microelectronics, Data Storage and Photographic Film - pages 28 and 29. Oil and Gas, Chemical and Petrochemical, and Power Generation - pages 30-32. Sales in this market in fiscal 1994 were $169,702,000 or 24% of total sales. The Company's products are sold to customers in these markets in about equal proportions 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. 4 (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 totalled $41,283,000 in 1994, $40,036,000 in 1993 and $34,787,000 in 1992. (b) There was no one customer to whom sales were made totalling 10% or more of consolidated sales in fiscal 1994, 1993 or 1992. (c) There is no material effect on the Company's capital expenditures, earnings or competitive position resulting from compliance with Federal, state or local environmental protection laws. (d) At July 30, 1994, the Company employed approximately 6,200 persons. (d) Financial information about foreign and domestic operations and export sales. Reference is made to page 40 of the registrant's 1994 Annual Report to Shareholders. 5 ITEM 2. PROPERTIES. - -------------------
Size (square Location Type Industry Segment feet) - ------------------- -------------- --------------------- -------- OWNED: Glen Cove, NY Office & labora- Research Center 65,000 tory East Hills, NY Office, plant & Executive Office & 317,000 warehouse All Segments Pt. Washington, NY Office & labora- All 215,000 tory Hauppauge, NY Plant & office Health Care & Fluid 75,000 Processing Cortland, NY Plants Health Care & Fluid 346,000 Processing Putnam, CT Plant All 61,000 Pinellas Park, FL Plant Aeropower 152,000 Ft. Myers, FL Plant Aeropower & Fluid 111,000 Processing New Port Richey, Plant Aeropower 160,000 FL Fajardo, Puerto Plants Health Care & Fluid 226,000 Rico Processing Portsmouth, U.K. Office & plants All 306,000 Ilfracombe, U.K. Plant Health Care & Fluid 112,000 Processing Redruth, U.K. Plant Aeropower 111,000 Newquay, U.K. Plant Health Care & Fluid 101,000 Processing Frankfurt, Office & ware- All 54,000 Germany house Paris, France Office & ware- All 65,000 house Limay, France Warehouse All 23,000 Tsukuba, Japan Plant & All 78,000 laboratory
6
Size (square Location Type Industry Segment feet) - ------------------- -------------- --------------------- -------- LEASED: Glen Cove, NY Office Health Care 36,000 Pt. Washington, NY Laboratory All 19,000 Lafayette, LA Office & ware- Fluid Processing 25,000 house Toronto, Office Fluid Processing 12,000 Canada Frankfurt, Germany Office & ware- All 46,000 house Milan, Italy Office & ware- All 50,000 houses Vienna, Austria Office & ware- All 13,000 house Muttenz, Office & ware- All 7,000 Switzerland house Madrid, Spain Office & ware- All 28,000 house Warsaw, Poland Office All 2,000 Tokyo, Japan Offices All 33,000 Singapore Office & ware- All 17,000 house Seoul, South Korea Office Health Care & Fluid 7,000 Processing Beijing, China Office & ware- All 9,000 house Melbourne, Office & ware- Aeropower & Fluid 10,000 Australia house Processing
In the opinion of management, these premises are suitable and adequate to meet the Company's requirements. 7 ITEM 3. LEGAL PROCEEDINGS. - ------------------------- The Company had been one of several third-party defendants in an action brought by the City of Glen Cove, N.Y., involving potential environmental damages and hazardous waste contamination. The City sought from the primary defendants the cost of environ- mental clean-up, compensatory damages of $10 million, and punitive damages of $25 million. On December 30, 1993, the several parties in this matter agreed to settle for a total of $625,000, of which the Company's share was $200,000. 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 1994. PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. - ------------------------------------------------------------ Pall Corporation's Common Stock is listed on the New York and London Stock Exchanges. The table sets forth quarterly data relating to the Company's Common Stock prices and cash dividends declared per share for the past two fiscal years.
Cash dividends Price per share Fiscal 1994 Fiscal 1993 per common share - --------------- ----------------- ----------------- ----------------- High Low High Low 1994 1993 Quarter: ------- ------- ------- ------- ------- ------- First $21.25 $15.63 $22.88 $19.03 $0.08 $0.07 Second 21.00 17.50 23.16 18.88 0.09 0.08 Third 19.13 16.00 21.63 16.38 0.09 0.08 Fourth 17.25 13.63 20.25 16.50 0.09 0.08
As of October 3, 1994, there were approximately 7,200 holders of record of the Company's Common Stock. 8 ITEM 6. SELECTED FINANCIAL DATA. - -------------------------------- (In thousands, except per share data)
For the Years Ended ---------------------------------------------------- July 30, July 31, Aug. 1, Aug. 3, July 28, 1994(a) 1993(b) 1992(c) 1991 1990 -------- -------- ------- ------- -------- Results of operations: Net sales $700,848 $687,222 $685,068 $656,979 $564,498 Net earnings 98,922 78,312 92,708 79,921 66,235 Earnings per share .86 .68 .79 .69 .57 Cash dividends per share .36 .31 .26 .21 .18 Financial position: Total assets 959,579 902,273 912,876 786,654 797,771 Long-term debt 54,097 24,540 59,003 51,605 56,343
(a) Fiscal 1994 includes a pre-tax charge of $3,696 ($2,332 after taxes, 2 cents per share) due principally to the restructuring of the German operations and to the write-off of a bad debt in the Aerospace operations. (b) Fiscal 1993 includes a pre-tax charge of $26,710 ($17,310 after taxes, 15 cents per share) representing the cost of downsizing and further integrating the military portion of the Aeropower business with the Industrial Fluid Power business, and also writing off certain excess corporate leasehold improvements. (c) Fiscal 1992 includes (i) a pre-tax charge of $3,690 (2 cents per share) from the settlement of certain promissory notes received in connection with the sale of the air dryer business in a leveraged buy-out reported in fiscal 1988, and (ii) an increase in net earnings of $2,475 (2 cents per share) as a result of adopting the Financial Accounting Standards Board Statement No. 109 (Accounting for Income Taxes). 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - ------------------------------------------------------------------- Reference is made to pages 33 and 34 of the registrant's 1994 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - ---------------------------------------------------- Reference is made to pages 35-38 and 41-47 of the registrant's 1994 Annual Report to Shareholders. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. - ------------------------------------------------------------- None. 10 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. - ----------------------------------------------------------- (a) Identification of directors: Reference is made to "Election of Directors" on page 1 of the registrant's Proxy Statement for the 1994 annual meeting of shareholders, previously filed. 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:
Year in Which Service Age at as Officer of Oct. 15, Pall Corp. Name 1994 Position Held Began - ---------------- ------- --------------------- ------- Eric Krasnoff* 42 Chairman and Chief 1986 Executive Officer Jeremy Hayward-Surry* 51 President and Treasurer - 1989 Chief Financial Officer Derek T.D. Williams 62 Executive Vice President 1985 and Chief Operating Officer Donald G.E. Nicholls 59 Executive Vice President 1985 Clifton S. Hutchings 56 Group Vice President 1993 Gerhard Weich 58 Group Vice President 1993 Arnold Weiner 57 Group Vice President 1986 Samuel T. Wortham 47 Group Vice President 1990 Peter Schwartzman 57 Secretary 1972
* Member of the Executive Committee of the Board of Directors. None of the persons listed above is related. Messrs. Krasnoff and Hayward-Surry are directors of Pall Corpor- ation. Mr. Williams is a nominee for director. For more than the past five years, the principal occupation of each person listed above has been in the employ of the registrant. 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 pro- ceedings required to be disclosed by Item 401(f) of Regulation S-K, during the past five years. 11 ITEM 11. EXECUTIVE COMPENSATION. - -------------------------------- Reference is made to "Compensation and Other Benefits of Senior Management" on page 5 of the registrant's Proxy Statement for the 1994 annual meeting of shareholders, previously filed. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - ------------------------------------------------------------- Reference is made to "Beneficial Ownership of Common Stock" on page 16 of the registrant's Proxy Statement for the 1994 annual meeting of shareholders, previously filed. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------------------------------------------------------- None. 12 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: (1) The following documents are incorporated by reference to the indicated pages of the 1994 Annual Report to Shareholders, filed as Exhibit 13 hereto.
Page(s) of Annual Report Item to Shareholders --------------------------------------------- --------------- Consolidated Statements of Earnings - years ended July 30, 1994, July 31, 1993 and August 1, 1992 35 Independent Auditors' Report 35 Consolidated Balance Sheets - as at July 30, 1994 and July 31, 1993 36 Consolidated Statements of Stockholders' Equity - years ended July 30, 1994, July 31, 1993 and August 1, 1992 37 Consolidated Statements of Cash Flows - years ended July 30, 1994, July 31, 1993 and August 1, 1992 38 Notes to Consolidated Financial Statements 41-47
(2) The following schedules are filed herewith:
Schedule Page(s) of Number Name of Schedule Form 10-K ------- -------------------------------------------- ---------- I Marketable securities - other investments 16 II Amounts receivable from related parties and underwriters, promoters and employees other than related parties 17-21 V Property, plant and equipment 22-23 VI Accumulated depreciation and amortization of property, plant and equipment 24-25 VIII Valuation and qualifying accounts 26 IX Short-term borrowings 27 X Supplementary income statement information 28 Independent auditors' report on schedules 29
Schedules not listed above have been omitted wither because they are not applicable or the required information is shown in the financial statements or in the notes thereto. 13 (3) Exhibits filed herewith:
Page Exhibit of 1994 Number Description of Exhibit Form 10-K ------- -------------------------------------- --------- 3(i) Restated Certificate of Incorporation of the registrant as amended through November 23, 1993 34- 49 3(ii) By-Laws as amended through July 11, 1994 50- 71 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 instru- ment 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) Agreement made as of July 31, 1992 with David B. Pall, filed as Exhibit 10.3 to the registrant's Annual Report on Form 10-K for the fiscal year ended August 1, 1992 (the "1992 10-K"). 10.2(a) Employment Agreement dated April 1, 1994 with Eric Krasnoff. 72-90 10.3(a) Amendment dated July 11, 1994 to Employment Agreement dated April 1, 1994 with Eric Krasnoff. 91 10.4(a) Employment Agreement dated August 1, 1994 with Jeremy Hayward-Surry. 92-109 10.5*(a) Service Agreement dated March 17, 1992 with Derek Thomas Donald Williams, filed as Exhibit 10.21 to the 1992 10-K. 10.6*(a) Service Agreement dated March 17, 1992 with Donald Guy Edward Nicholls, filed as Exhibit 10.20 to the 1992 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. 14
Page Exhibit of 1994 Number Description of Exhibit Form 10-K ------- -------------------------------------- --------- 10.7*(a) Service Agreement dated October 21, 1988 with Clifton Stanley Hutchings, filed as Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 1993 (the "1993 10-K"). 10.8*(a) Service Agreement dated June 21, 1989 with Gerhard Friedrich Weich, filed as Exhibit 10.18 to the 1993 10-K. 10.9*(a) Employment Agreement dated February 1, 1992 with Arnold Weiner, filed as Exhibit 10.32 to the 1992 10-K. 10.10*(a) Amendment dated July 19, 1993 to Employment Agreement dated February 1, 1992 with Arnold Weiner, filed as Exhibit 10.14 to the 1993 10-K. 10.11*(a) Employment Agreement dated February 1, 1992 with Samuel Wortham, filed as Exhibit 10.15 to the 1992 10-K. 10.12*(a) Amendment dated July 19, 1993 to Employment Agreement dated February 1, 1992 with Samuel Wortham, filed as Exhibit 10.4 to the 1993 10-K. 10.13(a) Employment Agreement dated August 1, 1994 with Peter Cope. 110-127 10.14(a) Employment Agreement dated August 1, 1994 with Robert Simkins. 128-145 10.15*(a) Employment Agreement dated February 1, 1992 with Peter Schwartzman, filed as Exhibit 10.33 to the 1992 10-K. 10.16*(a) Amendment dated July 19, 1993 to Employment Agreement dated February 1, 1992 with Peter Schwartzman, filed as Exhibit 10.16 to the 1993 10-K. 10.17(a) Employment Agreement dated September 26, 1994 with Donald B. Stevens. 146-163 10.18(a) Agreement dated April 1, 1994 with Nicholas Nickolaus. 164-165 10.19(a) Agreement dated August 15, 1994 with Joseph Campolong. 166-167
* 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. 15
Page Exhibit of 1994 Number Description of Exhibit Form 10-K ------- -------------------------------------- --------- 10.20(a) Pall Corporation Supplementary Profit- Sharing Plan as amended and restated, effective as of September 19, 1994. 168-175 10.21*(a) Pall Corporation Supplementary Pension Plan as amended to February 26, 1993, filed as Exhibit 10.20 to the 1993 10-K. 10.22(a) Pall Corporation Profit-Sharing Plan, as amended and restated on September 19, 1994 176-236 10.23*(a) Pall Corporation 1993 Stock Option Plan, filed as Exhibit 10.22 to the 1993 10-K. 10.24*(a) Pall Corporation 1991 Stock Option Plan, filed as Exhibit 10.42 to the 1991 10-K. 10.25*(a) Pall Corporation 1988 Stock Option Plan, as amended through October 8, 1991, filed as Exhibit 10.32 to the 1991 10-K. 13 Annual Report to Shareholders for the year ended July 30, 1994. 237-290 21 Subsidiaries of Pall Corporation. 291 23 Consent of Independent Auditors. 292 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 July 30, 1994. 16 Schedule I PALL CORPORATION AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS JULY 30, 1994
Number of shares Amount at which or units - principal shown in Balance Name of amounts of bonds Sheet Issuer and Title of Issue and notes - ------------------------- -------------------- ---------------- Short-term Investments - ---------------------- Bank Certificates of Deposit and $12,200,000 $ 12,200,000 Other Bank Time Deposits Short-term paper - Repurchase 38,600,000 38,600,000 Agreements ---------------- Total $ 50,800,000(1) ================ Other Assets (Benefit Protection Trust) - ---------------------------------------- U.S. Government Obligations $17,548,000 $ 17,304,000 Corporate and Other Bonds 7,579,000 7,342,000 ---------------- Total $ 24,646,000(2) ================
(1) Amounts shown at cost as fair value is approximately equal to the carrying value at year end. (2) Amounts shown at fair value as it is lower than cost. 17 PALL CORPORATION AND SUBSIDIARIES Schedule II AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- --------- -------- Deductions Balance at end of period ---------- ------------------------ Name Balance at Amounts of Beginning Amounts Written Not Debtor of Period Additions Collected Off Current Current - ------ --------- --------- --------- ------- ------- ------- Year ended July 30, 1994 Joseph G. Adiletta $ -0- $ 208,000 $ -0- $ -0- $ -0- $ 208,000 (A) Leonard Bensch 39,000 107,000 5,000 -0- -0- 141,000 (B) Joseph Campolong 118,000 197,000 60,000 -0- -0- 255,000 (C) John Farris 109,000 38,000 147,000 -0- -0- -0- Robert Festa 75,000 63,000 -0- -0- -0- 138,000 (D) Frank Garcia -0- 134,000 48,000 -0- -0- 86,000 (E) Steven Greco 127,000 38,000 -0- -0- -0- 165,000 (F) Charles Grimm 71,000 66,000 -0- -0- -0- 137,000 (G) Tom Gsell 53,000 59,000 -0- -0- -0- 112,000 (H) Richard Haas -0- 121,000 -0- -0- -0- 121,000 (I) Maurice G. Hardy 153,000 -0- -0- -0- -0- 153,000 (J) Jeremy Hayward-Surry 117,000 75,000 -0- -0- -0- 192,000 (K) Patricia Iannucci 121,000 38,000 -0- -0- -0- 159,000 (L) Richard Jenks 99,000 89,000 -0- -0- -0- 188,000 (M) Hyman Katz 74,000 33,000 -0- -0- -0- 107,000 (N) Erwin Kirnbauer 134,000 151,000 -0- -0- -0- 285,000 (0) Eric Krasnoff -0- 298,000 -0- -0- -0- 298,000 (P) Vlado Matkovich -0- 304,000 162,000 -0- -0- 142,000 (Q) Nicholas Nickolaus 140,000 149,000 140,000 -0- -0- 149,000 (R) David B. Pall -0- 169,000 -0- -0- -0- 169,000 (S) Nicholas Renzi 273,000 -0- -0- -0- -0- 273,000 (T) Robert Simkins 84,000 38,000 -0- -0- -0- 122,000 (U) Stanley Wernick 376,000 -0- 97,000 -0- -0- 279,000 (V) Derek Williams 66,000 64,000 -0- -0- -0- 130,000 (W) Charles Wolowitz -0- 134,000 -0- -0- -0- 134,000 (X) Samuel Wortham -0- 126,000 -0- -0- -0- 126,000 (Y) ---------- ---------- -------- ----- ----- ---------- Total $2,229,000 $2,699,000 $659,000 -0- -0- $4,269,000 ========== ========== ======== ===== ===== ==========
18 NOTES 2 NOTES TO SCHEDULE II -------------------- A Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $99,000 loan secured by 10,000 shares, and $109,000 loan secured by 12,500 shares. B Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $34,000 loan secured by 3,333 shares, $61,000 loan secured by 6,000 shares, and $46,000 loan secured by 5,666 shares. C Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $58,000 loan secured by 5,846 shares, and $197,000 loan secured by 24,154 shares. D Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $75,000 loan secured by 7,500 shares, and $63,000 loan secured by 7,500 shares. E Represents an $86,000 non-interest bearing stock option loan payable on demand, secured by 8,500 shares of Pall Corporation common stock. F Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $76,000 loan secured by 7,500 shares, $38,000 loan secured by 3,749 shares, and $38,000 loan secured by 3,750 shares. Also includes a $13,000 9.22% stock option loan secured by 3,000 shares of Pall Corporation common stock, which loan is payable in January 1995. G Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $41,000 loan secured by 4,000 shares, $30,000 loan secured by 3,000 shares, and $66,000 loan secured by 8,000 shares. H Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $53,000 loan secured by 6,000 shares, and $59,000 loan secured by 6,000 shares. I Represents non-interest bearing stock option loan payable on demand and secured by 15,000 shares of Pall Corporation common stock. J Represents non-interest bearing stock option loan payable on demand and secured by 20,000 shares of Pall Corporation common stock. K Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $98,000 loan secured by 10,000 shares, $19,000 loan secured by 7,500 shares, and $75,000 loan secured by 7,500 shares. L Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $76,000 loan secured by 7,500 shares, $38,000 loan secured by 3,749 shares, and $38,000 loan secured by 3,750 shares. Also includes a $7,000 9.08% stock option loan secured by 1,500 shares of Pall Corporation common stock, which was paid in full in September 1994. 19 M Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $99,000 loan secured by 12,000 shares, and $89,000 loan secured by 10,500 shares. N Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $38,000 loan secured by 3,733 shares, $36,000 loan secured by 3,766 shares, and $33,000 loan secured by 3,750 shares. O Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $134,000 loan secured by 15,000 shares, and $151,000 loan secured by 15,000 shares. P Represents non-interest bearing stock option loan payable on demand and secured by 30,000 shares of Pall Corporation common stock. Q Represents non-interest bearing stock option loan payable on demand and secured by 14,000 shares of Pall Corporation common stock. R Represents non-interest bearing stock option loan payable on demand and secured by 15,000 shares of Pall Corporation common stock. S Represents non-interest bearing stock option loan payable on demand and secured by 16,666 shares of Pall Corporation common stock. T Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $122,000 loan secured by 12,000 shares, $76,000 loan secured by 7,500 shares, and $75,000 loan secured by 7,500 shares. U Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $46,000 loan secured by 4,700 shares, $38,000 loan secured by 3,749 shares, and $38,000 loan secured by 3,750 shares. V Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $131,000 loan secured by 13,292 shares, $96,000 loan secured by 7,407 shares, and $52,000 loan secured by 3,843 shares. W Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $66,000 loan secured by 6,666 shares, and $64,000 loan secured by 7,500 shares. X Represents non-interest bearing stock option loans payable on demand and secured by shares of Pall Corporation common stock: $50,000 loan secured by 5,000 shares, and $84,000 loan secured by 10,000 shares. Y Represents non-interest bearing stock option loan payable on demand and secured by 15,000 shares of Pall Corporation common stock. All number of shares shown above reflect the 3-for-2 stock split declared by the Board on November 22, 1991, and the 4-for-3 stock split declared by the Board on November 20, 1992. 20 SCHEDULE II
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- -------- Deductions Balance at end of period ---------- ------------------------ Name Balance at Amounts of Beginning Amounts Written Not Debtor of Period Additions Collected Off Current Current - ------ ---------- --------- --------- ------- ------- ------- Year ended July 31, 1993 Howard Abrams $ 197,000 $ -0- $ 113,000 $-0- $-0- $ 84,000 Joseph Campolong 110,000 58,000 50,000 -0- -0- 118,000 Peter Degen 73,000 -0- 73,000 -0- -0- -0- John Farris 71,000 38,000 -0- -0- -0- 109,000 Steven Greco 89,000 38,000 -0- -0- -0- 127,000 Charles Grimm 95,000 30,000 54,000 -0- -0- 71,000 Maurice G. Hardy 153,000 -0- -0- -0- -0- 153,000 Jeremy Hayward-Surry 174,000 -0- 57,000 -0- -0- 117,000 Hyman Katz 72,000 36,000 34,000 -0- -0- 74,000 Patricia Iannucci 121,000 -0- -0- -0- -0- 121,000 Erwin Kirnbauer 164,000 134,000 164,000 -0- -0- 134,000 Abraham Krasnoff 507,000 -0- 507,000 -0- -0- -0- Nicholas Nickolaus 140,000 -0- -0- -0- -0- 140,000 Nicholas Renzi 122,000 151,000 -0- -0- -0- 273,000 Stanley Wernick 376,000 -0- -0- -0- -0- 376,000 ---------- -------- ---------- ---- ---- ---------- TOTAL $2,464,000 $485,000 $1,052,000 $-0- $-0- $1,897,000 ========== ======== ========== ==== ==== ==========
21 SCHEDULE II
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- -------- Deductions Balance at end of period ---------- ------------------------ Name Balance at Amounts of Beginning Amounts Written Not Debtor of Period Additions Collected Off Current Current - ------ ---------- --------- --------- ------- ------- ------- Year ended August 1, 1992 Howard Abrams $ 7,000 $ 197,000 $ 7,000 $-0- $-0- $ 197,000 Joseph Campolong 110,000 -0- -0- -0- -0- 110,000 Peter Degen 53,000 146,000 126,000 -0- -0- 73,000 Maurice G. Hardy 678,000 -0- 525,000 -0- -0- 153,000 Jeremy Hayward-Surry 98,000 76,000 -0- -0- -0- 174,000 Patricia Iannucci 21,000 114,000 14,000 -0- -0- 121,000 Mark Kachur 164,000 -0- 164,000 -0- -0- -0- Erwin Kirnbauer 164,000 -0- -0- -0- -0- 164,000 Abraham Krasnoff 307,000 200,000 -0- -0- -0- 507,000 Nicholas Nickolaus -0- 140,000 -0- -0- -0- 140,000 Nicholas Renzi -0- 152,000 30,000 -0- -0- 122,000 Arnold Weiner 72,000 -0- 72,000 -0- -0- -0- Stanley Wernick 295,000 148,000 67,000 -0- -0- 376,000 ---------- ---------- ---------- ---- ---- ---------- TOTAL $1,969,000 $1,173,000 $1,005,000 $-0- $-0- $2,137,000 ========== ========== ========== ==== ==== ==========
22 Schedule V PALL CORPORATION AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT YEAR ENDED JULY 30, 1994
BALANCE AT ADDITIONS RETIREMENTS/ OTHER CHANGES BALANCE AT 7/31/93 AT COST SALES/ WRITE OFFS ADD (DEDUCT) 7/30/94 (A) (A) (B) LAND $ 24,716,000 $ $ $ 310,000 $ 25,026,000 BUILDINGS AND IMPROVEMENTS 196,238,000 31,956,000 (321,000) 3,469,000 231,342,000 MACHINERY AND EQUIPMENT 271,829,000 34,532,000 (2,341,000) 4,389,000 308,409,000 FURNITURE AND FIXTURES 39,131,000 3,962,000 (981,000) 2,103,000 44,215,000 TRANSPORTATION EQUIPMENT 12,088,000 2,904,000 (2,973,000) (382,000) 11,637,000 --------------- -------------- -------------- -------------- -------------- $ 544,002,000 $ 73,354,000 $ (6,616,000) $ 9,889,000 $ 620,629,000 =============== ============== ============== ============== ==============
NOTES: (A) FOREIGN SUBSIDIARY ADDITIONS AND RETIREMENTS/ SALES/ WRITE OFFS ARE TRANSLATED AT WEIGHTED AVERAGE EXCHANGE RATES. (B) REFLECTS THE EFFECT ON CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT OF CHANGES IN THE EXCHANGE RATES USED TO TRANSLATE FOREIGN CURRENCY FIXED ASSETS BETWEEN THE RESPECTIVE BALANCE SHEET DATES. 23 Schedule V PALL CORPORATION AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT YEARS ENDED JULY 31, 1993 AND AUGUST 1, 1992
BALANCE AT ADDITIONS RETIREMENTS OTHER CHANGES BALANCE AT 8/1/92 AT COST OR SALES ADD (DEDUCT) 7/31/93 YEAR ENDED JULY 31,1993 (A) (A) (B) LAND $ 24,370,000 $ $ $ 346,000 $ 24,716,000 BUILDINGS AND IMPROVEMENTS 188,039,000 24,149,000 (5,139,000) (10,811,000) 196,238,000 MACHINERY AND EQUIPMENT 292,125,000 32,565,000 (34,944,000) (17,917,000) 271,829,000 FURNITURE AND FIXTURES 41,903,000 3,252,000 (1,693,000) (4,331,000) 39,131,000 TRANSPORTATION EQUIPMENT 14,667,000 2,616,000 (2,612,000) (2,583,000) 12,088,000 ------------- ------------- -------------- -------------- ------------- $ 561,104,000 $ 62,582,000 $ (44,388,000) $ (35,296,000) $ 544,002,000 ============= ============= ============== ============== =============
BALANCE AT ADDITIONS RETIREMENTS OTHER CHANGES BALANCE AT 8/3/91 AT COST OR SALES ADD (DEDUCT) 8/1/92 YEAR ENDED AUGUST 1, 1992 (A) (A) (B) LAND $ 23,689,000 $ $ $ 681,000 $ 24,370,000 BUILDINGS AND IMPROVEMENTS 163,687,000 13,321,000 (418,000) 11,449,000 188,039,000 MACHINERY AND EQUIPMENT 255,031,000 34,107,000 (5,200,000) 8,187.000 292,125,000 FURNITURE AND FIXTURES 34,255,000 4,665,000 (816,000) 3,799,000 41,903.000 TRANSPORTATION EQUIPMENT 12,787,000 4,081.000 (3,803,000) 1,602,000 14,667,000 ------------- ------------- -------------- -------------- -------------- $ 489,449,000 $ 56,174,000 $ (10,237,000) $ 25,718,000 $ 561,104,000 ============= ============= ============== ============== ==============
NOTES: (A) FOREIGN SUBSIDIARY ADDITIONS AND RETIREMENTS ARE TRANSLATED AT WEIGHTED AVERAGE EXCHANGE RATES. (B) PREDOMINANTLY DUE TO THE EFFECT ON CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT OF CHANGES IN THE EXCHANGE RATES USED TO TRANSLATE FOREIGN CURRENCY FIXED ASSETS BETWEEN THE RESPECTIVE BALANCE SHEET DATES. 24 Schedule VI PALL CORPORATION AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEAR ENDED JULY 30,1994
BALANCE AT ADDITIONS RETIREMENTS/ OTHER CHANGES BALANCE AT 7/31/93 AT COST SALES/ WRITE OFFS ADD (DEDUCT) 7/30/94 (A) (A) (B) BUILDINGS AND IMPROVEMENTS $ 36,239,000 $ 5,239,000 $ (242,000) $ 665,000 $ 41,901,000 MACHINERY AND EQUIPMENT 120,011,000 25,723,000 (1,229,000) 2,857,000 147,362,000 FURNITURE AND FIXTURES 22,972,000 3,818,000 (550,000) 1,021,000 27,261,000 TRANSPORTATION EQUIPMENT 7,160,000 2,024,000 (2,246,000) (450,000) 6,488,000 -------------- --------------- -------------- ------------- -------------- $ 186,382,000 $ 36,804,000 $ (4,267,000) $ 4,093,000 $ 223,012,000 ============== =============== ============== ============= ==============
NOTES: (A) FOREIGN SUBSIDIARY ADDITIONS AND RETIREMENTS/ SALES/ WRITE OFFS ARE TRANSLATED AT WEIGHTED AVERAGE EXCHANGE RATES. (B) REFLECTS THE EFFECT ON CONSOLIDATED ACCUMULATED DEPRECIATION AND AMORTIZATION OF CHANGES IN THE EXCHANGE RATES USED TO TRANSLATE FOREIGN CURRENCY AMOUNTS BETWEEN THE RESPECTIVE BALANCE SHEET DATES. 25 Schedule VI PALL CORPORATION AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT YEARS ENDED JULY 31, 1993 AND AUGUST 1, 1992
BALANCE AT ADDITIONS RETIREMENTS OTHER CHANGES BALANCE AT 8/1/92 AT COST OR SALES ADD (DEDUCT) 7/31/93 YEAR ENDED JULY 31, 1993 (A) (A) (B) BUILDINGS AND IMPROVEMENTS $ 35,148,000 $ 5,025,000 $ (2,492,000) $ (1,442,000) $ 36,239,000 MACHINERY AND EQUIPMENT 128,161,000 24,208,000 (24,128,000) (8,230,000) 120,011,000 FURNITURE AND FIXTURES 23,695,000 3,560,000 (1,319,000) (2,964,000) 22,972,000 TRANSPORTATION EQUIPMENT 8,037,000 2,395,000 (1,858,000) (1,414,000) 7,160,000 -------------- -------------- ---------------- ---------------- -------------- $ 195,041,000 $ 35,188,000 $ (29,797,000) $ (14,050,000) $ 186,382,000 ============== ============== ================ ================ ==============
BALANCE AT ADDITIONS RETIREMENTS OTHER CHANGES BALANCE AT 8/3/91 AT COST OR SALES ADD (DEDUCT) 8/1/92 YEAR ENDED AUGUST 1, 1992 (A) (A) (B) BUILDINGS AND IMPROVEMENTS $ 29,869,000 $ 4,450,000 $ (233,000) $ 1,062,000 $ 35,148,000 MACHINERY AND EQUIPMENT 102,533,000 23,606,000 (2,202,000) 4,224,000 128,161,000 FURNITURE AND FIXTURES 18,348,000 3,502,000 (273,000) 2,118,000 23,695,000 TRANSPORTATION EQUIPMENT 6,866,000 2,802,000 (2,463,000) 832,000 8,037,000 -------------- -------------- ---------------- ---------------- -------------- $ 157,616,000 $ 34,360,000 $ (5,171,000) $ 8,236,000 $ 195,041,000 ============== ============== ================ ================ ==============
NOTES: (A) FOREIGN SUBSIDIARY ADDITIONS AND RETIREMENTS ARE TRANSLATED AT WEIGHTED AVERAGE EXCHANGE RATES. (B) PREDOMINANTLY DUE TO THE EFFECT ON CONSOLIDATED ACCUMULATED DEPRECIATION AND AMORTIZATION OF CHANGES IN THE EXCHANGE RATES USED TO TRANSLATE FOREIGN CURRENCY FIXED ASSETS BETWEEN THE RESPECTIVE BALANCE SHEET DATES. 26 Schedule VIII PALL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JULY 30, 1994, JULY 31, 1993 AND AUGUST 1, 1992
Balance at Charged to Write-off of Balance Beginning Costs and Uncollectible at End Description of Year Expenses Accounts of Year ----------- ----------- ----------- ------------- -------- Year ended July 3O, 1994: Allowance for doubtful accounts $ 3,368,000 $ 2,852,000 $ 1,444,000 $ 4,776,000 Year ended July 31, 1993: Allowance for doubtful accounts $ 3,537,000 $ 1,048,000 $ 1,217,000 $ 3,368,000 Year ended August 1, 1992: Allowance for doubtful accounts $ 3,878,000 $ 1,013,000 $ 1,354,000 $ 3,537,000
27 Schedule IX PALL CORPORATION AND SUBSIDIARIES SHORT-TERM BORROWINGS YEARS ENDED JULY 30, 1994 JULY 31, 1993 AND AUGUST 1, 1992
Category of Balance at Weighted Maximum Average Amount Weighted Average Aggregate Short Year End Average Outstanding Outstanding Interest Rate Term Borrowings Interest During Year During Year During Year Rate at Year End --------------------------------------------------------------------------------------------------------------- Year ended July 30, 1994 Bank Loans $ 112,034,000 4.2% $ 167,234,000 $ 132,252,000 3.5% Year ended July 31, 1993 Bank Loans $ 125,054,000 3.3% $ 131,506,000 $ 112,950,000 3.8% Year ended August 1, 1992 Bank Loans $ 111,291,000 4.0% $ 120,927,000 $ 87,984,000 5.3%
28 Schedule X PALL CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED JULY 30, 1994, JULY 31, 1993, AND AUGUST 1, 1992
ITEM CHARGED TO COSTS AND EXPENSES - ------- ---------------------------------- 1994 1993 1992 ----------- ----------- ----------- MAINTENANCE AND REPAIRS $14,119,000 $13,674,000 $13,018,000 ADVERTISING 7,955,000 7,859,000 7,728,000
Amounts for taxes, other than payroll and income taxes, royalties and amortization of intangibles do not exceed one percent of sales. 29 [KPMG PEAT MARKWICK LETTERHEAD] -29- Independent Auditors' Report on Schedules ----------------------------------------- The Board of Directors Pall Corporation: Under date of September 7, 1994, we reported on the consolidated balance sheets of Pall Corporation and subsidiaries as of July 30, 1994 and July 31, 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended July 30, 1994, as contained in the Company's fiscal 1994 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 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in the Income Taxes note to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" on a prospective basis in fiscal year 1992. /s/ KPMG PEAT MARWICK LLP ------------------------- KPMG PEAT MARWICK LLP Jericho, New York September 7, 1994 30 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 authorised. /s/ Jeremy Hayward-Surry ------------------------- PALL CORPORATION By: Jeremy Hayward-Surry President and Treasurer Chief Financial Officer 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. /s/ Eric Krasnoff - ------------------ Chairman of the Board and October 21, 1994 Eric Krasnoff Chief Executive Officer /s/ Jeremy Hayward- Surry - ------------------ President and Treasurer - Chief October 21, 1994 Jeremy Hayward- Financial Officer and Director Surry /s/ Peter Schwartzman - ---------------------- Chief Accountant (Chief October 21, 1994 Peter Schwartzman Accounting Officer) /s/ Abraham Appel - ------------------ Director October 21, 1994 Abraham Appel /s/ Abraham Krasnoff - --------------------- Director October 21, 1994 Abraham Krasnoff /s/ David B. Pall - ------------------ Director October 21, 1994 David B. Pall - ------------------ Director October 21, 1994 Henry Petronis /s/ Chesterfield F. Seibert - ---------------------------- Director October 21, 1994 Chesterfield F. Seibert /s/ Heywood Shelley - -------------------- Director October 21, 1994 Heywood Shelley /s/ James D. Watson - -------------------- Director October 21, 1994 James D. Watson
31 EXHIBIT INDEX *************
Page Exhibit of 1994 Number Description of Exhibit Form 10-K ------- -------------------------------------- --------- 3(i) Restated Certificate of Incorporation of the registrant as amended through November 23, 1993 34- 49 3(ii) By-Laws as amended through July 11, 1994 50- 71 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 instru- ment 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) Agreement made as of July 31, 1992 with David B. Pall, filed as Exhibit 10.3 to the registrant's Annual Report on Form 10-K for the fiscal year ended August 1, 1992 (the "1992 10-K"). 10.2(a) Employment Agreement dated April 1, 1994 with Eric Krasnoff. 72- 90 10.3(a) Amendment dated July 11, 1994 to Employment Agreement dated April 1, 1994 with Eric Krasnoff. 91 10.4(a) Employment Agreement dated August 1, 1994 with Jeremy Hayward-Surry. 92-109 10.5*(a) Service Agreement dated March 17, 1992 with Derek Thomas Donald Williams, filed as Exhibit 10.21 to the 1992 10-K. 10.6*(a) Service Agreement dated March 17, 1992 with Donald Guy Edward Nicholls, filed as Exhibit 10.20 to the 1992 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. 32
Page Exhibit of 1994 Number Description of Exhibit Form 10-K ------- -------------------------------------- --------- 10.7*(a) Service Agreement dated October 21, 1988 with Clifton Stanley Hutchings, filed as Exhibit 10.17 to the registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 1993 (the "1993 10-K"). 10.8*(a) Service Agreement dated June 21, 1989 with Gerhard Friedrich Weich, filed as Exhibit 10.18 to the 1993 10-K. 10.9*(a) Employment Agreement dated February 1, 1992 with Arnold Weiner, filed as Exhibit 10.32 to the 1992 10-K. 10.10*(a) Amendment dated July 19, 1993 to Employment Agreement dated February 1, 1992 with Arnold Weiner, filed as Exhibit 10.14 to the 1993 10-K. 10.11*(a) Employment Agreement dated February 1, 1992 with Samuel Wortham, filed as Exhibit 10.15 to the 1992 10-K. 10.12*(a) Amendment dated July 19, 1993 to Employment Agreement dated February 1, 1992 with Samuel Wortham, filed as Exhibit 10.4 to the 1993 10-K. 10.13(a) Employment Agreement dated August 1, 1994 with Peter Cope. 110-127 10.14(a) Employment Agreement dated August 1, 1994 with Robert Simkins. 128-145 10.15*(a) Employment Agreement dated February 1, 1992 with Peter Schwartzman, filed as Exhibit 10.33 to the 1992 10-K. 10.16*(a) Amendment dated July 19, 1993 to Employment Agreement dated February 1, 1992 with Peter Schwartzman, filed as Exhibit 10.16 to the 1993 10-K. 10.17(a) Employment Agreement dated September 26, 1994 with Donald B. Stevens. 146-163 10.18(a) Agreement dated April 1, 1994 with Nicholas Nickolaus. 164-165 10.19(a) Agreement dated August 15, 1994 with Joseph Campolong. 166-167
* 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. 33
Page Exhibit of 1994 Number Description of Exhibit Form 10-K ------- -------------------------------------- --------- 10.20(a) Pall Corporation Supplementary Profit- Sharing Plan as amended and restated, effective as of September 19, 1994. 168-175 10.21*(a) Pall Corporation Supplementary Pension Plan as amended to February 26, 1993, filed as Exhibit 10.20 to the 1993 10-K. 10.22(a) Pall Corporation Profit-Sharing Plan, as amended and restated on September 19, 1994 176-236 10.23*(a) Pall Corporation 1993 Stock Option Plan, filed as Exhibit 10.22 to the 1993 10-K. 10.24*(a) Pall Corporation 1991 Stock Option Plan, filed as Exhibit 10.42 to the 1991 10-K. 10.25*(a) Pall Corporation 1988 Stock Option Plan, as amended through October 8, 1991, filed as Exhibit 10.32 to the 1991 10-K. 13 Annual Report to Shareholders for the year ended July 30, 1994. 237-290 21 Subsidiaries of Pall Corporation. 291 23 Consent of Independent Auditors. 292 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. EX-3.1 2 RESTATED CERTIFICATE OF INCOPORATION 1 Exhibit 3(i) RESTATED CERTIFICATE OF INCORPORATION OF PALL CORPORATION Under Section 807 of the Business Corporation Law The undersigned, being the President and the Secretary of Pall Corporation, hereby certify that: I. The name of the corporation is Pall Corporation. The name under which the corporation was formed is Micro Metallic Corporation. II. The certificate of incorporation of the corporation was filed by the Department of State on July 31, 1946. III. The text of the said certificate of incorporation, as amended heretofore, is hereby restated without further amendment or change to read in full as follows: * * * 2 1. The name of the corporation shall be Pall Corporation 2. The purpose for which the corporation is formed is to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Law, provided that the corporation is not formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained. 3. The aggregate number of shares which the corporation shall have the authority to issue is 500,000,000 shares of Common Stock, par value $.10 per share. 4. The preferences, privileges and voting powers of the shares of Common Stock, and restrictions or qualifications thereof shall be as follows: (a) Dividends. The Common Stock shall be entitled to receive dividends when and as declared by the Board of Directors. (b) Liquidation Rights. In the event of any liquidation, dissolution or winding up of the corporation, the holders of Common Stock shall participate equally per share in any distribution to shareholders. (c) Voting Rights. The holder of each share of Common Stock shall be entitled to one vote in respect of each share held. -2- 3 (d) Pre-emptive Rights. No holder of shares of Common Stock shall have any pre-emptive right to subscribe to any shares of stock of any class now or hereafter authorized, or to any bonds, debentures or other instruments convertible into shares of stock, or to options or warrants evidencing rights to subscribe to shares of stock of any class. 5. The office of the corporation is to be located at 2200 Northern Boulevard, East Hills, New York 11548, in the County of Nassau, which shall be the post office address to which the Secretary of State shall mail a copy of any process against the corporation served upon him. 6. The duration of the corporation shall be perpetual. 7. The number of directors of the corporation shall not be less than three nor more than twelve; directors need not be stockholders. To the fullest extent permitted by the New York Business Corporation Law as in effect on November 20, 1987 or, if thereafter amended, as so amended, a director of the corporation shall not be liable to the corporation or its shareholders or any of them for damages for any breach of duty as a director. [Paragraphs numbered 8, 9 and 10 of the original certificate of incorporation have been omitted from this Restated Certificate of Incorporation pursuant to Business Corporation Law Section 807(c) and are no longer a part of the certificate of incorporation of the corporation.] -3- 4 11. The Secretary of State is hereby designated as the agent of the corporation upon whom process in any action or proceeding against it may be served. 12. (A) Except as provided in subparagraph (B), the favorable vote, at a meeting of stockholders, of the holders of not less than 85% of the outstanding shares of Common Stock of this corporation shall be required prior to and as a condition to the consummation of any Business Combination (as hereinafter defined). Such 85% favorable vote (1) shall be in addition to any stockholder vote which would be required without reference to this Paragraph 12, and (2) shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or the by-laws of the corporation, by any other provision of this certificate of incorporation or otherwise. (B) The provisions of subparagraph (A) of this Paragraph 12 shall not be applicable to a particular Business Combination, and such Business Combination shall require only such stockholder vote or approval (if any) as would be required without reference to this Paragraph 12, if all of the conditions set forth in subsections (1) through (5) next below are satisfied. These conditions are as follows: (1) The ratio of: (a) the aggregate amount of the cash and the fair market value of other consideration to be received per share in such Business Combination by holders of Common -4- 5 Stock of this corporation other than the Related Person (as hereinafter defined) involved in such Business Combination, to (b) the market price per share of the Common Stock immediately prior to the announcement of the proposed Business Combination, is at least as great as the ratio of (c) the highest per share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) which such Related Person has theretofore paid for any shares of Common Stock acquired by it prior to such Business Combination, to (d) the market price per share of the Common Stock immediately prior to the initial acquisition by such Related Person of any Common Stock; and (2) The aggregate amount of the cash and the fair market value of other consideration to be received per share in such Business Combination by holders of Common Stock of this corporation other than the Related Person (hereinafter called "Public Holders"): (a) is not less than the highest per share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) paid by such Related Person in acquiring any of its holdings of Common Stock, and (b) is not less than the earnings per share of the Common Stock for the four full consecutive fiscal -5- 6 quarters immediately preceding the record date for solicitation of votes on such Business Combination multiplied by the then price/earnings multiple (if any) of such Related Person as customarily computed and reported in the financial community; and (3) The consideration (if any) to be received by Public Holders of Common Stock in such Business Combination shall, except to the extent that a stockholder agrees otherwise as to all or part of the shares which he or she owns, be in the same form and of the same kind as the consideration paid by the Related Person in acquiring the shares of Common Stock already owned by it; and (4) After such Related Person became a Related Person and prior to the consummation of such Business Combination: (a) such Related Person shall have taken steps to ensure that the corporation's Board of Directors included at all times representation by Continuing Directors (as hereinafter defined) proportionate to the ratio that the number of shares of Common Stock from time to time owned by Public Holders bears to all Common Stock outstanding at the time in question (with a Continuing Director to occupy any resulting fractional board position); (b) such Related Person shall not have acquired from the corporation, directly or indirectly, any capital stock of the corporation (except (i) upon conversion of convertible securities acquired by it prior to becoming a Related -6- 7 Person or (ii) as a result of a pro rata stock dividend or stock split or (iii) in a transaction consummated after this Paragraph 12 was added to this certificate of incorporation and which satisfied all applicable requirements of this Paragraph 12); (c) such Related Person shall not have acquired any additional shares of the corporation's outstanding Common Stock or securities convertible into or exchangeable for Common Stock except as a part of the transaction which resulted in such Related Person becoming a Related Person; and (d) such Related Person shall not have (i) received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the corporation or any Subsidiary (as hereinafter defined) or (ii) made any major change in the corporation's business or equity capital structure or entered into any contract, arrangement or understanding with the corporation except any such change, contract, arrangement or understanding which has been approved by the favorable vote of not less than 75% of the "whole Board" (which quoted term means all directors which the corporation would have if there were no vacancies) at a time when all members of the Board are Continuing Directors; and -7- 8 (5) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934 shall have been mailed to all holders of Common Stock for the purpose of soliciting stockholder approval of such Business Combination. Such proxy statement shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors, or any of them, may have furnished in writing and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or lack of fairness) of the terms of such Business Combination from the point of view of the holders of Common Stock other than any Related Person (such investment banking firm to be selected by a majority of the Continuing Directors, to be furnished with all information it reasonably requests, and to be paid a reasonable fee for its services upon receipt by the corporation of such opinion). (C) For purposes of this Paragraph 12: (1) The term "Business Combination" means (a) any merger or consolidation of this corporation or any Subsidiary into or with a Related Person or into or with another corporation which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of a Related Person, in each case irrespective of which corporation is the surviving corporation in such merger or consolidation; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with a -8- 9 Related Person (in a single transaction or a series of related transactions) of all or a Substantial Part (as hereinafter defined) of the assets of this corporation (including without limitation any equity securities of a Subsidiary) or all or a Substantial Part of the assets of a Subsidiary; (c) any sale, lease, exchange, mortgage, pledge, transfer or other disposition to or with this corporation or to or with a Subsidiary (in a single transaction or a series of related transactions) of all or a Substantial Part of the assets of a Related Person; (d) the issuance or transfer of any securities of this corporation or a Subsidiary by this corporation or a Subsidiary to a Related Person with the exception of securities which, when aggregated with all such securities so issued or transferred within the preceding five years to such Related Person and the Affiliates and Associates (as hereinafter defined) of such Related Person, or any of them, have a fair value of less than 10% of the stockholders' equity of this corporation as of the end of its most recent fiscal year ending prior to the time the determination is being made; (e) any reclassification of securities (including any reverse stock split), recapitalization, reorganization, merger or consolidation of the corporation with any of its Subsidiaries, or any similar transaction (whether or not with or into or otherwise involving a Related Person) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of this corporation or any Subsidiary which is directly or -9- 10 indirectly owned by any Related Person; (f) any merger of this corporation into a Subsidiary, or any consolidation between this corporation and a Subsidiary, unless the surviving corporation or the consolidated corporation, as the case may be, has a provision in its certificate of incorporation identical with or substantially similar to this Paragraph 12; or (g) any agreement, contract or other arrangement providing for any of the transactions hereinabove described in this definition of Business Combination. (2) A "Person" means an individual, firm, corporation or other entity. "Related Person" means, with respect to any Business Combination, any Person (other than this corporation or any Subsidiary) who or which, as of the record date for the determination of stockholders entitled to notice of and to vote on such Business Combination, or immediately prior to the consummation of such transaction: (a) is the Beneficial Owner (as hereinafter defined) of either (i) 20% or more of the Common Stock, or (ii) 20% or more of the securities of this corporation entitled at the time in question to vote in the election of directors, considered as a single class (hereinafter called "Voting Shares"), or (b) is an Affiliate of this corporation and at any time within the preceding five years was the Beneficial Owner of either 20% or more of the then outstanding Common Stock or 20% or more of the then outstanding Voting Shares. -10- 11 (3) A person shall be considered the "Beneficial Owner" of any Common Stock or Voting Shares: (a) which are owned beneficially (whether or not owned of record) by such Person or by any Affiliate or Associate of such Person, or (b) which such Person or any Affiliate or Associate of such Person has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or (c) which are owned beneficially (whether or not owned of record) by any other Person with which such first-mentioned Person or any of its Affiliates or Associates has any agreement, arrangement or understanding with respect to acquiring, holding, voting or disposing of any shares of Common Stock or Voting Shares or acquiring, holding or disposing of all or a Substantial Part of the assets of this corporation or a Subsidiary. For the purposes only of determining whether a Person is the Beneficial Owner of 20% or more of the outstanding Common Stock or Voting Shares of this corporation, the outstanding Common Stock and Voting Shares of this corporation shall be deemed to include any Common Stock or Voting Shares that may be issuable -11- 12 pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, options or otherwise and which are deemed to be beneficially owned by such Person pursuant to the foregoing provisions of this subsection (3). (4) The term "Substantial Part" as used with reference to the assets of this corporation, of any Subsidiary or of any Related Person means assets having a value of more than 5% of the total consolidated assets of this corporation and its Subsidiaries as of the end of this corporation's most recent fiscal year ending prior to the time the determination is being made. (5) For purposes of subsections (1) and (2) of subparagraph (B) of this Paragraph 12, in the event of a Business Combination upon consummation of which this corporation would be the surviving corporation or would continue to exist (unless it is provided, contemplated or intended that as part of such Business Combination or within one year after consummation thereof a plan of liquidation or dissolution of this corporation will be adopted or effected), the term "other consideration to be received" shall include (without limitation) Common Stock of this corporation retained by Public Holders. (6) "Continuing Director" means a member of the Board of Directors of this corporation who either (i) was first elected to the Board prior to the date as of which a Related Person who or which proposes to enter into or be a party to or involved in a Business Combination became the Beneficial Owner of more than 10% -12- 13 of the Common Stock, or (ii) was designated (before his or her initial election to the Board) as a "Continuing Director" by a majority of the then Continuing Directors. (7) "Affiliate" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with another Person. (8) "Associate" means (a) any corporation or organization of which a Person is an officer or partner or is, directly or indirectly, the Beneficial Owner of 5% or more of any class of equity securities, (b) any trust or other estate in which a Person has a 5% or larger beneficial interest of any nature or as to which a Person serves as trustee or in a similar fiduciary capacity, (c) any spouse of a person, and (d) any relative of a person, or any relative of a spouse of a person, who has the same residence as such person or spouse. (9) "Subsidiary" means any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on September 1, 1979) is owned, directly or indirectly, by this corporation; provided, however, that for the purposes of the definition of Related Person set forth in subsection (2) of this subparagraph (C), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by this corporation. -13- 14 (10) As used in the definition of Business Combination, a "series of related transactions" shall be deemed to include not only a series of transactions with the same Related Person but also a series of separate transactions with a Related Person and any Affiliate or Associate of such Related Person. (11) A Related Person shall be deemed to have acquired a share of Common Stock at the time when such Related Person became the Beneficial Owner thereof. With respect to shares owned by Affiliates, Associates or other Persons whose ownership is attributed to a Related Person under the foregoing definition of "Beneficial Owner", if the price paid by such Related Person for such shares is not determinable, then for purposes of subsections (1) and (2) of subparagraph (B) of this Paragraph 12 the price so paid shall be deemed to be the higher of (a) the price paid upon acquisition thereof by the Affiliate, Associate or other Person or (b) the market price of the shares in question at the time when the Related Person became the Beneficial Owner thereof. (D) A majority of the Continuing Directors shall have the power to determine for the purposes of this Paragraph 12, on the basis of information known to them: (1) the number of shares of Common Stock and Voting Shares of which any Person is the Beneficial Owner; (2) whether a Person is an Affiliate or Associate of another; (3) whether a Person has an agreement, arrangement or understanding with another as to the matters referred to in subsection (3) of subparagraph (C); (4) whether the assets -14- 15 subject to any Business Combination constitute a "Substantial Part" as hereinabove defined; (5) whether two or more transactions constitute a "series of related transactions" as hereinabove defined, and (6) any matters required to be determined pursuant to subsection (11) of subparagraph (C) above. (E) Any amendment, change or repeal of this Paragraph 12, or any other amendment of this certificate of incorporation which would have the effect of modifying or permitting circumvention of this Paragraph 12, shall require the favorable vote, at a meeting of stockholders, of the holders of at least 85% of the then outstanding Common Stock, provided, however, that this subparagraph (E) shall not apply to, and such 85% vote shall not be required for, any such amendment, change or repeal recommended to the stockholders by not less than 75% of the Continuing Directors. For purposes of this subparagraph (E) only, if at the time when any such amendment, change or repeal is under consideration there is no proposed Business Combination (in which event clause "(i)" of the definition of Continuing Director in subparagraph (C)(6) above would be inapplicable), the "Continuing Directors" shall be deemed to be those persons who were directors of the corporation at the time when the amendment of this certificate of incorporation to add this Paragraph 12 hereto was approved by stockholders plus those persons who are Continuing Directors under clause "(ii)" of said subparagraph (C)(6). -15- 16 (F) Nothing contained in this Paragraph 12 shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. * * * IV. The foregoing restatement of the certificate of incorporation was authorized by vote of a majority of the Board of Directors at a meeting of the Board of Directors held on November 18, 1993. IN WITNESS WHEREOF, the undersigned have subscribed this certificate, and affirm that the statements made herein are true under the penalties of perjury, this 23rd day of November, 1993. /s/ ERIC KRASNOFF ------------------------------ Eric Krasnoff President /s/ PETER SCHWARTZMANN ------------------------------ Peter Schwartzman Secretary -16- EX-3.II 3 BY-LAWS AS AMENDED THROUGH JULY 11, 1994 1 Exhibit 3(ii) PALL CORPORATION BY-LAWS (as amended on July 11, 1994) 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 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- 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- 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, and the number of directors is presently fixed at twelve. 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. 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 -4- 5 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, written notice of the time and place thereof having been given to each director as follows: (a) by delivering a copy -5- 6 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 of incorporation, or by these by-laws, decide any question brought before such meeting. -6- 7 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 committee thereof may be taken without a meeting if all members -7- 8 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, Stock Option and Nominating Committees. There may be an Audit Committee, a Compensation Committee, a Stock Option 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. -8- 9 The Compensation 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. The Stock Option Committee shall 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 stock option committee referred to therein. 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- 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 -10- 11 directors pursuant to subparagraph (a) next above, the chief executive 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 -11- 12 meetings of the stockholders, of the board of directors and of the executive committee unless he shall designate another officer or director to 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 -12- 13 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 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 presdient 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 acquitances for moneys paid in on account of the corporation, and shall pay out of the funds on hand all bills, payrolls and other -13- 14 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 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 -14- 15 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. 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 its president or a vice president and the secretary or an assistant secretary or the treasurer or an assistant treasurer 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 -15- 16 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 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 -16- 17 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 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 -17- 18 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. 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 Idemnification. 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 -18- 19 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 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 -19- 20 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 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 -20- 21 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. 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, -21- 22 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. -22- EX-10.2 4 EMPLOYMENT AGREEMENT DATED 4/1/94 W.E. KRASNOFF 1 Exhibit 10.2 EMPLOYMENT AGREEMENT AGREEMENT dated April 1, 1994 between PALL CORPORATION, a New York corporation (the "Company") and ERIC KRASNOFF ("Executive"). WHEREAS, the parties desire to terminate, as of the Term Commencement Date (as defined in Section 1 hereof), any employment agreement between them in effect at the time of the making of this Agreement, and to enter into a new employment agreement, on the terms and conditions hereinafter set forth, 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 April 1, 1994 (the "Term Commencement Date") and ending, unless sooner terminated under Section 4, on the effective date specified in a notice of termination given by either party to the other except that such effective date shall not be earlier than the later of (i) March 31, 1999 and (ii) the second anniversary of the date on which such notice is given. 2 Section 2. Duties (a) As used herein, the term "Contract Position" has the following meaning: (i) unless Executive has been elected chief executive officer of the Company, he shall be deemed to hold the Contract Position so long as (but only so long as) he has the title of President of the Company and also has such authority and has been assigned such duties as are customarily possessed by and assigned to a chief operating officer; (ii) if at any time Executive is elected chief executive officer of the Company, then after such time as Executive has first been elected chief executive officer, he shall be deemed to hold the Contract Position so long as (but only so long as) he has the title of chief executive officer of the Company and also has such authority and has been assigned such duties as are customarily possessed by and assigned to a chief executive 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 hold the Contract Position. If at any time during the Term of Employment: - 2 - 3 (i) the Board of Directors shall fail to elect Executive to, or shall remove from him, the office which in accordance with the by-laws as then in effect or any resolution or resolutions of the Board of Directors, carries with it the title, authority and duties of the Contract Position, or (ii) the by-laws are amended in such a way that, or the Board of Directors takes any action the effect of which is that, Executive no longer has the title, authority and duties of the Contract Position, then in either such event Executive shall have the right at his option to terminate the Term of Employment by notice to the Secretary of the Company given at any time thereafter. During any period of time when Executive has the right to terminate under this paragraph but elects not to do so, he shall hold such office or offices in the Company, and perform such duties and assignments relating to the business of the Company, as the Board of Directors and/or the chief executive officer shall direct except that Executive shall not be required to hold any office or perform any duties or assignment inconsistent with his experience and qualifications or not customarily performed by a senior executive corporate officer. So long as Executive is performing or stands ready to perform duties and assignments in accordance with the preceding sentence, the Term of - 3 - 4 Employment shall continue until it thereafter terminates or is terminated pursuant to any applicable provision hereof (including but not limited to termination at Executive's option under this paragraph). (b) 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 on the Term Commencement Date and ending at the end of the Term of Employment, the Company shall pay to Executive base compensation (in addition to the compensation provided for elsewhere in this Agreement) at such rate as the Board of Directors may determine (the amount so determined by the Board being herein called the "Base Salary") but at not less than the rate of $ 296,000 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, 1994, as follows: The term "Contract Year" - 4 - 5 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, 1994, 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 1993. The term "Consumer Price Index" as herein used means the "Consumer Price Index for all Urban Consumers" compiled and published by the Bureau of Labor Statistics of the United States Department of Labor for "New York - Northern New Jersey - Long Island, NY-NJ-CT". To illustrate the operation of the foregoing provisions of this Section 3(a): Executive's Base Salary for the Contract Year August 1, 1994 through July 31, 1995 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 1994 over (or below) said Index for June 1993. 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 1993 as the base except as provided in the immediately following paragraph hereof and - 5 - 6 (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, 1994) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the resolution fixing such higher Base Salary provides otherwise), for the purpose of determining the minimum Base Salary for subsequent Contract Years: (1) the amount of the higher Base Salary so fixed shall be deemed substituted for the Original Base Salary wherever the Original Base Salary is referred to in the immediately preceding paragraph hereof, and (ii) the base month for determining the Consumer Price Index adjustment shall be June of the calendar year in which the Contract Year to which such higher Base Salary is applicable begins (e.g., if the Board fixes a Base Salary for the Contract Year beginning August 1, 1994 which is higher than the Minimum Base Salary, then June 1994 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). (b) Bonus Compensation. With respect to each fiscal year of the Company falling in whole or in part within - 6 - 7 the Term of Employment beginning with the fiscal year ending July 30, 1994, Executive shall be entitled to a bonus (in addition to his Base Salary) in such amount and computed in such manner as shall be determined by the Board of Directors but in no event shall the bonus payable to Executive under this Section 3(b) be less than an amount computed by applying to the fiscal year in question the following bonus formula: "Bonus Compensation" means the amount, if any, payable to Executive under this Section 3(b). "Average Equity" means the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Company as of the end of the fiscal year with respect to which Bonus Compensation is being computed hereunder and as of the end of the immediately preceding fiscal year (e.g., "Average Equity" to be used in computing Bonus Compensation for the fiscal year ending July 30, 1994 will be the average of stockholders' equity as of July 31, 1993 and July 30, 1994) 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. - 7 - 8 "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 years 1994 and 1995, "Zero Bonus Percentage" shall mean a Return on Equity of 12.5%. For fiscal year 1994, "Maximum Bonus Percentage" shall mean a Return on Equity of 19%. For fiscal years after fiscal 1995 the Company shall determine the Zero Bonus Percentage, and for fiscal years after fiscal 1994 the Company shall determine 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 75% 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 - 8 - 9 from zero percent of Base Salary towards 75% 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 1994 is 15.75% (the midpoint between 12.5% and 19%) the Bonus Compensation shall be an amount equal to 37.5% of Executive's Base Salary (the midpoint between zero percent of Base Salary and 75% of Base Salary). The Bonus Compensation shall be paid in installments as follows: (i) 50% of the estimated amount thereof in July of the fiscal year with respect to which the Bonus Compensation is payable (e.g., 50% in July 1994 with respect to Bonus Compensation for the fiscal year ending July 30, 1994), based on the then current projections of Return on Equity, and (ii) the balance thereof not later than January 15th next following the end of the fiscal year with respect to which the Bonus Compensation is payable. With respect to any fiscal year of the Company which falls in part but not in whole within the Term of Employment, the Bonus Compensation to which Executive is entitled under this Section 3(b) shall be prorated on the basis of the number of days of such fiscal year falling within the - 9 - 10 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, provided, however, that for the purpose of computing Bonus Compensation for the fiscal year ending July 30, 1994, the period August 1, 1993 to the Term Commencement Date shall be deemed part of the Term of Employment under this Agreement. (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. 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 - 10 - 11 authorized senior officer of the Company from time to time. The Company shall not pay Executive any additional compensation for any vacation time not used by Executive. Section 4. Termination by Reason of Disability, Death, Retirement or Change of Control (a) Disability or Death. If, during the Term of Employment, Executive, by reason of physical or mental disability, is incapable of performing his principal duties hereunder for an aggregate of 130 working days out of any period of twelve consecutive months, the Company at its option may terminate the Term of Employment effective immediately by notice to Executive given within 90 days after the end of such twelve- month period. If Executive shall die during the Term of Employment or if the Company terminates the Term of Employment pursuant to the immediately preceding sentence by reason of Executive's disability, the Company shall pay to Executive, or to Executive's legal 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 - 11 - 12 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 (pro rated to the last day of such period) which would have been payable with respect to such period but for such death or termination. (b) Retirement. (i) The Term of Employment shall end automatically, without action by either party, on Executive's 65th birthday unless, prior to such birthday, Executive and the Company have agreed in writing that the Term of Employment shall continue past such 65th birthday. In that event, unless the parties have agreed otherwise, the Term of Employment shall be automatically renewed and extended each year, as of Executive's birthday, for an additional one-year term, unless either party has given a Non-Renewal Notice. A Non-Renewal Notice shall be effective as of Executive's ensuing birthday only if given not less than 60 days before such birthday, and shall state that the party giving such 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 - 12 - 13 birthday, the Company shall pay to Executive, or to another payee specified by Executive to the Company in writing, Executive's Base Salary and Bonus Compensation prorated to the date on which the Term of Employment ends. (iii) Anything hereinabove to the contrary notwithstanding, if any provision of this paragraph violates federal or applicable state law relating to discrimination on account of age, such provision shall be deemed modified or suspended to the extent necessary to eliminate such violation of law. If at a later date, by reason of changed circumstances or otherwise, the enforcement of such provision as 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 Paragraph 12 of the Company's Restated Certificate of Incorporation dated - 13 - 14 November 23, 1993 and filed by the New York Department of State on December 7, 1993. Section 5. Covenant Not to Compete For a period of eighteen months after the end of the Term of Employment if the Term of Employment is terminated by notice to the Company given by Executive under Section 1, Section 2 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 - 14 - 15 shall be entitled to injunctive relief for a breach of this Agreement by Executive. Section 7. Inventions and Patents All inventions, ideas, concepts, processes, discoveries, improvements and trademarks (hereinafter collectively referred to as intangible rights), whether patentable or registrable or not, which are conceived, made, invented or suggested either by Executive alone or by Executive in 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, - 15 - 16 specifications, inventions, processes, methods and intangible rights which are acquired by him in the performance of his duties for the Company and which are of a confidential information or trade-secret nature. All records, files, drawings, documents, equipment and the like, relating to the company's business, which Executive shall prepare, use, construct or observe, shall be and remain the Company's sole property. Upon the termination of his employment or at any 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 - 16 - 17 transferred. Except as provided in the immediately preceding sentence of this Section 9, this Agreement shall not be assignable by the Company or by any entity referred to in such immediately preceding sentence. This Agreement shall not be assignable by Executive, but in the event of his death it shall be binding upon and inure to the benefit of his legal representatives to the extent required to effectuate the terms hereof. Section 10. Captions The captions in this Agreement are not part of the provisions hereof, are merely for the purpose of reference and shall have no force or effect for any purpose whatsoever, including the construction of the provisions of this Agreement, and if any caption is inconsistent with any provisions of this Agreement, said provisions shall govern. Section 11. Choice of Law This Agreement is made in, and shall be governed by and construed in accordance with the laws of, the State of New York. Section 12. Entire Contract This instrument contains the entire agreement of the parties on the subject matter hereof except that the rights of the Company hereunder shall be deemed to be in addition to and not in substitution for its rights under the Company's standard printed form of "Employee's Secrecy and - 17 - 18 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 - 18 - 19 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 at the time of the making of this Agreement is hereby terminated by mutual consent effective as of the Term Commencement Date and is superseded and replaced by this Agreement effective as of the Term Commencement Date. Executive shall be entitled to receive Bonus Compensation for the Company's fiscal year ending July 30, 1994 in accordance with the terms of this Agreement and not of any such prior Employment 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 -------------------------- Name: Jeremy Hayward-Surry Title: Executive Vice President and Treasurer /s/ ERIC KRASNOFF -------------------------- Eric Krasnoff - 19 - EX-10.3 5 AMENDMENT DATED 7/11/94 TO EMPLOYMENT AGREEMENT 1 Exhibit 10.3 AMENDMENT DATED JULY 11, 1994 TO EMPLOYMENT AGREEMENT DATED APRIL 1, 1994 PALL CORPORATION, a New York corporation (the "Company") and ERIC KRASNOFF ("Executive") hereby agree that the Employment Agreement dated April 1, 1994 between them is amended, effective with respect to the Company's fiscal year beginning July 31, 1994 and each subsequent fiscal year during the Term of Employment, by changing the last paragraph on page 8 thereof to read and provide as follows: 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 100% 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 100% 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 1995 is 15.75% (the midpoint between 12.5% and 19%, the Company on July 11, 1994 having determined the Maximum Bonus Percentage for fiscal 1995 to be 19%), the Bonus Compensation shall be an amount equal to 50% of Executive's Base Salary (the midpoint between zero percent of Base Salary and 100% of Base Salary). Except as hereby modified, said Employment Agreement is hereby ratified and confirmed and shall continue in full force and effect in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. PALL CORPORATION By /s/ JEREMY HAYWARD-SURRY -------------------------- Name: Jeremy Hayward-Surry, President /s/ ERIC KRASNOFF -------------------------- Eric Krasnoff EX-10.4 6 EMPLOYMENT AGRMT. DATED 8/1/94 W. J. HAYWARD-SURRY 1 EXHIBIT 10.4 EMPLOYMENT AGREEMENT AGREEMENT dated August 1, 1994 between PALL CORPORATION, a New York corporation (the "Company") and JEREMY HAYWARD-SURRY ("Executive"). WHEREAS, the parties desire to terminate, as of the Term Commencement Date (as defined in Section 1 hereof), any employment agreement between them in effect at the time of the making of this Agreement, and to enter into a new employment agreement, on the terms and conditions hereinafter set forth, 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, 1994 (the "Term Commencement Date") and ending, unless sooner terminated under Section 4, on the effective date specified in a notice of termination given by either party to the other except that such effective date shall not be earlier than the later of (i) July 31, 1999 and (ii) the second anniversary of the date on which such notice is given. Section 2. Duties (a) Executive agrees that during the Term of Employment he will hold such offices or positions with the 2 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 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 - 2 - 3 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 on the Term Commencement Date and ending at the end of the Term of Employment, the Company shall pay to Executive base compensation (in addition to the compensation provided for elsewhere in this Agreement) at such rate as the Board of Directors may determine (the amount so determined by the Board being herein called the "Base Salary") but at not less than the rate of $280,000 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, 1995, as follows: The term "Contract Year" as used herein means the period from August 1 of each year - 3 - 4 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, 1995, 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 1994. The term "Consumer Price Index" as herein used means the "Consumer Price Index for all Urban Consumers" compiled and published by the Bureau of Labor Statistics of the United States Department of Labor for "New York - Northern New Jersey - Long Island, NY-NJ-CT". To illustrate the operation of the foregoing provisions of this Section 3(a): Executive's Base Salary for the Contract Year August 1, 1995 through July 31, 1996 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 1995 over (or below) said Index for June 1994. 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 1994 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the - 4 - 5 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 subsequent to the Contract Year beginning August 1, 1994 the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the resolution fixing such higher Base Salary provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (1) the amount of the higher Base Salary so fixed shall be deemed substituted for the Original Base Salary wherever the Original Base Salary is referred to in the immediately preceding paragraph hereof, and (ii) the base month for determining the Consumer Price Index adjustment shall be June of the calendar year in which the Contract Year to which such higher Base Salary is applicable begins (e.g., if the Board fixes a Base Salary for the Contract Year beginning August 1, 1995 which is higher than the Minimum Base Salary, then June 1995 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). (b) Bonus Compensation. With respect to each fiscal year of the Company falling in whole or in part within the Term of Employment beginning with the fiscal year ending - 5 - 6 July 29, 1995, Executive shall be entitled to a bonus (in addition to his Base Salary) in such amount and computed in such manner as shall be determined by the Board of Directors but in no event shall the bonus payable to Executive under this Section 3(b) be less than an amount computed by applying to the fiscal year in question the following bonus formula: "Bonus Compensation" means the amount, if any, payable to Executive under this Section 3(b). "Average Equity" means the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Company as of the end of the fiscal year with respect to which Bonus Compensation is being computed hereunder and as of the end of the immediately preceding fiscal year (e.g., "Average Equity" to be used in computing Bonus Compensation for the fiscal year ending July 29, 1995 will be the average of stockholders' equity as of July 30, 1994 and July 29, 1995) 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. - 6 - 7 "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 1995, "Zero Bonus Percentage" shall mean a Return on Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on Equity of 19%. For fiscal years after fiscal 1995 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 75% 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 75% of Base Salary in the same proportion that Return on Equity increases from - 7 - 8 the Zero Bonus Percentage to the Maximum Bonus Percentage. Thus, for example, if Return on Equity for fiscal 1995 is 15.75% (the midpoint between 12.5% and 19%) the Bonus Compensation shall be an amount equal to 37.5% of Executive's Base Salary (the midpoint between zero percent of Base Salary and 75% of Base Salary). The Bonus Compensation shall be paid in installments as follows: (i) 50% of the estimated amount thereof in July of the fiscal year with respect to which the Bonus Compensation is payable (e.g., 50% in July 1995 with respect to Bonus Compensation for the fiscal year ending July 29, 1995), based on the then current projections of Return on Equity, and (ii) the balance thereof not later than January 15th next following the end of the fiscal year with respect to which the Bonus Compensation is payable. With respect to any fiscal year of the Company which falls in part but not in whole within the Term of Employment, the Bonus Compensation to which Executive is entitled under this Section 3(b) shall be prorated on the basis of the number of days of such fiscal year falling within the Term of Employment except that if the Term of Employment ends within five days before or after the end of a fiscal year, there shall be no proration and the Bonus Compensation shall - 8 - 9 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. 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 - 9 - 10 disability, is incapable of performing his principal duties hereunder for an aggregate of 130 working days out of any period of twelve consecutive months, the Company at its option may terminate the Term of Employment effective immediately by notice to Executive given within 90 days after the end of such twelve-month period. If Executive shall die during the Term of Employment or if the Company terminates the Term of Employment pursuant to the immediately preceding sentence by reason of Executive's disability, the Company shall pay to Executive, or to Executive's legal 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 (pro rated to the last day of such period) which would have been payable with respect to such period but for such death or termination. - 10 - 11 (b) RETIREMENT. (i) The Term of Employment shall end automatically, without action by either party, on Executive's 65th birthday unless, prior to such birthday, Executive and the Company have agreed in writing that the Term of Employment shall continue past such 65th birthday. In that event, unless the parties have agreed otherwise, the Term of Employment shall be automatically renewed and extended each year, as of Executive's birthday, for an additional one-year term, unless either party has given a Non-Renewal Notice. A Non-Renewal Notice shall be effective as of Executive's ensuing birthday only if given not less than 60 days before such birthday, and shall state that the party giving such notice elects that this Agreement shall not automatically renew itself further, with the result that the Term of Employment shall end on Executive's ensuing birthday. (ii) If the Term of Employment ends pursuant to this paragraph by reason of a notice given by either party as herein permitted or automatically at age 65 or any subsequent birthday, the Company shall pay to Executive, or to another payee specified by Executive to the Company in writing, Executive's Base Salary and Bonus Compensation prorated to the date on which the Term of Employment ends. (iii) Anything hereinabove to the contrary notwithstanding, if any provision of this paragraph violates federal or applicable state law relating to discrimination on account of age, such - 11 - 12 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 even 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 on 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 Paragraph 12 of the Company's Restated Certificate of Incorporation dated November 23, 1993 and filed by the New York Department of State on December 7, 1993. Section 5. Covenant Not to Compete For a period of eighteen months after the end of the Term of Employment if the Term of Employment is terminated by notice to the Company given by Executive under Section 1 or Section 4 hereof, or for a period of twelve months after the end of the Term of Employment if the Term of Employment is - 12 - 13 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. 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, - 13 - 14 shall be disclosed to the Company and shall be the sole and exclusive property of the Company. If the Company deems that any of such intangible rights are patentable or otherwise registrable under any federal, state or foreign law, Executive, at the expense of the Company, shall execute all documents and do all things necessary or proper to obtain patents and/or registrations and to vest the Company with full title thereto. Section 8. Trade Secrets and Confidential Information Executive shall not, either directly or indirectly, except as required in the course of his employment by the Company, disclose or use at any time, whether during or subsequent to the Term of Employment, any information of a proprietary nature owned by the Company, including but not limited to, records, data, formulae, documents, specifications, inventions, processes, methods and intangible rights which are acquired by him in the performance of his duties for the Company and which are of a confidential information or trade-secret nature. All records, files, drawings, documents, equipment and the like, relating to the Company's business, which Executive shall prepare, use, construct or observe, shall be and remain the Company's sole property. Upon the termination of his employment or at any time prior thereto upon request by the Company, Executive shall return to the possession of the Company any materials - 14 - 15 or copies thereof involving any confidential information or trade secrets and shall not take any material or copies thereof from the possession of the Company. Section 9. Mergers and Consolidations; Assignability In the event that the Company, or any entity resulting from any merger or consolidation referred to in this Section 9 or which shall be a purchaser or transferee so referred to, shall at any time be merged or consolidated into or with any other entity or entities, or in the event that substantially all of the assets of the Company or any such entity shall be sold or otherwise transferred to another entity, the provisions of this Agreement shall be binding upon and shall inure to the benefit of the continuing entity in or the entity resulting from such merger or consolidation or the entity to which such assets shall be sold or transferred. Except as provided in the immediately preceding sentence of this Section 9, this Agreement shall not be assignable by the Company or by any entity referred to in such immediately preceding sentence. This Agreement shall not be assignable by Executive, but in the event of his death it shall be binding upon and inure to the benefit of his legal representatives to the extent required to effectuate the terms hereof. - 15 - 16 Section 10. Captions The captions in this Agreement are not part of the provisions hereof, are merely for the purpose of reference and shall have no force or effect for any purpose whatsoever, including the construction of the provisions of this Agreement, and if any caption is inconsistent with any provisions of this Agreement, said provisions shall govern. Section 11. Choice of Law This Agreement is made in, and shall be governed by and construed in accordance with the laws of, the State of New York. Section 12. Entire Contract This instrument contains the entire agreement of the parties on the subject matter hereof except that the rights of the Company hereunder shall be deemed to be in addition to and not in substitution for its rights under the Company's standard printed form of "Employee's Secrecy and Invention Agreement" or "Employee Agreement" if heretofore or hereafter entered into between the parties hereto so that the making of this Agreement shall not be construed as depriving the Company of any of its rights or remedies under any such Secrecy and Invention Agreement or Employee Agreement. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of - 16 - 17 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 any such other address or to such designee of which Executive shall have given notice to the Company in the manner herein provided. Each such notice shall be deemed to be given on the date of mailing thereof or, if delivered personally, on the date so delivered. Section 14. Termination of Any Prior Employment Agreement The Employment Agreement in effect between the Company and Executive at the time of the making of this Agreement is hereby terminated by mutual consent effective as of the Term Commencement Date and is superseded and replaced - 17 - 18 by this Agreement effective as of the Term Commencement Date. Executive shall be entitled to receive Bonus Compensation for the Company's fiscal year ending July 30, 1994 in accordance with the terms of said prior Employment Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By /s/ ERIC KRASNOFF --------------------------------- Eric Krasnoff, Chairman and Chief Executive Officer /s/ JEREMY HAYWARD-SURRY --------------------------------- Jeremy Hayward-Surry - 18 - EX-10.13 7 EMPLOYMENT AGREEMENT DATED 8/1/94 WITH PETER COPE 1 Exhibit 10.13 [Elected Vice President Form] EMPLOYMENT AGREEMENT AGREEMENT made as of August 1, 1994 between PALL CORPORATION, a New York corporation (the "Company") and Peter Cope ("Executive"). WHEREAS, the parties desire to terminate, as of July 31, 1994, 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, 1994, 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, 1994 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. Section 2. Duties 2 (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 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 - 2 - 3 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 1, 1994 and ending at the end of the Term of Employment, the Company shall pay to Executive base compensation (in addition to the compensation provided for elsewhere in this Agreement) at such rate as the Board of Directors may determine (the amount so determined by the Board being herein called the "Base Salary") but at not less than the rate of $136,800 per annum (hereinafter called the "Original Base Salary") adjusted for each Contract Year (as hereinafter defined) beginning with the Contract Year which - 3 - 4 starts August 1, 1995, 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, 1995, 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 1994. The term "Consumer Price Index" as herein used means the "Consumer Price Index for all Urban Consumers" compiled and published by the Bureau of Labor Statistics of the United States Department of Labor for "New York - Northern New Jersey - Long Island, NY-NJ-CT". To illustrate the operation of the foregoing provisions of this Section 3(a): Executive's Base Salary for the Contract Year August 1, 1995 through July 31, 1996 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 1995 over (or below) said Index for June 1994. 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 1994 as the base except as - 4 - 5 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, l994) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the resolution fixing such higher Base Salary provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (1) the amount of the higher Base Salary so fixed shall be deemed substituted for the Original Base Salary wherever the Original Base Salary is referred to in the immediately preceding paragraph hereof, and (ii) the base month for determining the Consumer Price Index adjustment shall be June of the calendar year in which the Contract Year to which such higher Base Salary is applicable begins (e.g., if the Board fixes a Base Salary for the Contract Year beginning August 1, 1995 which is higher than the Minimum Base Salary, then June 1995 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). - 5 - 6 (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 29, 1995, Executive shall be entitled to a bonus (in addition to his Base Salary) in such amount and computed in such manner as shall be determined by the Board of Directors but in no event shall the bonus payable to Executive under this Section 3(b) be less than an amount computed by applying to the fiscal year in question the following bonus formula: "Bonus Compensation" means the amount, if any, payable to Executive under this Section 3(b). "Average Equity" means the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Company as of the end of the fiscal year with respect to which Bonus Compensation is being computed hereunder and as of the end of the immediately preceding fiscal year (e.g., "Average Equity" to be used in computing Bonus Compensation for the fiscal year ending July 29, 1995 will be the average of stockholders' equity as of July 30, 1994 and July 29, 1995) 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 - 6 - 7 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 1995, "Zero Bonus Percentage" shall mean a Return on Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on Equity of l9.0%. For fiscal years after fiscal 1995, the Company shall determine the Zero Bonus Percentage and the Maximum Bonus Percentage consistent with expected results based upon the Company's normal projection procedures, or based on sound statistical or trend data, and the determination by the Company of such percentages shall be conclusive and binding on Executive. If Return on Equity for the fiscal year in question is the Zero Bonus Percentage or less, no Bonus Compensation shall be payable. If Return on Equity equals or exceeds the Maximum Bonus Percentage, the Bonus Compensation payable to Executive shall be 70% of his Base Salary. If Return on Equity is more than the Zero Bonus Percentage and less than the Maximum Bonus Percentage, the Bonus Compensation shall be - 7 - 8 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 1995 is 15.75% (the midpoint between 12.5% and 19.0%) 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: (i) 50% of the estimated amount thereof in July of the fiscal year with respect to which the Bonus Compensation is payable (e.g., 50% in July 1995 with respect to Bonus Compensation for the fiscal year ending July 29, 1995), based on the then current projections of Return on Equity, and (ii) the balance thereof not later than January 15th next following the end of the fiscal year with respect to which the Bonus Compensation is payable. With respect to any fiscal year of the Company which falls in part but not in whole within the Term of Employment, the Bonus Compensation to which Executive is entitled under this Section 3(b) shall be prorated on the basis of the number of days of such fiscal year falling within the Term of Employment except that if the Term of Employment ends - 8 - 9 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. 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 - 9 - 10 (a) Disability or Death. If, during the Term of Employment, Executive, by reason of physical or mental disability, is incapable of performing his principal duties hereunder for an aggregate of 130 working days out of any period of twelve consecutive months, the Company at its option may terminate the Term of Employment effective immediately by notice to Executive given within 90 days after the end of such twelve-month period. If Executive shall die during the Term of Employment or if the Company terminates the Term of Employment pursuant to the immediately preceding sentence by reason of Executive's disability, the Company shall pay to Executive, or to Executive's legal 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 - 10 - 11 would have been payable with respect to such period but for such death or termination. (b) Retirement. (i) The Term of Employment shall end automatically, without action by either party, on Executive's 65th birthday unless, prior to such birthday, Executive and the Company have agreed in writing that the Term of Employment shall continue past such 65th birthday. In that event, unless the parties have agreed otherwise, the Term of Employment shall be automatically renewed and extended each year, as of Executive's birthday, for an additional one-year term, unless either party has given a Non-Renewal Notice. A Non-Renewal Notice shall be effective as of Executive's ensuing birthday only if given not less than 60 days before such birthday, and shall state that the party giving such 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 - 11 - 12 provision of this paragraph violates federal or applicable state law relating to discrimination on account of age, such provision shall be deemed modified or suspended to the extent necessary to eliminate such violation of law. If at a later date, by reason of changed circumstances or otherwise, the enforcement of such provision as 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 January 14, 1982 and filed by the New York Department of State on January 19, 1982. 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 - 12 - 13 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. Section 7. Inventions and Patents All inventions, ideas, concepts, processes, discoveries, improvements and trademarks (hereinafter collectively referred to as intangible rights), whether - 13 - 14 patentable or registrable or not, which are conceived, made, invented or suggested either by Executive alone or by Executive in collaboration with others during the Term of Employment, and whether or not during regular working hours, shall be disclosed to the Company and shall be the sole and exclusive property of the Company. If the Company deems that any of such intangible rights are patentable or otherwise registrable under any federal, state or foreign law, Executive, at the expense of the Company, shall execute all documents and do all things necessary or proper to obtain patents and/or registrations and to vest the Company with full title thereto. Section 8. Trade Secrets and Confidential Information Executive shall not, either directly or indirectly, except as required in the course of his employment by the Company, disclose or use at any time, whether during or subsequent to the Term of Employment, any information of a proprietary nature owned by the Company, including but not limited to, records, data, formulae, documents, specifications, inventions, processes, methods and intangible rights which are acquired by him in the performance of his duties for the Company and which are of a confidential information or trade-secret nature. All records, files, drawings, documents, equipment and the like, relating to the Company's business, which Executive shall prepare, use, - 14 - 15 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 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 - 15 - 16 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 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 - 16 - 17 in writing signed by the party against om 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 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 - 17 - 18 by mutual consent effective July 31, 1994 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 ----------------------------------- Chairman and CEO ----------------------------------- Executive - 18 - EX-10.14 8 EMPLOYMENT AGREEMENT DATED 8/1/94 W. R. SIMKINS 1 Exhibit 10.14 [Elected Vice President Form] EMPLOYMENT AGREEMENT AGREEMENT made as of August 1, 1994 between PALL CORPORATION, a New York corporation (the "Company") and Robert Simkins ("Executive"). WHEREAS, the parties desire to terminate, as of July 31, 1994, 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, 1994, 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, 1994 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. Section 2. Duties 2 (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 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 - 2 - 3 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 1, 1994 and ending at the end of the Term of Employment, the Company shall pay to Executive base compensation (in addition to the compensation provided for elsewhere in this Agreement) at such rate as the Board of Directors may determine (the amount so determined by the Board being herein called the "Base Salary") but at not less than the rate of $142,300 per annum (hereinafter called the "Original Base Salary") adjusted for each Contract Year (as hereinafter defined) beginning with the Contract Year which - 3 - 4 starts August 1, 1995, 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, 1995, 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 1994. The term "Consumer Price Index" as herein used means the "Consumer Price Index for all Urban Consumers" compiled and published by the Bureau of Labor Statistics of the United States Department of Labor for "New York - Northern New Jersey - Long Island, NY-NJ-CT". To illustrate the operation of the foregoing provisions of this Section 3(a): Executive's Base Salary for the Contract Year August 1, 1995 through July 31, 1996 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 1995 over (or below) said Index for June 1994. 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 1994 as the base except as - 4 - 5 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, l994) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the resolution fixing such higher Base Salary provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (1) the amount of the higher Base Salary so fixed shall be deemed substituted for the Original Base Salary wherever the Original Base Salary is referred to in the immediately preceding paragraph hereof, and (ii) the base month for determining the Consumer Price Index adjustment shall be June of the calendar year in which the Contract Year to which such higher Base Salary is applicable begins (e.g., if the Board fixes a Base Salary for the Contract Year beginning August 1, 1995 which is higher than the Minimum Base Salary, then June 1995 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). - 5 - 6 (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 29, 1995, Executive shall be entitled to a bonus (in addition to his Base Salary) in such amount and computed in such manner as shall be determined by the Board of Directors but in no event shall the bonus payable to Executive under this Section 3(b) be less than an amount computed by applying to the fiscal year in question the following bonus formula: "Bonus Compensation" means the amount, if any, payable to Executive under this Section 3(b). "Average Equity" means the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Company as of the end of the fiscal year with respect to which Bonus Compensation is being computed hereunder and as of the end of the immediately preceding fiscal year (e.g., "Average Equity" to be used in computing Bonus Compensation for the fiscal year ending July 29, 1995 will be the average of stockholders' equity as of July 30, 1994 and July 29, 1995) 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 - 6 - 7 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 1995, "Zero Bonus Percentage" shall mean a Return on Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on Equity of l9.0%. For fiscal years after fiscal 1995, the Company shall determine the Zero Bonus Percentage and the Maximum Bonus Percentage consistent with expected results based upon the Company's normal projection procedures, or based on sound statistical or trend data, and the determination by the Company of such percentages shall be conclusive and binding on Executive. If Return on Equity for the fiscal year in question is the Zero Bonus Percentage or less, no Bonus Compensation shall be payable. If Return on Equity equals or exceeds the Maximum Bonus Percentage, the Bonus Compensation payable to Executive shall be 70% of his Base Salary. If Return on Equity is more than the Zero Bonus Percentage and less than the Maximum Bonus Percentage, the Bonus Compensation shall be - 7 - 8 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 1995 is 15.75% (the midpoint between 12.5% and 19.0%) 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: (i) 50% of the estimated amount thereof in July of the fiscal year with respect to which the Bonus Compensation is payable (e.g., 50% in July 1995 with respect to Bonus Compensation for the fiscal year ending July 29, 1995), based on the then current projections of Return on Equity, and (ii) the balance thereof not later than January 15th next following the end of the fiscal year with respect to which the Bonus Compensation is payable. With respect to any fiscal year of the Company which falls in part but not in whole within the Term of Employment, the Bonus Compensation to which Executive is entitled under this Section 3(b) shall be prorated on the basis of the number of days of such fiscal year falling within the Term of Employment except that if the Term of Employment ends - 8 - 9 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. 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 - 9 - 10 (a) Disability or Death. If, during the Term of Employment, Executive, by reason of physical or mental disability, is incapable of performing his principal duties hereunder for an aggregate of 130 working days out of any period of twelve consecutive months, the Company at its option may terminate the Term of Employment effective immediately by notice to Executive given within 90 days after the end of such twelve-month period. If Executive shall die during the Term of Employment or if the Company terminates the Term of Employment pursuant to the immediately preceding sentence by reason of Executive's disability, the Company shall pay to Executive, or to Executive's legal 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 - 10 - 11 would have been payable with respect to such period but for such death or termination. (b) Retirement. (i) The Term of Employment shall end automatically, without action by either party, on Executive's 65th birthday unless, prior to such birthday, Executive and the Company have agreed in writing that the Term of Employment shall continue past such 65th birthday. In that event, unless the parties have agreed otherwise, the Term of Employment shall be automatically renewed and extended each year, as of Executive's birthday, for an additional one-year term, unless either party has given a Non-Renewal Notice. A Non-Renewal Notice shall be effective as of Executive's ensuing birthday only if given not less than 60 days before such birthday, and shall state that the party giving such 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 - 11 - 12 provision of this paragraph violates federal or applicable state law relating to discrimination on account of age, such provision shall be deemed modified or suspended to the extent necessary to eliminate such violation of law. If at a later date, by reason of changed circumstances or otherwise, the enforcement of such provision as 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 January 14, 1982 and filed by the New York Department of State on January 19, 1982. 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 - 12 - 13 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. Section 7. Inventions and Patents All inventions, ideas, concepts, processes, discoveries, improvements and trademarks (hereinafter collectively referred to as intangible rights), whether - 13 - 14 patentable or registrable or not, which are conceived, made, invented or suggested either by Executive alone or by Executive in collaboration with others during the Term of Employment, and whether or not during regular working hours, shall be disclosed to the Company and shall be the sole and exclusive property of the Company. If the Company deems that any of such intangible rights are patentable or otherwise registrable under any federal, state or foreign law, Executive, at the expense of the Company, shall execute all documents and do all things necessary or proper to obtain patents and/or registrations and to vest the Company with full title thereto. Section 8. Trade Secrets and Confidential Information Executive shall not, either directly or indirectly, except as required in the course of his employment by the Company, disclose or use at any time, whether during or subsequent to the Term of Employment, any information of a proprietary nature owned by the Company, including but not limited to, records, data, formulae, documents, specifications, inventions, processes, methods and intangible rights which are acquired by him in the performance of his duties for the Company and which are of a confidential information or trade-secret nature. All records, files, drawings, documents, equipment and the like, relating to the Company's business, which Executive shall prepare, use, - 14 - 15 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 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 - 15 - 16 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 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 - 16 - 17 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 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 - 17 - 18 by mutual consent effective July 31, 1994 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 ------------------------------------ Chairman and CEO ------------------------------------ Executive - 18 - EX-10.17 9 EMPLOYMENT AGREEMENT DATED 9/26/94 W. D.B.STEVENS 1 Exhibit 10.17 [Elected Vice President Form] EMPLOYMENT AGREEMENT AGREEMENT made as of September 26, 1994 between PALL CORPORATION, a New York corporation (the "Company") and Donald B. Stevens ("Executive"). WHEREAS, the parties desire to terminate, as of September 25, 1994, 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 September 26, 1994, 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 September 26, 1994 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. Section 2. Duties 2 (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 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 - 2 - 3 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 September 26, 1994 and ending at the end of the Term of Employment, the Company shall pay to Executive base compensation (in addition to the compensation provided for elsewhere in this Agreement) at such rate as the Board of Directors may determine (the amount so determined by the Board being herein called the "Base Salary") but at not less than the rate of $136,000 per annum (hereinafter called the "Original Base Salary") adjusted for each Contract Year (as hereinafter defined) beginning with the Contract Year which - 3 - 4 starts August 1, 1995, 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, 1995, 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 1994. The term "Consumer Price Index" as herein used means the "Consumer Price Index for all Urban Consumers" compiled and published by the Bureau of Labor Statistics of the United States Department of Labor for "New York - Northern New Jersey - Long Island, NY-NJ-CT". To illustrate the operation of the foregoing provisions of this Section 3(a): Executive's Base Salary for the Contract Year August 1, 1995 through July 31, 1996 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 1995 over (or below) said Index for June 1994. 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 1994 as the base except as - 4 - 5 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, l994) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the resolution fixing such higher Base Salary provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (1) the amount of the higher Base Salary so fixed shall be deemed substituted for the Original Base Salary wherever the Original Base Salary is referred to in the immediately preceding paragraph hereof, and (ii) the base month for determining the Consumer Price Index adjustment shall be June of the calendar year in which the Contract Year to which such higher Base Salary is applicable begins (e.g., if the Board fixes a Base Salary for the Contract Year beginning August 1, 1995 which is higher than the Minimum Base Salary, then June 1995 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). - 5 - 6 (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 29, 1995, Executive shall be entitled to a bonus (in addition to his Base Salary) in such amount and computed in such manner as shall be determined by the Board of Directors but in no event shall the bonus payable to Executive under this Section 3(b) be less than an amount computed by applying to the fiscal year in question the following bonus formula: "Bonus Compensation" means the amount, if any, payable to Executive under this Section 3(b). "Average Equity" means the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Company as of the end of the fiscal year with respect to which Bonus Compensation is being computed hereunder and as of the end of the immediately preceding fiscal year (e.g., "Average Equity" to be used in computing Bonus Compensation for the fiscal year ending July 29, 1995 will be the average of stockholders' equity as of July 30, 1994 and July 29, 1995) 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 - 6 - 7 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 1995, "Zero Bonus Percentage" shall mean a Return on Equity of 12.5% and "Maximum Bonus Percentage" shall mean a Return on Equity of l9.0%. For fiscal years after fiscal 1995, the Company shall determine the Zero Bonus Percentage and the Maximum Bonus Percentage consistent with expected results based upon the Company's normal projection procedures, or based on sound statistical or trend data, and the determination by the Company of such percentages shall be conclusive and binding on Executive. If Return on Equity for the fiscal year in question is the Zero Bonus Percentage or less, no Bonus Compensation shall be payable. If Return on Equity equals or exceeds the Maximum Bonus Percentage, the Bonus Compensation payable to Executive shall be 70% of his Base Salary. If Return on Equity is more than the Zero Bonus Percentage and less than the Maximum Bonus Percentage, the Bonus Compensation shall be - 7 - 8 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 1995 is 15.75% (the midpoint between 12.5% and 19.0%) 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: (i) 50% of the estimated amount thereof in July of the fiscal year with respect to which the Bonus Compensation is payable (e.g., 50% in July 1995 with respect to Bonus Compensation for the fiscal year ending July 29, 1995), based on the then current projections of Return on Equity, and (ii) the balance thereof not later than January 15th next following the end of the fiscal year with respect to which the Bonus Compensation is payable. With respect to any fiscal year of the Company which falls in part but not in whole within the Term of Employment, the Bonus Compensation to which Executive is entitled under this Section 3(b) shall be prorated on the basis of the number of days of such fiscal year falling within the Term of Employment except that if the Term of Employment ends - 8 - 9 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. 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 - 9 - 10 (a) Disability or Death. If, during the Term of Employment, Executive, by reason of physical or mental disability, is incapable of performing his principal duties hereunder for an aggregate of 130 working days out of any period of twelve consecutive months, the Company at its option may terminate the Term of Employment effective immediately by notice to Executive given within 90 days after the end of such twelve-month period. If Executive shall die during the Term of Employment or if the Company terminates the Term of Employment pursuant to the immediately preceding sentence by reason of Executive's disability, the Company shall pay to Executive, or to Executive's legal 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 - 10 - 11 would have been payable with respect to such period but for such death or termination. (b) Retirement. (i) The Term of Employment shall end automatically, without action by either party, on Executive's 65th birthday unless, prior to such birthday, Executive and the Company have agreed in writing that the Term of Employment shall continue past such 65th birthday. In that event, unless the parties have agreed otherwise, the Term of Employment shall be automatically renewed and extended each year, as of Executive's birthday, for an additional one-year term, unless either party has given a Non-Renewal Notice. A Non-Renewal Notice shall be effective as of Executive's ensuing birthday only if given not less than 60 days before such birthday, and shall state that the party giving such 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 - 11 - 12 provision of this paragraph violates federal or applicable state law relating to discrimination on account of age, such provision shall be deemed modified or suspended to the extent necessary to eliminate such violation of law. If at a later date, by reason of changed circumstances or otherwise, the enforcement of such provision as 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 January 14, 1982 and filed by the New York Department of State on January 19, 1982. 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 - 12 - 13 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. Section 7. Inventions and Patents All inventions, ideas, concepts, processes, discoveries, improvements and trademarks (hereinafter collectively referred to as intangible rights), whether - 13 - 14 patentable or registrable or not, which are conceived, made, invented or suggested either by Executive alone or by Executive in collaboration with others during the Term of Employment, and whether or not during regular working hours, shall be disclosed to the Company and shall be the sole and exclusive property of the Company. If the Company deems that any of such intangible rights are patentable or otherwise registrable under any federal, state or foreign law, Executive, at the expense of the Company, shall execute all documents and do all things necessary or proper to obtain patents and/or registrations and to vest the Company with full title thereto. Section 8. Trade Secrets and Confidential Information Executive shall not, either directly or indirectly, except as required in the course of his employment by the Company, disclose or use at any time, whether during or subsequent to the Term of Employment, any information of a proprietary nature owned by the Company, including but not limited to, records, data, formulae, documents, specifications, inventions, processes, methods and intangible rights which are acquired by him in the performance of his duties for the Company and which are of a confidential information or trade-secret nature. All records, files, drawings, documents, equipment and the like, relating to the Company's business, which Executive shall prepare, use, - 14 - 15 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 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 - 15 - 16 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 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 - 16 - 17 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 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 - 17 - 18 by mutual consent effective July 31, 1994 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 ----------------------------------- Chairman and CEO ----------------------------------- Executive - 18 - EX-10.18 10 AGREEMENT DATED 4/1/94 WITH NICHOLAS NICKOLAUS 1 EXHIBIT 10.18 THIS AGREEMENT is made as of April 1, 1994 between PALL CORPORATION, a New York corporation (the "Company") and Nicholas Nickolaus ("Executive"). Recitals The parties hereto are parties to an Employment Agreement dated February 1, 1992 as supplemented by a Supplement to Employment Agreement also dated February 1, 1992 and as amended by Amendment to Employment Agreement dated July 19, 1993, (said Employment Agreement as so supplemented and amended being hereafter called the "Employment Agreement"). The parties desire to amend the Employment Agreement (i) to provide that the Term of Employment thereunder will end at the close of business on July 31, 1994 and (ii) in certain other respects hereinafter set forth. The parties further desire to enter into a Consulting Agreement, for a term beginning August 1, 1994, on the terms and conditions hereinafter set forth. Accordingly, the parties hereto hereby agrees as follows: Amendment of Employment Agreement (a) Section 1 of the Employment Agreement is amended to provide that the Term of Employment shall end at the close of business on July 31, 1994. (b) Executive's Bonus Compensation under Section 3(b) of the Employment Agreement for the fiscal year ending July 30, 1994 shall be paid in full not later than July 29, 1994 based on the best estimate then available as to the amount of such Bonus Compensation. At such time thereafter as the exact amount of such Bonus Compensation can be finally determined (i.e., when the Company's results for the fiscal year ending July 30, 1994 are known), to the extent that the amount paid in July 1994 pursuant to the preceding sentence was not the exact amount of such Bonus Compensation as finally determined, the Company shall pay to Executive, or Executive shall refund to the Company, the difference between the amount paid in July and the exact amount payable. For purposes of the Company's Supplementary Pension Plan, the amount of Bonus Compensation as finally determined shall be deemed part of Executive's "Compensation" for the "Plan Year" ending July 31, 1994 notwithstanding the payment of such Bonus Compensation or any part thereof after the end of said Plan Year. (c) After July 31, 1994 (the date on which the Term of Employment will end as hereinabove provided) the Employment Agreement shall be of no further force or effect except as provided in paragraph (b) hereof and except that Sections 5 through 13 thereof shall remain in full force and effect until the end of the term of the Consulting Agreement hereinafter provided for and said Sections 5 through 13 shall be deemed part of said Consulting Agreement as though set forth in full herein. The covenant not to compete set forth in Section 5 2 shall continue for a period of 18 months after the end of the term of the Consulting Agreement hereinafter provided for (i.e., until January 31, 1997) as further consideration for the compensation paid for the consulting services. Consulting Agreement -------------------- Beginning August 1, 1994 (by which date the Term of Employment under the Employment Agreement will have ended and Executive will have retired and ceased to be an employee of the Company), Executive shall serve as a consultant to the Company, as follows: (i) Executive shall make himself available for the performance of his consulting services, as requested by Eric Krasnoff or his designee, up to a maximum of 120 days during the term of this Consulting Agreement, which term shall end on July 31, 1995. Such services shall consist of marketing projects for the DMF, Microza and Pall-Sep VMF programs, as well as the preparation of the Company's 1994 and 1995 annual reports. (ii) The Company shall compensate Executive for his consulting services at the rate of $1,200 a day up to a maximum amount of $143,000. Executive shall submit a report to Eric Krasnoff or his designee for each calendar month indicating the days that he worked as a consultant and the amount due to him for consulting fees and expenses incurred; he shall be paid within one week after submitting such report. (iii) on the days on which Executive is performing consulting services hereunder on the Company's premises, suitable private office space and secretarial services shall be made available to him on the Company's premises. He shall also be entitled to expense reimbursement for the use of his private automobile on Company business including transportation to and from his home to the Company's premises, at the rate allowed by the Internal Revenue Service. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ ------------------------------------- President & Chief Operating Officer By: /s/ NICHOLAS NICKOLAUS ------------------------------------- Nicholas Nickolaus EX-10.19 11 AGREEMENT DATED 8/1/94 WITH JOSEPH CAMPOLONG 1 EXHIBIT 10.19 THIS AGREEMENT is made as of August 15, 1994 between PALL CORPORATION, a New York corporation (the "Company") and JOSEPH CAMPOLONG ("Executive"). Recitals The parties hereto are parties to an Employment Agreement dated February 1, 1992 as amended by Amendment to Employment Agreement dated July 19, 1993, (said Employment Agreement as so amended being hereafter called the "Employment Agreement"). Words and terms used herein with initial capital letters are used herein as defined in the Employment Agreement. The parties desire to amend the Employment Agreement (i) to provide that the Term of Employment thereunder will end at the close of business on September 30, 1994 and (ii) in certain other respects hereinafter set forth. The parties further desire to enter into a Consulting Agreement, for a term beginning October 1, 1994, on the terms and conditions hereinafter set forth. Accordingly, the parties hereto hereby agrees as follows: Amendment of Employment Agreement (a) Section 1 of the Employment Agreement is amended to provide that the Term of Employment shall end at the close of business on September 30, 1994. Executive shall be paid (i) his Bonus Compensation for the Contract Year ended July 31, 1994 in accordance with the terms of the Employment Agreement and (ii) his Base Salary and Bonus Compensation for the Contract Year ending July 31, 1995 (when the amount thereof is determinable) prorated to September 30, 1994. Executive shall turn in his company car on September 30, 1994. (b) After September 30, 1994 (the date on which the Term of Employment will end as hereinabove provided) the Employment Agreement shall be of no further force or effect except as provided in paragraph (a) hereof and except that Sections 5 through 13 thereof shall remain in full force and effect until the end of the term of the Consulting Agreement hereinafter provided for and said Sections 5 through 13 shall be deemed part of said Consulting Agreement as though set forth in full herein. The convenant not to compete set forth in Section 5 shall continue for a period of 18 months after the end of the term of the Consulting Agreement hereinafter provided for (i.e., until December 31, 1997) as further consideration for the compensation paid for the consulting services. Consulting Agreement Beginning October 1, 1994 (by which date the Term of Employment under the Employment Agreement will have ended and Executive will have retired and ceased to be an employee of the Company), Executive shall serve as a consultant to the Company, as follows: 2 (i) Executive shall make himself available for the performance of his consulting services, as requested by the Chief Executive Officer or Chief Operating Officer of the Company, up to a maximum of 50 days during the term of this Consulting Agreement, which term shall end on June 30, 1995. Such services shall relate to all aspects of the Company's business, including sales, marketing, engineering and manufacturing. Executive shall report to Derek Williams, the Chief Operating Officer of the Company. (ii) The Company shall compensative Executive for his agreement to make himself available for the performance of consulting services hereunder in the aggregate amount, for the nine-month term of this Consulting Agreement, determined by multiplying the total of Executive's Base Salary and Bonus Compensation for the Contract Year ended July 31, 1994 by 37.5%. Such aggregate compensation shall be paid in nine installments, each in the amount of 1/9th of the aggregate compensation, payable on the last day of each month during the term, beginning October 31, 1994. Such aggregate compensation shall be paid even if the number of days of consulting services in fact performed by Executive is less than 50 for any reason (including Executive's death or disability) other than his willful failure or refusal to perform such services on request. In addition, the family health care coverage heretofore provided to Executive under the Employment Agreement shall be continued to June 30, 1995, on the same basis on which such coverage is now in effect (including contribution to the cost thereof by Executive) but subject to any changes during the term which are applicable to the Company's officers generally. (iii) On the days on which Executive is performing consulting services hereunder on the Company's premises, suitable private office space and secretarial services shall be made available to him on the Company's premises. He shall also be entitled to expense reimbursement for the use of his private automobile on Company business including transportation to and from his home to the Company's premises, at the rate allowed by the Internal Revenue Service. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: -------------------------------- Title: President and Treasurer /s/ JOSEPH CAMPOLONG -------------------------------- Joseph Campolong EX-10.20 12 PALL CORP. SUPPLEMENTARY PROFIT-SHARING PLAN 1 Exhibit 10.20 PALL CORPORATION SUPPLEMENTARY PROFIT-SHARING PLAN As amended and restated September 19, 1994 EXHIBIT A 2 PALL CORPORATION SUPPLEMENTARY PROFIT-SHARING PLAN This document sets forth the Pall Corporation Supplementary Profit-Sharing Plan, as amended and restated September 19, 1994. The amendments reflected in this document are effective as of August 1, 1993. The rights and entitlement to a benefit under the Plan of any person who terminated employment with any Employer prior to the effective date of a particular amendment to the Plan shall be determined solely under the terms of the Plan as in effect on the date of such termination of employment, without regard to such amendment. SECTION 1. PURPOSE. The purpose of this Plan is to provide participants in the Pall Corporation Profit-Sharing Plan (the "Profit Sharing Plan") with benefits equivalent to those provided under the Profit Sharing Plan, with respect to that portion of their annual compensation which may not be taken into account under the Profit Sharing Plan because of the limitation on compensation contained in section 401(a)(17) of the Internal Revenue Code. 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"). SECTION 2. DEFINITIONS. When used herein, the following terms shall have the following meanings: (a) "Account" means the account established for a Participant hereunder. (b) "Board" means the Board of Directors of the Company. (c) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (d) "Committee" means the Committee appointed by the Board to administer the Plan. (e) "Company" means Pall Corporation, a New York corporation. (f) "Compensation" means "Compensation", as defined in the Profit Sharing Plan for purposes of Section 3.4 of the Profit Sharing Plan. 3 (g) "Corresponding PSP Plan Year" means, with respect to any Plan Year, the plan year of the Profit Sharing Plan that corresponds to such Plan Year. (h) "Corresponding Valuation Period" means, with respect to any Valuation Date, the period of time which starts on the day after the immediately preceding Valuation Date and ends on such Valuation Date. (i) "Employer" means the Company or any subsidiary of the Company that has adopted the Profit Sharing Plan. (j) "Employer Contribution" means "Employer Contribution", as defined in the Profit Sharing Plan. (k) "Employer Contribution Account" means the "Employer Contribution Account", as defined in the Profit Sharing Plan, maintained for a participant under the Profit Sharing Plan. (l) "Excess Compensation" means, for any Plan Year, the amount of a Participant's Compensation for the taxable year of the Employer which ends in such Plan Year that is in excess of the limitation on Compensation in effect for such Plan Year under section 401(a)(17) of the Code. It is provided, however, that for the Short Plan Year, "Excess Compensation" shall be the amount of a Participant's Compensation paid to the Participant during such Plan Year in excess of the limitation on Compensation in effect for such Plan Year under section 401(a)(17) of the Code. (m) "Participant" means any person (i) who, on or after August 1, 1993, is employed by an Employer and is a participant in the Profit Sharing Plan, and (ii) who has had Excess Compensation for any Plan Year beginning on or after August 1, 1993. (n) "Plan" means the Pall Corporation Supplementary Profit-Sharing Plan, as set forth herein and as amended from time to time. (o) "Plan Year" means, after July 31, 1993, the 5-consecutive month period beginning on August 1, 1993 and ending on December 31, 1993 (the "Short Plan Year"), and, thereafter, each calendar year. (p) "Profit Sharing Plan" means the Pall Corporation Profit-Sharing Plan, as amended from time to time. (q) "Termination of Service" means the termination of a Participant's employment with all Employers. -2- 4 (r) "Valuation Date" means (i) for the Short Plan Year, the last business day of October and December of such year and (ii) after December 31, 1993, the last business day of the third, sixth, ninth and twelfth months during a Plan Year. SECTION 3. SUPPLEMENTARY PROFIT SHARING BENEFIT. 3.1 The Benefit. As of the last day of each Plan Year beginning on or after August 1, 1993, each Participant's Account shall be credited with an amount equal to (a) the Participant's Excess Compensation for such year, multiplied by (b) a fraction, the numerator of which is the aggregate amount of Employer Contributions allocated to all Employer Contribution Accounts with respect to the Corresponding PSP Plan Year, and the denominator of which is the aggregate amount of Compensation taken into account in making such allocation. For the purpose of the preceding sentence, the aggregate amount of Employer Contributions so allocated shall be determined without regard to the reduction made from the Employer Contributions for amounts described in clause (b)(3) of the second paragraph of Section 3.4 of the Profit Sharing Plan. Notwithstanding the foregoing, no amount shall be allocated to the Account of a Participant for the Plan Year in which the Participant's Termination of Service occurs, unless the Participant is entitled to have a portion of the Employer Contributions made to the Profit Sharing Plan for the Corresponding PSP Plan Year allocated to his or her Profit Sharing Plan Account for such year. SECTION 4. ACCOUNTS, EARNINGS AND VESTING. 4.1. Accounts. The Committee shall establish and maintain, or cause to be established and maintained, a separate memorandum Account for each Participant. A Participant's Account shall be adjusted from time to time to reflect the amounts to be credited to such Account under Section 3.1, the amounts to be credited or charged to such Account under Section 4.2, and amounts distributed to the Participant or his or her Beneficiary under Section 5.1. 4.2. Earnings. As of each Valuation Date occurring after August 1, 1993, each Participant's Account shall be credited, or charged, with an amount determined by multiplying (a) the balance of such Account as of the immediately preceding Valuation Date, by (b) the Earnings Adjustment Factor for such Valuation Date. The Earnings Adjustment Factor for any Valuation Date shall be a fraction. The numerator of such fraction shall be the amount of the earnings or losses that would have resulted during the Corresponding Valuation Period for such Valuation Date -3- 5 if, on the first day of such period, an amount equal to the balance of the Participant's Employer Contribution Account as of the immediately preceding Valuation Date had been invested in the Fidelity Asset Manager fund. The denominator of such fraction shall be the balance of the Participant's Employer Contribution Account as of the immediately preceding Valuation Date. If the numerator of the Earnings Adjustment Factor for any Valuation Date is a negative amount, the adjustment to be made to the Participant's Account pursuant to this Section 4.2 as of such Valuation Date shall be a charge to such Account. In the case of any Participant who had a balance to his credit in his Account as of July 31, 1993, such date shall be treated as the Valuation Date immediately preceding the Valuation Date occurring in October of 1993, for purposes of determining the amount to be credited or charged to such Participant's Account under this Section 4.2 as of the October, 1993 Valuation Date. 4.3. Vesting. As of any date of reference or upon the occurrence of any event, a Participant shall have a vested interest in the same percentage of his or her Account as the vested percentage the Participant has in his or her Employer Contribution Account on such date or by reason of the occurrence of such event. Notwithstanding any other provision herein to the contrary, if a Participant does not have a 100% vested interest in his or her Account at the time of the Participant's Termination of Service (and does not acquire a 100% vested interest in his or her Account by reason of the circumstances of his or her Termination of Service), the nonvested portion of the Participant's Account shall be forfeited, and shall not be distributed to the Participant pursuant to Section 5. SECTION 5. PLAN DISTRIBUTIONS. 5.1 Distributions. A Participant's Account balance shall become distributable to the Participant or his or her Beneficiary, as the case may be, upon the Participant's Termination of Service, for any reason. Distribution shall be made in accordance with the following rules: (a) Commencement of Distributions. Distributions hereunder shall be made on the 60th day after the Valuation Date next following the Participant's Termination of Service. (b) Form and amount of Distributions. Distributions hereunder shall be made in the form of a single lump-sum payment, in an amount equal to the Participant's vested percentage of the balance of his or her Account as of the Valuation Date immed- -4- 6 iately preceding the date as of which the distribution is to be made. (c) Participant's Death. If the Participant dies prior to his or her Termination of Service, or following his or her Termination Service but prior to the distribution of his or her Account, the Participant's Account shall be distributed to the Participant's Beneficiary. The Participant's "Beneficiary" shall be the person(s) designated by the Participant to receive any amount distributable hereunder by reason of his or her death, as indicated in the last written designation of a Beneficiary filed by such Participant with the Committee prior to such Participant's death. If a Participant has failed to designate a Beneficiary, or if no Beneficiary designated by the Participant survives to receive any amount distributable hereunder upon the Participant's death, the following will be deemed to be such Participant's Beneficiary with priority in the order named: (1) his or her spouse; and (2) his or her estate. SECTION 6. SOURCE OF PAYMENT. All payments to be made hereunder shall be paid from the general assets of the Company, and no special or separate fund shall be established and no segregation of assets shall be made to assure such payments. Nothing contained in the Plan, and no action taken pursuant to the provisions of the Plan, shall create or be construed to create a trust of any kind, or as creating in any Participant or Beneficiary any right, title or beneficial ownership interest in or to any assets of the Company. The Plan constitutes a mere promise by the Company to make benefit payments in the future. It is the intention of the Company that the Plan be treated as unfunded for Federal income tax purposes and for purposes of Title I of ERISA. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. Notwithstanding the foregoing, the Company may establish a bookkeeping reserve to reflect its obligations hereunder, or may establish a "grantor" trust, within the meaning of sections 671 through 679 of the Code, to assist it in making the payments provided for hereunder; provided, however, that any bookkeeping reserve, and the assets of any trust, so established shall not be deemed to constitute assets of this Plan, and the assets of any trust so established shall at all times prior to payment to Participants or their beneficiaries remain a part of the general assets of the Company and subject to the claims of the Company's general creditors. SECTION 7. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee, which shall have full -5- 7 power and authority to interpret and construe the Plan, to make all determinations considered necessary or advisable for the administration of the Plan and the calculation of the amounts creditable and payable thereunder, and to review claims for benefits under the Plan. The Committee's interpretations and constructions of the Plan and its decisions or actions thereunder shall be binding and conclusive on all persons for all purposes. No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his or her behalf in his or her capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer, or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. SECTION 8. AMENDMENT AND TERMINATION. The Plan may be amended, suspended or terminated, in whole or in part, by the Board without the consent of any Participant or any other person. The Committee may adopt any amendment that may be necessary or appropriate to facilitate the administration, management and interpretation of the Plan or to conform the Plan thereto, provided any such amendment does not have a material effect on the currently estimated cost to the Company of maintaining the Plan. No such amendment, suspension or termination shall retroactively impair or otherwise adversely affect the rights of any Participant or other person to benefits under the Plan that have accrued prior to the date of such action as determined by the Committee in its sole discretion. SECTION 9. GENERAL PROVISIONS. The following additional provisions shall be applicable with respect to the Plan. (a) The Plan shall be binding upon and inure to the benefit of the Company and its successors and assigns, and Participants, beneficiaries, and their estates. The Plan shall also be binding upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company, but nothing in the Plan shall preclude the Company from merging or consolidating into or with, or transferring all or substantially all of its assets to, another corporation or organization that assumes the Plan and all obligations of the Company hereunder. The Company agrees that it will make appropriate provision for the preservation of Participants' rights under the Plan in any agreement or plan that it may enter into to -6- 8 effect any merger, consolidation, reorganization or transfer of assets. Upon such a merger, consolidation, reorganization or transfer of assets and assumption, the term "Company" shall refer to such other corporation or organization and the Plan shall continue in full force and effect. (b) Neither the Plan nor any action taken hereunder shall be construed as giving to any Participant the right to be retained in the employ of any Employer or as affecting the right of any Employer to dismiss any Participant. (c) The Company shall withhold from all amounts otherwise payable under the Plan all Federal, state, local or other taxes required pursuant to law to be withheld with respect to such payments. (d) The rights or interests of any Participant under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Participant's creditors or beneficiary. (e) The Plan shall be governed by the laws of the State of New York from time to time in effect. -7- EX-10.22 13 PALL CORP. PROFIT-SHARING PLAN AS OF 9/19/94 1 Exhibit 10.22 PALL CORPORATION PROFIT-SHARING PLAN ---------------------------------- as amended and restated September 19, 1994 EXHIBIT A 2 TABLE OF CONTENTS
Page ---- ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1. "Accounts" or "Plan Accounts" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. "Beneficiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3. "Break in Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4. "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5. "Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6. "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.7. "Compensation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.8. "Disabled" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.9. "Earnings" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.10. "Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.11. "Employer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.12. "Employer Contribution Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.13. "Employer Contributions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.14. "Employment Commencement Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.15. "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.16. "401(k) Contribution Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.17. "401(k) Contributions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.18. "Highly Compensated Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.19. "Hours of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.20. "Member" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.21. "Mutual Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.22. "Normal Retirement Age" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.23. "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.24. "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.25. "Reemployment Commencement Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.26. "Rollover Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.27. "Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.28. "Termination of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.29. "Trust" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.30. "Trust Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.31. "Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.32. "Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.33. "Vested Portion" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.34. "Voluntary Contribution Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.35. "Voluntary Contributions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.36. "Years of Service" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 2 - PURPOSE, ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.3. Commencement of Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.4. Membership After Reemployment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE 3 - CONTRIBUTIONS AND ROLLOVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.1. 401(k) Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.2. Voluntary Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.3. Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-i- 3 3.4. Employer Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.5. Time and Manner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.6. Rollovers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE 4 - LIMITATIONS ON CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.1. Dollar Limit for 401(k) Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.2. Nondiscrimination Test for 401(k) Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.3. Nondiscrimination Test for Voluntary Contri- butions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.4. Special Rules for Nondiscrimination Tests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.5. Deduction Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.6. Section 415 Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.7. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.8. Corrective Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 5 - PLAN ACCOUNTS, ALLOCATIONS AND FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.1. Plan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.2. Forfeitures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 6 - INVESTMENTS AND EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.1. Investment of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.2. Investment Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 6.3. Determination of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.4. Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 7 - DISTRIBUTIONS, WITHDRAWALS AND LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 7.1. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 7.2. Hardship Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7.3. In-Service Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.4. Direct Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.5. Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE 8 - PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8.1. Responsibility for Administering the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8.2. Responsibilities of the Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8.3. Duties and Powers of the Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 8.4. Reimbursement and Indemnification of the Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 8.5. Responsibilities of the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 8.6. Responsibilities of the Company's Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 8.7. Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 8.8. Agent for Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 8.9. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 9 - AMENDMENT, MERGER AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.2. Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.3. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.4. Termination of An Employer's Participation in the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-ii- 4 ARTICLE 10 - TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 10.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 10.2. Minimum Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 10.3. Minimum Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 10.4. Maximum Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.5. Section 415 Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.6. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 10.7. Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 11 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 11.1. Plan Assets to be Held for Exclusive Benefit of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 11.2. Nonassignability of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 11.3. Qualified Domestic Relations Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 11.4. Trust Fund as Sole Source of Benefit Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 11.5. Right to Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 11.6. Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 11.7. Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-iii- 5 PALL CORPORATION PROFIT-SHARING PLAN Foreword This document sets forth the Pall Corporation Profit-Sharing Plan, as amended and restated September 19, 1994. The amendments to the Plan reflected in this document are effective as of August 1, 1993, except as otherwise indicated in the text of the Plan. The Plan was previously amended and restated August 1, 1993 (the "Prior Document"). The amendments to the top-heavy provisions of the Plan reflected in Article 10 of the Prior Document are effective as of August 1, 1985. The amendment to the definition of "Code" reflected in Section 1.4 of the Prior Document, and the amendment adding a definition of "Highly Compensated Employees" to the Plan reflected in Section 1.18 of the Prior Document, are effective as of August 1, 1987. The amendments to the provisions setting forth the limitations of Section 415 of the Code reflected in Section 4.6 of the Prior Document are effective as of August 1, 1987. The amendments relating to the limitations on Voluntary Contributions, and the amendments which add to the Plan procedures to ensure compliance with such limitations, reflected in Sections 4.3, 4.4, 4.7 and 4.8 of the Prior Document are effective as of August 1, 1987. The amendment to the definition of the "Normal Retirement Age" reflected in Section 1.22 of the Prior Document is effective as of August 1, 1988, with respect to any Employee who earns at least one Hour of Service on or after that date. The amendment which requires that a Member be furnished with a notice describing his right to defer a distribution reflected in Section 7.1(d)(2) of the Prior Document is effective as of August 1, 1988. The amendments which eliminate the Committee's discretion as to the form and timing of distributions reflected in Article 7 of the Prior Document are effective as of August 1, 1989. Each of the other amendments to the Plan reflected in the Prior Document is effective as of August 1, 1993, except as otherwise indicated in the text of the Plan. The rights under the Plan of any person who retired or otherwise terminated employment with his or her employer before the effective date of a particular amendment shall be determined solely under the terms of the Plan as in effect on the date of his or her retirement or other termination of employment, without regard to such amendment. -iv- 6 ARTICLE 1 - DEFINITIONS As used herein, the following terms shall have the following meanings, unless a different meaning is required by the context: 1.1. "Accounts" or "Plan Accounts" - shall mean the separate accounts established and maintained for a Member pursuant to Section 5.1. 1.2. "Beneficiary" - shall mean the person or persons designated by a Member to receive any amount distributable under Section 7.1 by reason of his death, as indicated in the last written designation of a Beneficiary filed by such Member with the Committee, on a form furnished by the Committee for such purpose, prior to such Member's death. Notwithstanding the foregoing, if a Member who was married at the date of his death, and who had been married to his spouse throughout the one-year period ending on the date of his death, had designated any person other than such spouse as his Beneficiary, such Member shall be deemed to have failed to designate a Beneficiary unless such spouse consents to the designation of such non-spouse Beneficiary. Said spousal consent shall be made in writing, shall specifically identify the person designated as the Member's Beneficiary, and shall acknowledge the effect of the spouse's consent to such designation on her rights to benefits under the Plan. Further, such consent shall be signed by the spouse, witnessed by a notary public and filed with the Committee. The consent of a spouse to any designation of a non-spouse Beneficiary shall be irrevocable as to such designation, and shall be effective only with respect to that spouse. However, the consent of a Member's spouse to the Member's designation of a non-spouse Beneficiary shall not be required if it is established to the satisfaction of the Committee that such consent cannot be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as may be prescribed in the applicable Treasury regulations or in rulings or notices issued by the Internal Revenue Service. If a Member has failed (or is deemed above to have failed) to designate a Beneficiary, or if no Beneficiary designated by him survives to receive any amount distributable hereunder upon the Member's death, the following person or persons will be deemed to be such Member's Beneficiary with priority in the order named: (a) his spouse; and (b) his estate. 1.3. "Break in Service" - shall mean a period consisting of one or more consecutive Plan Years during each of which an Employee has not completed more than 500 Hours of Service. A "5-Year Break in Service" shall mean a Break in Service which includes five or more consecutive Plan Years 7 during each of which the Employee has not completed more than 500 Hours of Service. 1.4. "Code" - shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.5. "Committee" - shall mean the committee established by the Board of Directors of the Company under Section 8.6(b) to control and manage the operation and administration of the Plan. 1.6. "Company" - shall mean Pall Corporation. 1.7. "Compensation" - For any Plan Year beginning after July 31, 1993, an Employee's Compensation shall mean the sum, for the Plan Year, of (a) the amount of the Employee's gross income reported on Form W-2 by the Employer and (b) the 401(k) Contributions made on behalf of the Employee by the Employer, and the amounts contributed by the Employer, at the Employee's election, on behalf of the Employee to a "cafeteria plan", within the meaning of Section 125 of the Code. Provided, however, that for purposes of Section 4.6(a)(2), for any such Plan Year, Compensation shall be defined as under the preceding sentence except that amounts described in clause (b) thereof shall not be included in Compensation. Provided further, however, that for purposes of Section 3.4, for any such Plan Year beginning after December 31, 1993, an Employee's Compensation shall mean the sum of the base pay, prior to reduction for the amounts described in clause (b) above, bonuses and overtime pay paid by the Employer to the Employee during the taxable year of the Employer which ends in such Plan Year. For the Plan Year ending December 31, 1993, for purposes of Section 3.4, an Employee's Compensation shall mean the sum described in the preceding sentence paid by the Employer to the Employee during such Plan Year. For any Plan Year beginning before August 1, 1993, an Employee's Compensation shall mean the amount paid by the Employer to the Employee during such Plan Year, without reduction for amounts contributed by the Employer on the Employee's behalf to a cafeteria plan (as defined above), including overtime pay and bonuses but excluding the value of stock options and contributions by the Employer to any employee benefit plan other than a cafeteria plan. Provided, however, that for the purposes of Sections 1.18, 4.3 and 4.6(a)(2), for Plan Years beginning before August 1, 1993, Compensation shall be defined as under Section 415(c)(3) of the Code, as in effect for such periods, modified, when determining Compensation for purposes of Section 1.18, as required by Section 414(q)(7) of the Code. For any Plan Year, the amount of Compensation taken into account under the Plan for any Employee shall not exceed -2- 8 the limitation on such amount imposed by Section 401(a)(17) of the Code in effect for such Plan Year, determined in accordance with the applicable Treasury regulations. In determining the Compensation of an Employee for purposes of the Section 401(a)(17) limitation, the rules of Section 414(q)(6) of the Code shall apply, except in applying such rules, the term "family" shall include only the spouse of the Employee and any lineal descendants of the Employee who have not attained age 19 before the close of the Plan Year. If, as a result of the application of such rules, the Section 401(a)(17) limitation is exceeded, then such limitation shall be prorated among each affected individual's Compensation in proportion to such individual's Compensation determined under this Section 1.7 prior to the application of such limitation. 1.8. "Disabled" - The term "Disabled" shall have the meaning assigned to it under Section 72(m)(7) of the Code. 1.9. "Earnings" - shall mean the Earnings attributable to the investment of a Member's 401(k) Contribution Account, Voluntary Contribution Account, Employer Contribution Account or Rollover Account, as determined under Section 6.3 hereof. 1.10. "Employee" - shall mean an individual who is employed as a common law employee by the Employer. The term "Employee" shall not include any individual who is a "leased employee" within the meaning of Section 414(n)(2) of the Code. 1.11. "Employer" - shall mean the Company or any other entity described in Section 1.19(e)(2), (3) or (4) which has adopted this Plan. 1.12. "Employer Contribution Account" - shall mean the separate account established and maintained for a Member under Section 5.1 to hold Employer Contributions and the Earnings thereon. 1.13. "Employer Contributions" - shall mean the contributions described in Section 3.4. 1.14. "Employment Commencement Date" - shall mean the date on which an Employee first performs an Hour of Service. 1.15. "ERISA" - shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.16. "401(k) Contribution Account" - shall mean the separate account established and maintained for a Member under -3- 9 Section 5.1 to hold 401(k) Contributions and the Earnings thereon. 1.17. "401(k) Contributions" - shall mean the contributions described in Section 3.1. 1.18. "Highly Compensated Employee" - shall mean an individual who is described in Section 414(q) of the Code and the applicable Treasury regulations. In general, for any Plan Year, a Highly Compensated Employee is any Employee who is in Service during such Plan Year, and who, during such Plan Year or the immediately preceding Plan Year, either: (a) was, at any time, a five-percent owner, as defined in Section 416(i)(1)(B)(i) of the Code, (b) received Compensation in excess of $75,000, as adjusted for such year under Section 415(d) of the Code, (c) received Compensation in excess of $50,000, as adjusted for such year under Section 415(d) of the Code, and was in the top-paid group of employees, as defined in Section 414(q)(4) of the Code, for such year, or (d) was, at any time, an officer, subject to the rules and limitations on the number of officers contained in Section 414(q)(5) of the Code, and received Compensation greater than 50 percent of the limitation in effect for such year under Section 415(b)(1)(A) of the Code. In applying the preceding sentence, if an Employee is not described in (b), (c) or (d) above for the Plan Year immediately preceding the Plan Year in question, such Employee shall not be treated as being described in (b), (c) or (d) for the Plan Year in question unless such Employee is a member of the group consisting of the 100 Employees with the highest Compensation for the Plan Year in question. 1.19. "Hours of Service" - an Employee shall be credited with Hours of Service in accordance with the following rules: (a) Work Performed. An Employee shall be credited with one Hour of Service for each hour for which he is paid, or entitled to payment, by the Employer for the performance of duties for the Employer. (b) Paid Absences. An Employee shall be credited with one Hour of Service for each hour for which he is paid, or entitled to payment, by the Employer for a period of time during which no duties are performed by him (irrespective of whether the employment relationship has terminated) due to -4- 10 vacation, holiday, illness, incapacity (including Disability), lay-off, jury duty, military duty or leave of absence. For this purpose, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, insurer, or other entity to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. However, no Hours of Service shall be credited hereunder with respect to (1) hours for which an Employee receives payment under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation, or disability insurance laws, or (2) hours for which an Employee receives a payment which solely reimburses him for medical or medically-related expenses incurred by him. No more than 501 Hours of Service shall be credited hereunder to an Employee on account of any single continuous period during which he performs no duties whether or not such period occurs within a single Plan Year. (c) Back Pay. An Employee shall be credited with one Hour of Service for each hour for which back pay, irrespective of mitigation of damages, is awarded or agreed to by the Employer. However, no Hours of Service shall be credited hereunder if they are credited to the Employee under subsection (a) or (b) above. Furthermore, crediting of Hours of Service hereunder for periods described in subsection (b) above shall be subject to the limitations therein set forth. (d) Special Rules for Crediting Hours of Service. Hours of Service to be credited under subsection (b) above, and the periods to which Hours of Service are to be credited under subsections (a), (b) and (c) above, shall be determined under the rules set forth in Section 2530.200b-2(b) and (c) of the regulations issued by the U.S. Department of Labor, as the same may be amended from time to time. (e) Aggregation Requirement. For the purpose of counting Hours of Service, the term "Employer" shall mean (1) the Company; (2) any corporation which is treated, under Sec-tion 414(b) of the Code, as a member of a controlled group of corporations of which the Company is also a member; (3) any trade or business (whether or not incorporated) which is treated, under Section 414(c) of the Code, as belonging to a group of trades or businesses under common control, and which includes the Company; (4) any other entity which, under Section 414(m) or 414(o) of the Code, is included, along with the Company, in a group of employers, the employees of which are treated as employed by a single employer; or (5) any entity which is a former employer of any Employee and which has been -5- 11 merged into, or the assets or business of which have been acquired by, the Company or any other entity described in (2), (3) or (4) above. (f) Employees Exempt From the Fair Labor Standards Act. In the case of any Employee who is not covered by the Fair Labor Standards Act, in lieu of being credited with Hours of Service in the amount and in the manner described in subsections (a) through (e) above, such Employee shall be credited with 45 Hours of Service for each week for which he would otherwise be credited with at least one Hour of Service under subsections (a) through (e) above. (g) Maternity or Paternity Absence. Solely for purposes of determining whether an Employee has incurred a Break in Service by reason of a Maternity or Paternity Absence, such Employee shall be credited, during such absence, with the same number of Hours of Service which otherwise normally would have been credited to such Employee but for such absence, or, if the Plan is unable to determine such number of hours, with eight (8) Hours of Service per day of absence. Notwithstanding the foregoing, the total number of hours so credited by reason of any such Maternity or Paternity Absence shall not exceed 501 hours. Hours to be credited hereunder shall be credited only in the Plan Year in which the Maternity or Paternity Absence begins, if the Employee would be prevented from incurring a Break in Service in such Plan Year solely because of the operation of this subsection (g); otherwise, such Hours of Service shall be credited in the immediately following Plan Year. For purposes of this subsection (g), Maternity or Paternity Absence shall mean any period during which an Employee is absent from work by reason of the Employee's pregnancy, the birth of a child of the Employee, the placement of a child with the Employee in connection with the Employee's adoption of such child, or caring for such child for a period beginning immediately following such birth or placement. 1.20. "Member" - shall mean (a) any Employee on August 1, 1987 who was participating in the Plan on July 31, 1987 and (b) any other Employee whose membership in the Plan commences, or resumes, on or after August 1, 1987. An Employee who is or becomes a Member, as so defined, shall cease to be a Member, as that term is used herein, on the date which is the later of (1) the date on which he incurs a Termination of Service or (2) the date on which there is no balance to his credit in his Plan Accounts. 1.21. "Mutual Fund" - shall mean any fund or portfolio maintained by any open-end investment company registered under the Investment Company Act of 1940. -6- 12 1.22. "Normal Retirement Age" - shall mean age 65. 1.23. "Plan" - shall mean the Pall Corporation Profit-Sharing Plan, as set forth in this document and as the same may be amended from time to time. 1.24. "Plan Year" - shall mean the calendar year. Notwithstanding the above, prior to August 1, 1993, the Plan Year shall be the 12-consecutive month period commencing on each August 1 and ending on the following July 31. In addition, there shall be a short Plan Year commencing on August 1, 1993 and ending on December 31, 1993. For purposes of the short Plan Year, the following special provisions shall apply: (a) "208 Hours of Service" shall be substituted for "500 Hours of Service" in Section 1.3, and "416 Hours of Service" shall be substituted for "1,000 Hours of Service" in Section 1.36(a). (b) "$83,333" shall be substituted for "$200,000" in Sections 1.7 and 10.6(e). (c) "$12,500" shall be substituted for "$30,000" in Section 4.6(a)(1). (d) "20%" shall be substituted for "15%" wherever "15%" appears in Sections 3.1 and 3.2. (e) An Employee who completes at least 1,000 Hours of Service during both the period commencing on August 1, 1993 and ending on July 31, 1994 and the period commencing on January 1, 1994 and ending on December 31, 1994 shall be credited with at least two Years of Service with respect to his Service during those two periods. (f) For the short Plan Year, a Highly Compensated Employee is any Employee who is in Service during such year, and who either (1) is described in (a), (b), (c) or (d) in Section 1.18 for the 12-consecutive month period commencing on August 1, 1992 and ending on July 31, 1993 or (2) both (i) for the period commencing August 1, 1993 and ending December 31, 1993 is an Employee described in (a), (b), (c) or (d) of Section 1.18, determined by multiplying the applicable dollar amounts set forth therein by 5/12 and (ii) unless he is described in (a) of Section 1.18 for such period, belongs to the group consisting of the 100 Employees with the highest Compensation for such year. -7- 13 In addition to the foregoing, for the purpose of identifying the Highly Compensated Employees under Section 1.18 for the Plan Year beginning January 1, 1994, the calendar year beginning January 1, 1993 shall be treated as the "immediately preceding Plan Year", and "Compensation" for such calendar year shall be defined as under Section 414(q)(7) of the Code. (g) For the Plan Year beginning on January 1, 1994, a Member who was in Service on July 31, 1993 shall be treated as having satisfied the six consecutive month Service requirement in clause (a) of the second sentence of Section 3.4. (h) Any 401(k) Contributions to which the second paragraph of Section 3.3(b) applies shall be treated as being made for the short Plan Year. (i) Except as provided in (a) through (h) above, the short Plan Year shall be treated as any other Plan Year. 1.25. "Reemployment Commencement Date" - shall mean the date on which an Employee first performs an Hour of Service upon his return to Service after a Termination of Service. 1.26. "Rollover Account" - shall mean the separate account established and maintained for a Member under Section 5.1 to hold Rollover Contributions and the Earnings thereon. 1.27. "Service" - shall mean employment with the Employer or any other entity described in Section 1.19(e)(2), (3) or (4). 1.28. "Termination of Service" - An Employee shall be treated as having incurred a Termination of Service on the first date as of which he is no longer in the employ of the Employer or any other entity described in Section 1.19(e)(2), (3) or (4). An Employee shall not be treated as having incurred a Termination of Service as a result of his absence from work unless such absence is due to his resignation, discharge, retirement or death. 1.29. "Trust" - shall mean the trust, created pursuant to a trust agreement between the Company and the Trustee, which holds the assets of the Plan. 1.30. "Trust Agreement" - shall mean the agreement, between the Company and the person named as trustee therein, setting forth the provisions of the trust associated with this Plan. -8- 14 1.31. "Trust Fund" - shall mean the assets of the Plan held in trust, pursuant to the Trust Agreement. 1.32. "Trustee" - shall mean the person named as trustee in the Trust Agreement. 1.33. "Vested Portion" - shall mean the portion of a Member's Account or Accounts in which the Member is vested, determined in accordance with the rules set forth below. (a) Employer Contribution Account. A Member shall become vested in his Employer Contribution Account in accordance with the schedule below which applies to him: (1) For an individual who becomes a Member on or after August 1, 1989:
Years of Service Vested Percentage ---------------- ----------------- less than 5 0 5 or more 100
(2) For an individual who became a Member prior to August 1, 1989 and who earns at least one Hour of Service on or after August 1, 1989:
Years of Service Vested Percentage ---------------- ----------------- less than 2 0 2 20 3 30 4 40 5 or more 100
(3) For a Member not described in (1) or (2) above:
Years of Service Vested Percentage ---------------- ----------------- less than 2 0 2 20 3 30 4 40 5 50 6 60 7 70 8 80 9 90 10 or more 100
-9- 15 Notwithstanding the schedule above which applies to a Member, a Member shall be 100% vested in his Employer Contribution Account if, while he is in Service, he attains Normal Retirement Age or a higher age, dies or becomes Disabled. (b) Other Plan Accounts. A Member shall, at all times, be 100% vested in his 401(k) Contribution Account, his Voluntary Contribution Account and his Rollover Account. 1.34. "Voluntary Contribution Account" - shall mean the separate account established and maintained for a Member under Section 5.1 to hold Voluntary Contributions and the Earnings thereon. 1.35. "Voluntary Contributions" - shall mean the contributions described in Section 3.2. 1.36. "Years of Service" - An Employee's Years of Service shall be determined in accordance with the following rules: (a) General Rule. An Employee's Years of Service shall mean the number of Plan Years in each of which the Employee has completed at least 1,000 Hours of Service. (b) Break in Service. In determining an Employee's Years of Service under subsection (a) as of any date after he has returned to Service after incurring a Break in Service, his Years of Service prior to such break shall not be taken into account if (1) he did not have any balance to his credit in the Vested Portion of his Accounts at the time such break commenced and (2) such break was a 5-Year Break in Service. ARTICLE 2 - PURPOSE, ELIGIBILITY AND PARTICIPATION 2.1. Purpose. This Plan is intended to qualify as a cash or deferred defined contribution profit sharing plan under Sections 401(a), 401(k) and 401(m) of the Code. Pursuant to Section 401(a)(27) of the Code, the Plan is intended to constitute a profit sharing plan under which contributions may be made by the Employer whether or not the Employer has current or accumulated profits. 2.2. Eligibility. An Employee shall be eligible for membership in the Plan if: (a) he is employed on a full-time basis, or he has completed, or is expected to complete, at least 1,000 Hours of Service during any 12-consecutive month period; -10- 16 (b) he has completed at least 30 consecutive days of Service; (c) his principal place of employment is not Puerto Rico; and (d) he is not covered under a collective bargaining agreement, unless such agreement specifically provides for his participation in this Plan. 2.3. Commencement of Membership. An Employee shall commence membership in the Plan on the first day of the month coincident with or next following the day on which he first meets each of the requirements of Section 2.2. 2.4. Membership After Reemployment. An Employee who incurs a Termination of Service, and who thereafter returns to Service, shall (a) if he had become a Member prior to such Termination of Service, resume membership in the Plan as of his Reemployment Commencement Date, or (b) if he is not described in clause (a), commence membership as of the first day of the month coincident with or next following the date on which he first meets each of the conditions for eligibility set forth in Section 2.2 after his Reemployment Commencement Date. ARTICLE 3 - CONTRIBUTIONS AND ROLLOVERS 3.1. 401(k) Contributions. Subject to the limitations contained in Article 4, a Member may elect to (1) have his Compensation for each pay period within the Plan Year reduced by an amount equal to (i) any percentage thereof which is not less than 1% or greater than 15%, and which is an integral multiple of 1% or (ii) a specific dollar amount which, when aggregated with all other amounts by which Compensation is reduced under this Section 3.1 during such Plan Year, is not greater than 15% of his Compensation for such Plan Year, and (2) have such amount contributed by the Employer to the Plan on his behalf. The contributions made to the Plan on behalf of a Member under this Section 3.1 shall be referred to herein as "401(k) Contributions". 3.2. Voluntary Contributions. Subject to the limitations contained in Article 4, a Member may elect to contribute to the Plan, by payroll deduction, for each pay period within the Plan Year an amount equal to (a) any percentage of his Compensation, after reduction for 401(k) Contributions, for the pay period which is not less than 1% or greater than 10%, and which is an integral multiple of 1% or (b) a specific dollar amount which, when aggregated with all other amounts contributed by the Member under this Section 3.2 -11- 17 during such Plan Year, is not greater than 10% of his Compensation, after reduction for 401(k) Contributions, for such Plan Year. However, the percentage of Compensation the Member elects to contribute to the Plan for any pay period under clause (a) of the preceding sentence, when aggregated with the percentage of Compensation the Member elects to have contributed to the Plan on his behalf for such pay period under clause (1)(i) of Section 3.1, cannot exceed 15% of Compensation for such pay period; and the specific dollar amount the Member elects to contribute to the Plan for any Plan Year pursuant to clause (b) of the preceding sentence, when aggregated with his 401(k) Contributions for such Plan Year, cannot exceed 15% of Compensation for such Plan Year. The contributions that a Member elects to make to the Plan under this Section shall be referred to herein as "Voluntary Contributions". 3.3. Elections. The elections that a Member may make under Sections 3.1 and 3.2, and any change in or termination of such elections, shall be made in accordance with the following rules: (a) Any election, and any change in or termination of any election, shall be made in writing, on a form provided by the Committee for such purpose, and filed with the Committee or with any person designated by the Committee to receive such filings. (b) A Member's initial election under Section 3.1 or 3.2 shall become effective as soon as practicable after the form containing such election is filed. Any election, or change therein, shall remain in effect until such election is changed or terminated as hereinafter provided. Notwithstanding the above, in the case of any Member who files his initial election under Section 3.1 or 3.2 prior to July 28, 1993, such Member's initial election or elections shall apply to any paychecks he receives during the period beginning on July 28, 1993 and ending on July 30, 1993 with respect to any pay periods beginning on and after August 1, 1993. (c) A Member may, at any time, change his election so as to increase or decrease the amount of 401(k) Contributions or Voluntary Contributions, as applicable, to be contributed to the Plan by him or on his behalf. Any such change in election shall become effective as soon as practicable after the form containing such change in election is filed. -12- 18 (d) A Member may terminate his election under Section 3.1 or 3.2 at any time. Such termination of election shall become effective as soon as practicable after the form containing such termination of election is filed. A Member who terminates an election under Section 3.1 or 3.2 may thereafter make a new election under Section 3.1 or 3.2 at any time. Such new election shall become effective as soon as practicable after the form containing such new election is filed. (e) A Member's elections under Sections 3.1 and 3.2 shall cease to be effective upon, and no contribution shall be made by or on behalf of a Member after, the close of the pay period in which he incurs a Termination of Service. 3.4. Employer Contributions. Subject to the limitations contained in Article 4, for each Plan Year, the Employers shall contribute to the Plan, in addition to the 401(k) Contributions, an amount determined below. For each Plan Year, the Employers shall contribute to the Plan under this Section 3.4 an amount which is equal to (a) the excess, if any, of (1) 7-1/2% of the combined "Net Earnings" for such Plan Year of all Employers over (2) $500,000, less (b) the sum of (1) all forfeitures arising under Section 5.2(a) during such Plan Year, other than those applied to restore any forfeitures under Section 5.2(b), (2) the expenses of administering the Plan and Trust for such Plan Year, other than those paid out of the Trust Fund in accordance with Section 8.9 and (3) any amounts set aside, and any payments made, by the Employers, for such Plan Year, under the Pall Corporation Supplementary Profit-Sharing Plan. Notwithstanding the preceding paragraph, the Board of Directors of the Company reserves the right with respect to any Plan Year to direct the Employers, by action taken no later than five and one-half months after the close of such Plan Year, to make to the Plan under this Section 3.4 (i) no contribution, (ii) a contribution in any amount less than the amount required to be contributed under the preceding paragraph, or (iii) a contribution in any amount greater than the excess of 7-1/2% of the combined Net Earnings for such Plan Year of all Employers over $500,000. For purposes of this Section 3.4, the "Net Earnings" of an Employer for any Plan Year shall be the net earnings and profits of such Employer for its taxable year ending within such Plan Year, as determined by the accountants employed by the Employer in accordance with generally accepted accounting principles, before deducting any contributions to the Plan, any capital losses and any taxes upon or with respect to in- -13- 19 come, but after deducting capital gains, income from investments and any contributions to any employee benefit plan other than the Plan. Solely for the purpose of determining the combined Net Earnings of all Employers, each subsidiary of the Company which was incorporated in the United States, and which is not otherwise an Employer, shall be treated as an Employer. A Member shall be entitled to share in the allocation of the Employers' contribution under this Section 3.4 for a Plan Year if (x) as of the first day of such year, he had been in Service for at least six consecutive months and had attained age 20 1/2 and (y) he is employed by any Employer on the last day of such year or, during such year, he incurred a Termination of Service after attaining Normal Retirement Age or by reason of death or disability. The Employers' contribution for a Plan Year under this Section 3.4 shall be allocated to each Member entitled to share therein in the proportion that each such Member's Compensation for such Plan Year bears to the aggregate amount of Compensation of all such Members for such Plan Year. Contributions made to the Plan under this Section 3.4 shall be referred to herein as "Employer Contributions". 3.5. Time and Manner. All contributions to be made under Sections 3.1, 3.2 and 3.4 of the Plan shall be made in the form of cash payments by the Company to the Trustee. 401(k) Contributions and Voluntary Contributions shall be made as soon as possible after the date on which such contributions would have been paid to the Employee but for his elections under Sections 3.1 and 3.2, but in all events within 90 days of such date. The Employer Contribution to be made for any Plan Year shall be made no later than by the due date of the tax return (with extensions) for the Employer's taxable year that ends during the Plan Year to which such contribution relates. In respect of the contributions the Company pays to the Trustee under the preceding paragraph for each Plan Year, each other Employer shall reimburse the Company for (1) a portion of the Employer Contribution so paid by the Company to the Trustee for such year, based on the ratio of (i) the aggregate Compensation for such year of the Members employed by such Employer who shared in the allocation of such Employer Contribution to (ii) the aggregate Compensation for such year of all Members who shared in the allocation of such Employer Contribution, and (2) the amount of the 401(k) Contributions and Voluntary Contributions so paid by the Company to the Trustee for such year which are attributable to the Members employed by such Employer. -14- 20 3.6. Rollovers. A Member, with the prior approval of the Committee, may roll over into this Plan amounts that meet each of the following requirements: (a) The amount to be rolled over must represent either (1) part or all of an "eligible rollover distribution", within the meaning of Section 402(c)(4) of the Code, from a trust qualified under Section 401(a) of the Code or from an employee annuity plan qualified under Section 403(a) of the Code (such a trust or plan shall be referred to below as a "Qualified Plan") or (2) the entire amount of a distribution to the Member from an individual retirement account or individual retirement annuity, as defined in Section 408(a) or Section 408(b) of the Code, provided that no amount in such account, or no part of the value of such annuity (such an account or annuity shall be referred to below as an "IRA"), at the time of distribution to the Member, was attributable to any source other than a "rollover contribution", as defined in Section 402 of the Code, from a Qualified Plan. (b) The amount to be rolled over must be (1) an amount which the Member elected to have paid directly from a Qualified Plan to this Plan in accordance with Section 401(a)(31) of the Code or (2) an amount distributed, or deemed distributed, to the Member from a Qualified Plan, or from an IRA, not more than 60 days prior to the date on which such amount is transferred to this Plan, including any such amount representing (i) any portion of the Member's account in a Qualified Plan that was applied to offset any outstanding balance of a loan to the Member from such plan or (ii) income taxes withheld on a distribution to the Member from a Qualified Plan. (c) The amount to be rolled over must not represent all or part of (1) a distribution that is required to be made to the Member under Section 401(a)(9), Section 408(a)(6) or Section 408(b)(3) of the Code, or (2) an amount distributed to the Member in the Member's capacity as a beneficiary of another individual. (d) The amount to be rolled over may not include (1) any part of a distribution to the Member that would not be includible in the Member's gross income for Federal income tax purposes, even if it were not rolled over or (2) any "accumulated deductible employee contributions" within the meaning of Section 72(o)(5)(B) of the Code. (e) The amount to be rolled over must consist entirely of cash, and shall be paid to the Plan only by means of a check made payable to, or endorsed over to, the Trustee. -15- 21 The Committee may adopt such procedures, and may require a Member to furnish such information or documentation, as the Committee, in its sole discretion, deems necessary to ensure that the amount the Member requests to roll over to this Plan will meet all the foregoing requirements. ARTICLE 4 - LIMITATIONS ON CONTRIBUTIONS 4.1. Dollar Limit for 401(k) Contributions. For any Plan Year, the total amount of 401(k) Contributions to be made on behalf of any Member, when aggregated with the total amount deferred by such Member under other plans or arrangements described in Code Section 401(k), 408(k) or 403(b) maintained by the Employer or by any other entity described in Section 1.19(e)(2), (3) or (4), shall not exceed $7,000, as increased by the cost-of-living adjustment, if any, in effect for such year under regulations, rulings or notices issued under Section 415(d) of the Code. 4.2. Nondiscrimination Test for 401(k) Contributions. For any Plan Year, the 401(k) Contributions made on behalf of the group of Members who are Highly Compensated Employees shall not exceed the maximum amount that may be contributed to the Plan on their behalf for such year under either one of the following tests: (a) the Actual Deferral Percentage for the group of Members who are Highly Compensated Employees may not be more than the Actual Deferral Percentage for the group of all other Members multiplied by 1.25; or (b) the excess of the Actual Deferral Percentage for the group of Members who are Highly Compensated Employees over the Actual Deferral Percentage for the group of all other Members may not be more than 2 percentage points, and the Actual Deferral Percentage for the group of Members who are Highly Compensated Employees may not be more than the Actual Deferral Percentage for the group of all other Members multiplied by 2. For these purposes, the term "Actual Deferral Percentage", for any group of Members for any Plan Year, shall mean the average of the ratios, calculated separately for each Member in such group, of (1) the 401(k) Contributions made on behalf of such Member for such year to (2) such Member's Compensation for such year. In determining the Actual Deferral Percentage for any Plan Year, 401(k) Contributions in excess of the limitation in Section 4.1 made on behalf of any Member who is not a Highly Compensated Employee shall be disregarded. -16- 22 4.3. Nondiscrimination Test for Voluntary Contributions. For any Plan Year, the Voluntary Contributions made by the group of Members who are Highly Compensated Employees shall not exceed the maximum amount that may be contributed to the Plan by them for such year under either one of the following tests: (a) the Contribution Percentage for the group of Members who are Highly Compensated Employees may not be more than the Contribution Percentage for the group of all other Members multiplied by 1.25; or (b) the excess of the Contribution Percentage for the group of Members who are Highly Compensated Employees over the Contribution Percentage for the group of all other Members may not be more than 2 percentage points, and the Contribution Percentage for the group of Members who are Highly Compensated Employees may not be more than the Contribution Percentage for the group of all other Members multiplied by 2. For these purposes, the term "Contribution Percentage", for any group of Members for any Plan Year, shall mean the average of the ratios, calculated separately for each Member in such group, of (1) the Voluntary Contributions credited to such Member's Voluntary Contribution Account during such year to (2) such Member's Compensation for such year. For purposes of determining the Contribution Percentage, all or a portion of the 401(k) Contributions for the Plan Year may be treated as Voluntary Contributions for such year provided: (i) all 401(k) Contributions for such year satisfy the limitation of Section 4.2, and (ii) the 401(k) Contributions for such year, excluding those treated as Voluntary Contributions under this Section for such year, satisfy the limitation of Section 4.2. 4.4. Special Rules for Nondiscrimination Tests. For purposes of the nondiscrimination tests set forth in Sections 4.2 and 4.3, the following rules shall apply: (a) Alternative Limitation. The alternative test set forth in Sections 4.2(b) and 4.3(b) may be utilized only to the extent permitted under Section 401(m)(9) of the Code and the Treasury regulations and rulings and notices issued thereunder. -17- 23 (b) Calculations. The Actual Deferral Percentage and the Contribution Percentage shall be calculated to the nearest one- hundredth of 1%. (c) Family Aggregation Requirement. For any Plan Year, in the case of a Member who is a Highly Compensated Employee, and who is either a 5-percent owner, within the meaning of Section 416(i)(1)(B)(i) of the Code, or one of the ten most highly compensated employees based on Compensation during such year, such Member's Compensation and 401(k) Contributions and Voluntary Contributions shall be aggregated with the Compensation and 401(k) Contributions and Voluntary Contributions of the members of his family, within the meaning of Section 414(q)(6)(B) of the Code, who are eligible to participate in the Plan. The Compensation and 401(k) Contributions and Voluntary Contributions of such Member and such members of his family shall, as so aggregated, be treated as the Compensation and 401(k) Contributions and Voluntary Contributions of a single Member who is a Highly Compensated Employee in applying the nondiscrimination tests of Sections 4.2 and 4.3 for such Plan Year, and shall not otherwise be taken into account in applying such tests. (d) Plan Aggregation Requirements. Any qualified plans which are aggregated with this Plan in any Plan Year for the purpose of satisfying Section 401(a)(4) or 410(b) of the Code (other than solely for the purpose of satisfying the average benefit percentage test) shall, for such Plan Year, be aggregated with this Plan, and the elective contributions made under the 401(k) provisions of, and any voluntary after-tax contributions made to, any such qualified plans and this Plan shall be treated as if they had been made under a single plan, for the purpose of applying the nondiscrimination tests of Section 4.2 and 4.3. In addition, for any Plan Year, to the extent permitted by the Code and the applicable Treasury regulations, any other qualified plan of the Employer or of any other entity described in Section 1.19(e)(2), (3) or (4) may be aggregated with this Plan, and the elective contributions made under the 401(k) provisions of, and any voluntary after-tax contributions made to, such qualified plan and this Plan may be treated as if they had been made under a single plan, for the purpose of applying the nondiscrimination tests in Sections 4.2 and 4.3, provided that any such qualified plan and this Plan, when aggregated and treated as a single plan, satisfy the requirements of Sections 401(a)(4) and 410(b) of the Code. (e) Records. The Committee shall maintain or cause to be maintained records sufficient to demonstrate the satisfaction of the nondiscrimination tests in Sections 4.2 and 4.3, and to show the amount of 401(k) Contributions, if -18- 24 any, used to satisfy the nondiscrimination test in Section 4.3. 4.5. Deduction Limit. The total amount of contributions made hereunder by the Employer, considering the amount of such contributions both with and without aggregating such contributions with the contributions made by the Employer under each other qualified plan the Employer maintains, for any taxable year of the Employer may not exceed the maximum amount allowable as a deduction for the contributions made to this Plan by the Employer for such taxable year. 4.6. Section 415 Limits. (a) General. For any Plan Year, the total amount contributed by or on behalf of any Member, or allocated to such Member, under the Plan, when aggregated with all other amounts treated as "annual additions" under this Plan under Sections 415(c)(2), 415(l)(1) and 419A(d)(2) of the Code, and the applicable Treasury regulations, with respect to such Member for such Plan Year, shall not exceed the lesser of (1) $30,000, or, if greater, one-quarter of the defined benefit dollar limitation set forth in Section 415(b)(1)(A) of the Code as in effect for the Plan Year or (2) 25% of the Participant's Compensation for such Plan Year. In applying the preceding sentence, (i) amounts treated as annual additions by Section 415(l)(1) and 419A(d)(2) of the Code shall not be taken into account in determining whether the limitation set forth in clause (2) thereof is satisfied and (ii) 401(k) Contributions shall not be taken into account to the extent such contributions are distributed to Members under Section 4.8(a) or (b). (b) 415(e) Limit. In addition to the above, the amounts contributed under the Plan by or on behalf of, or allocated under the Plan to, any Member for any Plan Year shall not exceed the amount permissible under the overall limitation applicable to such Member for such year under Section 415(e) of the Code. In calculating the defined benefit plan fraction and the defined contribution plan fraction, as defined in Section 415(e) of the Code, for the purpose of determining the aforesaid Code Section 415(e) limitation, an amount shall, to the extent permitted under Section 1106(i)(4) of P.L. 99-514, be subtracted from the numerator of the defined contribution plan fraction (not exceeding such numerator) as prescribed by the Secretary of the Treasury so that the sum of the defined benefit plan fraction and the defined contribution plan fraction does not exceed 1.0 for the Plan Year. In no event shall the amount to be subtracted from the numerator of the defined contribution plan fraction be less than the amount permitted to be so subtracted under Section 235(g)(3) of P.L. 97-248. In addition, the aforesaid Code Section 415(e) limitation shall, -19- 25 to the extent permitted under Section 1106(i)(3) of P.L. 99-514, be calculated by using the Member's Current Accrued Benefit. The "Current Accrued Benefit" is a Member's accrued benefit under any qualified defined benefit plan which is, or ever was, maintained by the Employer, determined as if the Member had separated from service as of the close of the last limitation year of such plan beginning before August 1, 1987, when expressed as an annual benefit within the meaning of Section 415(b)(2) of the Code. In determining the amount of a Member's Current Accrued Benefit, the following shall be disregarded: (1) any change in the terms and conditions of such plan after May 5, 1986, and (2) any cost of living adjustment occurring after May 5, 1986. In no event shall the amount of the Current Accrued Benefit be less than the Current Accrued Benefit as defined and determined under Section 235(g)(4) of P.L. 97-248. If the limitation applicable to a Member under Section 415(e) of the Code is exceeded, the Member's benefit under a qualified defined benefit plan maintained by the Employer shall be reduced to the extent necessary to meet such limitation, before any reduction is made with respect to the Member's annual additions under this Plan. (c) Plan Aggregation. In addition to the foregoing provisions, this Section 4.6 shall be applied by treating each qualified defined contribution plan, and each qualified defined benefit plan, maintained, or ever maintained, by the Employer or another entity described in Section 1.19(e)(2), (3) or (4) (modified for this purpose as required under Code Section 415(h)) as a single qualified defined contribution plan and a single qualified defined benefit plan. (d) Reduction of Contributions. In the event that the amount of the contributions which, without regard to this Section 4.6, would be made by or on behalf of, or allocated to, a Member under the Plan in respect of any Plan Year must be reduced by reason of the limitations of this Section 4.6, such reductions shall be made in the following order of priority, but only to the extent necessary: (1) the amount of the Member's Voluntary Contributions shall be reduced, or, if already paid to the Trustee, shall (with the Trust Fund earnings thereon) be refunded to the Member; then (2) the amount of the Member's 401(k) Contributions shall be reduced, or, if already paid to the Trustee, shall (with the Trust Fund earnings thereon) be refunded to the Member; then (3) any Employer Contributions that would otherwise be allocated to such Member in respect of such Plan Year shall, instead, be allocated to each other Member entitled to share in such contributions (subject to the limitations of this Section 4.6 as applied to each such Member) in the same proportion that each such Member's Compensation for such Plan Year bears to the -20- 26 aggregate of the Compensation for such Plan Year of all such Members. 4.7. Adjustments. Notwithstanding any other provision in the Plan to the contrary, at any time during the Plan Year, the Committee may make such adjustments to or impose such restrictions on the amounts of contributions that otherwise may be made to the Plan by or on behalf of, or allocated to, any Member or group of Members during the balance of such Plan Year, as the Committee deems necessary in order for such contributions or allocations not to exceed any of the limitations set forth in this Article 4, or in order for the Plan to meet any other requirement for the Plan's continued qualification under Sections 401(a), 401(k) and 401(m) of the Code. 4.8. Corrective Distributions. If for any Plan Year the 401(k) Contributions or Voluntary Contributions made by or on behalf of a Member for such year exceed the limitation applicable to such contributions under Section 4.1, 4.2 or 4.3, or if for any Plan Year any amount of the 401(k) Contributions made on behalf of a Member during such year is designated as an excess deferral attributable to this Plan under subsection (b) below, the excess of the contributions over the limitation, or the amount so designated, shall be distributed to the Member in accordance with the following rules: (a) If the aggregate amount of the 401(k) Contributions made on behalf of a Member for any Plan Year exceeds the dollar limit for such contributions under Section 4.1 for such year, the excess amount so contributed, as adjusted for income or loss allocable thereto, shall be (1) designated by the Committee as an excess amount of 401(k) Contributions (and earnings), and (2) distributed to the Member from his 401(k) Contribution Account after the end of such year but by no later than April 15 next following the close of such year. The 401(k) Contributions to be distributed under this subsection (a) for any Plan Year shall be so distributed prior to any distribution of 401(k) Contributions under subsection (b) for such Plan Year, and shall be reduced by the 401(k) Contributions previously distributed to the Member under subsection (c) for such Plan Year. (b) If the aggregate amount of the 401(k) Contributions made on behalf of a Member under this Plan for any Plan Year, when added to the total amount deferred by such Member in such year under other plans or arrangements described in Section 401(k), 408(k) or 403(b) of the Code, exceeds the limit under Section 402(g) of the Code for such year, the Member may designate a portion of -21- 27 such excess deferrals as allocable to the 401(k) Contributions made on the Member's behalf under this Plan for such year. Such designation shall be made by filing with the Committee a written notice that specifies the amount so designated, and which contains a certification by the Member that if the amount so designated is not distributed, such amount, when added to his remaining 401(k) Contributions and the total amount deferred under other plans or arrangements described in Section 401(k), 408(k) or 403(b) of the Code, will exceed the limit under Section 402(g) of the Code for the Plan Year in question. Such written notice shall be filed with the Committee no later than by March 1 next following the close of such Plan Year. The amount so designated, as adjusted for income or loss allocable thereto, shall be (1) designated by the Committee as an excess deferral (and earnings), and (2) distributed to the Member from his 401(k) Contribution Account after the end of such year but by no later than April 15 next following the close of such year. The 401(k) Contributions to be distributed under this subsection (b) for a Plan Year shall be reduced by any 401(k) Contributions that were previously distributed to the Member under subsection (a) or (c) for the same Plan Year. In no event shall a distribution of 401(k) Contributions pursuant to this subsection (b) for a Plan Year exceed the amount of the Member's 401(k) Contributions under this Plan for such year. (c) If for any Plan Year the aggregate amount of 401(k) Contributions made on behalf of Members who are Highly Compensated Employees exceeds the limit for such contributions under Section 4.2 (such excess is referred to herein as "Excess Contributions"), the Excess Contributions, as adjusted for income or loss allocable thereto, shall be distributed as follows. The amount of Excess Contributions to be distributed to any Member under this subsection (c) shall be determined by reducing the Actual Deferral Percentages of the Members who are Highly Compensated Employees in the order of their Actual Deferral Percentages, beginning with those Highly Compensated Employees with the highest Actual Deferral Percentages, until the aggregate amount of 401(k) Contributions for Members who are Highly Compensated Employees has been reduced to the amount permissible under Section 4.2. The Excess Contributions so determined shall be distributed to those Highly Compensated Employees for whom a reduction is made under the preceding sentence. -22- 28 Distributions of Excess Contributions and the income or loss allocable thereto shall be (1) designated by the Committee as Excess Contributions (and earnings) and (2) distributed to the Member from his 401(k) Contribution Account after the end of the Plan Year but no later than by March 15 next following the close of such year. Excess Contributions to be distributed to a Member in accordance with the preceding sentence for any Plan Year shall be so distributed prior to any distributions of 401(k) Contributions under subsection (a) or (b) for such Plan Year. In no event shall a distribution of Excess Contributions to a Member for a Plan Year exceed the amount of 401(k) Contributions made on the Member's behalf for such year. (d) If for any Plan Year the aggregate amount of Voluntary Contributions, when added to the total amount of 401(k) Contributions treated as Voluntary Contributions under Section 4.3, made by or on behalf of Members who are Highly Compensated Employees exceeds the limit for such contributions under Section 4.3 (such excess is referred to herein as "Excess Aggregate Contributions"), the Excess Aggregate Contributions, as adjusted for income or loss allocable thereto, shall be distributed as follows. The amount of Excess Aggregate Contributions to be distributed to any Member under this subsection (d) shall be determined by reducing the Contribution Percentages of the Members who are Highly Compensated Employees in the order of their Contribution Percentages, beginning with those Highly Compensated Employees with the highest Contribution Percentages, until the aggregate amount of Voluntary Contributions (including 401(k) Contributions treated as such) for Members who are Highly Compensated Employees has been reduced to the amount permissible under Section 4.3. The Excess Aggregate Contributions so determined shall be distributed to those Highly Compensated Employees for whom a reduction is made under the preceding sentence. Distributions of Excess Aggregate Contributions and the income or loss allocable thereto shall be (1) designated by the Committee as Excess Aggregate Contributions (and earnings) and (2) distributed to the Member, first, from his Voluntary Contribution Account and, second, to the extent that 401(k) Contributions were treated as Voluntary Contributions for the Plan Year in question under Section 4.3, from his 401(k) Contribution Account after the end of the Plan Year but no later than by March 15 next following the close of such year. In no event shall a distribution of Excess Aggregate Contributions to a Member for a Plan Year exceed the amount of Voluntary Contributions made by the Member for such year. -23- 29 (e) The amount of income or loss allocable to 401(k) Contributions or Voluntary Contributions to be distributed to any Member under subsection (a), (b), (c) or (d) above shall be determined in accordance with the applicable provisions of the regulations issued under Sections 401(k), 401(m) and 402(g) of the Code. (f) Notwithstanding anything to the contrary in subsections (c) or (d), the determination of the Excess Contributions or the Excess Aggregate Contributions under subsections (c) or (d) attributable to any Member who is a Highly Compensated Employee and who is subject to the family aggregation rules of Section 414(q)(6) of the Code shall be made by (1) ascertaining the single Actual Deferral Percentage or Contribution Percentage for such Member and the members of his family (the "Family Group"), which was determined in applying the nondiscrimination test in Section 4.2 or Section 4.3 in accordance with the rules set forth in Section 4.4(c), (2) reducing such single Actual Deferral Percentage or such single Contribution Percentage in the manner prescribed in subsection (c) or (d) as if the Family Group was a single Highly Compensated Employee and (3) allocating the resulting Excess Contributions or Excess Aggregate Contributions to each member of the Family Group, including the Member in question, in proportion to the amount of the 401(k) Contributions or Voluntary Contributions of each such member that was taken into account, prior to the application of this Section 4.8, for the purpose of computing such single Actual Deferral Percentage or such single Contribution Percentage. (g) Any amounts required to be distributed to a Member pursuant to subsection (a), (b), (c) or (d) above shall be so distributed, notwithstanding any other provision in the Plan to the contrary. ARTICLE 5 - PLAN ACCOUNTS, ALLOCATIONS AND FORFEITURES 5.1. Plan Accounts. For each Member, the Committee shall establish and maintain, or caused to be established and maintained, a separate Plan Account with respect to the 401(k) Contributions made on behalf of the Member under Section 3.1, the Voluntary Contributions made by the Member under Section 3.2, the Employer Contributions allocated to the Member under Section 3.4 and the amounts rolled over to the Plan by the Member under Section 3.6. Such Accounts shall be referred to herein, respectively, as the Member's "401(k) Contribution Account", his "Voluntary Contribution Account", his "Employer Contribution Account", and his "Rollover Account". The Committee shall also establish -24- 30 and maintain, or cause to be established and maintained, such other Accounts as may be necessary or desirable to comply with the requirements of the Code or to otherwise effect the purposes of the Plan. Each such Account shall be adjusted from time to time as follows: (a) Such Account shall be credited, as hereinafter provided, with the amounts contributed to the Plan by or on behalf of the Member, allocated to the Member, or rolled over to the Plan by the Member under Section 3.1, 3.2, 3.4 or 3.6, as the case may be, and with any payments of principal and interest made by the Member pursuant to Section 7.5 on any loan to him. 401(k) Contributions shall be credited to a Member's 401(k) Contribution Account at the time such contributions are made to the Plan, but no later than by the final day of the Plan Year to which such contributions relate. Voluntary Contributions, Employer Contributions and amounts rolled over to the Plan by the Member shall be credited to a Member's Voluntary Contribution Account, Employer Contribution Account and Rollover Account, respectively, at the time such contributions are made to the Plan or at the time such rolled over amounts are transferred to or received by the Plan. Any payment on a loan under Section 7.5, which is credited to a Member's Account as described therein, shall be so credited to such Account as of the date on which such payment is received by the Plan. (b) Such Account shall be credited or charged, as the case may be, with the Earnings attributable to the investment of such Account under Section 6.3. (c) Such Account shall be charged with the amount of any distributions, withdrawals or loans made therefrom, pursuant to Section 4.8 or Article 7. A distribution, withdrawal or loan shall be so charged as of the date on which the amount thereof is paid to the Member. (d) In addition to (a), (b) and (c) above, such Account shall be credited or charged as required by other provisions of the Plan, in the manner and as of the date set forth therein, or, where such manner or date is not expressly set forth, as the Committee shall determine. (e) Such Account shall also reflect the number of shares of any Mutual Fund in which the balance of such Account is invested. The number of shares to be so reflected shall include fractions of a unit of a share, as well as whole units of shares. -25- 31 5.2. Forfeitures. (a) Incurrence and Application of Forfeitures. The portion of the Member's Employer Contribution Account which is not a Vested Portion shall be forfeited, and the amount so forfeited shall be charged to his Employer Contribution Account, as of the close of the Plan Year in which he incurs a Termination of Service. Any forfeiture shall be applied, first, to restore other forfeitures under subsection (b) below, and, second, to reduce Employer Contributions made to the Plan after the date such forfeiture arises. Prior to such application, a forfeiture shall be held in a separate account established and maintained solely for forfeitures under the Trust Fund; and such account shall be invested in the Fidelity Retirement Money Market Portfolio described in Section 6.1(e). (b) Restoration of a Forfeiture. If any portion of a Member's Employer Contribution Account was forfeited upon his Termination of Service, and such Member thereafter returns to Service, any amount that was forfeited shall be restored to his Employer Contribution Account, as of his Reemployment Commencement Date, unless: (1) the Member failed to return to Service prior to incurring a 5-Year Break in Service after such Termination of Service, or (2) the Member had previously received from the Plan a distribution described in subsection (c) below, and, as of his Reemployment Commencement Date, has failed to repay such distribution in accordance with subsection (c) below. In the event that the restoration of a forfeiture is prevented by reason of clause (2) in the preceding sentence, and the Member subsequently repays the distribution referred to in clause (2) in accordance with subsection (c) below, the amount forfeited shall be restored to the Member's Employer Contribution Account as of the date on which such repayment is made to the Plan. Any amount so restored to such Account shall be invested in accordance with the Member's investment election with respect to New Money to be credited to such Account then in effect under Section 6.2. Funds to restore a forfeiture to a Member's Employer Contribution Account shall come, first, from other forfeitures as provided in subsection (a) above, and, second, from contributions made to the Plan by the Company for such purpose. The Company shall make such additional contributions to the Plan as are necessary to restore any forfeitures in accordance with the preceding sentence. If the Company makes any such contributions with respect to a Member who is employed by an Employer other than the Company, such Employer shall reimburse the Company for the amount of any such contributions so made. The amount of any forfeiture to be restored to a Member hereunder shall, to the extent required by Section 411 of the -26- 32 Code, include earnings on the amounts that were forfeited by the Member under subsection (a) above. (c) Repayment of Distributions. A Member who has incurred a Termination of Service and, in connection therewith, has received from the Plan a distribution of the entire Vested Portion of the balance of his Plan Accounts, and thereafter returns to Service, may repay such distribution to the Plan. Any such repayment shall consist of the full amount of such distribution. Further, such repayment must be made before the fifth anniversary of the Member's Reemployment Commencement Date. A repaid distribution shall be credited pro rata to the Member's Accounts from which such distribution was made, shall be so credited as of the date received by the Plan, and shall be invested in accordance with the Member's investment election with respect to New Money to be credited to such Accounts then in effect under Section 6.2. ARTICLE 6 - INVESTMENTS AND EARNINGS 6.1. Investment of Accounts. The balance of each Plan Account maintained for a Member hereunder shall be invested, as the Member shall from time to time elect in accordance with Section 6.2, in shares of any one or more of the Mutual Funds selected by the Committee for investment. As of August 1, 1993, the Committee has selected the following Mutual Funds for investment: (a) Fidelity U.S. Bond Index Portfolio; (b) Fidelity Asset Manager; (c) Fidelity Equity-Income Fund; (d) Fidelity Magellan Fund; and (e) Fidelity Retirement Money Market Portfolio. The Committee may, at any time and in its sole discretion, eliminate or add any Mutual Fund to the above list. Except to the extent that the Committee otherwise directs, all dividends and other distributions payable with respect to the shares of any Mutual Fund in which any Plan Account is invested shall be reinvested in additional shares of such Mutual Fund; and the number of additional shares acquired as a result of such reinvestment shall be credited to such Plan Account. To the fullest extent permissible under Section 404(c) of ERISA, the Trustee, the members of the -27- 33 Committee, and any other fiduciary of the Plan shall not be liable for any loss, or by reason of any breach of duty, that results from any election made, or deemed to have been made, by a Member under Section 6.2 with respect to the investment of his Plan Account balances. 6.2. Investment Elections. Elections with respect to the investment of a Member's Plan Accounts shall be made in accordance with the following rules: (a) Initial Investment Election. Each Member shall make an initial investment election with respect to each Plan Account that is established for him hereunder by the later of (1) the close of the last business day immediately preceding the date on which an amount is first credited to such Account pursuant to Section 5.1 or (2) July 31, 1993. Such election shall be made in the manner set forth in subsection (c) below. (b) Investment Election Changes. Subject to the limitations set forth below, a Member may change his investment election with respect to any of his Plan Accounts, by making a new investment election with respect to such Account in accordance with the provisions of subsection (c) below. A Member may so change his investment election just with respect to the existing balance of any Plan Account ("Current Balance"); or just with respect to contributions and repayments of principal and interest on any loan from the Plan ("New Money") that are to be credited to any Plan Account on or after the effective date of such change; or with respect to both the Current Balance of, and New Money to be credited to, any Plan Account. (c) Procedure for Making Elections. An investment election under subsection (a) above shall be made by filing with the Committee a form furnished by the Committee for this purpose, on which the Member shall indicate, by percentage (which shall be an integral multiple of 1%) or dollar amount, the portion of the Member's Plan Account balance to be invested in shares of each Mutual Fund. The Member shall designate his investment choices, in the manner described in the preceding sentence, separately for each of his Plan Accounts. Any change in a Member's investment election under subsection (b) above shall be made in the same manner as herein described in the case of an election under subsection (a) above; provided, however, that if the Committee so permits (and subject to such rules as the Committee may have promulgated) any Member may use the telephone service made available by the Trustee to communicate directly to the Trustee any change in the Member's investment election. A Member shall be provided with a written confirmation of any investment election made under subsection (a), or any change in investment -28- 34 election made under subsection (b), in the manner provided in the Trust Agreement or in any administrative services agreement between the Committee and the Trustee. (d) Effect of Election. An investment election made by a Member with respect to any of his Plan Accounts under subsection (a) above shall remain in effect until the Member changes his investment election with respect to such Plan Account in accordance with subsection (b) above. Any investment election change made by a Member under subsection (b) above with respect to any Plan Account shall remain in effect until the Member again changes his investment election with respect to such Plan Account in accordance with subsection (b) above. (e) Implementation. All transactions necessary to implement any investment elections and changes therein that are made by Members pursuant to this Section 6.2 shall be executed at such times, and in such manner, as provided in the Trust Agreement or in any administrative services agreement between the Committee and the Trustee. (f) Restrictions. Notwithstanding any provision to the contrary in subsections (a) to (e) above, between August 1, 1993 and December 31, 1993, the following restrictions shall apply to a Member's investment elections under this Section 6.2: (1) Prior to attaining age 55, a Member may not invest any of his Plan Accounts in shares of the Fidelity Retirement Money Market Portfolio; (2) A Member may not invest any portion of his Employer Contribution Account in shares of the Fidelity Equity-Income Fund or the Fidelity Magellan Fund; (3) A Member may not invest the portion of his Employer Contribution Account which is not a Vested Portion in shares of the Fidelity U.S. Bond Index Portfolio; and (4) Before a Member attains age 55, the portion of the Member's Employer Contribution Account which is not a Vested Portion shall be invested in shares of the Fidelity Asset Manager fund, and such portion of such Account shall not be subject to investment direction by the Member. The above restrictions shall not apply after December 31, 1993. -29- 35 On and after January 1, 1994, the following restriction shall apply to a Member's investment elections under this Section 6.2: A Member may not invest any portion of his Employer Contribution Account in shares of the Fidelity Magellan Fund. The Committee may, at any time and in its sole discretion, eliminate or modify any of the foregoing restrictions, or impose additional restrictions on Members' investment elections. To the extent that any such restriction ceases to apply with respect to the Current Balance of, or the New Money to be credited to, any Plan Account of a Member, the Member may elect to invest all or any portion of such Current Balance, or of such New Money, of such Account in shares of any Mutual Fund listed in Section 6.1, subject to any such restrictions which remain, by making a change in investment election under subsection (b) above. 6.3. Determination of Earnings. The Earnings attributable to the investment of any Plan Account for any period shall mean the amount (positive or negative) by which (a) the aggregate value, as of the close of the last business day of such period, of all shares of Mutual Funds in which such Account is then invested, plus the unpaid principal amount of any loan made to the Member from such Account that is outstanding at the close of such day, and any cash amount standing to the Member's credit in such Account as of the close of such day, as reduced by (b) the amount of all contributions, loan repayments and amounts rolled over to the Plan, that were credited to such Account during the period, and as increased by (c) the amount of all distributions, withdrawals and loans charged to such Account during the period, exceeds, or is less than, (d) the aggregate value, as of the close of the last business day immediately preceding the start of such period, of all shares of Mutual Funds in which such Account was then invested, plus the unpaid principal amount of any loan made to the Member from such Account that was outstanding at the close of such day, and any cash amount standing to the Member's credit in such Account as of the close of such day. 6.4. Voting Rights. In accordance with the applicable rules set forth in the Trust Agreement, each Member shall have the right to direct the Trustee as to how to vote the shares of any Mutual Fund credited to his Plan Accounts, and the right to direct the Trustee as to how to exercise all other rights pertaining to such shares. A Member shall be treated as a "named fiduciary", within the meaning of Section 402(a)(2) of ERISA, for the purpose of giving such directions to the Trustee. -30- 36 ARTICLE 7 - DISTRIBUTIONS, WITHDRAWALS AND LOANS 7.1. Distributions. Distributions shall be made in accordance with the following rules: (a) Termination of Service After Age 55 or Due to Disability. In the case of a Member who incurs a Termination of Service, for any reason other than death, after he has attained age 55, or who incurs a Termination of Service due to Disability prior to attaining age 55, the Vested Portion of the balance of the Member's Plan Accounts shall be distributed to him, in the form of a single lump sum payment. The distribution shall be made as soon as practicable after the Member's Termination of Service. The amount of the distribution shall be the Vested Portion of the balance of the Member's Plan Accounts determined as of the close of the last business day immediately preceding the time such distribution is made. (b) Termination of Service Prior to Age 55. In the case of a Member who incurs a Termination of Service, for any reason other than Death or Disability, before he has attained age 55, the distribution of his Plan Account balances shall be made as follows: (1) 401(k) Contribution Account, Voluntary Contribution Account and Rollover Account. The balances of the Member's 401(k) Contribution Account, Voluntary Contribution Account and Rollover Account shall be distributed to the Member, in the form of a single lump sum payment, as soon as practicable after such Member's Termination of Service. However, if, under subsection (b)(2) below, the Member has an Excess Portion in his Employer Contribution Account, the Member may elect in writing, within 60 days after the date of his Termination of Service, to have the balances of his 401(k) Contribution Account, Voluntary Contribution Account and Rollover Account remain invested in the Trust Fund. A Member who so elects may, at any time thereafter, elect to receive a distribution, in the form of a single lump sum payment, of the balances of such Accounts, by delivering a written election to such effect to the Committee, on which he specifies the date on which such distribution is to be made; but, in any event, the balances of such Accounts shall be distributed to the Member, in the form of a single lump sum payment, no later than by the date on which the Excess Portion of his Employer Contribution Account is distributed to him under subsection (b)(2) below. (2) Employer Contribution Account. The Vested Portion of the balance of the Member's Employer Contribu- -31- 37 tion Account, up to the greater of (i) $37,500 or (ii) one-half of the Vested Portion of such balance, shall be distributed to the Member, in the form of a single lump sum payment, as soon as practicable after his Termination of Service. The portion of the Vested Portion of the balance of the Member's Employer Contribution Account that is not immediately distributed due to the restriction in clause (i) or (ii) of the preceding sentence shall remain invested in the Trust Fund, and shall be referred to herein as the "Excess Portion". For each Plan Year beginning after December 31, 1993, the $37,500 amount referred to above shall be adjusted, as of the first day of each such year, for cost-of-living increases by the same percentage by which the Internal Revenue Service has increased the limitation under Section 402(g) of the Code, effective as of such day, pursuant to Section 415(d) of the Code. After a Member who has an Excess Portion in his Employer Contribution Account invested in the Trust Fund attains age 55, he may, at any time, elect to receive a distribution, in the form of single lump sum payment, of such Excess Portion, by delivering a written election to such effect to the Committee, on which he specifies the date on which such distribution is to be made; but, in any event, the Member's Excess Portion shall be distributed to him, in the form of a single lump sum payment, when he attains age 65. Notwithstanding the above, in the case of a Member who returns to Service with the Employer after incurring a Termination of Service, the foregoing provisions of this subsection (b)(2) shall cease to apply to the Member's Excess Portion, and such Excess Portion shall be distributed to the Member, along with any additional balances in his Plan Accounts, in accordance with the provisions of this Section 7.1 after he again incurs a Termination of Service. (3) Valuation and Investment. For the purposes of this subsection (b), the balance of the Member's 401(k) Contribution Account, Voluntary Contribution Account, Rollover Account or Employer Contribution Account (including the Vested Portion of the balance of the Employer Contribution Account or the amount of any Excess Portion of the Employer Contribution Account) shall be determined as of the close of the last business day immediately preceding the time the distribution in question is made. Account balances which remain invested in the Trust Fund under subsection (b)(1) above, and the Excess Portion which remains invested in the Trust Fund under subsection (b)(2) above, shall, while so invested, -32- 38 be invested by the Member as provided in Sections 6.1 and 6.2, and shall be credited or charged with Earnings, as provided in Section 5.1. (c) Corporate Events. Notwithstanding subsection (b) above, if a Member is affected by an event described in Section 401(k)(10)(A)(ii) or (iii) of the Code, then, upon such Member's written request, the entire Vested Portion of the balance of his Plan Accounts (including any Excess Portion described in subsection (b) above), determined as under the first sentence of subsection (b)(3) above, shall be distributed to the Member in a single lump sum payment. (d) Special Rules. (1) General. Notwithstanding any other provision of subsection (a), (b) or (c) above to the contrary, payment of the Member's Plan Account balances shall be made in accordance with the provisions of this subsection (d). (2) Member's Consent. No distribution to the Member with respect to any of his Plan Accounts shall be made prior to his attaining Normal Retirement Age unless either (i) the Vested Portion of the balance of the Member's Plan Accounts at the close of the last business day immediately preceding the time the distribution is made does not exceed $3,500 or (ii) the Member consents, in writing, within the 90-day period ending on the date of distribution and after receipt of the explanation described in the paragraph below, to the immediate payment of such distribution. For purposes of clause (ii) of the preceding paragraph, the Committee shall furnish the Member with a written explanation of the Member's right to defer his distribution until he has attained age 65 and the effect of such deferral. Such explanation shall be furnished no less than 30 days (or such shorter period as may be permitted by Treasury regulations) and no more than 90 days before the distribution is made to the Member. If an immediate distribution with respect to any of the Member's Plan Accounts cannot be made to the Member by reason of his failure to consent to such distribution, distribution with respect to such Account shall be made as soon as practicable after the earliest to occur of the following: the date on which the Member attains age 65, the date of the Member's death, or the date on which the Committee receives written notice from the Member requesting, and consenting to, an immediate distribution from such Account. Any distribution made pursuant to the preceding sentence shall be made in the form of a single -33- 39 lump sum payment, and the amount of such distribution shall be the Vested Portion of the balance of such Account, determined as of the close of the last business day immediately preceding the time such distribution is made; provided, however, that in the case of a Member who has not attained age 55 and who is alive and not Disabled, any such distribution from such Member's Employer Contribution Account cannot exceed the greater of (A) $37,500 (adjusted as provided in subsection (b)(2) above) or (B) one-half of the Vested Portion of the balance of such Account, determined as of the close of such business day, and the portion, if any, of the Vested Portion of the Member's Employer Contribution Account that is not distributed due to the foregoing restriction shall thereafter be treated as the "Excess Portion" under subsection (b)(2) above. Any request for and consent to a distribution made by a Member under the second preceding sentence must apply to the entire Vested Portion of the balance of all of his Plan Accounts, or to so much of the Vested Portion of such balance as may be distributed under the preceding sentence. (3) Distributions after Termination of Service. Distribution to the Member with respect to his Plan Account balances shall be made no later than 60 days after the close of the Plan Year in which occurs the latest of the date on which the Member attains age 65, the 10th anniversary of the date as of which the Member commenced participation in the Plan, or the date of the Member's Termination of Service. (4) Age 70 1/2 Distributions. The distribution of a Member's Plan Account balances shall be made or commence not later than: (i) in the case of a Member who is a 5-percent owner, as defined under Section 416(i) of the Code and the Treasury regulations thereunder, the April 1st following the calendar year in which he attains age 70 1/2; (ii) in the case of a Member who is not a 5-percent owner, as so defined in (i), and who attains age 70 1/2 prior to January 1, 1988, the April 1st following the later of (A) the calendar year in which he attains age 70 1/2, or (B) the calendar year ending December 31, 1990; or (iii) in the case of a Member not described in (i) or (ii), the later of (A) the April 1st following the calendar year in which he attains age 70 1/2 or (B) April 1, 1990. -34- 40 Clause (iii)(B) above shall not apply to a Member who both attains age 70 1/2 in 1988 and incurs a Termination of Service in 1988. The date by which the distribution of a Member's Account balances must be made or commence under (i), (ii) or (iii) above, as applicable, shall be referred to herein as the Member's "Required Commencement Date". A Member who attains age 70 1/2 may elect to have his Account balances distributed pursuant to one of the following options: (I) the balance of his Plan Accounts shall be distributed to him annually in a single lump sum payment or (II) his Account balances shall be paid to him in 10 annual installments. The election must be made no later than by the June 30 of the calendar year preceding the calendar year in which the Member's Required Commencement Date falls, or by such later date permitted by the Committee. If the Member fails to make an election by such date, the Member's Account balances shall be distributed under option (I). If the Member's Account balances are to be distributed under option (I), the initial lump sum payment shall be made no earlier than by the November 1 of the calendar year preceding the calendar year in which the Member's Required Commencement Date falls and no later than by the Member's Required Commencement Date, and the amount of such payment shall be determined at the close of the last business day immediately preceding the time the payment is made. Thereafter, pursuant to option (I), a lump sum payment shall be made once each calendar year, beginning with the calendar year in which the Member's Required Commencement Date falls, on or after August 1 of the year. The amount of each such payment shall be determined at the close of the last business day immediately preceding the time the payment is made. If the Member's Account balances are to be distributed under option (II), the initial installment payment shall be made no earlier than by the November 1 of the calendar year preceding the calendar year in which the Member's Required Commencement Date falls and no later than by the Member's Required Commencement Date, and with respect to the remaining installment payments, one installment payment shall be made each calendar year, beginning with the calendar year in which the Member's Required Commencement Date falls, on or after August 1 of the year. The amount of the initial installment payment shall be equal to the balance of the Member's Plan Accounts, determined at the close of the last business day immediately preceding the time the payment is made, divided by 10, and the amount of each other installment -35- 41 payment shall be equal to the balance of the Member's Plan Accounts, determined at the close of the last business day immediately preceding the time the payment is made, divided by the excess of (x) 10 over (y) the number of installment payments previously made. Any amounts credited to the Member's Plan Accounts after the date on which the 10th installment payment is made shall be distributed in one lump sum payment for each calendar year, beginning with the calendar year following the calendar year in which the 10th installment is made, on or after the August 1 of such year. Notwithstanding any provision in the Plan to the contrary, the amount of any payment made pursuant to this subsection (d)(4) shall be increased to the extent necessary to satisfy the requirements of Code Section 401(a)(9), including the incidental death benefit requirements of Code Section 401(a)(9)(G), and the regulations, rulings or notices issued thereunder. (e) The Member's Death. In the case of a Member who dies and, immediately following his death, has a balance to his credit in the Vested Portion of his Plan Accounts, such balance shall be distributed to his Beneficiary, in a single lump sum payment, as soon as practicable after his death. For this purpose, such balance shall be determined as of the close of the last business day immediately preceding the time such distribution is made. In all events, such distribution shall be made not later than by the final day of the Plan Year next following the Plan Year in which the Member died. (f) Cash Payments. All distributions under this Section 7.1 shall be made in cash. 7.2. Hardship Withdrawals. A Member who is in Service, and who has not attained age 59 1/2, may make a hardship withdrawal from his 401(k) Contribution Account subject to the following conditions: (a) The withdrawal must be for: (1) expenses for "medical care", as defined in Section 213(d) of the Code, incurred by the Member, the Member's spouse or any "dependent" of the Member, as defined in Section 152 of the Code; (2) costs directly related to the purchase of the Member's principal residence (excluding mortgage payments); -36- 42 (3) payments necessary to prevent the eviction of the Member from, or the foreclosure of the mortgage on, his principal residence; or (4) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Member, or for the Member's spouse, children or dependents (as defined in (1) above). In addition to the above, the Committee may, in its sole discretion, permit a Member to make a withdrawal in any circumstance which the Committee determines to be an "immediate and heavy financial need", within the meaning of Section 1.401(k)-1(d)(2)(iii) of the Treasury regulations. (b) The amount withdrawn may not exceed the lesser of (1) the amount of the Member's immediate and heavy financial need, determined in accordance with Section 1.401(k)-1(d)(2)(iv)(B)(1) of the Treasury regulations, attributable to the matter for which the hardship withdrawal is requested or (2) the aggregate amount of 401(k) Contributions that have been contributed to the Plan on the Member's behalf as of the day of the withdrawal, less the aggregate amount of 401(k) Contributions that were previously withdrawn by the Member under this Section 7.2. (c) The Member must have obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under this Plan and all other plans maintained by the Employer or any other entity described in Section 1.19(e)(2), (3) or (4), to the extent obtaining such distributions or loans is required under Section 401(k) of the Code and the regulations, rulings or notices issued thereunder. (d) Notwithstanding any other provision in Article 3 to the contrary, no 401(k) Contributions or Voluntary Contributions may be made to the Plan, and no elective contributions or employee contributions may be made to any other plan (qualified or nonqualified) of deferred compensation maintained by the Employer or any other entity described in Section 1.19(e)(2), (3) or (4), by or on behalf of the Member for a period of 12 months following the day of the Member's receipt of a hardship withdrawal hereunder. (e) Notwithstanding the provisions of Section 4.1, the maximum amount of 401(k) Contributions that may be made to the Plan on the Member's behalf for the Plan Year next following the Plan Year in which the Member receives a hardship withdrawal shall not exceed the dollar limit -37- 43 applicable to 401(k) Contributions under Section 402(g) of the Code for such next following year, less the amount of the 401(k) Contributions made on the Member's behalf for the Plan Year in which such hardship withdrawal is received. (f) A Member who wishes to make a withdrawal hereunder shall file a written request with the Committee setting forth the amount he wishes to withdraw. The Member's request shall include such information as to the amount needed by the Member, the reason for the withdrawal and the Member's financial need for such withdrawal as required to enable the Committee to make a determination as to whether or not the conditions set forth herein for a hardship withdrawal will be met in the Member's case. However, if the Committee so permits, and subject to such rules and guidelines as the Committee may have promulgated, a Member may use the telephone service made available by the Trustee to communicate the foregoing information directly to the Trustee in request for a withdrawal. A Member requesting a withdrawal shall complete such forms as are prescribed by the Committee and/or the Trustee in support of his request. A withdrawal cannot be made from the Member's 401(k) Contribution Account to the extent there is an unpaid amount outstanding on any loan to the Member from such Account. Amounts withdrawn from the Member's 401(k) Contribution Account shall be deemed to have been withdrawn, pro rata, from each Mutual Fund in which such Account was invested at the time of the withdrawal. Any withdrawal hereunder shall be paid in the form of a lump sum cash payment. 7.3. In-Service Withdrawals. A Member who is in Service shall be permitted to make withdrawals from his Plan Accounts as follows: (a) Voluntary Contribution and Rollover Account. A Member may, at any time, make a withdrawal of all or any portion of the balance of his Voluntary Contribution Account or Rollover Account. (b) Attainment of Age 59 1/2. A Member who has attained age 59 1/2 may, at any time and in addition to the withdrawals permitted under subsection(a) above, make a withdrawal of all or any portion of the balance of his 401(k) Contribution Account. (c) Rules of Application. Withdrawals made pursuant to this Section 7.3 shall be made in accordance with the following rules. A Member who wishes to make a withdrawal -38- 44 hereunder shall file a written request with the Committee, setting forth the amount he wishes to withdraw and specifying the Account or Accounts from which such withdrawal is to be made. However, if the Committee so permits, and subject to such rules and guidelines as the Committee may have promulgated, a Member may use the telephone service made available by the Trustee to communicate the foregoing information directly to the Trustee in request for a withdrawal. A Member requesting a withdrawal shall complete such forms as are prescribed by the Committee and/or the Trustee in support of his request. A withdrawal cannot be made from an Account to the extent there is an unpaid amount outstanding on any loan to the Member from such Account. Amounts withdrawn from any Account shall be deemed to have been withdrawn, pro rata, from each Mutual Fund in which such Account was invested at the time of the withdrawal. For the purpose of this Section 7.3, the balance of any Account shall be determined as of the close of the last business day immediately preceding the time the withdrawal is made. Any withdrawal hereunder shall be made in the form of a lump sum cash payment. 7.4. Direct Rollovers. This Section 7.4 applies to any distribution made under Section 7.1, 7.2 or 7.3 on or after January 1, 1993, to the extent that such distribution is an "Eligible Rollover Distribution". Notwithstanding any provision of the Plan to the contrary, the "Payee" of any Eligible Rollover Distribution made under Section 7.1, 7.2 or 7.3 may elect, at the time and in the manner prescribed by the Committee, to have all or any portion of such distribution paid as a "Direct Rollover" to an "Eligible Retirement Plan" specified by the Payee. For the purpose of this Section 7.4, the following definitions shall apply. An "Eligible Rollover Distribution" is defined as under Section 402(c)(4) of the Code and the applicable Treasury regulations. An "Eligible Retirement Plan" is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, a qualified annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that will accept a Direct Rollover of the Payee's distribution. However, if the Payee is the surviving spouse of a Member, only an individual retirement account or individual retirement annuity described above may be an Eligible Retirement Plan. A "Payee" is any person who is entitled to receive a distribution from the Plan, and who is a Member, the surviving spouse of a Member, or the spouse or former spouse of a Member who is entitled to receive the distribution as the alternate payee under a "qualified domestic relations order", as defined in Section -39- 45 414(p) of the Code. A "Direct Rollover" is a direct payment of a distribution by the Plan to the Eligible Retirement Plan specified by the Payee, made in accordance with Section 401(a)(31) of the Code and the Treasury regulations, and the rulings and notices issued by the Internal Revenue Service, thereunder, and made in such manner as prescribed by the Committee. 7.5. Loans. The Committee shall establish and administer a loan program for Members. Loans shall be made to a Member by the Trustee pursuant to said program in accordance with the following rules: (a) Generally, loans under the Plan shall: (1) be available to all Members on a reasonably equivalent basis, (2) not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Employees, (3) be made in accordance with the specific provisions herein, (4) bear a reasonable rate of interest, and (5) be adequately secured. (b) A loan may be made to a Member only while such Member is in Service. A loan may be made only from a Member's 401(k) Contribution Account, Rollover Account or Employer Contribution Account. A loan may not be taken from an Account while there is any outstanding balance on a loan previously taken from that Account. A loan may be made from a Member's 401(k) Contribution Account or Rollover Account for any purpose. A loan may be made from a Member's Employer Contribution Account to pay one or more of the following: (1) expenses for "medical care", as defined in Section 213(d) of the Code, incurred by the Member, the Member's spouse or any "dependent" of the Member, as defined in Section 152 of the Code; (2) costs directly related to the purchase or repair of the Member's principal residence (excluding mortgage payments); (3) payments necessary to prevent the eviction of the Member from, or the foreclosure of the Mortgage on, his principal residence; (4) costs directly related to the purchase or repair of any vehicle needed by the Member in connection with his employment by the Employer; (5) expenses for a funeral of any member of the Member's family; -40- 46 (6) unpaid income or real estate taxes, legal fees, or liabilities associated with the Member's divorce; or (7) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Member, or for the Member's spouse, children or dependents (as defined in (1) above). In addition to the above, the Committee may, in its sole discretion, permit a Member to take a loan from his Employer Contribution Account in any circumstance which the Committee determines to be a hardship. The amount of any loan to a Member from an Account shall be withdrawn, pro-rata, from each Mutual Fund in which the balance of such Account is invested at the time of the loan. The Account from which the loan is made shall be charged with such fees with respect to the loan as the Trustee and the Committee shall agree from time to time. (c) A Member shall request a loan by filing a written request with the Committee, in advance of the loan, setting forth the amount and term of the loan desired, the Account from which the loan is to be made, and, if the loan is to be made from the Member's Employer Contribution Account, the purpose for which the loan is requested. However, if the Committee so permits, and subject to such rules and guidelines as the Committee may have promulgated, a Member may use the telephone service made available by the Trustee to communicate the foregoing information directly to the Trustee in application for a loan. A Member requesting a loan shall complete such forms and documents as are prescribed by the Committee and/or the Trustee to obtain the loan. (d) Each loan must be for a minimum amount of at least $1,000. The amount of any loan, when added to the outstanding balance of all other Plan loans to the Member, shall not exceed the least of: (1) $50,000, reduced by the excess (if any) of (i) the highest outstanding balance of Plan loans to the Member during the one year period ending the day before the loan is to be made over (ii) the outstanding balance of Plan loans to the Member on the day the loan is made; (2) one-half of the Vested Portion of the balance of the Member's Plan Accounts; or -41- 47 (3) either (i) in the case of a loan to be made from the Member's Employer Contribution Account, one-half of the Vested Portion of the balance of such Account, or (ii) in any other case, the Vested Portion of the balance of the Account from which the loan is to be made. (e) For the purpose of this Section 7.5, the Vested Portion of the balance of the Member's Plan Accounts, individually and in the aggregate, shall be determined as of the close of the last business day immediately preceding the time the loan is made. (f) The loan shall be evidenced by a Promissory Note in such form and containing such terms and conditions as are herein required and as the Committee otherwise determines. (g) Each loan shall provide for repayment of principal and interest in level monthly installments over its term. Repayments shall commence with the month following the month in which the loan is made. The monthly installments of Members shall be deducted proportionately from each of their paychecks from the Employer for the month and remitted by the Employer to the Trustee, or shall be made in such other manner as prescribed by the Committee. Repayments shall be suspended, for up to one year, for periods during which the Member is taking an unpaid leave of absence from the Employer due to temporary disability. (h) The loan shall be for a term to be selected by the Member with the approval of the Committee. The term for a loan from the Member's Employer Contribution Account shall not exceed three years. The term for a loan from the Member's 401(k) Contribution Account or Rollover Account shall not exceed five years, or, if the proceeds of such loan are to be used to acquire any dwelling unit which, within a reasonable time, is to be used as the Member's principal residence, the term of such loan shall not exceed 15 years. Notwithstanding the above, the loan shall provide that all unpaid amounts of principal and interest shall become immediately due and payable one month after the Member's Termination of Service. (i) The interest rate charged on any loan from the Plan shall represent a prevailing interest rate charged on similar personal loans granted under like circumstances by persons in the business of lending money, as determined under rules of uniform application issued by the Committee from time to time. -42- 48 (j) The amount of the outstanding balance of any loan shall, itself, be deemed to be an investment of the Member's Account from which the loan was made. No Earnings shall be credited or charged to such Account under Section 6.3 with respect to the amount of the outstanding balance of any Plan loan. Repayments on the loan shall be credited to such Account, and shall be invested in accordance with the Member's investment election with respect to New Money to be credited to such Account then in effect under Section 6.2. (k) The loan shall be secured by the portion of the Member's Account deemed to be invested in the outstanding balance of the loan. As a condition of any loan to a Member hereunder, the Member shall agree in writing that in the event of a default by the Member on such loan, to the extent that such Account is being used as a security for the loan, such Account shall be reduced as an offset against the Member's obligation to repay any amount outstanding on such loan; provided, however, that no such reduction of the Member's 401(k) Contribution Account may be made until the earliest of the Member's attainment of age 59 1/2, his becoming Disabled or his Termination of Service. (l) If any portion of the loan remains outstanding at the time the Account from which the loan was made is to be distributed under Section 7.1, to the extent such Account is being used as security for the loan, the amount then distributable under Section 7.1 from such Account shall be reduced to offset the outstanding loan balance. (m) The failure to make any payment under the loan when due shall constitute a default on the loan. However, the Committee may, in its sole discretion, grant any Member who has failed to make any payment on a loan by its due date a grace period, not exceeding 30 days after such due date, during which the Member may make such payment and avoid a default on the loan. In the event of a default, the balance of the Member's Account from which the loan was made, to the extent such Account is being used as security for the loan, shall be reduced as an offset against the Member's obligations under the loan as provided in subsection (k). In addition, the Committee shall take any commercially reasonable action it deems necessary or desirable to satisfy any remaining obligations under the loan. (n) Each loan hereunder shall be subject to such other terms and conditions as the Committee may require -43- 49 under rules of uniform application issued by the Committee from time to time. ARTICLE 8 - PLAN ADMINISTRATION 8.1. Responsibility for Administering the Plan. Authority to control and manage the operation and administration of the Plan shall rest exclusively with the Committee, except as to those responsibilities and powers reserved or granted to the Trustee under Section 8.5, and to the Company's Board of Directors under Section 8.6. 8.2. Responsibilities of the Committee. The Committee shall be a "named fiduciary" of the Plan within the meaning of Section 402(a) of ERISA, the "administrator" of the Plan within the meaning of Section 3(16)(A) of ERISA, and the "plan administrator" within the meaning of Section 414(g) of the Code. The Committee shall have the following responsibilities with respect to the administration of the Plan: (a) to furnish Members (and other individuals entitled to receive same) with such reports, notifications, documents, statements, information and explanations with respect to the Plan as may be required under the provisions hereof and by the Code and ERISA; (b) to file with the appropriate governmental agencies all reports with respect to the Plan required by the Code, ERISA or any other applicable statute; (c) to engage an independent certified public accountant to perform such functions with respect to the Plan as may be required of the Committee by ERISA; (d) to direct the Trustee to pay out of the Trust Fund all amounts which are payable hereunder to Members or their surviving spouses or other beneficiaries, any contributions to be returned to the Employer under Section 11.1 and any taxes (including interest and penalties) that may be levied or assessed on the Trust's assets or the income thereof; (e) to interpret the Plan, to decide all questions that may arise as to the construction or application of any of its provisions and, in accordance with the claims procedure set forth in Section 8.7, to make all final determinations as to the rights of Members or their surviving spouses or other beneficiaries to benefits under the Plan. Any determination made by the Committee as to the interpretation, construction or application of the Plan, or as to the rights of any Member or any other -44- 50 person to benefits under the Plan, shall be conclusive and binding on all parties; (f) to promulgate such rules and regulations, and prescribe such forms and manuals, as it shall deem appropriate for the efficient administration of the Plan, and to maintain all data, records and documents with respect to the Plan that may be necessary for its operation and administration or that may be required to be maintained by law; (g) to employ suitable agents and legal counsel (who may be the same as legal counsel for the Employer) to advise or assist the Committee with respect to any of its duties hereunder; (h) to establish and carry out a funding policy and method for the Plan consistent with the objectives of the Plan and with the requirements of ERISA, and to communicate such funding policy and method to the Trustee; and (i) to perform such other duties and responsibilities as are specifically assigned to it hereunder or under the Trust Agreement, or as may be necessary for the Plan to be operated and administered in accordance with the requirements of the Code and ERISA. 8.3. Duties and Powers of the Committee. In carrying out its responsibilities under Section 8.2, the Committee shall comply with the standards of conduct set forth in subsection (a) and shall have the powers set forth in subsection (b). (a) Standards of Conduct. The Committee shall discharge its duties under the Plan solely in the interest of the Members and their surviving spouses or other beneficiaries (subject, however, to the provisions of Section 11.1); and (1) for the exclusive purpose of providing benefits to Members and their surviving spouses or other beneficiaries and defraying the reasonable expenses of administering the Plan; (2) with the skill, care, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (3) in accordance with the documents and instruments governing the Plan insofar as such documents and -45- 51 instruments are consistent with the provisions of ERISA; and (4) in accordance with such other applicable standards as may be prescribed by ERISA for Plan fiduciaries. In addition, the Committee shall maintain a written record of all actions taken by it and determinations made by it in carrying out its responsibilities under the Plan, and shall prepare and submit to the Company's Board of Directors such written reports relating to its responsibilities under the Plan as the Board may request of it from time to time. Any action to be taken by the Committee hereunder shall be taken upon the affirmative vote of at least a majority of all persons serving on the Committee, except as otherwise permitted under subsection (b)(1). Any direction to be given by the Committee hereunder in effecting any action may be given by any person serving on the Committee, unless the duty to give such direction with respect to such action has been allocated to a specific person or persons serving on the Committee under subsection (b)(1). (b) Powers. The Committee shall have the following powers: (1) The persons serving on the Committee may allocate specific duties and responsibilities among themselves. Any such allocation shall be made pursuant to a written instrument, signed by all such persons, and setting forth (i) the duties or responsibilities so allocated, (ii) the person or persons to whom such duties or responsibilities are allocated, and (iii) the period of time for which such allocation is to be effective. If any duty or responsibility is so allocated, a person to whom such duty or responsibility has not been allocated shall not be liable for any act or omission of the person or persons to whom such duty or responsibility has been allocated, except as may otherwise be provided under Section 405(b)(2) of ERISA; (2) The Committee may designate persons other than persons serving on the Committee to carry out any fiduciary responsibility, other than a "trustee responsibility" within the meaning of Section 405(c)(3) of ERISA. Any such designation shall be made pursuant to a written instrument setting forth (i) the duties or responsibilities so delegated, (ii) the person or persons to whom such duties or responsibilities are delegated, and (iii) the period of time for which such delegation is to be effective. If any fiduciary responsibility is so delegated, the Committee shall not be liable for any act or -46- 52 omission of the person or persons designated by it to carry out such responsibility, except as otherwise provided under Section 405(c)(2) of ERISA. Any person to whom fiduciary responsibilities are so delegated shall perform such responsibilities in accordance with the standards of conduct set forth in subsection (a) of this Section; (3) The Committee, and any person to whom fiduciary responsibilities are delegated by it under subsection (b)(2) above, may employ attorneys, accountants, actuaries, and other consultants or advisors to render advice to or otherwise to assist them in carrying out their responsibilities under the Plan; and (4) The Committee shall have all other powers necessary to enable it to carry out its responsibilities under Section 8.2. 8.4. Reimbursement and Indemnification of the Committee. The persons serving on the Committee, and any persons designated by the Committee to perform fiduciary responsibilities pursuant to Section 8.3(b)(2), shall not receive any compensation for their services as such, but shall be reimbursed by the Company for all reasonable expenses incurred by them in the performance of their duties hereunder. The persons serving on the Committee, and any other persons designated by the Committee to perform fiduciary responsibilities pursuant to Section 8.3(b)(2), shall be indemnified and held harmless by the Company and each other Employer for any liability or loss (including legal fees or other expenses of litigation) arising out of or in connection with their services to the Plan in such capacity, to the extent that such liability or loss (a) is not insured against under any applicable policy of insurance (whether or not maintained by the Employer) and (b) is not determined to be due to their gross negligence or willful misconduct. 8.5. Responsibilities of the Trustee. The Trustee shall have the following responsibilities and powers in connection with the Plan: (a) to hold all amounts contributed to the Plan by the Employer, any income thereon and any other Plan assets, as part of the Trust Fund; (b) to make payments out of the Trust Fund in accordance with the instructions of the Committee; (c) to hold and control the Trust Fund, and to invest the Trust Fund in accordance with any directions received from the Committee and the Members which are -47- 53 proper, and which are in accordance with the terms of the Plan and the requirements of ERISA; and (d) to perform such other responsibilities and duties in connection with the Plan and Trust as are set forth in the Trust Agreement. 8.6. Responsibilities of the Company's Board of Directors. The following responsibilities and powers in connection with the Plan shall be reserved to the Board of Directors of the Company: (a) to amend or terminate the Plan; (b) to establish a committee to control and manage the operation and administration of the Plan; and to appoint, remove and replace the persons serving on such Committee, and to determine the number of persons who shall serve on such Committee; and (c) to appoint, remove and replace the Trustee. 8.7. Claims Procedure. Any claim for benefits or other payments under the Plan shall be determined in accordance with the procedure set forth below. (a) Initial Determination. Any claim for benefits or other payments under the Plan shall be made by filing a written statement of such claim with the person or persons designated by the Committee to process and make initial determinations as to such claims. In the event such claim is denied in whole or in part, such person or persons shall notify the claimant of the denial within 90 days after the date on which the claim was filed. Such notification shall be in writing and shall set forth: the specific reason or reasons for the denial; specific reference to the provisions of the Plan on which denial was based; a description of any additional material or information necessary for the claimant to perfect the claim, and an explanation of why such material or information is necessary; and an explanation of the review procedure under subsection (b). (b) Review Procedure. A claimant whose claim is denied in whole or in part under subsection (a) shall be entitled to have such denial reviewed by the Committee, by filing a written request for such review with the Committee within 60 days after his receipt of notification of the denial of his claim under subsection (a). Upon receipt of such request, the Committee shall make a full and fair review of the claim; and in connection with such review, the claimant shall be entitled to review pertinent documents and to submit issues and comments in writing. -48- 54 (c) Decision on Review. The Committee shall make a decision with respect to such claim within 60 days after its receipt of the claimant's written request for review; provided, however, that if the Committee determines that a hearing is necessary, the Committee shall hold such hearing within such 60-day period and shall make its decision within 120 days after its receipt of the claimant's request for review. The Committee's decision on review shall be in writing and shall include specific reasons for the decision and specific references to the provisions of the Plan on which its decision was based. 8.8. Agent for Service of Process. The agent to accept service of legal process on behalf of the Plan shall be such person as may be designated by the Committee, from time to time, to perform such function or, in the absence of such designation, the Committee itself. 8.9. Expenses. The Employer shall pay all of the fees and expenses of the Plan and Trust which are not specifically described in the Trust Agreement. All other fees and expenses of the Plan and Trust shall be paid by the Employer, or out of the Trust Fund, as provided in the Trust Agreement. ARTICLE 9 - AMENDMENT, MERGER AND TERMINATION 9.1. Amendment. The Company may amend this Plan at any time, by a duly adopted resolution of the Company's Board of Directors. Any such amendment may be made with retroactive effect to the extent not prohibited by law. However, no such amendment shall decrease the balance of any Member's Plan Accounts, or affect the computation of the extent to which a Member is vested in his Accounts. In addition, no such amendment shall increase the duties or liabilities of the Committee or the Trustee without their written consent. 9.2. Merger or Consolidation. (a) General. In the event that the Plan is merged or consolidated with any other plan, or in the event of any transfer of assets or liabilities of the Plan to any other plan, the benefit which each Member would be entitled to receive if the Plan terminated immediately after such merger, consolidation or transfer shall be at least equal to the benefit which he would have been entitled to receive if the Plan had terminated immediately before the merger, consolidation or transfer. (b) Transfer Accounts. In the event that any Employer terminates any plan and its trust which are qualified -49- 55 and tax-exempt under Sections 401(a) and 501(a) of the Code, and such plan was a defined contribution plan (such plan shall be referred to below as a "Terminated Plan"), then the Committee may, in its sole discretion, permit such Employer to directly transfer to this Plan any or all of the account balances under the Terminated Plan which belong to Members in this Plan. Any such transfer shall be made in accordance with the applicable provisions of the law, and in accordance with such rules as are prescribed by the Committee. The account balances under the Terminated Plan of any Member which are so transferred to this Plan shall be held in an account referred to as a "Transfer Account" established and maintained under the Plan for such Member. A Member's interest in his Transfer Account shall be fully vested and nonforfeitable at all times. The Transfer Account shall be invested in accordance with rules and procedures which are consistent with those set forth in Article 6, as if such account was a Rollover Account. A Transfer Account shall be credited with Earnings in the manner described in Section 5.1(b). However, the balance of any Transfer Account shall be distributed, or may be withdrawn or borrowed from, under the same terms and conditions which applied to distributions, withdrawals and loans from participants' accounts under the Terminated Plan (immediately prior to the termination thereof) in lieu of the terms and conditions of Article 7, and, upon Plan termination, Section 9.3(b), except that, for purposes of determining the amount of any distribution, withdrawal or loan, the Transfer Account shall be valued as of the close of the last business day immediately preceding the time such distribution, withdrawal or loan is made. If appropriate, the Transfer Account shall be divided into sub-accounts to account separately for any portions of the account balances transferred from the Terminated Plan which, under the provisions of the Terminated Plan, could be distributed, withdrawn or borrowed against at different times, or in different forms or manners, than other portions of such account balances. The Transfer Account shall not be treated as an Account under the Plan for purposes of determining the amount of any loan that may be made to a Member under Section 7.5, but shall be treated as a part of the Vested Portion of the balance of the Member's Plan Account under Sections 5.2(c) and 7.1(d)(2)(i). Except as otherwise provided above, the Transfer Account shall be treated as an Account under the Plan. 9.3. Termination. (a) General. The Company reserves the right to terminate the Plan at any time, without the consent of any other party, pursuant to a resolution authorizing such termination duly adopted by the Company's Board of Directors. Notwithstanding anything herein to the contrary, the Employer, upon termination of the Plan, shall have no obligation or -50- 56 liability whatsoever to make any further contributions to the Trust, and neither the Trustee, nor any Member, Beneficiary, Employee or other person shall have any right to compel the Employer to make any such further contributions. (b) Termination or Continuation of the Trust. Upon termination of the Plan, one of the following actions shall be taken: (1) If the Company so directs, the Trust shall continue in existence. In such event, the Trust Fund shall be held, administered and distributed as directed by the Committee and as provided in the Plan, and all of the provisions of the Plan set forth herein, which are applicable in the opinion of the Committee, other than the provisions relating to contributions, shall remain in full force and effect. (2) If the Plan is terminated without establishment or maintenance of another defined contribution plan within the meaning of Section 401(k)(10) of the Code, and if the Company so directs, the Trust shall be terminated. In such case, notwithstanding any other provision of the Plan to the contrary, the Plan Account balances of each Member and Beneficiary shall be distributed to such Member or Beneficiary, as soon as administratively feasible, in the form of a single lump sum payment. (3) If, upon termination of the Plan, another defined contribution plan has been, or will be, established or maintained within the meaning of Section 401(k)(10) of the Code, then, notwithstanding any other provision of the Plan to the contrary (i) an immediate distribution shall be made, in accordance with the provisions of (2) above, to all Beneficiaries and to all Members who have attained age 59-1/2 or are Disabled, and (ii) the Trust shall be continued, in accordance with the provisions of (1) above, with respect to all other Members; provided, however, that each such other Member's Plan Account balances shall be distributed, in a single lump-sum payment, as soon as practicable after such Member has attained age 59-1/2, has become Disabled or has incurred a Termination of Service for any reason. (c) Vesting Upon Termination. Upon the termination or partial termination of the Plan, or upon the complete discontinuance of contributions to the Plan, notwithstanding any other provision of the Plan to the contrary, each Member affected thereby shall become 100% vested, and shall have a nonforfeitable interest, in his Plan Accounts. -51- 57 9.4. Termination of An Employer's Participation in the Plan. An Employer, other than the Company, may at any time terminate its participation in the Plan, and the Company may at any time direct that an Employer terminate its participation in the Plan. Unless the Company specifically directs otherwise, an Employer other than the Company shall be treated as having terminated its participation in the Plan (a) upon the sale or other transfer of all or substantially all of its assets to an Unaffiliated Entity or (b) upon the sale or other transfer of its stock to an Unaffiliated Entity in a transaction that results in the termination of such Employer's "parent-subsidiary or controlled group relationship" with the Company, or with the controlled group of which the Company is a member, within the meaning of Section 414(b) of the Code. For purposes of the foregoing, the term "Unaffiliated Entity" shall mean any entity other than one described in Section 1.19(e)(2), (3) or (4). Upon any such termination of participation, the Plan shall terminate with respect to the terminating Employer and its Employees and shall continue in effect with respect to the remaining Employers and their Employees. In the event of such a termination, the provisions of Section 9.3(b) shall apply with respect to the portion of the Trust Fund attributable to the terminating Employer, and Section 9.3(c) shall apply to the Employees of such Employer. ARTICLE 10 - TOP-HEAVY PROVISIONS 10.1. General. With respect to each Plan Year in which the Plan is Top-Heavy, the provisions of Sections 10.2, 10.3, 10.4 and 10.5 shall apply notwithstanding any other provisions in this Plan to the contrary. With respect to any Plan Year in which the Plan is not Top- Heavy, except as otherwise provided herein, the provisions of Sections 10.2, 10.3. 10.4 and 10.5 shall not apply. 10.2. Minimum Benefit. For any Plan Year in which the Plan is Top-Heavy, the Employer shall make a contribution to the Plan under this Section 10.2 on behalf of any Member who is a Non-Key Employee. Such contribution shall be in the amount by which the contributions made by the Employer on such Member's behalf, or allocated to such Member, for such year under this Plan, and under each other defined contribution plan aggregated with this Plan under Section 10.6(a), is less than the smaller of (a) 3% of such Member's Section 415 Compensation for such year or (b) the percentage of such Member's Section 415 Compensation for such year which is equal to the highest Allocation Percentage for the year of any Member who is a Key Employee. For this purpose, (1) 401(k) Contributions made on behalf of Non-Key Employees under this Plan, and any contributions subject to Section 401(k) or 401(m) of the Code made on behalf of Non-Key Employees under any other defined -52- 58 contribution plan, shall be disregarded; (2) a Key Employee's "Allocation Percentage" for a Plan Year shall mean the percentage determined by dividing the sum for such year of (i) total 401(k) Contributions and Employer Contributions made on behalf of the Key Employee, or allocated to the Key Employee, under this Plan and (ii) the total contributions made by the Employer on such Key Employee's behalf, or allocated to such Key Employee, under any other defined contribution plan aggregated with this Plan under Section 10.6(a) by so much of his Section 415 Compensation for the year as does not exceed the maximum amount of his Section 415 Compensation that may be taken into account hereunder; and (3) any person who is not a Member solely because he has not elected to have any 401(k) Contributions made on his behalf shall be treated as a Member. Clause (b) in the second preceding sentence shall not apply in any Plan Year in which this Plan enables a defined benefit plan, which is aggregated with this Plan under Section 10.6(a), to meet the requirements of Section 401(a)(4) or 410 of the Code for such year. Notwithstanding the foregoing, the amount to be contributed on behalf of any Member pursuant to this Section shall not exceed the minimum amount that must be contributed on such Member's behalf in order to meet the "minimum benefit" requirements of Section 416(c) of the Code and the regulations issued thereunder; and no amount shall be contributed under this Section on behalf of a Member for any Plan Year if (A) the Member is not employed by the Employer on the last day of such Plan Year, or (B) the Member is entitled to receive for such year, under any defined benefit plan aggregated with this Plan under Section 10.6(a), a benefit that is at least equal to the defined benefit minimum described in M-2 of Section 1.416-1 of the Treasury regulations. Any amount contributed under this Section 10.2 by the Employer on behalf of any Member shall be credited to the Member's Employer Contribution Account, as of the day on which such contribution is made to the Plan, but no later than by the final day of the Plan Year to which the contribution relates. 10.3. Minimum Vesting. In the case of a Member who earns at least one Hour of Service under the Plan during or subsequent to a Plan Year for which the Plan is Top-Heavy, the Vested Portion of his Plan Accounts shall be determined as provided in Section 1.33, except that the following schedule shall apply to all Members in lieu of the schedules appearing in (1), (2) and (3) of subsection (a) of Section 1.33: -53- 59 Years of Service Vested Percentage ---------------- ----------------- 0 - 1 0 2 40 3 100 10.4. Maximum Compensation. For any Plan Year beginning prior to August 1, 1989 in which the Plan is Top-Heavy, the annual Compensation taken into account under the Plan, and the annual Section 415 Compensation taken into account under this Article 10, for any Member shall not exceed $200,000, adjusted annually by the Secretary of the Treasury under Section 416(d) of the Code and the Treasury regulations issued thereunder. 10.5. Section 415 Limits. For any Plan Year in which the Plan is Top-Heavy, the overall limit of Section 415(e) of the Code shall be applied by substituting "1.0" for "1.25" wherever "1.25" appears. However, the preceding sentence shall not apply with respect to a Plan Year if (a) each Member who is a Non-Key Employee is entitled to receive for such year (1) under this Plan, when aggregated with any other defined contribution plan aggregated with this Plan under Section 10.6(a), a benefit that is at least equal to the defined contribution minimum described in M-14 of Section 1.416-1 of the Treasury regulations, or (2) under any defined benefit plan aggregated with this Plan under Section 10.6(a), a benefit that is at least equal to the defined benefit minimum described in M-14 of Section 1.416-1 of the Treasury regulations, and (b) the Plan is not Super Top-Heavy for such year. 10.6. Definitions. For purposes of this Article 10, the following terms shall have the following meanings, and the following rules shall apply: (a) "Top-Heavy" and "Super Top-Heavy" - the Plan shall be deemed to be Top-Heavy with respect to any Plan Year if, as of the Determination Date for that year, the aggregate Benefits of all Key Employees under this Plan, and all other plans which are aggregated with this Plan, exceed 60% of the aggregate Benefits of all Key and Non-Key Employees under this Plan and all such other plans. The Plan shall be deemed to be Super Top-Heavy with respect to any Plan Year if, as of the Determination Date for that year, the aggregate Benefits of all Key Employees under this Plan, and all other plans that are aggregated with this Plan, exceed 90% of the aggregate Benefits of all Key and Non-Key Employees under this Plan and all such other plans. For purposes of the two preceding sentences, each qualified plan maintained by the Employer, including this Plan, (1) in which a Key Employee was a participant, or (2) which enabled any plan -54- 60 described in clause (1) to meet the requirements of Section 401(a)(4) or Section 410 of the Code, during the 5-year period ending on the Determination Date for the Plan Year in question shall be aggregated. A terminated plan shall be aggregated with this Plan, for these purposes, if such plan was maintained by the Employer during the aforesaid 5-year period and would, but for its termination, be so aggregated under the preceding sentence. (b) "Determination Date" - The Determination Date for a Plan Year shall mean the final day of the immediately preceding Plan Year, except, however, the Determination Date for the first Plan Year shall be the final day of such year. (c) "Benefits" - An individual's Benefits shall mean the sum of (1) the balance of his Plan Accounts under this Plan and his accounts under all other defined contribution plans aggregated with this Plan under Section 10.6(a); (2) the present value of his cumulative accrued benefits under all defined benefit plans aggregated with this Plan under Section 10.6(a); and (3) the aggregate distributions made with respect to him under the plans described in clauses (1) and (2) hereof during the 5-year period ending on the Determination Date as of which such individual's Benefits are being determined. For purposes of this Section 10.6(c), the Benefits of any individual shall be disregarded if such individual (i) has not performed any services for the Employer during the 5-year period ending on the Determination Date for the Plan Year or (ii) was a Key Employee for any Plan Year but subsequently became a Non-Key Employee for any Plan Year. The present value of accrued benefits under any defined benefit plan shall be determined for each Non-Key Employee under the uniform method of benefit accrual used by all qualified defined benefit plans of the Employer, or, if there is no such method, as if benefits accrued not more rapidly than under the slowest accrual rate permitted under Section 411(b)(1)(C) of the Code. (d) "Key Employee" and "Non-Key Employee" - shall be defined as under Section 416(i) of the Code and the Treasury regulations thereunder. (e) "Section 415 Compensation" - shall mean compensation as defined under Section 1.415-2(d)(1), (2), (3) and (4) of the Treasury regulations. For Plan Years beginning on and after August 1, 1989, the $200,000 limitation set forth in Section 1.7 shall apply. -55- 61 (f) The benefits attributable to any plan aggregated with this Plan under Section 10.6(a) shall be taken into account for purposes of Sections 10.2, 10.5 and 10.6(a) and (c) in a Plan Year in a manner consistent with T-23 of Section 1.416-1 of the Treasury regulations. (g) For purposes of this Article 10, wherever required by Section 416 of the Code and the regulations thereunder, the term "Employer" includes all entities aggregated with the Employer under Section 414(b), (c), (m) or (o) of the Code and the regulations thereunder. 10.7. Applicability. In the event that Congress should provide by statute, or the Treasury Department or the Internal Revenue Service should provide by regulation, ruling or notice, that the provisions of this Article are no longer necessary to meet the qualification requirements of Section 401(a) of the Code, this Article shall become void, and shall no longer apply, without the necessity of any amendment to the Plan. ARTICLE 11 - MISCELLANEOUS 11.1. Plan Assets to be Held for Exclusive Benefit of Members. The assets of the Plan shall never inure to the benefit of the Employer and shall be held for the exclusive purposes of providing benefits to Members of the Plan and their spouses and other beneficiaries, and defraying the reasonable costs and expenses of administering the Plan. However, this Section shall not prevent a contribution made by the Employer under the Plan from being returned to it, or other Plan assets to be distributed to the Employer, in the following circumstances: (a) If an amount is contributed under the Plan by the Employer pursuant to a mistake of fact, the amount so contributed shall be returned to the Employer within one year of the date of such contribution. (b) Each contribution which the Employer makes under the Plan is conditioned upon the deductibility of such contribution under Section 404 of the Code. To the extent a deduction therefor is not allowed, the amount of any such contribution shall be returned to the Employer within one year after the contribution is determined to be nondeductible. 11.2. Nonassignability of Rights. Except to the extent provided in Section 11.3, no interest, right or claim in or to any part of the Trust Fund or any payment therefrom shall be assignable, transferable or subject to sale, mort- -56- 62 gage, pledge, garnishment, attachment, execution or levy of any kind, and the Trustee shall not recognize any attempt to assign, transfer, sell, mortgage, pledge, garnish, attach or execute the same. 11.3. Qualified Domestic Relations Orders. To the extent so provided in an order that the Committee determines to constitute a "qualified domestic relations order" within the meaning of Section 414(p)(1)(A) of the Code ("QDRO"), the right to receive all or a portion of the benefits payable under the Plan with respect to a Member may be assigned or transferred by the Member to any "alternate payee" within the meaning of Section 414(p)(8) of the Code ("Alternate Payee") specified in such QDRO. Notwithstanding any other provision in this Plan to the contrary, if a QDRO so provides, the portion of a Member's interest in the Plan which is payable under the QDRO to any Alternate Payee shall be distributed to such Alternate Payee, in the form of a single lump sum payment, as soon as practicable after the Committee has determined that such order constitutes a QDRO. 11.4. Trust Fund as Sole Source of Benefit Payments. The Trust Fund shall be the sole source of payment of benefits under the Plan. In no event shall the Employer be liable to any Member or to any other individual for the payment of such benefits. 11.5. Right to Employment. The Plan shall not confer upon any Employee any right of employment, nor shall any provision of the Plan interfere with the right of the Employer to discharge any Employee. 11.6. Gender and Number. Words used in the masculine include the feminine gender. Words used in the singular or plural shall be construed as if plural or singular, respectively, where they would so apply. 11.7. Titles. Titles of Articles, Sections and subsections are inserted for convenience and shall not affect the meaning or construction of the Plan. -57- EX-13 14 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 PATIENT PROTECTION, HOSPITAL AND BLOOD BANK (FIGURE 1) 50% of Health Care Sales (Millions of $) Market Potential - $4,050 1994 Sales - $176.3 1993 Sales - $181.4 FISCAL 1994 IN REVIEW We accomplished a great deal toward the goal of routine filtration of blood components in 1994. There is now universal agreement among the blood banking community that removing leukocytes from blood components provides documented benefits. Pall's work to establish blood filtration processing requirements and hospital supply routes to meet the growing demands for blood bank filtered blood components is required preparation for future growth. The results of this effort are showing up in a 30% increase in sales to blood banks. We are working in partnership with blood providers because it is clear to them, and to us, that to achieve universal filtration of blood, much of that filtration must take place in the blood bank. There is now movement towards establishing broad "standard of care" policies requiring filtration for a rapidly broadening range of patient categories. We are supporting this with product configurations and training of user personnel suitable for blood banks. We are well situated to meet the requirements of both our blood bank and hospital customers. Strategic partnerships have been formed with key manufacturers like Miles, Haemonetics and Baxter. We also signed exclusive use contracts with key blood processing organizations. In the U.S. these include the American Red Cross, Blood Services, Inc. and the New York Blood Center. In France and England, there are significant contractual commitments to Pall with others to follow. These alliances and customer agreements will hasten the availability of leukocyte depleted blood components for all patients. Meanwhile, the spectre of governmental health care reform created dramatic changes and uncertainty in the health care marketplace in fiscal 1994. American hospitals are now caught up in a frenzy of cost cutting and cost containment measures. In Europe, particularly in Germany, governments have also tightened control of health care expenditures. We note, however that routine filtration as a health care standard is rapidly growing with France, Italy and Finland leading the way. In Japan, the use of filters is reimbursed by the Ministry of Health. Most countries are actively developing leukocyte removal policies and budgets. (FIGURE 2) 12 2 BLOOD TRANSFUSION FILTRATION Unit and price growth of leukocyte removal filters to blood banks was 19% for the year and represents 21% of blood filter sales. This trend in blood processing filters is encouraging progress towards achieving our goal of 100% filtration. Pall's line of leukoreducing filters provides the highest degree of patient protection against the well documented hazards of leukocytes. They reduce transfusion complications and their associated costs, often saving lives in the process. Equally motivating is the growing evidence that unfiltered blood causes expensive complications and patient exposure to viral and other complications. To the blood banking community, we offer a broad range of options for the production of leukocyte reduced blood components. Our RC300 filter, incorporated into the Miles Leukotrap RC* blood collection system, serves as the blood collection unit at the time of blood donation. Pall's BPF4 processing filter system can be used at any time during the storage life of blood to deplete leukocytes from packed red blood cells. (FIGURE 3) (FIGURE 4) BREATHING CIRCUIT FILTRATION Issues such as the increasing incidence of tuberculosis worldwide have heightened awareness of the need for patient and staff protection. Pall's breathing circuit filters protect patients and care givers from bacterial and viral contamination in surgery during anesthesia, in intensive care units, and in pulmonary function testing laboratories. During recent months Pall breathing filters have been chosen by Australian authorities to prevent the spread of Hepatitis C virus as a result of patient cross-contamination of breathing and anesthesia circuits during surgery. Sales of our breathing circuit filters have been brisk as a result. The unique ability of Pall's breathing circuit filters to prevent the passage of liquid and airborne contaminants provides unparalleled filtration protection. Pall's Pro-Tec filters for pulmonary function testing are reported to reduce the probability of patient cross-contamination to one in a million. INTRAVENOUS FILTRATION Pall filters for intravenous therapy protect patients from inadvertent contamination of IV fluids that can cause phlebitis, air embolism, infection, sepsis and fever. The ability of the Pall Posidyne filter membrane to retain bacterial endotoxins allows both IV filter and administration sets to be used for up to 96 hours protecting patients and saving money in the hospital and home care setting. New Pall filters for Total Nutrient Admixtures (TNA) were introduced in our fourth quarter. They provide protection to patients receiving intravenous feeding emulsions - a new sales opportunity for us. EXTRACORPOREAL FILTRATION During cardiopulmonary bypass surgery the patient's blood passes through the extracorporeal (outside the body) circuit. When blood contacts these tubing surfaces, leukocytes are activated, causing reactions that result in post-surgical complications. - ------------------- * Leukotrap RC is a registered trademark of Miles Inc. 13 3 (FIGURE 5) Pall's LeukoGuard arterial filter protects patients from their own activated leukocytes as well as from particulates in the extracorporeal circuit. Research in the U.S. and Japan concluded that patients protected by the LeukoGuard filter spent less time post-surgically on a ventilator, less time overall in the hospital, and generated lower patient charges during their hospital stay. FACTORS FUELING GROWTH Leukocytes are contaminants in red cell and platelet transfusions and serve no useful purpose. To the contrary, leukocytes in blood products carry or reactivate viruses, cause serious transfusion reactions and suppress the patient's immune system. With increasing evidence that transfused leukocytes contribute to post-operative infections, leukocyte depletion is now expanding to include blood transfused during surgery. Since the majority of blood is transfused to surgery patients, we see this as a growing opportunity. Pall's new Autostop filter, ATS, an integral part of the Miles Leukotrap RC-PL* blood collection system, promises to revolutionize the production of platelets from whole blood. After whole blood is collected and centrifuged, the ATS series filter removes the leukocytes from platelet rich plasma, and through mechanical separation improves the harvest of valuable platelets and plasma. Pall's Automated Blood Processing system will bring to blood centers a highly efficient means to reduce leukocytes and enhance plasma harvest with the Leukotrap RC-PL blood collection set. Good Manufacturing Practices based on pharmaceutical manufacturing models are now required at blood centers. These, along with significant savings in labor costs, will create a strong demand for Pall's Automated Blood Processing system. An aging population and health care cost containment issues will lead to increasing numbers of patients receiving IV and transfusion therapies in the home. The most common therapies in home care are antibiotics, pain management, chemotherapy, total parenteral nutrition and respiratory therapy. The ease of use and patient safety benefits of Pall products make them particularly well suited to the less well controlled home care environment. OUTLOOK FOR FISCAL 1995 AND BEYOND As we look to 1995 and beyond, we expect top-line growth in the patient protection market segment to be above the corporate average. Public attention on health issues including resistant and highly transmissible diseases among hospitalized patients is growing - so is the intense awareness among hospital staff to contain and prevent their own exposure to blood and airborne diseases. These realities ensure a growing demand for Pall's protection through filtration. As medical technology becomes more sophisticated, it is opening up new opportunities for Pall to supply other health care manufacturers with custom devices. We are pursuing these aggressively. One large area of activity is the rapidly expanding area of drug delivery systems. Here we are working in diverse areas such as novel membrane-based ophthalmic delivery systems, the sterile venting of intravenous drug delivery sets and devices to improve the outcome of artificial insemination. In blood banks and hospitals, in clinics and in the home health care setting, Pall is pursuing myriad applications for its technology. - ----------------------- * Miles Leukotrap RC-PL is a registered trademark of Miles Inc. 14 4 BIOSUPPORT AND OEM DIAGNOSTICS (FIGURE 6) 7% of Health Care Sales (Millions of $) Market Potential - $350 1994 Sales - $24.6 1993 Sales - $18.5 FISCAL 1994 IN REVIEW Our young BioSupport Division is experiencing spectacular growth. The market for products used to diagnose and monitor health conditions such as diabetes and pregnancy is expected to grow significantly again in the next year. A 10-year landmark study called the "Diabetic Control and Complications Trial" concluded that patients who kept their blood sugar levels close to normal by frequent monitoring (along with insulin and lifestyle changes) had a 60% reduction in the serious health complications associated with diabetes. This study, coupled with preventive health care and advances in consumer testing products has propelled the home diagnostic market to record growth. Pall membranes for glucose monitoring test kits dominate this market. They are also used extensively in pregnancy and ovulation kits and in "quick tests" used by doctors to diagnose infectious diseases (such as strep) as well as to test for sexually transmitted diseases. Pall is also the leading supplier of membranes for molecular biological applications. Forensic testing, genetic fingerprinting, and worldwide scientific research to understand the genetic makeup of humans, all rely heavily on the accuracy, reproducibility, and ease of use of Pall membranes. FACTORS FUELING GROWTH Initial customer response to our new Leukosorb medium for the removal of leukocytes from blood samples has been excellent. Virtually every diagnostic company that performs a blood test is a candidate for a blood separation device. The medium is also applied for the harvesting of DNA from complex protein samples. Sales of our Silent Monitor plates, widely applicable in drug screening procedures during pharmaceutical development, continue to grow. OUTLOOK FOR FISCAL 1995 AND BEYOND Sales growth for fiscal 1995 is expected to exceed the corporate average. There is a growing trend within the diagnostic testing industry toward "single-step" products. These enable a body fluid to be directly applied to a medium, with a color change indicating an immediate result. We expect to release a breakthrough product in early fiscal 1995, ACCUWIK membrane, for single-step diagnostic testing. It is expected to replace nitrocellulose, which is fraught with handling and stability problems, and represents at least 50% of the potential for our BioSupport business. (FIGURE 7) 15 5 PHARMACEUTICAL, BIOLOGICALS AND BIOPROCESSING (FIGURE 8) 30% of Health Care Sales (Millions of $) Market Potential - $725 1994 Sales - $105.9 1993 Sales - $111.5 FISCAL 1994 IN REVIEW The pharmaceutical marketplace is in a period of transition as customers consolidate, as more production moves to Asia, and as bioengineered products increasingly supplement or replace traditional pharmaceuticals. All of these changes are taking place in an increasingly rigorous regulatory climate. Pall is responding well to this changing environment. Our technical position, new products and unrivalled technical support combine to garner an increasingly large share of biopharmaceutical business. Our significant growing presence in Asia has allowed us to follow existing business and pick up new business as it moves to this part of the globe. Pall is the industry leader, working in cooperation with our customers, with the Food and Drug Administration (FDA) and other regulatory groups in setting new standards for filter performance and quality assurance. Regulatory agencies are looking further upstream in many production cycles to eliminate early causes of product non-conformance. Our new BPC filters for bulk pharmaceutical chemicals are uniquely positioned here by reducing contamination in the intermediate products. The continuing emphasis on fully validated systems and materials in the pharmaceutical, biologicals and bioprocessing markets is positive for us. We possess the substantial resources required to provide validation services supporting the use of our filters in these markets. Our Parametric Validations approach has become the standard in such evaluations. Virus contamination in the sensitive milieu of a bioprocess fermentor is a constant risk. Current methods for assuring virus removal or inactivation have limitations in terms of cost, efficiency and final product loss. Our new Ultipor VF virus filter medium is under evaluation at several major bioprocess companies. We also have a Cooperative Research and Development Agreement (CRADA) with the U.S. Centers for Disease Control (CDC) to develop improved filter devices for the removal of bacteria and viruses from bioengineered pharmaceuticals. FACTORS FUELING GROWTH Pall is aggressively pursuing many promising separations opportunities in the pharmaceutical, biologicals and bioprocessing markets. In mid-fiscal 1994, for example, we acquired a worldwide exclusive license for vibrating membrane technology, our PallSep vibrating membrane filter, for food, beverage and phamaceutical industry applications. It accepts many Pall proprietary filter media and has virtually unlimited applications for the concentration and separation of high solids content streams in these industries. Pall's dynamic membrane filter continues to show a three-to-four-fold improvement in recovery of high value proteins in biopharmaceutical production. We recently introduced a smaller version called the Mini-DMF filter. It will allow economic evaluation of both pilot and large-scale separation steps in biopharmaceutical production in a presterilized, disposable format. This will produce wide and immediate access to dynamic membrane filter technology. A major European manufacturer has awarded us an order for the largest ever ultrafiltration installation. It will use our Microza hollow fiber ultrafiltration modules for continuous concentration and downstream processing of enzymes. Also in Europe, we are working with parenteral manufacturers to meet new regulatory requirements for particulate and fiber 16 6 (FIGURE 9) (FIGURE 10) cleanliness levels through extensive qualification tests for our submicron filters. In Japan, customers are increasingly aware of the necessity for completing process validation, now that Japanese Good Manufacturing Practices require such substantiation. In the present pharmaceutical industry climate, we expect the need for cost reduction and more efficient manufacturing processes to continue. This will open many opportunities for us to strengthen our position in this market. Our wide range of fluid clarification products and our new separations systems will provide vital customer support tools to our global network of Scientific and Laboratory Services (SLS) and application engineers. OUTLOOK FOR FISCAL 1995 AND BEYOND We expect top-line growth in these markets to be below the overall corporate average, as we continue to be affected by the downturn in Germany. However, the need to economically achieve cell separation and product purification of bioengineered products remains a growing area. Laboratories are critical to our long-term strategy of penetrating the bioprocessing market. Regulatory requirements make it essential that filter suppliers get involved in a customer's new product development process as early as possible. With that in mind, we have developed a full line of high-performance filters and separations systems for lab scale testing. We expect these products to help us gain a significant market share. The concern about viruses in biological and bioengineered products is reaching major proportions. The kinds of viruses to be removed are varied, as are the fluids, making the need for a filter to remove viruses from all solutions a major opportunity. Our new Ultipor VF virus filter cartridge meets all these criteria for viruses 50 nanometers and larger. It has already been tested on a small scale by several important pharmaceutical companies. Large-scale testing and validation are next. Integrity test devices used to confirm the performance of a filter before and after its use are becoming standard in the industry because of increasing pressure by the FDA to validate the entire process for manufacturing drugs. We are introducing a new integrity test instrument in fiscal 1995 that we expect will become the industry standard. The Trueflow Palltronic integrity test device is unique and will provide complete validation documentation to enable our customers to integrate it into their process quickly and economically. It will also interface with our customers' automated processes, a growing trend in this industry. 17 7 FOOD AND BEVERAGE (FIGURE 11) 13% of Health Care Sales (Millions of $) Market Potential - $750 1994 Sales - $45.0 1993 Sales - $41.8 FISCAL 1994 IN REVIEW Our Food and Beverage business enjoyed another year of solid sales growth. Pall cartridge filters, dynamic membrane filters and ultrafilters are carving out new market opportunities, led by our continued success in the area of beer filtration. Pall is the dominant supplier of filters for cold-stabilization of beer, an application that promises to grow tremendously. The recently introduced ice beers - that are brewed normally and then cooled below freezing to form ice crystals - have quickly garnered 10% and 5% respectively of the Canadian and U.S. beer markets. We are also effectively applying advanced filtration technology to the dairy industry. Our alliance with Ault Foods Ltd., Canada's largest dairy, continues to make progress in developing a wide variety of filtration applications in the dairy industry. One particularly exciting application involves a possible alternative to pasteurization. The end product has enhanced shelf life without any sacrifice in taste, freshness or nutritional value. In Europe, we sold our first ultrafiltration system to a leading fruit juice producer. Our new Cluster Filter System (CFS) for fully automatic beer stabilization was installed in several major European breweries to produce high-quality beer. In the United Kingdom, we sold our first ultrafiltration system to a municipal water authority. These are examples of our close working relationships with leading edge customers to apply our new technologies. (FIGURE 12) 18 8 FACTORS FUELING GROWTH As government regulatory and environmental pressures continue to build in the food and beverage industry, Pall filters grow in importance and worldwide sales performance. For example, there is an intensifying movement to eliminate, for environmental reasons, the large volumes of diatomaceous earth used in the production of beer and wine. In the bottled water industry, wide variations exist in product quality and labeling. Standards outside the U.S. tend to be more stringent, and are currently being assessed in the U.S. for implementation. Pall stands to play a key role in that initiative. Our PallSep filter, a unique vibrating membrane filtration system for rapid, economical separations, is also expected to unlock tremendous growth opportunities in the food processing and beverage markets. We acquired the rights to develop and market this product in 1994. One PallSep application, of great interest to brewers, is the replacement of diatomaceous earth used in the clarification of their product. Other promising applications include the remediation of food processing waste streams in the meat and poultry industries, and in the concentration and packaging of fruit juices. (FIGURE 13) OUTLOOK FOR FISCAL 1995 AND BEYOND We expect worldwide growth of our filter systems to continue at a healthy rate as the emphasis on product stability, safety, shelf life, processing costs and waste minimization intensifies. Growth for our food and beverage markets for fiscal 1995 should be above the corporate average. Our nylon membrane-based cold filtration systems for beer are expanding worldwide. For example, we received our first order for cold beer filtration in China during the last fiscal year and expect this market to expand rapidly. We are introducing a patented nylon membrane cleaning protocol which will reduce cold beer filtration costs and further expand our market potential. The acceptance of fresh tasting, non-pasteurized beer is influencing similar preferences in the milk and fruit juice marketplace, and we expect membrane filtration to become more widely used for bottled water than currently employed chemical stabilization techniques. Finally, our PASS group is evaluating septa technology to replace costly, antiquated plate and frame type filters for edible oil processing and we are testing PallSep filter systems for waste stream minimization and recovery of proteins from food process streams. 19 9 AIRBORNE, MILITARY LAND AND MARINE (FIGURE 14) 44% of Aeropower Sales (Millions of $) Market Potential - $250 1994 Sales - $79.2 1993 Sales - $82.6 FISCAL 1994 IN REVIEW In fiscal 1994, we continued to restructure our Aerospace operations to accommodate declining defense budgets. Nevertheless, we raised expectations in Europe and Japan as a result of improvements in the airline aftermarket and the British government's decision to procure an additional 259 Challenger II Main Battle tanks and to upgrade its predecessor, Challenger I. In Japan, we gained new business from the sale of Centrisep air cleaners for the Fuji Heavy Industries UH-IJ Helicopter and the Bell 205B Helicopter. In the United States, a greater percentage of military funds is being allocated to research and development, rather than to production. Specifically, the military intends to develop weapons systems, demonstrate them and then hold them for future needs. What's more, there is a shift in military strategy to rapid deployment, with smaller, more flexible forces. Pall is in step with each of these new industry trends. For example the versatile V-22 Tiltrotor Aircraft and the Armored Gun system (air droppable light tank) programs will employ significant Pall products once production begins. At the same time, we are using the cost saving benefits of our products to increase our penetration into the commercial aircraft market. While we are gaining share, this market has been affected by airline cancellations and delays in ordering new aircraft. Boeing, the world's largest commercial supplier, delivered 441 jetliners in 1992, but has only 260 deliveries projected for 1994. Despite this, the commercial aftermarket continues to grow. We are targeting customers with retrofit programs as well as pursuing the available business on new airplanes. FACTORS FUELING GROWTH Pall Aerospace has been selected to design and supply all of the filter manifolds for the long-range business jet aircraft, the Canadair Global Express and the Gulfstream V. These programs represent significant business to Pall for the next 12 to 15 years. During this past fiscal year, we also enhanced our position in the commercial airline aftermarket through the acquisition of a distributorship to serve the Western Hemisphere to complement our existing distribution in Europe and Asia. We can now offer any airline in the world delivery within 24 hours, and have already seen a positive impact on sales. Many of our aerospace customers are reducing their supplier base and seeking long-term agreements. Our ability to supply innovative technology with shorter lead times, along with quality and service, has allowed us to displace the competition and achieve long-term agreements with most major aerospace OEMs and major system and component suppliers. On another major front, the U.S. military plans to spend $25 billion on waste clean-up and minimization programs over a period of 20 years. Our market assessment shows significant opportunities for our products, which extend fluid life and result in wastestream minimization. 22 10 (FIGURE 16) One such clean-up program involves "graywater" on board naval ships. Our PallSep vibrating membrane filter is uniquely suited to separate the "sticky" substances in the U.S. Navy's graywater shipboard wastestreams which render other treatment methods ineffective. We have responded to a solicitation from the Navy for a graywater treatment system, and we estimate the market potential for this technology to be about $50 million from the U.S. Navy alone. Our first two orders for Turbodyne II self-cleaning inlet air filter assemblies were received for the U.S. Army's Medium Integration Propulsion System and the Army's M88A1 recovery vehicle. These assemblies may be specified on all future Army vehicles requiring an engine in the 500 to 1,000 horsepower range. High-efficiency cabin air filters have also been developed with the capability to reduce the transmission of microbial aerosols in commercial aircraft. These filters ensure both greater service life, and passenger safety and comfort. Many of the newer aircraft being certified, such as the Boeing 777, require ratings for long-range flights over water where engine reliability is critical. Our dual-stage lube filter assembly, installed by Pratt and Whitney as standard equipment on their 4000 series engines, should benefit from this need. We also continue to be the leader in the design and development of light-weight hydraulic filter manifolds that have been specified for use on the SAAB 2000 commuter plane, the GDLS heavy assault bridge and CH-47 and RAH-66 helicopters. OUTLOOK FOR FISCAL 1995 AND BEYOND We expect our aerospace sales for fiscal 1995 to be flat. Commercial airline business will for the first time exceed military sales. Current projections for the commercial airline market beyond fiscal 1995 are for steady growth to the end of the century. This growth will be driven by expanding markets in Asia, emerging new markets in China and the former USSR, and aircraft retirement brought about by the need for improved fuel efficiency and tougher noise legislation. As previously mentioned, the issue of air quality on board aircraft is being hotly debated. We have successfully concluded a trial of our unique cabin air filters for the Boeing 747-400, proving that our filters can save airlines maintenance costs due to their long life, as well as improve air quality by removing bacteria and viruses from the recirculated air. We are approved as the sole supplier for cabin air filters on the new Boeing 777, the Airbus A330 and A340 and the Douglas MD-90, and are approved on the Boeing 767. Our plan is to become qualified on all major operating aircraft. Although military budgets have decreased significantly in the past few years, the reductions proposed in the coming years will be smaller. European military activity will be centered on such programs as the Franco-German NH90 and the Anglo-Italian EH101 helicopters, reflecting the increased emphasis on rotary-wing aircraft. 23 11 INDUSTRIAL AND MOBILE FLUID POWER (FIGURE 17) 56% of Aeropower Sales (Millions of $) Market Potential - $1,800 1994 Sales - $100.1 1993 Sales - $93.5 FISCAL 1994 IN REVIEW Our Industrial Fluid Power business exceeded its projected revenue growth. This was accomplished despite regional recession in the fluid power industry in fiscal 1994. Our Ultipor III series of filters were a significant factor in gaining business. Long-life Ultipor III elements allow users to protect critical systems while reducing the cost of filtration. A new product with substantial sales impact in fiscal 1994 was the Pall upgrade filter series, which allowed us to increase market share by replacing elements in competitors' filter housings. These products span all user markets, with special emphasis on pulp and paper manufacturing and power generation. Pall purifiers, including our new 45gpm unit, continue to be well received. They recondition hydraulic and lubrication oils by removing water, dirt and gaseous contaminants. This maximizes oil life and reduces the amount of used oil added to the wastestream. FACTORS FUELING GROWTH We are the leader in high-performance filters for the on and off-highway truck and bus markets, providing customers with filtration solutions that significantly reduce operating and maintenance costs and minimize wastestreams. There is a growing demand for Pall's proprietary diesel lube and fuel filtration products as the trend to reduce exhaust emissions to safeguard the environment increases. Pall has also secured increased commitment from customers through working alliances in future developments. For example, the automotive and power generation industries provide growing opportunities for us within the manufacturing process and OEM areas. Pall technology, and the development of mutual technical expertise with our customers, has produced extended component durability and reduced emissions and warranty costs in the automotive field. Similarly, our progressive work on turbines has led to improved levels of fluid cleanliness in lubrication, hydraulic systems and fuel for OEMs, who are optimizing systems and controls to obtain improved efficiency and economy in turbine designs. Growth projections for the power generation industry remain strong through the 1990s. The majority of this demand will be met by Independent Power Producers (IPPs). The Energy Policy Act of 1992 was designed to deregulate this industry, allowing for more open access to transmission lines and easing restrictions on utilities participating in IPP projects. Many industry studies show the correlation between improved lube oil cleanliness and greater turbine/generator reliability and availability - two key performance measures that promise to enhance our position. Production of lower cost energy will allow utilities to compete with the growing IPP base. The primary metals market is projected to increase in fiscal 1995, fueled by a resurgent U.S. steel industry. Our new Pall upgrade elements program and alliances will be major factors in increasing fiscal 1995 sales as customers seek single-source suppliers who can ensure lower operating costs. The outlook for the pulp and paper industry is for production and prices to increase moderately and earnings to increase significantly. This should translate into 24 12 (FIGURE 18) (FIGURE 19) (FIGURE 20) increased maintenance budgets, freeing up funds for new filtration projects and for proposals that have been on hold. As reported last year, improved market conditions in the automotive industry, coupled with more competitive products and favorable currency exchange rates (such as the Japanese yen), have resulted in substantial sales and profitability increases at the "Big Three" (GM, Ford, Chrysler) auto manufacturers. These gains translate to increased purchases by the automotive plants. OUTLOOK FOR FISCAL 1995 AND BEYOND We expect top-line growth in our Industrial Fluid Power business in fiscal 1995 to be above the overall corporate average. Our latest development in filter technology - a new "standard" for hydraulic fluid filtration - will provide users with higher efficiency ratings under static and cyclic flow conditions. Our new liquid/liquid coalescer, equipped with high-performance filtration, will fill a void in our water contamination control product line. One advantage of our coalescer is its resistance to fuel additives that reduce the efficiency of conventional coalescers. We will introduce a particle counter and a contamination monitor as valuable additions to our product line. Customers with these devices will clearly see the unique benefits of Pall filtration. Wastestream reduction will be a major focus of our new ECOPAK filter design. Disposal of used elements has been simplified and made less costly. We will apply our high-end separations technology to the primary metals and machining markets via our backwash filter line, where high dirt ingression makes disposable filter elements prohibitively expensive. Pall backwash filters give the customer the benefits of low maintenance, contamination control and process improvements from high-performance filtration. Internationally, the Middle East and Africa, where we have already started to develop new business partners, will be major growth markets for Pall. We also see opportunities in the primary metals, pulp and paper, power generation and mining industries in Southeast Asia and China, and are strengthening our presence in these areas. 25 13 MICROELECTRONICS, DATA STORAGE AND PHOTOGRAPHIC FILM (FIGURE 21) 56% of Fluid Processing Sales (Millions of $) Market Potential - $600 1994 Sales - $94.8 1993 Sales - $81.8 FISCAL 1994 IN REVIEW Strong sales characterized our microelectronics business, where every niche market exceeded our original projections. We took market share from competitors, both in point of use and bulk gas filtration and in high-purity chemicals. The Ultramet-L, Mini Gaskleen, Gaskleen IV and PMF Gasket-Sert products were key to increased gas filter sales while our Super Cheminert family of fluoropolymer elements led the way in the chemicals area. We also introduced the improved Super Etch II filter for recirculating acid etch bath filtration, which strengthened our lead in this application throughout the world. Our Purifilter gas purification products are gaining acceptance as the industry reaps the benefits of finer levels of purity at point of use. We expect to release a new polishing filter in fiscal 1995 that is the result of collaborative work with the University of Arizona at the SEMATECH Center of Excellence. Last year our Microza ultrafilter modules became the industry standard for high-purity deionized water filtration. These modules were sold in new systems at leading semiconductor producers as well as in system upgrades for existing facilities. Producers of film, fiber and magnetic tape faced reduced global demand and severe price competition. The introduction of Ultipleat Profile filters, the next generation of our highly successful Profile cartridge line, has provided customer cost reduction benefits that permit us to broaden our position in this market. We expect Ultipleat Profile filters to help us to penetrate major applications. FACTORS FUELING GROWTH New products and applications in the microelectronics, data storage and photographic film markets augur well for sales growth. We have new metal and polymeric filter media ready for release. The evolving semiconductor industry standard of 0.35 micron line widths will demand filter removal ratings that are roughly 10 times finer (.035 microns or 35 nanometers) than today. We are working closely with leading edge customers to develop the next generation of purity standards. Increasing demands from the semiconductor industry for ever higher cleanliness levels, together with "cost-of-ownership" requirements for predictable (FIGURE 22) (FIGURE 23) 28 14 (FIGURE 24) economy, will continue to fuel our electronics business. The semiconductor industry has historically consumed vast quantities of high-purity water, and pressure is building to conserve and recycle as much as possible. Therefore, we expect increasing sales for Microza modules in waste minimization applications. All signs indicate that this strong growth in U.S. semiconductor production will continue. We expect to convert photographic film suppliers to Ultipleat Profile filters for emulsion filtration. Microza ultrafilters have application in this market as well, and testing is under way at processors of professional movie film to prove the feasibility of recovering wastewater from film processing. The lithographic printing market represents an enormous opportunity for our Profile and Ultipleat Profile products used in printing fluids to extend life and reduce waste disposal costs. OUTLOOK FOR FISCAL 1995 AND BEYOND Our fiscal 1995 sales expectations in this market are for above-average growth. The Semiconductor Equipment Association of Japan estimates that the demand for process equipment over the next few years will increase by as much as 10% a year. Also, the demand for ultraclean processing environments will continue to advance, which creates the need for extraordinarily clean process fluids. Pall has been developing new products in step with this trend. We are now launching a new-concept gas purifier that has been developed in conjunction with the University of Arizona. The explosive growth in personal computers worldwide has led to aggressive investment in new facilities by the major semiconductor manufacturers. Our newly upgraded Ulti-Cheminert filter (already in use by a large wafer manufacturer) and PMF Gasket-Sert filters meet the stringent requirements of these manufacturers for providing superior removal efficiency and cost effectiveness. In the film markets, we are steadily increasing market share through our balanced filtration concept. This approach encompasses all the filtration needs of the process from beginning to end, resulting in higher yields at lower costs to the manufacturer. Only Pall can provide this total support because of our broad capability in filtration in both disposable and metal elements. In the area of magnetic coatings, optical discs and compact discs, we continue to gain market share. A large part of U.S. and European magnetic tape manufacture has relocated to mainland Asia. We continue to enjoy this business with our significant Asian sales presence. In paints, jet inks, lithographic printing, photographic film and optical discs, our base of business has firmed and will continue to grow with new products geared to these applications. Although the requirements of these markets may be less stringent than those for microelectronics, there is a growing awareness among users that our products are very cost effective. Their performance, coupled with an extraordinary level of free technical support, enables us to defuse our commodity competitors' claims that they are "just as good, only cheaper." 29 15 OIL/GAS, CHEMICAL/PETROCHEMICAL AND POWER GENERATION (FIGURE 25) 44% of Fluid Processing Sales (Millions of $) Market Potential - $2,500 1994 Sales - $74.9 1993 Sales - $76.1 FISCAL 1994 IN REVIEW Pall Advanced Separations Systems (PASS) was organized in fiscal 1992 to lead the technical introduction of new separations systems technologies throughout Pall's sales divisions to customers worldwide. Our success in these markets has been very gratifying. New products have been intensely promoted worldwide. Most large orders in fiscal 1994 for PASS resulted from projects that began 12 to 18 months earlier. We expect that momentum to continue. Many of our successes involved new applications that are opening up promising markets. We made significant progress in fiscal 1994 but, more importantly, laid the groundwork for an exciting future. Among our accomplishments in fiscal 1994: * We sold our first automated filter system to the copper refining industry. * Metal HEPA filters were specified for all primary vent filters on the high-level waste tank farm revamp at the U.S. Department of Energy's Hanford Site. * VITROPORE ceramic blowback filters were successfully tested at the Rocky Flats Environmental Technology Site in the Accelerated Life Tester. The test is designed to instill confidence in incineration as a means of waste disposal. * PASS sold the first of nine catalyst recovery filters for maleic anhydride manufacture in China. * The first backwash assembly to filter produced water in a waterflood operation was sold in China. * We successfully sold our pleated polyamide backwash filter elements to the nuclear power industry. In the coalescer part of our separations business, Pall's AquaSep filter, our new liquid/liquid coalescer, was introduced and received immediate acceptance both in the U.S. and Europe. Our PhaseSep coalescer was tested successfully in the removal of water from hydrogen peroxide. Our Stratapac filter is designed for sand control in oil and gas wells. The control of sand has always been one of the most critical and costly problems in well completion. Our Stratapac filters were developed to provide improved mechanical resistance by maintaining integrity even after collapse or bending, improved resistance to erosion from formation sand, high flow characteristics that yield low-pressure drop, and high resistance to plugging. (FIGURE 26) 30 16 This technology has been operating in production wells at several major oil and gas producers for several months. Results to date have been far better than anticipated, with an increase in oil production at one offshore site of over 65%. Success in these trials is expected to fuel a worldwide demand for Stratapac filters. We will continue our practice of introducing new products to help nuclear power generation plants reduce their radiation levels. This is a critical area for these plants, which are under constant pressure from the U.S. Nuclear Regulatory Commission to reduce plant radiation levels as a way to improve worker safety. For example, our "fines" program has enabled the nuclear industry to reduce its level of filtration from 5 microns down to 0.2 microns. As a next step in meeting our customers' needs, we will introduce a 0.1 micron filter in fiscal 1995. We expect customer acceptance of this ongoing approach to finer levels of filtration to continue to grow significantly. FACTORS FUELING GROWTH New orders in the power generation market will advance as the GE/Pall alliance takes hold. We have demonstrated success with Septra backwashable, semidisposable pleated elements in the U.S. and Europe, and expect to do the same in Japan in fiscal 1995. We also expect the U.S. Department of Energy (DOE) to place substantial orders for UltraMet air filters for its waste tank farms in 1995. Nearly 100 tanks await treatment, with a DOE target for full completion by 1996. We believe we are the only approved vendor who can meet the project's strict specifications. Environmental issues will continue to increase filter sales to refineries in 1995. Slurry oil filtration is driven by the need to eliminate the costs associated with the disposal of hazardous wastes. In the Asian markets, the added driver is the need for "cleaner" fuel for marine diesels. This requirement has led refiners to invest in new or upgraded hydrotreaters, which remove (FIGURE 27) 31 17 (FIGURE 28) sulfur from fuel. To reduce operating costs and improve catalyst bed operation, we are working with refiners to upgrade existing systems. This involves retrofitting competitive filters with our superior elements. OUTLOOK FOR FISCAL 1995 AND BEYOND We expect top-line growth within these markets to exceed the corporate average. PASS now has more than 223 active proposals with a sales potential of approximately $100 million, and almost as many other projects nearing the proposal stage. In fiscal 1994 approximately 40% of our PASS business stemmed from new products. This percentage will be closer to 60% in fiscal 1995. In fiscal 1994, many backwash systems were sold for new applications, which we plan to pursue thoroughly as they represent large potentials. Internationally, South America offers significant opportunity for Pall in fiscal 1995, particularly in Mexico and Argentina, where the vast oil and gas exploration and refining industry has been denationalized. Venezuela will also provide strong growth if it can maintain political stability. In fiscal 1995, we plan important trials of new systems approaches at nuclear power plants in the U.S., Europe and Japan. Pall is a major supplier of battery separator membranes for batteries such as silver oxide cells. New types of batteries under current development present large opportunities for increased sales. The use of portable electronic devices such as camcorders, cellular telephones, laptop computers and electric vehicles is becoming commonplace. This is driving a revolution in the industry to develop batteries that can be used for longer periods prior to being recharged. Pall Corporation's proprietary expertise in substrate manufacture and surface modification is leading to new battery separators. These membranes provide battery designers with an effective tool to improve performance. Clearly, we are aggressively pursuing the many opportunities that exist in our markets worldwide as we deploy the full range of Pall's resources. This effort is enabling us to strategically position Pall for the exciting years ahead. 32 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1994 compared to 1993. I. RESULTS OF OPERATIONS Sales for fiscal 1994 increased by 2%. Had foreign exchange rates been unchanged, sales would have increased by 3%. Price increases were 1% for the year. Cost of sales increased to 36.8% of sales in fiscal 1994 from 36.3% in fiscal 1993, due to product mix. Selling, general and administrative expenses declined to 37.3% of sales in fiscal 1994 compared to 38.2% in the prior year. Net interest expense declined to 0.3% of sales in fiscal 1994 from 0.6% in fiscal 1993. In the fourth quarter of fiscal 1994, the Company incurred a one-time charge of $3.7 million ($2.3 million after taxes, 2 cents per share), mainly in connection with the restructuring of its German operations, and the write-off of a bad debt in the Aerospace operations. In the second quarter of fiscal 1993, the Company adopted a restructuring plan to consolidate its Aeropower operations in anticipation of further reductions in military spending, and as a result recorded a charge of $26.7 million ($17.3 million after tax, 15 cents per share). The Company's pre-tax margin increased to 19.3% in fiscal 1994 from 15.2% in fiscal 1993. Excluding the restructuring and other charges from both years, the underlying pre-tax margin increased to 19.8% in fiscal 1994 from 19.1% in fiscal 1993. Excluding the restructuring and other charges from both years, the Company's effective tax rate was unchanged at 27.0%. Net earnings for fiscal 1994 increased to $98.9 million from $78.3 million in fiscal 1993. Excluding the restructuring and other charges from both years, fiscal 1994 earnings would have increased 6% to $101.3 million from $95.6 million in the prior year. II. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital increased by $21.1 million in fiscal 1994. This increase resulted principally from changes in foreign currency exchange rates, and by refinancing current debt with a new 5-year $20 million term loan. Capital expenditures totalled $73.4 million in fiscal 1994, and consisted of:
- ------------------------------------------------------------------------------------------------------------ (in millions) Land & Machinery & Buildings Equipment Other Total - ------------------------------------------------------------------------------------------------------------ Western Hemisphere $30.7 $23.3 $ 3.3 $57.3 Europe 0.8 5.4 7.7 13.9 Asia and Australia 0.5 0.7 1.0 2.2 - ------------------------------------------------------------------------------------------------------------ Total $32.0 $29.4 $12.0 $73.4 ============================================================================================================
The expenditures on land and buildings in the Western Hemisphere were principally for the establishment of our new Technical Center in Port Washington, New York. On August 3, 1993, the Company's Board of Directors authorized a second program to repurchase shares of its common stock. The Board authorized the expenditure of up to $30 million, and this program was completed in May 1994, with 1,763,000 shares being purchased. During the second quarter of fiscal 1994, the Company purchased the business of its Australian distributor and acquired a license from New Logic International, Inc. to complement its separations product lines, which transactions required approximately $12 million in funds. III. IMPACT OF INFLATION The Company's financial statements are prepared in accord-ance with traditional historical accounting systems, and therefore do not reflect the effect of inflation. The impact of changing prices on the financial statements is not considered to be significant. IV. NEW ACCOUNTING STANDARD AND CHANGE IN TAX RATES In November 1992, the Financial Accounting Standards Board adopted Statement No. 112 (Employers' Accounting for Postemployment Benefits), effective for fiscal years beginning after December 15, 1993. The Company will adopt this statement in fiscal 1995. The effect of adoption will not be material. On August 10, 1993, President Clinton signed into law the Revenue Reconciliation Act of 1993, which effectively increased corporate income tax rates retroactive to January 1, 1993. Additionally, the tax benefits of manufacturing in Puerto Rico have been reduced for fiscal 1995 and beyond. This could increase the Company's effective tax rate by 3 percentage points. 33 19 1993 compared to 1992. RESULTS OF OPERATIONS Sales for fiscal 1993 increased by 1/2%. Price increases were 2%, while decreases due to changes in foreign exchange rates amounted to 1 1/2%. Cost of sales decreased to 36.3% of sales in fiscal 1993 from 38.3% in fiscal 1992, principally due to favorable product mix, and to the beneficial effect of manufacturing in the U.K. for the European markets and in the U.S. for the Japanese market. Selling, general and administrative expenses increased to 38.2% of sales in fiscal 1993 from 36.9% in fiscal 1992, which increase was largely due to flat sales, as the actual increase in dollars was just 3.8%. Research and development increased to 5.8% of sales in fiscal 1993 from 5.1% in fiscal 1992. Net interest expense decreased to 0.6% of sales in fiscal 1993 from 0.8% in fiscal 1992. In the second quarter of fiscal 1993, the Company adopted a restructuring plan to allow for the consolidation of its Aeropower operations in anticipation of further reductions in military spending. Consolidation was expected to enable greater efficiency in manufacturing and certain overhead functions, despite lower levels of demand. The plan consisted principally of downsizing and further integrating the military portion of the Aeropower business with the Industrial Fluid Power business. As a result, fiscal 1993 earnings reflect a pre-tax charge of $26.7 million ($17.3 million after taxes, 15 cents per share) for the restructuring plan and also to write off certain excess corporate leasehold improvements. The charge included $11.5 million of inventory write-offs, $9.5 million of machinery and equipment write-offs, $3.6 million for severance and other expenses, and $2.1 million for the write-off of excess corporate leasehold improvements. In the first quarter of fiscal 1992, the Company had incurred a charge of $3.7 million (2 cents per share) as a result of the settlement of certain promissory notes received in connection with the sale of the air dryer business in a leveraged buy-out which was reported in fiscal 1988. The Company's pre-tax margin decreased to 15.2% of sales in 1993 from 18.4% in 1992. Excluding the restructuring and other charges from 1993, and the loss on settlement of notes from 1992, the underlying pre-tax margin increased to 19.1% in 1993 from 19.0% in 1992. The Company's effective tax rate, before the effect of the restructuring and other charges and of the item mentioned in the next paragraph, decreased to 27.0% in 1993 from 28.5% in 1992, principally as a result of reduced corporation income tax rates in Germany and to increased benefits of the Company's operations in Puerto Rico. In fiscal 1992, the Company adopted Financial Accounting Standards Board Statement No. 109 (Accounting for Income Taxes) and, as a result, realized an increase in earnings of $2.5 million (2 cents per share). Net earnings for fiscal 1993 decreased to $78.3 million, from $92.7 million in 1992. Before giving effect to the restructuring and other charges in 1993, and to the loss on settlement of notes and the effect of adopting new rules for accounting for income taxes in 1992, fiscal 1993 earnings would have increased 3% to $95.6 million from $92.7 million in 1992. 34 20 CONSOLIDATED STATEMENTS OF EARNINGS Pall Corporation and Subsidiaries
Years Ended - --------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) JULY 30, 1994 July 31, 1993 August 1, 1992 - --------------------------------------------------------------------------------------------------------------------- REVENUES: Net sales $700,848 $687,222 $685,068 Interest earned 5,274 4,713 5,396 - --------------------------------------------------------------------------------------------------------------------- Total Revenues 706,122 691,935 690,464 - --------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Cost of sales 257,624 249,629 262,076 Selling, general and administrative expenses 261,289 262,598 253,030 Research and development 41,283 40,036 34,787 Interest expense 7,132 8,683 10,680 Restructuring and other charges 3,696 26,710 3,690 - --------------------------------------------------------------------------------------------------------------------- Total Costs and Expenses 571,024 587,656 564,263 - --------------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES AND THE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 135,098 104,279 126,201 Provisions for income taxes 36,176 25,967 35,968 - --------------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE THE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 98,922 78,312 90,233 Cumulative effect of a change in accounting for income taxes -- -- 2,475 - --------------------------------------------------------------------------------------------------------------------- NET EARNINGS $ 98,922 $ 78,312 $ 92,708 ===================================================================================================================== EARNINGS PER SHARE: Earnings before the cumulative effect of an accounting change $ .86 $ .68 $ .77 Cumulative effect of a change in accounting for income taxes -- -- .02 - --------------------------------------------------------------------------------------------------------------------- Net Earnings Per Share $ .86 $ .68 $ .79 - --------------------------------------------------------------------------------------------------------------------- AVERAGE SHARES OUTSTANDING 115,678 115,856 116,928 =====================================================================================================================
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 July 30, 1994 and July 31, 1993 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended July 30,1994. 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 July 30, 1994 and July 31, 1993 and the results of their operations and their cash flows for each of the years in the three-year period ended July 30, 1994, in conformity with generally accepted accounting principles. As discussed in the Income Taxes note to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes) on a prospective basis in fiscal year 1992. /s/ KPMG PEAT MARWICK LLP KPMG Peat Marwick LLP Jericho, New York September 7, 1994 35 21 CONSOLIDATED BALANCE SHEETS Pall Corporation and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) JULY 30, 1994 July 31, 1993 - ---------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $38,224 $42,652 Short-term investments 50,800 64,400 Accounts receivable, net of allowance for doubtful accounts of $4,776 and $3,368, respectively 207,159 197,464 Inventories 138,382 127,525 Deferred income taxes 17,178 19,198 Prepaid expenses 15,346 14,384 Other current assets 3,336 4,665 - ---------------------------------------------------------------------------------------------------------------- Total Current Assets 470,425 470,288 - ---------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT: Land 25,026 24,716 Buildings and improvements 231,342 196,238 Machinery and equipment 308,409 271,829 Furniture and fixtures 44,215 39,131 Transportation equipment 11,637 12,088 - ---------------------------------------------------------------------------------------------------------------- 620,629 544,002 Less: Accumulated depreciation and amortization 223,012 186,382 - ---------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment, Net 397,617 357,620 - ---------------------------------------------------------------------------------------------------------------- OTHER ASSETS 91,537 74,365 - ---------------------------------------------------------------------------------------------------------------- Total $959,579 $902,273 ================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to banks $112,034 $125,054 Accounts payable 40,401 36,998 Accrued liabilities: Salaries and commissions 24,031 20,002 Payroll taxes 5,185 5,298 Income taxes 33,019 33,763 Interest 1,232 505 Pension and profit sharing plans 11,014 8,544 Other 16,437 21,395 - ---------------------------------------------------------------------------------------------------------------- 90,918 89,507 Current portion of long-term debt 2,819 16,916 Dividends payable 10,667 9,285 - ---------------------------------------------------------------------------------------------------------------- Total Current Liabilities 256,839 277,760 LONG-TERM DEBT, NET OF CURRENT PORTION 54,097 24,540 DEFERRED INCOME TAXES 31,450 28,673 OTHER NON-CURRENT LIABILITIES 29,987 28,422 - ---------------------------------------------------------------------------------------------------------------- Total Liabilities 372,373 359,395 - ---------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Common stock, par value $.10 and $.25 per share, respectively; 500,000 and 200,000 shares authorized, respectively; 117,351 shares issued 11,735 29,338 Capital in excess of par value 53,769 36,166 Retained earnings 572,388 524,407 Treasury stock, at cost (1994 -- 2,032 shares, 1993 -- 1,288 shares) (35,144) (24,963) Foreign currency translation adjustment (1,816) (12,861) Minimum pension liability adjustment (4,711) (4,996) Stock option loans (8,432) (4,213) Unrealized losses on investments (583) -- - ---------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 587,206 542,878 - ---------------------------------------------------------------------------------------------------------------- Total $959,579 $902,273 ================================================================================================================
See accompanying notes to consolidated financial statements. 36 22 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Pall Corporation and Subsidiaries
- ------------------------------------------------------------------------------------------------- (In thousands) Foreign Capital in Currency Years Ended August 1, 1992, Common Excess of Retained Treasury Translation July 31, 1993, and July 30,1994 Stock Par Value Earnings Stock Adjustment - ------------------------------------------------------------------------------------------------- BALANCE AT AUGUST 3, 1991 $14,605 $45,780 $423,869 $ -- $ 3,744 Net earnings 92,708 Cash dividends declared (30,075) Three-for-two stock split (including $25 paid for fractional shares) 7,317 (7,342) Issuance of stock pursuant to exercise of stock options, 329 shares 82 5,088 (618) 1,313 Purchase of 1,357 shares of common stock (35,066) Foreign currency translation adjustment 28,274 Change in stock option loans - -------------------------------------------------------------------------------------------------- BALANCE AT AUGUST 1, 1992 22,004 43,526 485,884 (33,753) 32,018 Net earnings 78,312 Cash dividends declared (35,642) Four-for-three stock split (including $26 paid for fractional shares) 7,334 (7,360) Issuance of stock pursuant to exercise of stock options, 402 shares (4,147) 8,790 Foreign currency translation adjustment (44,879) Minimum pension liability adjustment Change in stock option loans - -------------------------------------------------------------------------------------------------- BALANCE AT JULY 31, 1993 29,338 36,166 524,407 (24,963) (12,861) Net earnings 98,922 Cash dividends declared (41,336) Reduction of par value from $.25 per share to $.10 per share (17,603) 17,603 Issuance of stock pursuant to exercise of stock options, 1,040 shares (9,605) 20,009 Purchase of 1,776 shares of common stock (30,190) Foreign currency translation adjustment 11,045 Minimum pension liability adjustment Change in stock option loans Unrealized losses on investments - -------------------------------------------------------------------------------------------------- BALANCE AT JULY 30, 1994 $11,735 $53,769 $572,388 $(35,144) $(1,816) ================================================================================================== - ------------------------------------------------------------------------------------------ (In thousands) Minimum Pension Stock Unrealized Total Years Ended August 1, 1992, Liability Option Losses on Stockholders' July 31, 1993, and July 30,1994 Adjustment Loans Investment Equity - ------------------------------------------------------------------------------------------ BALANCE AT AUGUST 3, 1991 $ -- $(2,859) $ -- $485,139 Net earnings 92,708 Cash dividends declared (30,075) Three-for-two stock split (including $25 paid for fractional shares) (25) Issuance of stock pursuant to exercise of stock options, 329 shares 5,865 Purchase of 1,357 shares of common stock (35,066) Foreign currency translation adjustment 28,274 Change in stock option loans (1,225) (1,225) - ------------------------------------------------------------------------------------------ BALANCE AT AUGUST 1, 1992 -- (4,084) -- 545,595 Net earnings 78,312 Cash dividends declared (35,642) Four-for-three stock split (including $26 paid for fractional shares) (26) Issuance of stock pursuant to exercise of stock options, 402 shares 4,643 Foreign currency translation adjustment (44,879) Minimum pension liability adjustment (4,996) (4,996) Change in stock option loans (129) (129) - ------------------------------------------------------------------------------------------ BALANCE AT JULY 31, 1993 (4,996) (4,213) -- 542,878 Net earnings 98,922 Cash dividends declared (41,336) Reduction of par value from $.25 per share to $.10 per share -- Issuance of stock pursuant to exercise of stock options, 1,040 shares 10,404 Purchase of 1,776 shares of common stock (30,190) Foreign currency translation adjustment 11,045 Minimum pension liability adjustment 285 285 Change in stock option loans (4,219) (4,219) Unrealized losses on investments (583) (583) - ------------------------------------------------------------------------------------------ BALANCE AT JULY 30, 1994 $(4,711) $(8,432) $(583) $587,206 ==========================================================================================
See accompanying notes to consolidated financial statements. 37 23 CONSOLIDATED STATEMENTS OF CASH FLOWS Pall Corporation and Subsidiaries
Years Ended - ------------------------------------------------------------------------------------------------------------------- (In thousands) JULY 30, 1994 July 31, 1993 August 1, 1992 - ------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net earnings $98,922 $78,312 $92,708 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 36,804 35,188 34,360 Amortization of intangibles 2,737 1,807 1,922 Restructuring and other charges 3,696 23,110 3,690 Deferred income taxes 4,406 (4,289) (1,113) Provision for doubtful accounts 1,033 1,048 1,013 Cumulative effect of a change in accounting for income taxes -- -- (2,475) Changes in operating assets and liabilities: Accounts receivable (5,354) (14,245) (20,603) Inventories (7,284) (2,827) 5,709 Prepaid expenses (640) (3,162) (1,050) Other assets (4,848) (2,433) (4,954) Accounts payable 2,285 (829) (2,392) Accrued expenses (2,302) 3,800 7,310 Income taxes payable (1,418) (4,860) 8,347 Other liabilities 1,680 3,945 2,796 - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 129,717 114,565 125,268 - ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Capital expenditures (73,354) (62,582) (56,174) Disposals of fixed assets 1,942 3,059 5,066 Short-term investments 13,600 9,952 (24,521) Acquisitions of license and of business of Australian distributor (11,333) -- -- Benefits protection trust (2,567) (7,072) (6,100) - ------------------------------------------------------------------------------------------------------------------- NET CASH USED BY INVESTING ACTIVITIES (71,712) (56,643) (81,729) - ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net short-term borrowings (14,241) 14,253 32,118 Long-term borrowings 31,165 5,358 19,020 Payments on long-term debt (17,297) (35,749) (18,087) Net proceeds from exercise of stock options 6,185 4,488 4,615 Dividends paid (39,954) (26,357) (30,075) Treasury stock (30,190) -- (35,066) - ------------------------------------------------------------------------------------------------------------------- NET CASH USED BY FINANCING ACTIVITIES (64,332) (38,007) (27,475) - ------------------------------------------------------------------------------------------------------------------- CASH FLOW FOR YEAR (6,327) 19,915 16,064 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 42,652 26,977 9,238 EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,899 (4,240) 1,675 - ------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $38,224 $42,652 $26,977 =================================================================================================================== SUPPLEMENTAL DISCLOSURES Interest paid (net of amount capitalized) $6,292 $10,379 $11,408 Income taxes paid (net of refunds) 32,670 34,316 33,206 ===================================================================================================================
See accompanying notes to consolidated financial statements. 38 24 FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
- ------------------------------------------------------------------------------------------------------ (In thousands) FISCAL 1994 Fiscal 1993 Fiscal 1992 AMOUNT % CHANGE Amount % Change Amount % Change - ------------------------------------------------------------------------------------------------------ SALES TO UNAFFILIATED CUSTOMERS: Health Care 351,849 0 353,197 7 331,552 24 Aeropower 179,297 2 176,123 -14 204,721 -12 Fluid Processing 169,702 7 157,902 6 148,795 -5 ------- ------- ------- Total 700,848 2 687,222 0 685,068 4 - ------------------------------------------------------------------------------------------------------ OPERATING PROFIT: Health Care 115,228(a) -1 115,992(b) 5 110,636 37 Aeropower 36,487(a) 126 16,129(b) -63 43,905 -27 Fluid Processing 26,784(a) 35 19,785(b) 30 15,179(c) -18 ------- ------- ------- Subtotal 178,499 18 151,906 -10 169,720 6 Interest income 5,274 12 4,713 -13 5,396 -12 Interest expense (7,132) -18 (8,683) -19 (10,680) -32 General corporate expenses (41,543) -5 (43,657) 14 (38,235) 12 ------- ------- ------- Total 135,098 30 104,279 -17 126,201 9 - ------------------------------------------------------------------------------------------------------ IDENTIFIABLE ASSETS: Health Care 369,352 5 350,832 2 343,737 22 Aeropower 169,433 2 166,683 -17 199,807 2 Fluid Processing 211,487 5 201,115 2 197,684 15 ------- ------- ------- Subtotal 750,272 4 718,630 -3 741,228 14 Corporate 209,307 14 183,643 7 171,648 25 ------- ------- ------- Total 959,579 6 902,273 -1 912,876 16 - ------------------------------------------------------------------------------------------------------ CAPITAL EXPENDITURES: Health Care 26,284 26,688 26,060 Aeropower 5,568 6,800 8,048 Fluid Processing 14,181 13,886 13,811 ------- ------- ------- Subtotal 46,033 47,374 47,919 Corporate 27,321 15,208 8,255 ------- ------- ------- Total 73,354 62,582 56,174 - ------------------------------------------------------------------------------------------------------ DEPRECIATION: Health Care 16,446 15,156 13,804 Aeropower 7,326 7,924 8,797 Fluid Processing 10,230 9,624 8,778 ------- ------- ------- Subtotal 34,002 32,704 31,379 Corporate 2,802 2,484 2,981 ------- ------- ------- Total 36,804 35,188 34,360 ======================================================================================================
(a) Includes a pre-tax charge of $3,696 due principally to the restructuring of the German operations and to the write-off of a bad debt in the Aerospace operations (Health Care - $1,703, Aeropower - $1,503, Fluid Processing - $490). (b) Includes a pre-tax charge of $24,610 representing principally the cost of downsizing and further integrating the military portion of the Aeropower business with the Industrial Fluid Power business (Health Care - $2,578, Aeropower - $20,291, Fluid Processing - $1,741). (c) Includes a pre-tax charge of $3,690 from the settlement of certain promissory notes received in connection with the sale of the Air Dryer business in a leveraged buy-out reported in fiscal 1988. 39 25 FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
- ------------------------------------------------------------------------------------------------------ (In thousands) FISCAL 1994 Fiscal 1993 Fiscal 1992 AMOUNT % CHANGE Amount % Change Amount % Change - ------------------------------------------------------------------------------------------------------ SALES TO UNAFFILIATED CUSTOMERS: Western Hemisphere 302,287 1 300,440 -1 303,655 6 Europe 279,423 -4 289,586 -2 294,764 1 Asia and Australia 119,138 23 97,196 12 86,649 12 ------- ------- ------- Total 700,848 2 687,222 0 685,068 4 - ------------------------------------------------------------------------------------------------------ TRANSFERS BETWEEN GEOGRAPHIC AREAS: Western Hemisphere 61,679 52,832 47,829 Europe 10,461 8,052 10,338 Asia and Australia 1,809 1,732 1,853 ------- ------- ------- Total 73,949 62,616 60,020 - ------------------------------------------------------------------------------------------------------ TOTAL SALES: Western Hemisphere 363,966 3 353,272 1 351,484 6 Europe 289,884 -3 297,638 -2 305,102 -1 Asia and Australia 120,947 22 98,928 12 88,502 12 Eliminations (73,949) (62,616) (60,020) ------- ------- ------- Total 700,848 2 687,222 0 685,068 4 - ------------------------------------------------------------------------------------------------------ OPERATING PROFIT: Western Hemisphere 89,898(a) 58 57,020(b) -28 79,372(c) 17 Europe 74,707(a) -12 84,578(b) 5 80,297(c) -7 Asia and Australia 13,834 8 12,788(b) 37 9,344 41 Eliminations 60 (2,480) 707 ------- ------- ------- Subtotal 178,499 18 151,906 -10 169,720 6 Interest income 5,274 12 4,713 -13 5,396 -12 Interest expense (7,132) -18 (8,683) -19 (10,680) -32 General corporate expenses (41,543) -5 (43,657) 14 (38,235) 12 ------- ------- ------- Total 135,098 30 104,279 -17 126,201 9 - ------------------------------------------------------------------------------------------------------ IDENTIFIABLE ASSETS: Western Hemisphere 375,970 2 369,793 3 358,534 3 Europe 275,219 4 265,199 -16 315,514 28 Asia and Australia 112,873 16 97,404 24 78,538 17 Eliminations (13,790) (13,766) (11,358) ------- ------- ------- Subtotal 750,272 4 718,630 -3 741,228 14 Corporate 209,307 14 183,643 7 171,648 25 ------- ------- ------- Total 959,579 6 902,273 -1 912,876 16 ======================================================================================================
(a) Includes a pre-tax charge of $3,696 due principally to the restructuring of the German operations and to the write-off of a bad debt in the Aerospace operations (Western Hemisphere - $2,301, Europe - $1,395). (b) Includes a pre-tax charge of $24,610 representing principally the cost of downsizing and further integrating the military portion of the Aeropower business with the Industrial Fluid Power business (Western Hemisphere - $19,675, Europe - $4,606, Asia and Australia - $329). (c) Includes a pre-tax charge of $3,690 from the settlement of certain promissory notes received in connection with the sale of the Air Dryer business in a leveraged buy-out reported in fiscal 1988 (Western Hemisphere - $2,466, Europe - $1,224). Export sales to unaffiliated customers by the Company's U.S. operations totalled $28,907 in 1994 ($28,995 in 1993 and $24,134 in 1992). 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 mark-up of manufacturing costs, to achieve an appropriate sharing of the profit between the parties. 40 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS 1994, 1993, AND 1992 ACCOUNTING POLICIES Fiscal Year: The Company's fiscal year ends on the Saturday closest to July 31, except that the Company's foreign subsidiaries are on a July 31 fiscal year. The years ended July 30, 1994, July 31, 1993 and August 1, 1992 each comprise 52 weeks. Basis of Consolidation: The statements of Pall Corporation are presented in consolidation with its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. Translation of Foreign Currencies: The financial statements of the foreign companies for the three years have been translated into United States dollars at exchange rates as follows: (i) balance sheet accounts at year-end rates, and (ii) income statement accounts at weighted average exchange rates. Translation gains and losses are reflected in shareholders' equity, while transaction gains and losses are reflected in income. Transaction losses in the amounts of $348,000, $25,000 and $298,000 were incurred in fiscal years 1994, 1993 and 1992, respectively. The equity of, and advances to, foreign subsidiaries totalled $249,154,000 and $249,028,000 at July 30, 1994 and July 31, 1993, respectively. Cash and Cash Equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less, other than its investments in Puerto Rico, to be cash equivalents. Cash equivalents totalled $17,703,000 and $16,382,000 at July 30, 1994 and July 31, 1993, respectively. The Company holds all cash equivalents until maturity. Short-Term Investments: Short-term investments consist principally of certificates of deposit, time deposits and repurchase agreements secured by government obligations, and are carried at cost which approximates fair value. The Company holds all short-term investments until maturity. Inventories: Inventories are valued at the lower of cost (principally on the first-in, first-out method) or market. Property, Plant and Equipment: 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. Expenditures for additions, major renewals and betterments are capitalized, and expenditures for maintenance and repairs are charged to earnings as incurred. Patents and Trademarks: Costs related to patents and trademarks are amortized on a straight-line basis over the estimated useful lives. Income Taxes: In 1992, the Company adopted Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes), which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference 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: Earnings per share was computed based on the average number of shares outstanding. Stock options were excluded from the computation since they were not materially dilutive during 1994, 1993 or 1992. (See "Common Stock - Stock Splits") Capitalized Interest: Interest in the amounts of $1,641,000 in 1994, $748,000 in 1993 and $1,220,000 in 1992 was capitalized. Such amounts were computed by applying the effective interest rate on the borrowing to the accumulated expenditures incurred. Reclassifications: Certain prior year amounts have been reclassified to conform with current year classifications. RESTRUCTURING AND OTHER CHARGES In the second quarter of fiscal 1993, the Company adopted a restructuring plan to allow for the consolidation of its Aeropower operations due to reductions in military spending. Consolidation was expected to enable greater efficiency in manufacturing and certain overhead functions, despite lower levels of demand. The plan consisted principally of downsizing and further integrating the military portion of the Aeropower business with the Industrial Fluid Power business. As a result, fiscal 1993 earnings reflect a pre-tax charge of $26,710,000 ($17,310,000 after taxes, 15 cents per share) for the restructuring plan and also to write-off certain excess corporate leasehold improvements. The charge included $11,530,000 of inventory write-offs, $9,476,000 of machinery and equipment write-offs, $3,604,000 for severance and other expenses, and $2,100,000 for the write-off of excess corporate leasehold improvements. In the fourth quarter of fiscal 1994, the Company recorded a one-time charge of $3,696,000 pre-tax ($2,332,000 after taxes, 2 cents per share), due principally to the restructuring of the German operations and to the write-off of a bad debt in the Aerospace operations. 41 27 INVENTORIES The major classes of inventory are as follows:
- ----------------------------------------------------------- (in thousands) JULY 30, July 31, 1994 1993 - ----------------------------------------------------------- Raw materials and components $58,999 $53,549 Work-in-process 12,737 14,075 Finished goods 66,646 59,901 - ----------------------------------------------------------- Total inventory $138,382 $127,525 ===========================================================
OTHER ASSETS Other assets consist of the following:
- ----------------------------------------------------------- (in thousands) JULY 30, July 31, 1994 1993 - ----------------------------------------------------------- Patents and trademarks, net of amortization $34,332 $26,603 Benefits protection trust 24,646 23,767 Prepaid pension expenses 8,272 6,631 Intangible pension assets 3,247 3,319 Goodwill 6,087 -- Other 14,953 14,045 - ----------------------------------------------------------- Total $91,537 $74,365 ===========================================================
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 in respect of third party patents. 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 July 30, 1994 and July 31, 1993 balance sheets reflect related liabilities in the amounts of $26,999,000 and $25,494,000, respectively. The trust primarily holds investments in U.S. government obligations and debt obligations of corporations with high credit ratings. Investments are carried at fair value. Unrealized gains and losses are reported as a separate component of stockholders' equity, until realized. Realized gains and losses are recognized in earnings upon sale. The Company considers investments held in the trust to be available-for-sale, based upon certain investment guidelines. Contractual maturity dates of U.S. government obligations and of corporate obligations range from 1995-2003 and 1997- 2003, respectively. Pertinent information related to the trust follows:
- ------------------------------------------------------------------- (in thousands) 1994 1993 1992 - ------------------------------------------------------------------- Company contributions $2,567 $7,072 $6,100 Total purchases (excluding above contributions) 33,896 11,339 28,240 Total proceeds from sales 34,309 10,455 29,268 Net (losses) gains recognized (157) 120 324 ===================================================================
Prepaid pension expenses represent the non-current amounts arising from the excess of cumulative employer contributions and earnings thereon, over accrued net pension expenses. Intangible pension assets represent, for certain domestic pension arrangements, the excess of unfunded accumulated benefits over unrecognized prior service costs. The July 30, 1994 and July 31, 1993 balance sheets reflect additional long-term pension liabilities of $10,489,000 and $10,889,000, respectively and a reduction in stockholders' equity, net of deferred tax benefits, of $4,711,000 and $4,996,000, respectively. Goodwill represents the cost in excess of the net assets acquired of the Company's former distributor in Australia, and is being amortized on a straight-line basis over 15 years. SHORT-TERM DEBT The Company had short-term investments in Puerto Rico of $50,800,000 at July 30, 1994 ($64,400,000 at July 31, 1993), at the same time that it had bank borrowings of $112,034,000 ($125,054,000 at July 31, 1993) outside of Puerto Rico. Pertinent information with respect to short-term bank borrowings follows:
- ------------------------------------------------------------------- (in thousands) 1994 1993 1992 - ------------------------------------------------------------------- Average month-end borrowings $132,252 $112,950 $187,984 Weighted average interest rate during the year 3.5% 3.8% 5.3% Highest level of borrowing at any month-end during the year $167,234 $131,506 $120,927 Weighted average interest rate at year-end 4.2% 3.3% 4.0% ===================================================================
At July 30, 1994, the Company and its subsidiaries had lines of credit totalling approximately $370 million, of which $112 million had been drawn. Such lines of credit do not represent legal commitments on the parts of the banks and no formal compensating balance requirements relate to them. LONG-TERM DEBT
- ------------------------------------------------------------------- (in thousands) AT JULY 30, At July 31, 1994 1993 - ------------------------------------------------------------------- Bank loans in Japan, due in installments through 1999 $27,858 $28,912 7.23% term loan, due on June 30, 1999 20,000 -- Industrial development bonds, due in varying amounts through the year 1996, with interest at 63% and 67% of prime rates 4,760 7,700 Capitalized leases, 4.65% to 16.5% due in varying amounts through 2005 4,298 4,844 - ------------------------------------------------------------------- Total long-term debt 56,916 41,456 Less: current portion 2,819 16,916 - ------------------------------------------------------------------- Long-term debt, net of current portion $54,097 $24,540 ===================================================================
42 28 The Company's Japanese subsidiary has entered into loan arrangements with three banks, in the total amount of 2.79 billion Yen ($27.9 million). The loans are being amortized through the year 1999, and bear interest at rates between 2.7% and 4.4%. A subsidiary of the Company has entered into agreements with two industrial development agencies for the financing of building and machinery acquisitions and building renovations. The payments being made by the Company are in the form of rent payments, equal in amount to the principal and interest on the bonds. Upon final payment of the bonds, the Company will reacquire the properties for a nominal price. The transactions have been accounted for as financings and the future rent payments net of interest are treated as debt on the balance sheet. The aggregate annual maturities of long-term debt during the fiscal years 1995 through 1999 are approximately as follows: 1995, $2,819,000; 1996, $6,317,000; 1997, $14,734,000; 1998, $449,000; and 1999, $31,349,000. INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes) as of the beginning of fiscal year 1992. The cumulative effect of this change in accounting for income taxes of $2,475,000 was reported as income in the consolidated statement of earnings for the year ended August 1, 1992. The components of earnings before income taxes are as follows:
- ------------------------------------------------------------------- (in thousands) 1994 1993 1992 Domestic operations $ 62,135 $ 27,365 $ 48,750 Foreign operations 72,963 76,914 77,451 - ------------------------------------------------------------------- Total $135,098 $104,279 $126,201 ===================================================================
The Company and its domestic subsidiaries file a consolidated Federal income tax return. The provisions for income taxes attributable to income from continuing operations consist of the following items:
- ------------------------------------------------------------------- (in thousands) 1994 1993 1992 - ------------------------------------------------------------------- Current: Federal and Puerto Rico $ 4,229 $ 2,692 $ 9,339 State 350 410 1,271 Foreign 27,191 27,154 26,471 - ------------------------------------------------------------------- Total 31,770 30,256 37,081 - ------------------------------------------------------------------- Deferred: Federal 4,585 (5,207) (1,353) State 75 (125) (30) Foreign (254) 1,043 270 - ------------------------------------------------------------------- Total 4,406 (4,289) (1,113) - ------------------------------------------------------------------- Total income tax expense $36,176 $25,967 $35,968 ===================================================================
The tax effects of temporary differences and loss carry-forwards that give rise to significant portions of the net deferred tax liability at July 30, 1994, July 31, 1993 and August 1, 1992 are as follows:
- ------------------------------------------------------------------- (in thousands) 1994 1993 1992 - ------------------------------------------------------------------- Deferred tax asset: Inventories $ 9,221 $13,191 $ 12,129 Pension liabilities 11,325 9,559 5,562 Accrued expenses 2,468 2,561 3,615 Other 4,584 2,874 679 - ------------------------------------------------------------------- Total deferred tax asset 27,598 28,185 21,985 - ------------------------------------------------------------------- Deferred tax liability: Plant and equipment (39,025) (34,991) (37,453) Pension assets (1,697) (1,430) (1,848) Other (1,148) (1,239) (1,796) - ------------------------------------------------------------------- Total deferred tax liability (41,870) (37,660) (41,097) - ------------------------------------------------------------------- Net deferred tax liability $(14,272) $ (9,475) $(19,112) - -------------------------------------------------------------------
A reconciliation of the provisions for income taxes from continuing operations to the statutory Federal income tax rate follows:
- -------------------------------------------------------------------------------------------- (in thousands) 1994 1993 1992 - -------------------------------------------------------------------------------------------- % OF % of % of PRE-TAX Pre-tax Pre-tax AMOUNT EARNINGS Earnings Earnings - -------------------------------------------------------------------------------------------- Computed "expected" tax expense $47,284 35.0% 34.6%* 34.0% Tax benefit of Puerto Rican operations (11,990) (8.9) (10.9) (5.3) Federal tax credits and other effects (42) -- (0.6) (0.3) Foreign income and withholding taxes, net of U.S. foreign tax credits 648 0.5 1.5 (0.6) State income taxes, net of Federal income tax benefit 276 0.2 0.3 0.7 - -------------------------------------------------------------------------------------------- Total and effective tax rate $36,176 26.8% 24.9% 28.5% ============================================================================================
*34.6% was the effective rate which resulted from the change in the Federal income tax rate from 34% to 35% as of January 1, 1993. 43 29 United States income taxes have not been provided on the retained earnings of foreign subsidiaries, which totalled $161,047,000, $118,962,000 and $66,038,000 at July 30, 1994, July 31, 1993 and August 1, 1992, respectively. Foreign subsidiaries have paid, and are expected to continue to pay, dividends out of accumulated earnings. Any additional U.S. taxes arising from the repatriation of such earnings, less applicable credits for taxes paid abroad, would not be material. The Company's Puerto Rican subsidiaries are organized as "possessions corporations" as defined in Section 936 of the Internal Revenue Code. As such, the earnings of these companies are currently exempt from most U.S. and Puerto Rican income taxes. Repatriation of these earnings results in Puerto Rican withholding taxes of no more than 10% being imposed. COMMON STOCK Stock Splits: On November 22, 1991, the Board of Directors declared a three-for-two stock split effective December 27, 1991. The par value of the new shares issued totalled $7,317,000, which was transferred from capital in excess of par value to the common stock account. On November 20, 1992, the Board of Directors declared a four-for-three stock split effective December 28, 1992. The par value of the new shares issued totalled $7,334,000, which was transferred from capital in excess of par value to the common stock account. All share and per share data for prior periods presented have been restated to reflect the stock splits. Reduction in Par Value and Increase in Number of Authorized Shares: At the annual meeting held on November 18, 1993, the shareholders approved an amendment to the Certificate of Incorporation reducing the par value of the common stock from $.25 per share to $.10 per share, and increasing the number of authorized shares of common stock from 200 million to 500 million. As a result of the reduction in par value, the common stock account was reduced by $17,603,000 and the capital in excess of par value account was increased by the same amount. 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. Stock Repurchase Programs: On June 9, 1992, the Company's Board of Directors authorized a program to repurchase shares of its common stock to fund the Company's stock option programs. The Board authorized the expenditure of up to $35 million, and the repurchase program was completed by the end of fiscal year 1992, with 1,357,000 (pre-split) shares being acquired. On August 3, 1993, the Company's Board of Directors authorized another program to repurchase shares of its common stock. The Board authorized the expenditure of up to $30 million, and this second program was completed by the end of fiscal year 1994, with 1,763,000 shares being acquired. The shares repurchased under both programs were held in treasury for use upon the exercise of options granted under the Company's stock option plans. Other: As of July 30, 1994, 6,671,038 shares of common stock of the Company were reserved for the exercise of stock options. To the extent that the treasury shares referred to in the preceding paragraphs are used to satisfy option exercises, these reserved shares will not be issued. At July 30, 1994, the Company held 2,031,541 treasury shares intended for use upon stock option exercises. 44 30 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 totalled $8,638,000, $8,818,000 and $4,699,000 in fiscal years 1994, 1993 and 1992, 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. At both July 30, 1994 and July 31, 1993, 48,665 shares of Company common stock were held in the Company's domestic pension funds. Net periodic pension cost for these plans in fiscal years 1994, 1993 and 1992 was:
- ------------------------------------------------------------------------------------------------------- (in thousands) U.S. Plans Foreign Plans 1994 1993 1992 1994 1993 1992 - ------------------------------------------------------------------------------------------------------- Service cost $2,651 $3,227 $2,329 $3,582 $3,411 $2,731 Interest cost on projected benefit obligation 4,851 4,579 3,322 2,635 2,582 2,553 Return on plan assets (763) (2,017) (2,387) (3,854) (4,156) (4,515) Net amortization and deferrals (1,383) 266 (182) (388) (377) (443) - ------------------------------------------------------------------------------------------------------- Net periodic pension cost $5,356 $6,055 $3,082 $1,975 $1,460 $ 326 ======================================================================================================= The assumptions used were: Discount rate 8.25% 7.5% 8.5% 5.5-8.0% 5.5-9.0% 5.5-10.0% Rate of compensation increase 4.75-5.5% 4.75-5.5% 4.75-5.5% 2.9-5.0% 3.1-6.0% 3.1-8.0% Long-term rate of return on assets 9.0% 9.0% 9.0% 5.5-8.5% 5.5-9.5% 5.5-10.0% =======================================================================================================
The following table presents the plans' funded status and amounts recognized on the Company's consolidated balance sheets at July 30, 1994 and July 31, 1993:
- -------------------------------------------------------------------------------------------------------------------------------- Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets U.S. Plans Foreign Plans U.S. Plans Foreign Plans - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) 1994 1993 1994 1993 1994 1993 1994 1993 - -------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ 3,365 $ 3,449 $ 30,023 $ 22,799 $ 52,660 $ 51,175 $ 6,660 $ 4,868 Accumulated benefit obligation 3,590 3,728 30,100 22,867 54,590 53,352 7,680 5,784 Projected benefit obligation 3,590 3,728 33,414 27,408 63,257 63,515 9,974 7,563 Plan assets 4,178 4,200 49,220 40,671 29,111 29,955 6,113 4,890 - ---------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation (in excess of) or less than plan assets 588 472 15,806 13,263 (34,146) (33,560) (3,861) (2,673) Unrecognized net (gain) or loss (106) 46 (4,756) (3,599) 12,795 15,248 (1,372) (1,408) Unrecognized prior service cost 348 368 217 229 2,531 2,905 0 0 Unrecognized net obligation or (asset) at date of adoption (549) (592) (3,276) (3,556) (1,681) (1,805) 564 562 Additional minimum liability 0 0 0 0 (10,489) (10,889) (178) (115) - ---------------------------------------------------------------------------------------------------------------------------- Prepaid pension cost (liability) in the consolidated balance sheet $ 281 $ 294 $7,991 $ 6,337 $(30,990) $(28,101) $ (4,847) $ (3,634) ============================================================================================================================ The assumptions used were: Discount rate 8.25% 7.5% 5.5-8.0% 5.5-9.0% 8.25% 7.5% 5.5-7.8% 5.5-8.4% Rate of compensation increase 4.75-5.5% 4.75-5.5% 2.9-4.0% 3.1-6.0% 4.75-5.5% 4.75-5.5% 4.0-5.0% 4.0-5.0% - ----------------------------------------------------------------------------------------------------------------------------
45 31 At July 30, 1994 and July 31, 1993, the Company had recorded additional minimum pension liabilities of $10,489,000 and $10,889,000, respectively. Related intangible assets in the amounts of $3,247,000 and $3,319,000, respectively, are reflected in non-current assets, and reductions in stockholders' equity, net of deferred tax benefits, of $4,711,000 and $4,996,000, respectively, are recorded. The Company and its subsidiaries also participate in certain multi-employer pension plans for the benefit of its employees who are union members. Contributions to these plans were $1,307,000, $1,303,000 and $1,291,000 for fiscal years 1994, 1993 and 1992, respectively. 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 1/2% of the amount by which the consolidated net operating income before income taxes of the Company and its participating subsidiaries exceeds $500,000, or (b) the amount deductible for Federal income tax purposes. The provisions for fiscal years 1994, 1993 and 1992 were $4,683,000, $3,711,000 and $3,988,000, respectively. 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. With respect to the officers covered by the employment contracts referred to in the Contingencies and Commitments footnote, any incentive compensation payable to an officer under the incentive compensation arrangement described in this paragraph is reduced by the incentive compensation payable under the formula contained in his/her employment contract. The aggregate amounts charged to expense in connection with the plan were $5,019,000, $5,289,000 and $6,411,000 in fiscal years 1994, 1993 and 1992, respectively. STOCK OPTION PLANS The Company has adopted several plans which provide for the granting of stock options to officers and employees, 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.
- ----------------------------------------------------------------- AT At JULY 30, July 31, 1994 1993 - ----------------------------------------------------------------- Options exercisable 1,146,450 1,673,942 Shares available for grant 1,427,633 1,557,836 =================================================================
Changes in the options outstanding during fiscal years 1992, 1993 and 1994 are summarized in the following table:
- ----------------------------------------------------------------- Number of Shares Price per Share - ----------------------------------------------------------------- BALANCE - AUGUST 3, 1991 2,147,867 $ 5.12 - $18.66 Fiscal 1992: Options granted 2,035,000 18.38 - 19.66 Options exercised (582,515) 5.12 - 11.69 Options terminated (18,276) 10.13 - 18.47 - ----------------------------------------------------------------- BALANCE - AUGUST 1, 1992 3,582,076 9.40 - 19.66 Fiscal 1993: Options granted 49,000 18.25 - 22.31 Options exercised (452,090) 9.40 - 18.38 Options terminated (25,918) 10.13 - 18.38 - ----------------------------------------------------------------- BALANCE - JULY 31, 1993 3,153,068 9.40 - 22.31 Fiscal 1994: Options granted 3,374,668 15.25 - 19.81 Options exercised (1,039,866) 9.40 - 18.38 Options terminated (244,465) 10.13 - 18.50 - ----------------------------------------------------------------- BALANCE - JULY 30, 1994 5,243,405 9.60 - 22.31 =================================================================
Since June 1992, the Company has delivered treasury shares upon the exercise of stock options. The difference between the cost of the treasury shares, on a weighted average basis, and the exercise price of the options is charged against retained earnings. 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. 46 32 CONTINGENCIES AND COMMITMENTS The Company and its subsidiaries are subject to certain legal actions which arise in the normal course of business. It is management's belief that these actions will not have a material effect on the Company's consolidated 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 $11,000,000 in 1994, $10,200,000 in 1993 and $8,700,000 in 1992. Future minimum rental commitments at July 30, 1994 for all noncancelable operating leases with initial terms exceeding one year are $6,600,000 in 1995; $5,700,000 in 1996; $4,700,000 in 1997; $1,700,000 in 1998; $1,500,000 in 1999; and $1,300,000 thereafter. The Company has employment agreements with its executive officers, the terms of which expire at various times through July 31, 1999. 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 which are payable if specified management goals are attained. The aggregate commitment for future salaries at July 30, 1994, excluding bonuses, was approximately $10,000,000. FINANCIAL INSTRUMENTS, OFF-BALANCE SHEET RISKS AND CONCENTRATIONS OF CREDIT RISK 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. The Company sells its products to a diverse group of customers in the Health Care, Aeropower and Fluid Processing industries throughout the world and as such 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'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 considers the fair value of all financial instruments to be not materially different from their carrying value at year-end. INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA Specified financial information by industry segment and geographic area for fiscal years 1994, 1993 and 1992 is summarized on pages 39 and 40 of this report. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------------------------- (in thousands, except per share data) First Second Third Fourth Full Quarter Quarter Quarter Quarter Year - --------------------------------------------------------------------------------------------------- 1994: NET SALES $141,874 $169,710 $177,814 $211,450 $700,848 GROSS PROFIT 86,673 105,641 114,585 136,325 443,224 EARNINGS BEFORE INCOME TAXES 15,380 30,598 37,475 51,645(a) 135,098(a) NET EARNINGS 11,073 22,031 27,817 38,001(a) 98,922(a) EARNINGS PER SHARE .10 .19 .24 .33(a) .86(a) 1993: Net sales 148,363 167,460 172,547 198,852 687,222 Gross profit 90,198 104,506 111,693 131,196 437,593 Earnings before income taxes 15,360 2,045(b) 34,962 51,912 104,279(b) Net earnings 10,982 3,255(b) 24,999 39,076 78,312(b) Earnings per share .09 .03(b) .22 .34 .68(b) ===================================================================================================
(a) Includes a pre-tax charge of $3,696 ($2,332 after taxes, 2 cents per share) due principally to the restructuring of the German operations and to the write-off of a bad debt in the Aerospace operations. (b) Includes a pre-tax charge of $26,710 ($17,310 after taxes, 15 cents per share) representing principally the cost of downsizing and further integrating the military portion of the Aeropower business with the Industrial Fluid Power business. 47 33 GRAPHICAL APPENDIX TO ELECTRONIC DOCUMENT Figure 1 -- page 12 Pie Chart Figure 2 -- page 12 Picture of Filters Figure 3 -- page 13 Picture of Filters Figure 4 -- page 13 Picture of Filters Figure 5 -- page 14 Picture of Filters Figure 6 -- page 15 Pie Chart Figure 7 -- page 15 Picture of Filters Figure 8 -- page 16 Pie Chart Figure 9 -- page 17 Picture of Filters Figure 10 -- page 17 Picture of Filters Figure 11 -- page 18 Pie Chart Figure 12 -- page 18 Picture of Filters Figure 13 -- page 19 Picture of Filters Figure 14 -- page 22 Pie Chart Figure 14 -- page 22 Picture of Filters Figure 16 -- page 23 Picture of Filters Figure 17 -- page 24 Pie Chart Figure 18 -- page 25 Picture of Filters Figure 19 -- page 25 Picture of Filters Figure 20 -- page 25 Picture of Filters Figure 21 -- page 28 Pie Chart Figure 22 -- page 28 Picture of Filters Figure 23 -- page 28 Picture of Filters Figure 24 -- page 29 Picture of Filters Figure 25 -- page 30 Pie Chart Figure 26 -- page 30 Picture of Filters Figure 27 -- page 31 Picture of Filters Figure 28 -- page 32 Picture of Filters EX-21 15 SUBSIDIARIES OF PALL CORPORATION 1 Exhibit 21 EXHB 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 of Incorporation --------------- Pall Aeropower Corporation Delaware Pall Biomedical, Inc. Delaware Pall International Corporation Delaware Pall Puerto Rico, Inc. Delaware Russell Associates Inc. Delaware Pall (Canada) Limited Canada Pall Europe Limited England Pall Biomedizin GmbH (a) Germany Pall Deutschland GmbH Germany Pall Filtrationstechnik GmbH (a) Germany Pall Industrie-Hydraulik GmbH (a) Germany Pall Luftfahrttechnik APME Deutschland GmbH (a) Germany Pall Verwaltungsgesellschaft mbH (b) Germany Pall Italia S.R.L. Italy Institut de Formation a la Filtration Pall (c) France Pall Biomedical France (c) France Pall France S.A. France Pall (Schweiz) A.G. Switzerland Pall Austria Filter Ges.m.b.H. Austria Pall Espana S.A. Spain Pall Poland Limited (a) Poland Nihon Pall Ltd. Japan Pall Filtration Pte. Ltd. Singapore Pall Korea Limited Korea Pall Filter (Beijing) Co., Ltd. China Pall Export Sales Corp., Limited (d) Jamaica
(a) 100% owned by Pall Deutschland GmbH. (b) 100% owned by Pall Europe Limited. (c) 100% owned by Pall France S.A. (d) 100% owned by Pall International Corporation. All subsidiaries listed above are included in the consolidated financial statements for the fiscal years 1994, 1993 and 1992, or, in the case of corporations organized since August 4, 1991, from the date of incorporation. The list does not include inactive subsidiaries. EX-23 16 CONSENT OF INDEPENDENT AUDITORS 1 [KPMG PEAT MARWICK 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. 2-89404, 33-25640, 33-44399 and 33-51151 on Form S-8, and Registration Statement No. 33-39655 on Form S-3, of our reports dated September 7, 1994, relating to the consolidated balance sheets of Pall Corporation and subsidiaries as of July 30, 1994 and July 31, 1993 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 July 30, 1994, which reports are incorporated by reference or appear in this annual report on Form 10-K of Pall Corporation for the fiscal year ended July 30, 1994. Our reports refer to the Company's adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", on a prospective basis in fiscal year 1992. /s/ KPMG PEAT MARWICK LLP ------------------------- KPMG PEAT MARWICK LLP Jericho, New York October 14, 1994 EX-27 17 FINANCIAL DATA SCHEDULE
5 ART. 5 FDS FOR 1994 FORM 10-K 1,000 YEAR JUL-30-1994 JUL-30-1994 38,224 50,800 211,935 4,776 138,382 470,425 620,629 223,012 959,579 256,839 0 11,735 0 0 575,471 959,579 700,848 706,122 257,624 571,024 0 0 7,132 135,098 36,176 98,922 0 0 0 98,922 0.86 0.86
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